U.S. Supreme Court Rules That New York General Business Law § 518 Regulates Free Speech Provided for in the First Amendment
Action Item: U.S. Supreme Court unanimously holds that New York law limiting credit card disclosures regulates speech under the First Amendment.
In a unanimous decision in Expressions Hair Design, et. al. v. Schneiderman, Attorney General of New York, et al., the United States Supreme Court held that New York General Business Law (“GBL”) § 518, which prohibits the ability of a merchant to impose a surcharge on a credit card user in lieu of payment of cash, regulates free speech. In sum, the Court concluded that § 518 specifically restricts how a merchant communicates prices of items, rather than the actual price and surcharge.
Summary of Facts and Case Background
Five New York businesses and their owners (“Petitioners”) commenced an action against the New York Attorney General and three New York District Attorneys challenging GBL § 518. GBL § 518 states, “[n]o 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.”
Specifically, Petitioners sought to impose surcharges on customers who used credit cards because credit card companies charged a transaction fee (upwards of 2–3%) to the merchants. Although the New York law prohibited merchants from imposing additional charges to credit card users, Petitioners sought to implement a “single-sticker” pricing scheme, wherein they would post a cash price and then list an additional credit card surcharge as either a percentage or dollar amount.
Petitioners argued that GBL § 518 violated the First Amendment because the statute regulates how merchants communicate their prices, and that the statute was unconstitutionally vague because there is no delineated difference between surcharges and discounts (i.e., discounts given to cash users as opposed to increased prices imposed on credit card users).
The District Court held that that GBL § 518 regulates speech. On appeal, the Second Circuit vacated the District Court’s Order, and instructed that the Petitioners’ claims be dismissed. The Second Circuit focused on “single-sticker” pricing and reasoned that GBL § 518 did not regulate speech, but, rather, regulated conduct by restricting the ability of a merchant to charge more to customers who paid by credit card.
Supreme Court Decision
In vacating the Order of the Second Circuit and remanding the case to the Second Circuit to further analyze the restriction on speech, the Supreme Court unanimously held that GBL § 518 regulates speech under the First Amendment. The Court held that, because the statute does not impose a regulation to all merchants across the board for how much to charge for an item, but instead, restricts how merchants communicate their charges for a cash versus credit card user, the statute regulates speech and not conduct. The Court explained that because a merchant is free to sell an item for either $10.00 or $10.30, but is unable to advertise that the item is $10.00 plus $0.30 for credit card users, the statute regulates the expression of the merchant.
Thus, the regulation is not on the conduct, but, rather on the communication and, therefore, concluded that GBL § 518 regulates speech.
While the Expressions Hair Design decision attempts to resolve whether GBL § 518 regulates free speech, the Court was very clear to state that this analysis was restricted to only a “single-sticker” pricing scheme. The Court did not examine how the First Amendment would apply to other pricing schemes, such as the “two-sticker” pricing scheme (where the merchant posts one price for cash and another price for credit) because the scope of Petitioner’s claim rested on the “single-sticker” pricing. Further, the Court did not decide whether §518 as a speech regulation survived First Amendment scrutiny. Accordingly, the Second Circuit must now determine whether the law is a valid commercial speech regulation and whether the law can be upheld as a valid disclosure requirement.
Mr. Streibich and Mr. Robbin thank Jacquelyn DiCicco for her assistance in developing this Alert.
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