The NY Attorney General and the plaintiffs in Expressions Hair Design v. Schneiderman have filed a joint motion with the U.S. Court of Appeals for the Second Circuit asking the court to vacate the district court’s final judgment in the case, remand with an order to the district court to dismiss the complaint with prejudice, and dismiss the plaintiffs’ appeal as moot.

The complaint in Expressions Hair Design was filed by five merchants and their principals who alleged that New York’s “no credit card surcharge” law was an unconstitutional restriction on speech because it did not allow merchants to tell customers that they are paying more for using credit than for using cash or another payment method.  The district court had entered a judgment declaring the New York law unconstitutional and enjoining its enforcement against the plaintiffs but the Second Circuit reversed, ruling that the law did not implicate the First Amendment because it regulated a pricing practice, not speech.

The U.S. Supreme Court granted the plaintiffs’ petition for certiorari and ruled that the New York law did regulate speech, thereby making it subject to First Amendment scrutiny.  Because the Second Circuit had not considered whether, as a speech regulation, the law survived such scrutiny, the Supreme Court vacated the Second Circuit’s decision and remanded for the Second Circuit to consider that issue.

On remand, the Second Circuit certified to the New York Court of Appeals the question whether a merchant would comply with the New York law if it posted the total dollars-and-cents price charged to credit card customers (rather than posting a single cash price and indicating that an additional amount is added for credit card customers).  The New York court concluded that if a merchant posts its prices and charges lower prices to cash customers, it must post the price charged to credit card customers.  However, while concluding that the law did not allow a merchant to post a single cash price, the New York court determined that it did not prohibit a merchant from using the word “surcharge” or any other words to communicate to customers that the credit card price is higher than the cash price.

The next step in the case would have been for the Second Circuit to decide whether the New York law, as interpreted by the state’s Court of Appeals, was a valid restriction on commercial speech under U.S. Supreme Court precedent.  According to the NY Attorney General’s affirmations accompanying the joint motion, while further briefing was pending, the plaintiffs informed the NY Attorney General that they no longer wished to pursue any of their claims and wanted to dismiss their complaint, with prejudice.  The parties assert that the plaintiffs’ decision to withdraw their complaint moots the case.  Accordingly, they ask the Second Circuit to vacate the district court’s final judgment, instruct the district court to dismiss the complaint with prejudice, and dismiss the plaintiff’s appeal as moot.

The NY Attorney General’s affirmations also state that another factor weighing in favor of vacatur is that the plaintiffs’ decision to withdraw their complaint “should not leave intact a final judgment that declares a duly enacted state statute unconstitutional and enjoins the State and several District Attorneys from enforcing the statute against plaintiffs.”  As this statement suggests, once the district court’s decision is vacated, the NY Attorney General would be free to enforce the New York law against the plaintiffs–and other merchants–as interpreted by the New York Court of Appeals.  In other words, while a New York merchant can lawfully charge more to credit card than cash customers and label the differential amount a “surcharge,” the merchant would violate New York law if it only posted the cash price without also posting the higher price charged to credit card customers.

 

The New York Court of Appeals has issued an opinion in Expressions Hair Design v. Schneiderman interpreting the state’s law that prohibits merchants from imposing a surcharge on credit card purchases (Section 518 of the state’s General Business Law). The court concluded that if a merchant posts its prices and charges lower prices to cash customers, it must post the price charged to credit card customers. As a result, the court also concluded that the law prohibits a merchant from using a “single-sticker-price” scheme in which a merchant posts a single cash price for its goods and services but indicates an additional amount is added for credit card customers.

The opinion was issued in answer to the following question certified to the NY court by the U.S. Court of Appeals for the Second Circuit: “Does a merchant comply with [Section 518] so long as the merchant posts the total dollars-and-cents price charged to credit-card users?” The Second Circuit certified the question following the U.S. Supreme Court’s decision last year in Expressions Hair Design and remand of the case to the Second Circuit. The Supreme Court ruled that Section 518 regulates speech, thereby making it subject to First Amendment scrutiny. The Second Circuit had initially concluded that Section 518 did not violate the First Amendment because it regulates only pricing, not speech. The Supreme Court vacated that decision and because the Second Circuit had not considered whether, as a speech regulation, Section 518 survived First Amendment scrutiny, remanded for the Second Circuit to do so.

The parties in Expressions Hair Design agreed that Section 518 does not prohibit differential pricing in which a merchant charges more to customers who pay by credit card. However, the plaintiffs, five merchants and their owners, sought to use a “single-sticker-price” scheme in which a merchant posts a single cash price for its goods and services but indicates an additional amount is added for credit card customers rather than a “dual-price” scheme in which a merchant posts two different prices—one for credit card customers and one for cash customers. The plaintiffs alleged that by prohibiting their use of a “single-sticker-price” scheme or restricting how they describe the price differential in a “dual-price” scheme, Section 518 violates the First Amendment because it regulates how they communicate their prices. The NY Court of Appeals concluded that although Section 518 does not allow use of a “single-sticker-price” scheme, it does not prohibit a merchant from using the word “surcharge” or any other words to communicate to customers that the credit card price is higher than the cash price.

The Second Circuit will now need to determine whether Section 518, as interpreted by the NY Court of Appeals, is a valid restriction on commercial speech under Supreme Court precedent. Such precedent is discussed in the Second Circuit’s opinion certifying the Section 518 question to the NY court. The Second Circuit suggested that if Section 518 were to be understood to compel the disclosure of an item’s credit card price alongside its cash price, it might properly be analyzed under Supreme Court precedent that applies a lenient standard of review to laws that require commercial entities to make certain disclosures to prevent consumer deception or confusion.