Expressions Hair Design v. Schneiderman, 102318 NYCOA, 2018-07037

Docket Nº:2018-07037
Opinion Judge:FAHEY, J.
Party Name:Expressions Hair Design, et al., Respondents, v. Eric T. Schneiderman, & c., et al., Appellants.
Attorney:Judith N. Vale, for appellants. Deepak Gupta, for respondents.
Judge Panel:RIVERA, J. (concurring in result): WILSON, J. (concurring in part and dissenting in part): GARCIA, J. (dissenting):
Case Date:October 23, 2018
Court:New York Court of Appeals
 
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Expressions Hair Design, et al., Respondents,

v.

Eric T. Schneiderman, & c., et al., Appellants.

No. 2018-07037

New York Court of Appeals

October 23, 2018

Judith N. Vale, for appellants.

Deepak Gupta, for respondents.

FAHEY, J.

General Business Law (GBL) section 518 states: "No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means." Few statutes have provoked such diverse interpretations. Our task is to answer a certified question from the United States Court of Appeals for the Second Circuit concerning the meaning of the statute: "Does a merchant comply with New York's General Business Law § 518 so long as the merchant posts the total dollars and cents price charged to credit-card users?" The parties agree that GBL § 518 permits differential pricing, in which a merchant offers discounts to customers who pay by cash, so that customers pay a higher price, for the same item, if they use a credit card, than they would if they paid cash. What the statute prohibits is a more difficult inquiry. For the reasons explained below, we answer the Second Circuit's question in the affirmative.

I.

Credit card companies charge merchants transaction fees or "swipe fees" for customer payments made by credit card. Merchants may pass those fees onto customers, in different ways. A merchant may distribute the cost to all customers, regardless of the means by which they pay, or a merchant may charge those using credit cards more than those who pay by cash, check, or the like. The latter is called "differential pricing."

Plaintiffs are five merchants who allege that they wish to engage in differential pricing and to inform customers of their practice by stating the cash price in dollars and cents and the credit card price as a percentage or dollars-and-cents amount, reflecting only the additional charge for credit card purchases and not the total dollars-and-cents price for such purchases. The point is best illustrated by examples. Plaintiffs wish to tell their customers, for example, that "a haircut costs $10.00, and if you pay with a credit card you will pay 3% extra" or "a haircut costs $10.00, and if you pay with a credit card you will pay an additional 30 cents." 1 This practice, "listing one price and a separate surcharge amount," has been described as "a single-sticker regime" (Expressions Hair Design v Schneiderman, ___US___, ___, 137 S.Ct. 1144, 1151 [2017]) or a "single-sticker-price scheme" (Expressions Hair Design v Schneiderman, 877 F.3d 99, 101 [2d Cir 2017]), and we refer to it similarly. The merchants have challenged GBL § 518 as a violation of their First Amendment rights, to the extent that it allows them to charge credit card users higher prices but prohibits them from describing the price difference as they wish. 2

II.

In 2013, plaintiffs Expressions Hair Design, Five Points Academy, Brooklyn Farmacy & Soda Fountain, Brite Buy Wines & Spirits, and Patio.com commenced a lawsuit in federal court against the Attorney General of New York and three District Attorneys, challenging GBL § 518. Plaintiffs seek to enjoin the enforcement of the statute on the grounds that it violates the First Amendment and is unconstitutionally vague.

The United States District Court for the Southern District of New York, after noting that "Alice in Wonderland has nothing on section 518 of the New York General Business Law" (Expressions Hair Design v Schneiderman, 975 F.Supp.2d 430, 435 [SDNY 2013]), ruled that GBL § 518 violates the First Amendment (see id. at 444). The District Court also held that the statute is void for vagueness (see id. at 448). The court duly enjoined the defendants from enforcing the statute.

The United States Court of Appeals for the Second Circuit vacated the District Court's judgment (see Expressions Hair Design v Schneiderman, 803 F.3d 94 [2d Cir 2015]), interpreting the statute to prohibit the plaintiffs' desired single-sticker pricing scheme but reasoning that the statute is merely a price regulation that does not implicate First Amendment concerns (see id. at 106-110). The Second Circuit also rejected plaintiffs' vagueness challenge (see id. at 117-119). 3

In 2017, the United States Supreme Court in turn vacated the Second Circuit's judgment (see Expressions Hair Design, 137 S.Ct. at 1151). Limiting its review to plaintiffs' proposed single-sticker regime, the Supreme Court accorded deference to, and followed, the Second Circuit's interpretation that "signs of the kind that the merchants wish to post... violate § 518 because they identify one sticker price $10 and indicate that credit card users are charged more than that amount" (id. at 1149). However, the Supreme Court held that the prohibition of this practice does implicate the First Amendment (see id. at 1150-1151).

As the Supreme Court understood GBL § 518, that law "regulate[s]... how sellers may communicate their prices. A merchant who wants to charge $10 for cash and $10.30 for credit may not convey that price any way he pleases. He is not free to say $10, with a 3% credit card surcharge' or $10, plus $0.30 for credit' because both of those displays identify a single sticker price $10 that is less than the amount credit card users will be charged. Instead, if the merchant wishes to post a single sticker price, he must display $10.30 as his sticker price.... In regulating the communication of prices rather than prices themselves, § 518 regulates speech" (id. at 1151).

The Supreme Court remanded the case to the Second Circuit for evaluation of GBL § 518 as a restraint on speech (see id.), leaving it to the Second Circuit to determine on remand which of two standards should be used to evaluate whether the statute violates the First Amendment: the conventional commercial speech standard of Cent. Hudson Gas & Elec. Corp. v Pub. Serv. Commn., 447 U.S. 557 [1980]) or instead the standard announced in Zauderer v Off. of Disciplinary Counsel of Supreme Ct. (471 U.S. 626 [1985]), applicable to commercial disclosure statutes. Finally, the high court rejected plaintiffs' vagueness challenge (see Expressions Hair Design, 137 S.Ct. at 1151-1152).

On remand, the Second Circuit determined that certification was appropriate and asked us "whether a merchant complies with Section 518 so long as the merchant posts the total dollars-and-cents price charged to credit card users" (Expressions Hair Design, 877 F.3d at 102; see also id. at 100, 107).

The Second Circuit noted that it would "apply a more lenient standard of review when adjudicating a First Amendment challenge to a law that forces a commercial entity to make purely factual and uncontroversial disclosures regarding the product it is offering for sale" (id. at 103 [internal quotation marks and citations omitted]). "If Section 518 forces a merchant to disclose an item's credit-card price, without otherwise either barring the merchant from (a) implementing (and describing to customers) a pricing scheme that differentiates between payments by credit card and cash or (b) conveying to its customers other information the merchant finds relevant, then Zauderer might apply," but "if the statutory prohibition sweeps much more broadly, then Central Hudson might apply" (id. at 104). Before deciding the question of standard of review, the Second Circuit sought from us "clarification of... the actual scope of Section 518's rule" (id.).

We accepted the Second Circuit's certified question pursuant to section 500.27 of our Rules of Practice.

III.

Although plaintiffs have requested that we reformulate the Second Circuit's question, we see no need to rephrase it. We interpret the question to ask whether a merchant, when posting the price of an item, complies with GBL § 518 if and only if the merchant posts the total dollars-and-cents price charged to credit card users. Primarily, the Second Circuit seeks to know whether posting the total dollars-and-cents price is a necessary condition of satisfying the statute or whether, instead, a merchant who displays prices using the single-sticker regime would also satisfy the statute.

New York General Business Law § 518 reads:

"No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.

"Any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both."

Notably, neither plaintiffs nor defendants contend that GBL § 518 prohibits differential pricing 4. Indeed, the legislative history of the statute clearly demonstrates that it was not intended to prohibit...

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