Second Circuit Improperly Ducks Important First Amendment Issues

FirstAmendmentThe U.S. Supreme Court has repeatedly held that federal courts are under a “virtually unflagging” obligation to hear and decide federal claims over which they possess jurisdiction.  Yet, the U.S. Court of Appeals for the Second Circuit has repeatedly refused to decide a First Amendment challenge to a New York statute that restricts merchants’ ability to inform their customers of credit-card surcharges.

Just this past week, the appeals court yet again put off a decision by certifying to the New York Court of Appeals (the state’s highest court) a question on the meaning of the challenged statute.  The federal court’s rationale for its delay does not hold water and betrays a thinly disguised hostility to the First Amendment claims at issue.

Merchants Have a Beef with Credit Card Companies

Merchants have long chafed at the fees they must pay to credit card companies whenever a customer uses a credit card for a purchase.  Because those fees increase merchants’ costs that consumers must in turn pay, merchants want to let those customers know where the responsibility lies—with the credit card companies.  But numerous states restrict how merchants can communicate their pricing.  In recent years, merchants have filed First Amendment challenges to several of those laws.

Five New York businesses filed a challenge to the New York statute nearly five years ago.  In 2013, a federal district court enjoined enforcement of the law, finding that it violated merchants’ First Amendment rights.  The case reached the Supreme Court last term on a preliminary issue.  Expressions Hair Design v. Schneiderman.  Yet, the Second Circuit continues to put off deciding the First Amendment claims and has placed a hold on the district court’s injunction.

Vague Statutory Language

One obstacle the courts have faced in evaluating the New York statute is that its precise meaning is unclear.  The New York Attorney General’s office has exacerbated the problem by adopting shifting interpretations at various stages of the litigation.  Nonetheless, there has never been any disagreement that the statute bars at least one method of expressing prices: listing only the cash price, and then explaining that credit customers will pay an additional fee.  For example: “Haircuts $10.00 (with a $.30 surcharge for credit card users),” or “Haircuts $10.00 (with a 3% surcharge for credit card customers).”  Moreover, that is the exact pricing scheme that the plaintiffs have repeatedly stated they wish to employ.  Accordingly, any lack of clarity regarding the statute’s precise scope is simply not relevant to the principal thrust of this as-applied challenge.

Supreme Court Reverses Initial Second Circuit Decision

Indeed, when the case first came before the Second Circuit in 2015, it held that the New York statute (N.Y. Gen. Bus. Law § 518) “clearly prohibited” the plaintiffs’ preferred pricing scheme.  It rejected the plaintiffs’ challenge to that prohibition because it determined that § 518 did not interfere with any First Amendment rights—it regulated conduct, not speech.  The Supreme Court summarily overturned the determination that free speech was not implicated, pointing out that §518 was not a mere price-control measure.

Rather, the Court explained, “What the law does regulate is how sellers may communicate their prices. … In regulating the communication of prices rather than prices themselves, § 518 regulates speech.”  The Court remanded the case with directions for the appeals court to determine, in the first instance, whether the speech restrictions violated the First Amendment.

Yet on remand, the Second Circuit declined to rule on the merits; instead, it delayed the case by a year or more by asking the New York Court of Appeals to provide a definitive interpretation of § 518.  The Second Circuit wants to know whether § 518 also prohibits so-called “two-sticker pricing” schemes—that is, listing both the price charged to cash customers and the price charged to credit customers.

“Two-Sticker Pricing” Is a Red Herring

The certification to the state high court makes no sense when one considers that no party currently contends that § 518 applies to two-sticker pricing.  It is true that in pre-litigation enforcement letters as well as in the early stages of this lawsuit, the New York attorney general argued that the statute prohibited merchants from listing both cash and credit prices.  But the Second Circuit’s initial decision declined to reach that issue (invoking Pullman abstention), and the attorney general has since abandoned its position.

The plaintiffs have no interest in continuing to litigate a claim that the attorney general has abandoned; indeed, their standing to do so is in question given that they no longer have a credible fear that they will be prosecuted for engaging in two-sticker pricing.

The attorney general’s current position is that § 518 prohibits a merchant from stating “Haircuts $10.00 (with a $.30 surcharge for credit card users)”—and that the statute as so construed passes constitutional muster because pricing statements of that sort might deceive credit customers regarding the price they will be charged at the register.  No prosecutor or court has ever doubted that § 518 bars merchants from expressing their prices in that manner.  The Second Circuit has twice held that § 518 “clearly prohibits” that pricing scheme.

Moreover, that is the precise pricing scheme that the plaintiffs wish to adopt and that they claim is protected by the First Amendment.  Under those circumstances, the Second Circuit’s refusal to address the merits of the First Amendment claim—and instead to delay the case for the purpose of obtaining state-court assistance on the meaning of a statute that (all agree) bars the speech the plaintiffs wish to utter—violates the appeals court’s “virtually unflagging” obligation to decide properly-presented federal questions.

The U.S. Supreme Court and the New York Court of Appeals have both stated that certification of state-law questions is an appropriate means of avoiding friction between the States and federal courts, explaining that the answer to a certified question might result in the narrowing of a state statute such that it no longer raises any federal constitutional concerns.  But no such avoidance of friction is possible in this case.

The New York attorney general has already adopted a narrow interpretation of § 518, and the plaintiffs allege that the statute as so interpreted violates their free-speech rights.  Certifying a statutory interpretation question to the New York Court of Appeals will not make the controversy disappear; indeed, if the New York court adopts a broader interpretation of § 518, the First Amendment dispute will simply become more acute.

The Importance of an Early Decision

The plaintiffs have a very strong First Amendment claim.  As Washington Legal Foundation’s brief in the Second Circuit explained, no empirical evidence supports New York’s contention that some credit purchasers might actually be misled by a sign that states “Haircuts $10.00 (with a $.30 surcharge for credit card users)” but that does not add the phrase, “… for a total price of $10.30.”  The Eleventh Circuit (in Dana’s R.R. Supply v. Attorney General) struck down a nearly identical Florida statute as a free-speech violation.  But at least as importantly, the plaintiffs are entitled to an up-or-down decision on their federal claim from the federal courts.

Indeed, the Supreme Court held in Sorrell v. IMS Health Inc. that litigants’ rights to “prompt adjudication” of their claims, “despite potential ambiguities in state law,” is particularly important when free-speech rights are at stake.  The plaintiffs have waited nearly five years for a decision on their First Amendment claim.  The Second Circuit’s choice to delay a decision for at least another year is indefensible.

Also published by Forbes.com on WLF’s contributor site.

One thought on “Second Circuit Improperly Ducks Important First Amendment Issues

  1. Pingback: Update: Ninth Circuit Issues First Amendment Ruling on Credit-Card Surcharge Law – The WLF Legal Pulse

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