Judge Gerald Tjoflat, U.S. Eleventh Circuit Court of Appeals.
Judge Gerald Tjoflat (John Disney/Daily Report)

A Florida law that regulates how merchants handle credit card swipe fees violates the First Amendment, a divided panel of the U.S. Court of Appeals for the Eleventh Circuit has ruled.

The 2-1 ruling strikes down a state statute that makes it a misdemeanor to impose a “surcharge” on a customer for using a credit card but expressly allows the offering of a “discount” for paying in cash. That appears to create a circuit split—which can prompt the U.S. Supreme Court to get involved—given that the Second Circuit in September upheld a similar New York law.

The case also produced a rhetorical duel between two of the court’s more conservative members. Writing for the majority, Judge Gerald Tjoflat said that “attempting to read Florida’s no-surcharge law as a regulation of economic conduct rather than as a restriction on speech casts the judicial Theseus into the depths of a lexical labyrinth.” He likened the law to criminalizing the sale of “half-empty beverages” while allowing the sale of “half-full beverages.”

In dissent, Chief Judge Ed Carnes said Tjoflat should have interpreted the statute to prohibit only a surprise price increase at the cash register if a customer uses a credit card, not price differences made clear on the shelf. “Instead,” said Carnes, “we have a Greek tragedy consisting of a state statute being struck down by a federal court for no good reason.”

The Florida attorney general’s office has defended the statute as protecting consumers. The Credit Union National Association backed the law, touting credit card use as convenient and secure for consumers, creating more business for merchants. An amicus brief by the credit union association said credit cards help underwrite programs beneficial to consumers, such as free checking accounts.

But the challenge to the law, brought by a group of small Florida retailers, has been supported by consumer advocacy and public interest groups, as well as major retailers such as Walgreens and Publix Super Markets. An amicus brief filed by the consumer groups said the Florida law prevented retailers from effectively communicating to consumers that using a credit card costs more than paying cash because merchants pay transaction fees to the credit card issuer. Consumers react more strongly to a “surcharge” than a “discount” and thus are more likely to change their behavior if the term “surcharge” is used, the consumer groups said.

The smaller Florida retailers who challenged the law are represented by Deepak Gupta, a lawyer with Gupta Wessler in Washington; he was the first appellate lawyer for the new Consumer Financial Protection Bureau. “The state was seeking to enforce the credit-card industry’s preferred speech code,” Gupta said in a press release touting his victory. “Merchants should be able to use whatever words are most effective to inform their customers about the high cost of using credit cards.” The Eleventh Circuit’s ruling, he said, “makes that clear.”

Gupta’s clients received cease-and-desist letters from the Florida AG’s office saying they were violating the no-surcharge law. For instance, one plaintiff, a family-run hobby store, received a letter in 2013 after posting a sign that said its customers would be subject to a fee for using credit cards to make purchases. Last year, they sued the AG on the ground that the law unjustifiably regulates speech in violation of the First Amendment and is unconstitutionally vague.

U.S. District Judge Robert Hinkle in Tallahassee dismissed the lawsuit on the state’s summary judgment motion, calling it a restriction on pricing—rather than a regulation of speech—that fell within the state’s broad discretion in regulating economic affairs. Although he said that none of the possible justifications for the law—such as preventing unpleasant surprises for consumers—were “compelling,” he concluded that the law satisfied the rather low bar of rational basis review.

The retailers appealed, and Tjoflat formed a majority with visiting Senior D.C. Circuit Judge David Sentelle to reverse.

Tjoflat noted that the Florida law did not forbid merchants from charging different prices depending on whether a customer used a credit card or not; the law expressly allowed a “discount” for cash. Thus, he said, the statute addressed only how merchants described their pricing and thus regulated speech.

“Calling § 501.0117 a ‘no-surcharge law’ … is something of a misnomer,” wrote Tjoflat. “The statute targets expression alone. More accurately, it should be a ‘surcharges-are-fine-just-don’t-call-them-that law.’”

Tjoflat rejected Carnes’ conclusion that the law could be saved by interpreting it to ban only “bait-and-switch schemes,” in which the merchant without prior notice springs an upcharge for credit card use on the customer at the register.

That “would narrow the no-surcharge law into nothingness,” allowing a merchant to “get off scot-free” as long as he put up a sign informing customers of the price difference in advance of any sale, Tjoflat said. He wrote that such a reading of the statute also would be at odds with the position taken by the Florida AG in her brief and at oral argument, as well as the cease-and-desist letters issued to the plaintiffs.

Florida’s law violated the First Amendment, Tjoflat wrote, because the speech at issue was not misleading and any other justifications for the law are unpersuasive. He said that was underscored by Florida’s decision to exempt certain state agencies from the law.

In dissent, Carnes said Tjoflat had created a First Amendment problem by misinterpreting what the Florida statute meant. Carnes focused on language in the statute that defined a surcharge as an additional amount “imposed at the time of sale.”

“The merchant can speak in any way he chooses so long as he does not ambush the credit-card-using customer with a higher price at the register,” wrote Carnes. “What matters is when, from the customer’s perspective, the merchant adds the additional amount to the price because a credit card is used, not how the merchant describes it.”

Carnes said the AG’s office had in fact advocated for that narrower reading of the law in its brief and at oral argument. The cease-and-desist letters were not relevant, said Carnes, because the plaintiffs’ lawsuit had challenged the law on its face, not how it was applied to the plaintiffs. And Carnes said there was nothing wrong with interpreting a statute in a way that allows people to comply with it.

Carnes said his interpretation of the statute meant that it did not violate the First Amendment, as prescribing when a business can add an additional amount to its price regulates conduct, not speech.

A spokesman for Florida AG Pam Bondi said her office was reviewing the ruling.

The case is Dana’s Railroad Supply v. Attorney General, No. 14-14426.