Blog LenderLaw Watch November 24, 2015

Eleventh Circuit Strikes Down Florida’s No-Surcharge Law

On November 4, 2015, the Eleventh Circuit struck down Florida’s no credit-card surcharge statute as unconstitutional under the First Amendment.  See Dana’s Railroad Supply v. Attorney General, Florida, No. 14-14426, 2015 WL 6725138 (11th Cir. Nov. 4, 2015).  The case involved four small businesses that filed suit after receiving cease-and-desist letters from the Florida Attorney General asserting violations of Fla. Stat. § 501.0117(1)-(2), which makes it a 2nd-degree misdemeanor for merchants to “impose a surcharge on [a consumer] for electing to use a credit card.”  That said, the law does not prohibit “the offering of a discount for the purpose of inducing payment by cash, check, or other means” (emphasis added).

A key issue for the Court was the appropriate standard of review.  Was the no-surcharge law a regulation of (a) commercial conduct subject to mere rational basis review, or (b) commerce-related speech subject to intermediate or strict scrutiny?  The Court determined that the statute regulates speech, not conduct, because the statute does not prohibit dual-pricing (charging different prices depending on the method of payment); it only prohibits merchants from describing the price difference as a “surcharge” instead of a “discount.”

“If the same copy of Plato’s Republic can be had for $30 in cash or $32 by credit card, absent any communication from the seller, does the customer incur a $2 surcharge or does he receive a $2 discount? …[T]here is no real-world difference between the two formulations. Accordingly, Florida’s no-surcharge law is a restriction on speech, not a regulation of conduct,” the Eleventh Circuit said.  From there, the Court struck down the statute as content and viewpoint-based speech discrimination failing even intermediate scrutiny, and reversed the lower court’s dismissal.  The Court also provided guidance about what would count as regulating commercial conduct (as opposed to speech):  capping the additional amount consumers can be charged for using a credit-card, banning bait-and-switch tactics, banning dual-pricing altogether, or requiring merchants to disclose information about their pricing policy.

Chief Judge Ed Carnes’s dissenting opinion argued that banning bait-and-switch conduct is precisely what the Florida law does.  The law prohibits charging additional amounts “at the time of a sale,” and so requires merchants to disclose – before “the time of a sale” – any additional amount charged for paying by credit-card.  The majority opinion said that interpretation would narrow the statute “into nothingness” because it would allow merchants to impose credit-card surcharges with impunity so long as they “announce to potential customers the price difference in advance of any sale.”  For Judge Carnes though, that advance notice requirement and merchants complying with it are “precisely the point of the statut[e].”

The few courts that have addressed whether no-surcharge laws violate First Amendment free speech appear divided, though the statutory language has varied by state.  The Second Circuit upheld New York’s no-surcharge law in September 2015, holding that the law bans the conduct (not speech) of imposing a credit-card surcharge on top of the “sticker price.”  See Expressions Hair Design v. Schneiderman, 803 F.3d 94, 107-108 (2d Cir. Sept. 29, 2015).  A Texas district court upheld its no-surcharge law on similar reasoning, while a California district court rejected that reasoning and struck down its no-surcharge law in a case that is now pending appeal in the Ninth Circuit.  See Italian Colors Rest. v. Harris, No. 14-0604, 2015 WL 1405507 (E.D. Cal. Mar. 26, 2015), appeal docketed No. 15-15873 (9th Cir. Apr. 30, 2015); Roswell v. Pettijohn, No. 14-0190, 2015 U.S. Dist. LEXIS 40739 (W.D. Tex. Feb. 4, 2015).

One lesson from the case law so far is that merchants may be able to avoid or reduce potential liability by including credit-card surcharge amounts in their sticker prices.  But, this issue is likely to continue playing out in the courts.  Those who accept payment by credit-card should keep an eye out for further legal developments and any additional guidance they may provide.