Argument analysis: Merchants seem to fall short in challenge to New York statute banning credit-card surcharges

The oral argument yesterday morning in Expressions Hair Design v. Schneiderman brought the justices face to face with the battle between merchants and credit-card networks over the interchange fees that merchants pay when they accept cards in retail transactions. The dispute that got the fees before the justices involves a New York statute that says that [n]o seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means. The petitioner, Expressions Hair Design (leader of the group of merchants challenging the provision), argues that the statute violates the First Amendment because it limits a merchants right to describe the extra costs imposed on purchasers using credit cards as surcharges.

For a case into which so many groups poured so much effort (23 amicus briefs), the argument must have been deeply frustrating, because the most prominent thing not on display was any strong inclination to address the case head-on. Three themes dominated the argument. The first was a considered refusal of the parties to join issue about what the statute actually means. Representing the merchants, Deepak Gupta insisted that the statute prevents merchants from posting separate cash and credit prices and that the state of New York has no justifiable reason to do so. Representing the state, Steven Wu insisted that the statute is aimed only at bait-and-switch pricing when a retailer posts a single price but then asks for a higher price at the register for customers who pay with cards.

At least some of the justices seemed to agree with Gupta that the statute had been applied broadly in the past. Justice Elena Kagan, for example, commented to Wu that youve walked away from some of that enforcement history in your briefing, explaining that the position he pressed at the argument is contradicting some of this enforcement history where a different understanding of this law was used. And Justice Samuel Alito was pointedly concerned that Wus reading of the statute on behalf of the solicitor general of New York would not bind district attorneys throughout the state: How do we know how all of these other district attorneys are going to interpret the statute? They may interpret it differently. Still, at the end of the day, none of the justices displayed any enthusiasm for declaring that a statute violates the Constitution based on a reading of the statute that the state itself disclaims as unfounded.

A second theme was a strong sense among the justices that neither sides reading of the statute has much to do with what the text actually says. Justice Sonia Sotomayor pressed that point most firmly:

Im not sure what you or anybody is saying about this statute or what it means, but not because its necessarily vague. I just dont see anything about speech in the statute. The statute simply says, No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means. To me, its very simple: One price for everything.

Justice Kagan seemed similarly minded, worrying that the law as written actually can be read and Justice Sotomayor said this before as just requiring a single price. Now, thats something that none of the parties here say, but if you just look at the law, thats what the law says.

The problem this poses for the merchants is that a reading of the statute as limited to a ban on dual pricing sounds much more like an economic regulation than a speech regulation. Because the merchants more or less conceded that a straightforward one-price statute would pass muster under the First Amendment, that problem left Sotomayor openly skeptical of the merchants claim: You told Justice [Stephen] Breyer that [a one-price statute] was okay. Im hard-pressed to see, if thats the interpretation given to what I view as the plain meaning of the statute, that th[e statute] would be unconstitutional.

The third theme of the argument, which Breyer pressed repeatedly, was the most debilitating to the merchants. Breyer plainly saw the case through the lens of traditional pricing regulation and worried that any serious scrutiny of the statute threatened to cast a shadow on economic regulations long considered plainly valid:

We are diving headlong into an area called price regulation. It is a form of price regulation, and price regulation goes on all over the place in regulatory agencies. And so the word that I fear begins with an L and ends with an R; its called Lochner. And there we go.

Echoing the concerns of Kagan and Sotomayor, Breyer simply didnt see enough on the face of the statute itself to justify serious First Amendment scrutiny:

What this statute says is you cant impose a surcharge. And you want to. Whats that got to do with speech? I grant you, all business activity takes place through speech. So explain to me what its got to do with speech. I dont see that in the statute. My statute that Im reading says you cant charge a surcharge. But you can charge a discount.

The most surprising thing about all of this is how little weight the justices seemed to give to the merchants evidence about past enforcement history. Ordinarily in First Amendment cases, it is a bad thing for the government when the meaning of a statute is unclear. And when doubts about statutory boundaries are combined with a past history of broad enforcement, something the merchants credibly alleged here, federal courts often examine statutes quite rigorously. There was little evidence at the argument, though, that any of the justices were inclined to follow those doctrinal leads in this case, which seemed to strike them much more as a battle between competing businesses over proper market regulation.

Having said that, it is not nearly so clear where the court will end up. The discussion above suggests that it is most unlikely that the court will reach out to invalidate the New York statute directly. Getting five votes for a ruling like that seems almost impossible given the expressed sentiments of Breyer, Kagan and Sotomayor. At the same time, there was no discussion at all in the argument of the particular ruling of the U.S. Court of Appeals for the 2nd Circuit (holding that a one-price rule did not violate the First Amendment and declining to address application of the statute to dual-pricing schemes), so there wasnt exactly a groundswell of support for a straight-up affirmance. Given the states expressed unwillingness to apply the statute to the conduct challenged by the merchants, it wouldnt be all that surprising if the court simply dismissed the case entirely, concluding that the dispute was not sufficiently clear-cut to warrant the courts resolution.

But none of the justices went that far during the argument. Rather, to the extent any of the justices suggested a way to dispose of the case, these suggestions reflected a desire for more authoritative information from the New York courts about what the statute actually means. Alito, for example, seemed to agree with the suggestion of the United States that the federal court of appeals should be directed to ask the New York Court of Appeals for a definitive clarification of the statute, advocating use of a certification procedure under which federal courts can ask state courts to resolve questions of state law that arise in cases before the federal courts. Because it would involve a remand to the court of appeals, certification necessarily would rest on some rejection of the analysis that the court of appeals applied to uphold the statute, and the argument included no obvious hint about what might justify such a ruling.

Ill be looking forward to this opinion with great interest, then, not so much because Im expecting anything earth-shattering, but rather to see how the court will agree upon a disposition that removes the case from its docket without directly addressing the questions that brought the case to the court.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel on anamicusbrief in support of the petitionerin this case. However, the author of this post is not affiliated with the firm.]