Rowell v. Pettijohn

• Decision Date: 02 March 2016
• Docket Number: No. 15–50168.,15–50168.
• Citation: 816 F.3d 73
• Parties: Lynn ROWELL, doing business as Beaumont Greenery ; Micah P. Cooksey; MPC Data and Communications, Incorporated; Mark Harken; NXT Properties, Incorporated; Paula Cook ; Montgomery Chandler, Incorporated; Shonda Townsley ; Townsley Designs, L.L.C., Plaintiffs–Appellants v. Leslie L. PETTIJOHN, in her official capacity as Commissioner of the Office of Consumer Credit Commissioner of the State of Texas, Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

816 F.3d 73

Lynn ROWELL, doing business as Beaumont Greenery ; Micah P. Cooksey; MPC Data and Communications, Incorporated; Mark Harken; NXT Properties, Incorporated; Paula Cook ; Montgomery Chandler, Incorporated; Shonda Townsley ; Townsley Designs, L.L.C., Plaintiffs–Appellants

v.Leslie L. PETTIJOHN, in her official capacity as Commissioner of the Office of Consumer Credit Commissioner of the State of Texas, Defendant–Appellee.

No. 15–50168.

United States Court of Appeals, Fifth Circuit.

March 2, 2016.

Deepak Gupta (argued), Gupta Wessler, P.L.L.C., Washington, DC, Richard Lyle Coffman, Coffman Law Firm, Beaumont, TX, for Plaintiffs–Appellants.

Evan Scott Greene (argued), Office of the Solicitor General, Maria Amelia Calaf, H. Melissa Mather, Office of the Attorney General, Austin, TX, for Defendant–Appellee.

Paul M. Sherman, Samuel B. Gedge, Arlington, VA, Richard Alan Arnold, Esq., James T. Almon, Esq., William Jay Blechman, Esq., Miami, FL, for Amicus Curiae.

Before DAVIS, BARKSDALE, and DENNIS, Circuit Judges.

RHESA HAWKINS BARKSDALE

, Circuit Judge:

For this challenge to a Federal Rule of Civil Procedure 12(b)(6)

(failure to state a claim) dismissal, upholding Texas' Anti–Surcharge Law, Tex. Fin.Code § 339.001, at issue is whether the law's proscribing merchants' imposing surcharges for credit-card purchases constitutes a First Amendment violation. In contending the law violates free-speech rights, a group of Texas merchants claim the law: penalizes them for characterizing pricing as a "surcharge", while at the same time not prohibiting a "discount" for non-credit-card transactions; and is unconstitutionally vague. The Texas Office of Consumer Credit Commissioner counters the law is instead a permissible economic-pricing regulation that does not implicate the First Amendment. AFFIRMED.

I.

Texas' law forbids merchants from charging an extra fee to consumers who pay with a credit card. It was enacted to address how the "swipe fee" of two to three percent of the purchase price, which credit-card issuers charge merchants for each transaction paid with a credit card, is passed on from the merchant to the consumer.

There is a substantial federal-law backdrop to the challenged Texas law. For over a decade prior to its enactment, Congress had been regulating surcharges and discounts related to credit cards. In 1974, Congress amended the Truth in Lending Act to prohibit credit-card companies from contracting against discounts for non-credit-card transactions. Fair Credit Billing Act, Pub.L. No. 93–495

, tit. III, § 306, 88 Stat. 1500, 1515 (1974) (codified at 15 U.S.C. § 1666f(a) ) ("the card issuer may not, by contract, or otherwise, prohibit any ... seller from offering a discount to a cardholder to induce the cardholder to pay by cash, check, or similar means rather than use a credit card").

Before the amendment, credit-card companies' contracts with merchants regularly prohibited their either offering discounts for non-credit-card transactions, or imposing surcharges for credit-card transactions. The merchants and credit-card companies contracted to offer the same price for an item for all consumers, regardless of the manner in which they paid, and despite the "swipe fee" merchants incurred for credit-card transactions.

Two years later, while the authorization of discounts remained, Congress banned merchants' use of surcharges, by again amending the Truth in Lending Act. Pub.L. No. 94–222, § 3, 90 Stat. 197 (1976)

("No seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means."). At the same time, Congress clarified the distinction between "surcharge" and "discount", by defining them according to their ordinary meaning: a "discount" is "a reduction made from the regular price"; a "surcharge", "any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means". Id. (codified at 15 U.S.C. § 1602(q) –(r) ).

When Congress extended the statute in 1981, it defined "regular price" to further distinguish between "surcharge" and "discount":

[T]he tag or posted price charged for the property or service if a single price is tagged or posted, or the price charged for the property or service when payment is made by use of ... a credit card if either (1) no price is tagged or posted, or (2) two prices are tagged or posted, one of which is charged when payment is made by use of a ... credit card and the other when payment is made by use of cash, check, or similar means.

Cash Discount Act, Pub.L. No. 97–25, § 102, 95 Stat. 144 (1981)

(codified at 15 U.S.C. § 1602(y) ).

The federal ban on surcharges was renewed twice before being allowed to expire in 1984, in the face of continued criticism from consumer advocates and the Federal Reserve Board. See Financial Institutions

Regulatory & Interest Rate Control Act, Pub.L. No. 95–630, § 1501, 92 Stat. 3641

, 3713 (1978); Cash Discount Act, Pub.L. No. 97–25, § 201, 95 Stat. 144 (1981) ; Cash Discount Act, 1981: Hearings on S. 414 Before Senate Banking Comm., 97th Cong., 1st Sess. 9 (18 Feb. 1981). On the other hand, and of significance here, the authorization for discounts remained. Fair Credit Billing Act, Pub.L. No. 93–495, tit. III, § 306, 88 Stat. 1500, 1515 (1974) (codified at 15 U.S.C. § 1666f(a) ).

Upon the lapse of the federal anti-surcharge law in 1984, credit-card companies began reviving anti-surcharge clauses in their contracts with merchants. Similarly, States, including Texas, began enacting anti-surcharge legislation. Its 1985 anti-surcharge law provides: "In a sale of goods or services, a seller may not impose a surcharge on a buyer who uses a credit card for an extension of credit instead of cash, a check, or a similar means of payment". S.B. 1353, 69th Leg., Reg. Sess., ch. 443, § 1, Tex. Gen. Laws 1578, 1578 (Tex. 1985) (codified at Tex. Fin.Code § 339.001(a)

). The law does not ban, nor does it mention, discounts. Other States also adopted anti-surcharge legislation. See, e.g., Cal. Civ.Code § 1748.1(a), held unconstitutional by Italian Colors Rest. v. Harris, 99 F.Supp.3d 1199 (E.D.Cal.), appeal docketed, No. 15–15873 (9th Cir. 30 Apr. 2015); Colo.Rev.Stat. § 5–2–212 ; Conn. Gen.Stat. § 42–133ff ; Fla. Stat. § 501.0117, held unconstitutional by Dana's R.R. Supply v. Att'y Gen. of Fla., 807 F.3d 1235 (11th Cir.), reh'g denied 809 F.3d 1282 (11th Cir.2016) ; Kan. Stat. Ann. § 16a–2–403 ; Mass. Gen. Laws ch. 140D, § 28A(a)(1)–(2) ; Me.Rev.Stat. tit. 9–A, § 8–509 ; Miss.Code Ann. § 31–7–9(d) (applying only to state-issued credit cards); N.Y. Gen. Bus. Law § 518 ; Okla. Stat. tit. 14A, § 2–211 ; Utah Code Ann. § 13–38a–302 (2013), repealed by § 63I–1–213 (2014).

Beginning in 2005, antitrust actions against credit-card companies challenged anti-surcharge prohibitions in their merchant contracts; the litigation resulted in Visa, Mastercard, and American Express' removing those provisions in 2013. As a result, state laws were the only proscription against merchants' imposing a surcharge, leading to more litigation, including this action.

This challenge to Texas' law was filed in March 2014. The district court dismissed it for failure to state a claim, and denied a preliminary injunction. Rowell v. Pettijohn, No. A–14–CA–190–LY, 2015 WL 3637101 (W.D.Tex. 4 Feb. 2015)

.

II.

A Rule 12(b)(6)

dismissal is reviewed de novo. Hines v. Alldredge, 783 F.3d 197, 200–01 (5th Cir.)cert. denied, ––– U.S. ––––, 136 S.Ct. 534, 193 L.Ed.2d 426 (mem.) (2015). The dismissal will be affirmed "when the plaintiff has not alleged enough facts to state a claim to relief that is plausible on its face or has failed to raise its right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)". Raj v. La. State Univ., 714 F.3d 322, 330 (5th Cir.2013) (quoting Bass v. Stryker Corp., 669 F.3d 501, 506 (5th Cir.2012) ).

The merchants claim the surcharge prohibition "ban[s] one disfavored way of truthfully describing lawful conduct, [and] is a content-based speech restriction". In other words, they maintain the law is not a permissible economic regulation, but instead requires them to convey their prices in a certain way: as "less" than the regular price, rather than "more" when paid with a credit card, although, they contend, mathematically, the result is the same. Additionally, the merchants assert they cannot advertise two prices (dual pricing—a higher price for credit, and a lower price for cash, check, or similar means of payment (cash)) for fear of inadvertently describing the price for credit-card transactions as "higher" than the regular price, and thereby violating Texas' law. Based on that fear, they state their prices are higher for all their customers, regardless of whether they pay by credit card or cash. The merchants concede, however, that dual pricing is legal under Texas' law. They also assert the law is unconstitutionally vague because the distinction between a surcharge and a discount is purely semantic, and difficult to abide by in practice.

In response, the Commissioner contends the law does not restrict how a merchant may convey price to the consumer, but rather is a permissible economic regulation under Texas' police power. She maintains the law prevents merchants from imposing surcharges on consumers who pay with credit cards—nothing more. Any impact on speech as a result of the law, the Commissioner claims, is merely incidental to the ban against credit-card surcharges, and does not implicate the First Amendment. Additionally, the Commissioner asserts the law limits consumer confusion and protects from the potential for windfall profits merchants could collect by imposing surcharges for credit-card transactions that are higher than the concomitant credit-card "swipe fees".

A.

Before addressing Texas' law, it is helpful to consider the circuit split resulting from...