The U.S. Court of Appeals for the Second Circuit wants New York’s highest court to answer whether the language a business uses to describe its handling of credit card fees comports with state law.
The remanded question ordered by the panel of Circuit Judges Richard Wesley, Debra Ann Livingston and Susan Carney Wednesday is the latest chapter in a suit brought by small businesses challenging General Business Law Sec. 518 on First Amendment grounds. The law is intended to protect consumers against unseen costs associated with using credit cards.
Yet the reality of the law, according to the original plaintiffs, is one that revolves around the language businesses use to advertise different prices for cash and credit card purchases. The law makes it a crime to “impose a surcharge” on a credit card user. When the Second Circuit first reviewed the dispute, it initially rejected the plaintiffs’ arguments on First Amendment grounds, finding the statute regulated conduct, not speech.
The U.S. Supreme Court disagreed and in March vacated and remanded the case back to the appellate court for reconsideration on First Amendment grounds. The appellate court was tasked with examining two key commercial speech tests for Sec. 518’s constitutionality. The first comes from the Supreme Court’s 1980 ruling in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, which dealt with what constitutes the valid regulation of commercial speech. The second under the 1985 decision in Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio that deals with what the government is allowed to require in terms of disclosure.
The former provides for a more-exacting standard than the latter. But either way, the panel found it can’t reach a decision without getting more clarity from the state’s top court.
“[B]ecause the question whether to apply Central Hudson’s test or Zauderer’s turns in part on a functional analysis of Section 518, the First Amendment inquiry in this case properly begins by accounting for the way the statute operates in practice,” the panel wrote.
The panel said it expected Zauderer to hold, if the statute is interpreted functionally to force disclosure of the credit-card price but provides the merchant the freedom to convey this information in a way of the merchant’s choosing—like showing the cost difference between cash or credit. However, “if the statutory prohibition sweeps much more broadly, then Central Hudson might apply.”
“At the very least, without some clarification of Section 518’s scope from the Court of Appeals, and in the absence of some other way to identify the actual scope of Section 518’s rule, it is not clear that we can even decide the basic question of which standard of review—Central Hudson or Zauderer—properly applies,” the panel said.
So far there has been “a dearth of case law” dealing with Sec. 518, the panel noted. Absent Court of Appeals or any real weighing-in by the state court system, the panel said it was unable to make any predictions, and since the Supreme Court has warned against vacating state law without the state’s top jurists weighing in, the Court of Appeals is required to weigh in.
The suit is Expressions Hair Design v. Schneiderman 13-4533. Gupta Wessler name attorney Deepak Gupta and his firm represent the Expressions plaintiffs. He could not be reached for comment.
Senior Assistant Solicitor General Judith Vale handled the appellate case on behalf of New York state. A spokeswoman for Attorney General Eric Schneiderman’s office could not be reached for comment.