Opposition Brief — Expressions Hair Design v. Schneiderman, 137 S. Ct. 30 (2016) (No. 15-1391)

No. 15-1391

RECORD hoon AUG - 1 2016

Supreme Court of the United |

THE CLERK

EXPRESSIONS HAIR DESIGN, et ai.,

Petitioners,

v.

ERIC T. SCHNEIDERMAN, IN HIS OFFICIAL

CAPACITY AS ATTORNEY GENERAL OF THE

STATE OF NEW YORK, et ai.,

Respondents.

On Perrrion ror A Wait oF Ceatiorari TO THE UNtrep

States Court oF APPEALS FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION FOR

RESPONDENT ERIC T. SCHNEIDERMAN

Eric T. SCHNEIDERMAN

Attorney General

State of New York

Barsara D, Unoerwoop*

Solicitor General

Steven C. Wu

Deputy Solicitor General

JubtTH N. VALE

Assistant Solicitor General

120 Broadway

New York, New York 10271

(212) 416-8020

barbara.underwood@ag.ny.gov

Counsel for Respondent

Eric T. Schneiderman

*Counsel of Record

QUESTION PRESENTED

Whether a New York law that prohibits sellers

from charging consumers additional fees above the

regular, posted price when they use a credit card

implicates the First Amendment.

LL

TABLE OF CONTENTS

Page

RE SERIES INS er CPO tee es Rees Sa Pa! ee 1

REASONS FOR DENYING THE PETITION ............ 7

A. The Decision Below Does Not Implicate

Any Direct Circuit Conflict. ....... ah den OE ee 8

B. The Decision Below Is Correct..................... 16

III diisctneshitndinevcocctsadis coeiepicinisdisnhetiniiitsseenimad 22

Lit

TABLE OF AUTHORITIES

Cases Page(s)

44 Liquormart, Inc. v. Rhode Island, 517 U.S.

ABA (1996) .........0...00-snneceeseceencseneereeeseeresseeeenseee 16,18

Babbitt v. United Farm Workers National

Union, 442 U.S. 289 (1979) .......-....-....ccccceeeeestees 20

Baggett v. Bullitt, 377 U.S. 360 (1964)... 21

City of Houston v. Hill, 482 U.S. 451 SS 20

Dana’s Railroad Supply v. Attorney General

of Florida, 807 F.3d 1235 (11th Cir. 2015).. passim

Dombrowski v. Pfister, 380 U.S. 479 (1968) ............. 21

Highland Farms Dairy, Inc. v. Agnew, 300 US.

GOB CRDBT) «.--...00cccesecesncscerccccssnccereseseesssncesssssenens es 14

In re Payment Card Interchange Fee & Merchant

Discount Antitrust Litigation, —- F.3d —, 2016

WL 3563719 (2d Cir. June 30, 2016).................-.-. 4

Italian Colors Restaurant v. Harris, 99 F. Supp.

3d 1199 (E.D. Cal. 2015) ....... SAEs A pu Tee 14

Kusper v. Pontikes, 414 U.S. 51 (19738) .....--------.e0++ 10

Louisiana Power & Light Co. v. City of

Thibodaux, 360 U.S. 25 (1959) .......-...--ceeeceeeeeerees 19

Moore v. Sims, 442 U.S. 415 (1979) .........-.-.-..ee 19

Munzn v. Illinois, 94 U.S. 113 (1876) ...........-.-.-----00++ 16

National Association of Tobacco Outlets, Inc. v.

City of New York, 27 ¥. Supp. 3d 415

(S.D.N.Y. 2014).......2--:c0cccceceseeeeeereesenens siesdasaeeeaiie 15

National Association of Tobacco Outlets, Inc. v.

City of Providence, 731 F.3d 71 (1st Cir.

“Path a ati 2 Al? Gs. Ds she 15-17

LU

Cases—Continued Page(s)

Nebbia v. New York, 291 U.S. 502 (1934)....... 14,16,18

Procunier v. Martinez, 416 U.S. 396 (1974).............. 20

Railroad Commission of Texas v. Pullman

ee ak Yl, ea 7,11,12,19

Rowell v. Pettijohn, 816 F.3d 73 (5th Cir. 2016) ..... 8,9

Thrifty Oil Co. v. Superior Court, 91 Cal. App.

I arnt ccisdeccemsidineanenbiekaneqchiatesinenciin 11

United States v. Williams, 553 U.S. 285 (2008) ....... 18

Virginia State Board of Pharmacy v. Virginia

Citizens Consumer Council, Inc., 425 U.S.

I ok oso ocgoarasieg eee omeoiipentiventaiubsserm sess 18

Yee v. City of Escondido, 503 U.S. 519 (1992).......... 16

Zwickler v. Koota, 389 U.S. 241 (1967).................... 20

Laws

Federal

Pub. L. No. 94-222, 90 Stat. 197 (1976) .........0.00.00--. |

Cash Discount Act, Pub. L. No. 97-25, 95

AES R a eRe MEME

State

ee Ca NE Be Mg i icictdocsennecivascxswecsee ssnescbsaeanentaets 3

I a tinenesencessapeesinnzesccenen Ml

ee i Be Oe i BI erin ccscscecisecasecesscrsscecesses iin

ee a ddscdeieashsoceeasicnpscsnse Pager Ost? 3

BR: BIN, Oe I i ictanacicacecsisonnsssiss weencseabassas 3

Te Be i a Oe cic ccsesscccssexceesiovesoses suse 3

Mass. Gen. Laws ch. 140D, § 28A....................-...-.-.5. 3

I a a acd Saneanipensenpseahs 3

Laws-—Continued Page(s)

N.Y. Gen. Bus. Law

cari Aanaes ao

Nr A Ua FENN we 1,3,6

Ry SR ee enreeS

ees I I, On. icsennacanccbcccconsncssosecss 3

Tex. Bus. & Comm. Code Ann. 9 604A.002 ................ 3

Tex. Pim. Code Amm. § 330.001 ...............ccccc.eccsececcccscs. 3

Rules

ER A ee 19

Miscellaneous Authorities

American Lawyers Q., Usury Rate Summary

(Mar. 2010), at www.alqlist.com/

InterestRateSummary.html ........................ cinta ae

The Fair Credit Billing Act Amendments of

1975, Hearing Before the Subcommittee

on Consumer Affairs of the Committee on

Banking, Currency & Housing, 94th

Ne dcd aakdsdwidsuacssvweais 2

National Conference of State Legislators, Siate

Minimum Wages: 2016 Minimum Wage by

State (Revised July 19, 2016), at

www.ncsl.org/research/labor-and-

employment/state-minimum-wage-

SE RR a A at el 15

STATEMENT

The New York statute at issue in this case,

General Business Law § 518, prohibits sellers from

levying a surcharge on consumers who purchase

goods or services using a credit card instead of cash.!

Sellers are permitted, however, to provide discounts

to cash users. (CA2 J.A. 109.) Petitioners—five New

York businesses (and their owners) that want to

charge consumers more for using credit cards (CA2

J.A. 56-61, 65)—claim that New York’s surcharge

prohibition violates the First Amendment and is

unconstitutionally vague under the Due Process

Clause of the Fourteenth Amendment. (CA2 J.A. 74-

75.)

1. New York’s surcharge prohibition is modeled

on a federal statute that was enacted in 1976 but

that lapsed in 1984. Like New York’s law, the federal

statute prohibited credit-card surcharges’ while

permitting cash discounts. Pub. L. No. 94-222, § 3(c),

90 Stat. 197, 197 (1976). The statute thus provided

that “[nJo seller in any sales transaction may impose

a surcharge on a cardholder who elects to use a credit

card in lieu of payment by cash,” id., with

“surcharge” defined as “any means of increasing the

regular price to a cardholder which is not imposed”

on a cash user, td. § 3(a), 90 Stat. at 197. By contrast,

the stacute permitted sellers to offer a “discount” for

consumers who used cash, with “discount” defined as

“a reduction made from the regular price.” /d. To

1 The term “cash” is used herein to refer to payment

through means other than a credit card, including cash, debit,

or check.

2

further clarify the difference between surcharges and

discounts in relation to a _ seller's regular price,

Congress later enacted an amendment defining the

term “regular price” as: (1) the posted price, if a seller

posts only one price; or (2) the credit-card price, if a

seller either does not post any price or posts prices

for both credit and cash purchases. Cash Discount

Act, Pub. L. No. 97-25, § 102(a), 95 Stat. 144, 144

(1981).

Congress enacted this federal prohibition because

of its view that credit-card surcharges caused

consumer and economic harms that mere cash

discounts did not. Specifically, the federal prohibition

was intended to prevent sellers from using sur-

charges to extract windfall profits; to avoid consumer

confusion and unhappiness caused by the imposition

of extra charges above the posted price; and to stop

fraudulent and deceptive sales tactics by sellers who

could lure consumers with a lower sticker price but

then surprise them with a credit-card surcharge at

the point of sale. See The Fair Credit Billing Act

Amendments of 1975, Hearing Before _ the

Subcommittee on Consumer Affairs of the Committee

on Banking, Currency & Housing, 94th Cong. 24, at

5-8 (1975) (Kathleen F. O’Reilly, Legislative Director,

Consumer Federation of America); see also id. at 19-

22 (John Sheehan, Legislative Director, United

Steelworkers of Amcrica).

2. The federal surcharge prohibition expired in

1984. At that time, New York (along with several

other States) made the policy choice to prohibit

3

credit-card surcharges themselves.2, New York’s

surcharge prohibition largely mirrors the wording of

the federal statute, providing that “[nJo 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.” N.Y. Gen. Bus. Law § 518. Violations of New

York’s surcharge prohibition are punishable as

misdemeanors. Jd. The New York Attorney General

is also authorized to bring civil enforcement actions

to prevent or stop violations of the statute. Id. § 513;

N.Y. Exec. Law § 63(12).

Although New York’s statute does not incorporate

the federal statute’s definitions or expressly permit

cash discounts, the Legislature made clear that New

York’s statute should be construed identically to the

prior federal law. (See CA2 J.A. 109, 112.) And both

legislators and consumer groups made equally clear

that New York’s law was motivated by the same

underlying policy rationales as the lapsed federal

surcharge prohibition: preventing unfair profiteering,

consumer anger, and deceptive sales tactics. (See

CA2 J.A. 109, 111-112, 114.)

2 In addition to New York, nine other States and Puerto

Rico prohibit credit-card surcharges. See Cal. Civ. Code

§ 1748.1(a); Colo. Rev. Stat. § 5-2-212; Conn. Gen. Stat. § 42-

133ff; Fla. Stat. § 501.0117; Kan. Stat. Ann. § 16a-2-403; Me.

Rev. Stat. tit. 9-A, § 8-509; Mass. Gen. Laws ch. 140D, § 28A;

Okla. Stat. tit. 14A, § 2-211; P.R. Laws Ann. tit. 10, § 11; Tex.

Fin. Code Ann. § 339.001. Five of these States also prohibit

sellers from collecting surcharges from consumers who use debit

cards. See Conn. Gen. Stat. § 42-133ff; Kan. Stat. Ann. § 16a-2-

403; Me. Rev. Stat. tit. 9-A, § 8-509; Okla. Stat. tit. 14A, § 2-211;

Tex. Bus. & Comm. Code Ann. § 604A.002.

4

3. Until recently, the state no-surcharge laws

were “effectively redundant” because private

contractual agreements between sellers and credit-

card companies already prohibited sellers from

extracting surcharges for credit-card use. (CA2 J.A.

63 (Complaint).) In 2013, the credit-card companies

agreed to temporarily lift these contractual surcharge

prohibitions as part of a class-action settlement with

sellers to resolve federal antitrust claims. See In re

Payment Card Interchange Fee & Merchant Discount

Antitrust Litig., — F.3d —, 2016 WL 3563719, at *2-*3

(2d Cir. June 30, 2016). But a little more than a

month ago, the Second Circuit reversed the settle-

ment and vacated the class certification. Jd. at *1,

*12. The Second Circuit’s decision has left unclear

the current effect of the contractual surcharge

prohibitions and the lasting practical import of state

no-surcharge laws.

4. In 2013, petitioners filed this lawsuit against

the New York Attorney General and three district

attorneys, challenging the constitutionality of New

York’s credit-card surcharge law. (CA2 J.A. 6, 74-75.)

The U.S. District Court for the Southern District of

New York (Rakoff, J.) issued a preliminary injunction

prohibiting the defendants from enforcing New

York’s surcharge law against petitioners (Pet. App.

85a), on the ground that the law violated the First

and Fourteenth Amendments (Pet. App. 79a-80a).3

The parties stipulated to a court-ordered final

judgment, with defendants reserving their right to

* Petitioners also asserted an antitrust claim (CA2 J.A. 75),

but that claim is not at issue here.

5

appeal. (Pet. App. 48a-54a.) In that judgment, the

district court declared New York’s surcharge law

unconstitutional and issued a permanent injunction.‘

(Pet. App. 51a, 54a.)

5. The U.S. Court of Appeals for the Second

Circuit vacated the judgment and remanded for

dismissal of the complaint. (Pet. App. 3a.) The court

construed petitioners’ claims as challenging the

application of New York’s surcharge prohibition to

“two distinct kinds of pricing schemes,” and

separately analyzed the constitutionality of each

such prohibition. (See Pet. App. 13a-18a, 31a-37a.)

First, the court considered the pricing practice of

collecting additional money in excess of a regular,

posted “sticker price” when consumers use a credit

card. (Pet. App. 14a-16a.) The court found that New

York’s statute plainly prohibited this pricing practice

based on the “ordinary meaning” of the term

“surcharge’—.e., levying an “additional amount

above the seller’s regular price” (Pet. App. 13a-14a).

The court also held that this prohibition is

constitutional. As to petitioners’ First Amendment

claim, the court determined that the prohibition

against adding credit-card fees above a_ seller's

regular price is a direct price-control regulation that

does not implicate the First Amendment. (Pet. App.

4 The final judgment also dismissed petitioners’ antitrust

claim without prejudice to petitioners renewing this claim if the

final judgment were to be reversed. (Pet. App. 51a.) Pursuant to

tule 51th) of the Federal Rules of Civil Procedure, the court

determined that there was no just reason to delay entry of final

judgment on petitioners’ First and Fourteenth Amendment

claims. (Pet. App. 54a.)

6

18a-28a.) In so holding, the court rejected petitioners’

theory that the surcharge prohibition restricted only

the “words and labels” sellers use to describe equiva-

lent price differentials between the prices they

charge to credit users and cash users. (Pet. App. 20a

(quoting district court opinion).) Rather, the court

explained: “What Section 518 regulates—all that it

regulates—is the difference between a seller’s sticker

price and the ultimate price that it charges to credit-

card customers.” (Pet. App. 21a-22a.) A seller remains

free to characterize its price differentials “as what-

ever it wants,” but such descriptions “would not

change the fact” that adding credit-card fees to

regular prices is prohibited while deducting amounts

from regular prices for cash use is permitted. (Pet.

App. 22a.) The court concluded that this regulation of

economic conduct comported with the First

Amendment. (Pet. App. 18a-19a.)

The court also rejected petitioners’ vagueness

challenge with respect to the statute’s prohibition

against run-of-the-mill surcharging schemes. Relying

on the ordinary meaning of the term “surcharge, the

court concluded that both “sellers ‘of ordinary

intelligence” and New York enforcement authorities

would “readily understand” that adding amounts

above a seller’s usual, posted prices for credit-card

use violated the statute. (Pet. App. 42a.)

Second, the court considered whether New York's

statute would also prohibit different pricing methods

that do not involve “readily ascertainable” regular

prices—such as “dual-price” schemes in which a

seller posts both a credit price and a cash price

without designating either as the “regular” price.

(Pet. App. 15a.) Noting that the New York appellate

courts had never interpreted the scope of New York's

7

surcharge prohibition (Pet. App. 32a), the court

abstained from ruling on the constitutionality of New

York’s prohibition as applied to such pricing methods

pursuant to Railroad Commission of Texas v.

Pullman Co., 312 U.S. 496 (1941). (Pet. App. 28a,

45a.) As the court explained, the statute was “readily

susceptible to a construction under which” it did not

prohibit pricing schemes that lacked regular prices

(Pet. App. 18a (quotation marks omitted)) because it

was “entirely possible, if not likely, that New York

courts would interpret [New York’s surcharge

prohibition] as being identical to the lapsed federal

ban” (Pet. App. 35a), which had expressly permitted

such practices (Pet. App. 3la-32a).

REASONS FOR DENYING THE PETITION

The petition should be denied for two reasons.

First, contrary to petitioners’ claim, there is no direct

split among the circuit courts on the question of law

presented by this case. The Eleventh Circuit decision

relied on by petitioners to assert a split struck down

a statute that the court read as having a different

meaning and applying to different pricing practices

than the New York and Texas statutes that have

been upheld by the Second and Fifth Circuits.

Second, the decision below correctly held that a direct

price regulation such as New York’s surcharge

prohibition does not implicate the First Amendment

at all because it addresses conduct, rather than

speech. Certiorari is accordingly not warranted.

8

A. The Decision Below Does Not Implicate

Any Direct Circuit Conflict.

1. Petitioners assert (Pet. 16-18) that this Court

should grant review because the Second Circuit’s

decision—along with a decision by the U.S. Court of

Appeals for the Fifth Circuit, Rowell v. Pettijohn, 816

F.3d 73 (5th Cir. 2016), petition for cert. filed, No. 15-

1455 (U.S. June 3, 2016)—conflicts with a decision by

the Eleventh Circuit finding a Florida surcharge

prohibition unconstitutional, see Dana’s R.R. Supply

v. Att’y Gen. of Fla., 807 F.3d 1235 (11th Cir. 2015),

petition for cert. filed, No. 15-1482 (U.S. June 8,

2016). But the different outcomes in these cases stem

largely from the courts’ different understandings of

the scope and operation of the particular state

statute at issue in each case. Although the wording of

the central surcharge prohibition in each State’s

statute is similar, the courts’ divergent views about

the potential applications of the statutes to sellers’

pricing practices led the Eleventh Circuit to focus on

factual and legal issues that were different from the

issues on which the Second and Fifth Circuits

focused. As a result, these decisions do not create a

direct circuit split.

As the Eleventh Circuit itself recognized, the

“relevant statutory text and legislative history” of

New York’s statute “differ from” Florida’s—

distinctions that led the Second Circuit to reach a

“narrow reading” of the scope of New York’s law.

Dana’s R.R., 807 F.3d at 1247 n.9. The Fifth Circuit's

subsequent decision expressly followed the Second

Circuit’s lead in narrowly construing the scope of

Texas’s surcharge prohibition. See Rowell, 816 F.3d

at 81. Specifically, the Second and Fifth Circuits

interpreted their respective State’s statutes as only

9

prohibiting sellers from imposing additional fees for

credit-card use above a posted “single sticker price,”

and found that this prohibition did not implicate the

First Amendment. (Pet. App. 2a, 13a-15a, 18a.)

Rowell, 816 F.3d at 81.

Neither court held that these no-surcharge laws

more broadly prohibited “dual-pricing”’—1.e., setting

prices for both credit and cash purchases without

designating a single sticker price as the easily

ascertainable regular price—and thus neither court

had occasion to address the constitutionality of such

a prohibition. The Second Circuit held that there was

too little state-court authority to reach a definitive

conclusion about whether New York’s law extended

to “dual-pricing” absent single-sticker prices, and

accordingly abstained from addressing the consti-

tutional question posed by a prohibition on such

pricing. (Pet. App. 28a-37a.) In the Fifth Circuit, the

parties had conceded that such “dual pricing is

allowed,” Rowell, 816 F.3d at 83, and so that court

likewise had no need to resolve the First Amendment

implications of a dual-pricing prohibition.

By contrast, the Eleventh Circuit did not read

Florida’s statute to prohibit only the imposition of

additional fees for credit-card use above a regular,

posted price and thus, unlike the Second and Fifth

Circuits, never squarely addressed the validity of

such a “narrow” prohibition. Dana’s R.R., 807 F.3d at

1247 n.9. Instead, the Eleventh Circuit understood

Florida’s statute as applying broadly to all schemes

setting “a lower price for customers paying cash and

a higher price for those using credit cards”

regardless of whether the seller had posted a regular

price—and on the basis of that more sweeping

interpretation held that Florida’s regulation of such

10

“dual-pricing” violated the First Amendment. Jd. at

1239, 1245. This conclusion does not directly conflict

with the Second or Fifth Circuit’s rulings, since

neither court addressed the constitutionality of a

prohibition on “dual-pricing” in the absence of a single

sticker price—the Second Circuit because it was

uncertain whether New York law contained such a

prohibition, and the Fifth Circuit because it held that

Texas law did not contain such a prohibition.

Indeed, the Eleventh Circuit might have reached

a different result if it had been convinced that the

llorida statute applies only to surcharges imposed at

the time of sale so as to raise the price above the

posted sticker price, and not to an explicit dual-

pricing scheme. As the dissenting judge in the

Eleventh Circuit explained, the majority declined to

give any independent meaning to distinct language

in the Florida statute that limited its application to

surcharges “imposed at the time of a sale”—language

that would make the statute inapplicable to the

situation where a merchant posts two different

regular prices. The dissenter observed that this

language supports a narrowing construction that

would have obviated any “constitutional! problem.” Jd.

at 1251, 1253 (Carnes, J., dissenting); see also id. at

1252 (Carnes, J., dissenting) (“It is passing strange

for a court to dismiss a legislature’s definition of its

own words as a strained reading of the legislature’s

own words.”). The differing outcome in the Eleventh

Circuit, as compared to the Second and Fifth

‘ircuits, thus could have been avoided if the

Eleventh Circuit had construed the language of

Florida’s statute more narrowly to “avoid or modify

the necessity of reaching a federal constitutional

question,” Kusper v. Pontikes, 414 U.S. 51, 54 (1973).

ll

The Eleventh Circuit has disagreed with the

Second and Fifth Circuits on the meaning of similar

language in the statutes of Florida, New York, and

Texas—but that difference in construing the meaning

of statutory language does not create a split on a

federal question warranting this Court’s review. In

effect, despite similarities in statutory language, the

Eleventh Circuit adopted an _ interpretation of

Florida’s surcharge prohibition that differed from the

Second and Fifth Circuit’s interpretations of New

York’s and Texas’s laws, and these threshold inter-

pretive differences resulted in distinct conclusions

about the prohibitions’ constitutional validity. This

disagreement presents no square conflict on the

application of the First Amendment.

2. An additional reason to deny certiorari is that

further developments may clarify or eliminate any

division among the circuits on the validity of state

no-surcharge laws.

First, because the circuit courts’ decisions here

all relied on threshold (and contested) interpretations

of state laws, further litigation in the state courts

may alter the scope of the surcharge prohibitions at

issue here. The “last word” on the meaning and scope

of each State’s surcharge prohibition belongs to that

State’s highest court rather than any federai court.

Pullman, 312 U.S. at 499-500. But no State’s highest

court has yet interpreted a surcharge prohibition,

and only one decision by an intermediate state

appellate court has addressed such a law. See Thrifty

Oil Co. v. Superior Court, 91 Cal. App. 4th 1070

(2001). Indeed, the Second Circuit declined to reach

part of petitioners’ constitutional claims specifically

due to the “dearth of authority” from the New York

courts (Pet. App. 32a).

12

The federal-court interpretations of state law on

which each circuit court based its decision are thus

necessarily “tentative” and could “be displaced

tomorrow” by further state adjudications. Pullman,

312 U.S. at 500. If the state courts were to issue

definitive interpretations of their State’s respective

surcharge prohibitions, the current differences

among the circuit courts might dissipate entirely or

ripen into a concrete split on First Amendment issues

alone, without any underlying dispute over the

proper reading of state law. This Court should not

grant certiorari now to review the validity of state

surcharge prohibitions in the absence of any meaning-

ful resolution by the state courts of the interpretive

disputes over these laws. See Dana’s R.R., 807 F.3d

at 1251-53 (Carnes, J., dissenting).

Second, awaiting further adjudications would

also provide this Court with concrete facts about

sellers’ actual pricing schemes and the application of

state surcharge prohibitions to those schemes. As the

Second Circuit noted, petitioners’ constitutional

claims here were largely based on hypotheticals,

rather than “on the actual conduct in which they are

engaged or would like to be engaged.” (Pet. App. 18a.)

The absence of actual experience with enforcement of

state surcharge prohibitions is understandable in

light of the fact that, until very recently, private

contracts between sellers and credit-card companies

independently prohibited such surcharges. (See Pet.

App. 8a-9a; CA2 J.A. 63.) To the extent that the

States now begin to enforce their surcharge

prohibitions, litigation arising out of such disputes

would provide this Court with a _ particularized

understanding of how sellers set and post their prices

and how the States will interpret and enforce their

13

surcharge prohibitions—factual issues that are

critical to deciding petitioners’ claims.

Third, uncertainty surrounding the effects of the

private antitrust settlement between sellers and

credit-card companies counsels against granting

review. As petitioners acknowledge, state surcharge

prohibitions were “effectively redundant” of contrac-

tual surcharge prohibitions for many years. (CA2 J.A.

63.) But the state laws “assumed sudden importance”

when a private antitrust settlement appeared to

remove the contractual surcharge prohibitions. (Pet.

5.) The Second Circuit’s recent decision invalidating

that settlement has rendered the current status of

the contractual surcharge prohibitions unclear and

raised significant questions about the lasting

practical import of state surcharge laws. See supra at

4. If the contractual no-surcharge rules were to be

reinstated, the state surcharge prohibitions would

again become largely duplicative— reducing any need

for this Court’s review. This Court should accordingly

deny review until there is resolution of whether and

for how long the credit-card companies’ private

agreements with sellers will include contractual

surcharge prohibitions.

5 Petitioners claim that no further development is needed

because there has been a single post-trial decision applying New

York’s surcharge prohibition and a handful of settlement

agreements between the New York Attorney General and fuel

sellers. (See Pet. 21.) But “[o]ne reported prosecution and one

set. of threatened prosecutions by the state’s executive branch

shed little light, if any, on how the New York Court of Appeals

would construe” and apply the surcharge prohibition to

particularized facts. (Pet. App. 37a.)

14

Fourth, because only three circuits have

addressed state surcharge prohibitions, any potential

conflict among the circuits is not fully developed and

could wane without this Court’s immediate

intervention. The Ninth Circuit is currently

considering a challenge to California’s surcharge

prohibition in a case that raises the same type of

First and Fourteenth Amendment claims as

petitioners asserted below. See Italian Colors Rest. v.

Harris, 99 F. Supp. 3d 1199 (E.D. Cal. 2015), appeal

pending No. 15-15873 (9th Cir.), docketed Apr. 30,

2015. A decision in that pending appeal will likely

provide this Court with further valuable analysis and

information.

3. Certiorari should be denied for the additional

reason that any division among the circuits on the

constitutionality of different state surcharge prohibi-

tions is not sufficiently important to warrant further

review. Petitioners and their amici assert that

interpretive harmony is needed so that sellers

operating in multiple States can implement “uniform

pricing schemes.” (Pet. 20; see Br. for Amici Curiae

Albertsons LLC, et al., at 13-14.) But States have

long enacted a diverse range of price regulations that

require merchants to adapt to the distinct regulatory

schemes of every State. To give just a few examples,

States have enacted different price floors or price

ceilings in particular industries;® different minimum-

6 See, e.g., Nebbia v. New York, 291 U.S. 502, 515-20 (1934)

(New York regulation of milk prices); Highland Farms Dairy,

Inc. v. Agnew, 300 U.S. 608, 609-11 (1937) (Virginia regulation

of milk prices).

15

wage requirements that set distinct prices for labor;’

different anti-usury laws that affect the price of

loans; and different discount policies that, for

instance, prohibit sellers from using discounts to sell

tobacco in some jurisdictions, while allowing such

discounts in others.? Sellers that choose to do

business in multiple States thus already routinely

adjust their pricing to comply with each State’s

distinct pricing rules. Diverse state policies on credit-

card surcharges would impose no greater burden on

sellers than these and many other existing price

regulations.

Moreover, few if any additional state laws are

likely to be affected by any potential conflict among

the courts of appeals that have addressed the validity

of credit-card surcharge prohibitions. In the three

circuits that have considered the validity of credit-

card surcharge’ prohibitions, only one _ State

(Connecticut) has a similar statute that has not yet

been the subject of federal adjudication. Nor is any

tension among the decisions of these three circuits

likely to have much impact outside the context of

credit-card surcharges. When the Eleventh Circuit

struck down Florida’s law, the court emphasized the

“modest scope” of its decision and highlighted that its

holding should not affect other economic regulations

’ See Nat'l Conference of State Legislators, State Minimum

Wages: 2016 Minimum Wage by State (Revised July 19, 2016).

8 See Am. Lawyers Q., Usury Rate Summary (Mar. 2010).

® See Natl Ass’n of Tobacco Outlets, Inc. v. City of

Providence, 731 F.3d 71, 74-75 (1st Cir. 2013); Nat’ Ass’n of

Tobacco Outlets, Inc. v. City of N.Y., 27 F. Supp. 3d 415, 418-19

(S.D.N_Y. 2014).

16

because it applied to a surcharge prohibition that the

court viewed as unique. Dana’s R.R., 807 F.3d at

1251. Thus, there is no wide-ranging impact of these

decisions that might warrant a grant of certiorari at

this time.

B. The Decision Below Is Cerrect.

This Court’s review is not warranted for the

additional reason that the Second Circuit’s decision is

correct.

1. The Second Circuit correctly rejected

petitioners’ challenges to the New York statute’s

prohibition on levying additiona) credit-card fees

above a seller's regular, posted price. States have

exercised their police power to regulate prices “from

time immemorial, and in this country from its first

colonization.” See Munn v. Illinois, 94 U.S. 113, 125

(1876). This Court has already held that such price-

control laws do not implicate the First Amendment

because they directly regulate what sellers may

lawfully do when they set prices, rather than what

they may say about otherwise lawful prices. See 44

Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 507

(1996) (plurality op.); id. at 530 (O’Connor, J.,

concurring in the judgment); id. at 524 (Thomas, J.,

concurring in part & concurring in the judgment); see

generally Munn, 94 U.S. at 125 (grain warehousing

prices); Nebbia, 291 U.S. at 537 (milk prices); Yee v.

City of Escondido, 503 U.S. 519, 529-30 (1992) (rent

prices). And the Second Circuit correctly recognized

that this basic principle—that price-control laws

regulate economic conduct rather than speech

applies not only when a State regulates final prices,

but also when it regulates the relationships between

prices. See also, e.g., Nat'l Ass'n of Tobacco Outlets,

17

731 F.3d at 76-78 (rejecting First Amendment

challenge to ordinance prohibiting sellers from using

discounts to reduce regular price of tobacco products).

New York’s credit-card surcharge prohibition

does nothing more than prevent sellers from the

conduct of extracting charges above their regular,

posted prices. Petitioners are simply wrong in

arguing that this limitation on how sellers set and

deviate from their regular prices affects protected

speech by controlling how a seller “chooses to

communicate price information to consumers” (Pet.

23). As petitioners conceded below (see Pet. App.

19a), price-control regulations have never been

thought to implicate the First Amendment even

though all prices are necessarily communicated

through words or signs.

The Second Circuit thus correctly held that the

“central flaw” in petitioners’ argument was their

“persistence in equating the actual imposition of a

credit-card surcharge” or the provision of a cash

discount “with the words that speakers of English”

usually employ to describe those two distinct pricing

practices—i.e., the terms “surcharge” and “discount.”

(Pet. App. 21a.) The fact that sellers necessarily use

words to convey their prices to customers does not

mean that “surcharge” and “discount” are nothing

more than words that describe otherwise identical

price differences. Rather, common sense and

everyday commercial practice demonstrate that

surcharges and discounts are two distinct pricing

practices distinguished by their relationship to a

seller's regular price. See supra at 5-6. And both

Yongress and the New York Legislature made the

rational policy determination that this well-

understood difference between surcharges and

18

discounts is important because credit-card surcharges

cause certain economic and consumer harms that

cash discounts do not. See supra at 2-3. This policy

choice to regulate prices does not implicate the First

Amendment at all.

Petitioners are thus mistaken in relying on this

Court’s commercial speech cases. (See Pet. 22, 25.)

Although States cannot seek to protect consumers by

restricting sellers from conveying truthful informa-

tion about lawful prices, see, e.g., Va. State Bd. of

Pharmacy v. Va. Citizens Consumer Council, Inc.,

425 U.S. 748, 766-70 (1976), they are free to regulate

prices directly to shield or influence consumers and

the economy, see, e.g., 44 Liquormart, 517 U.S. at 507

(plurality op.); Nebbia, 291 U.S. at 516-19, 537-38.

Only the former type of regulation implicates speech;

the latter affects only sellers’ conduct of setting

prices.

Finally, New York’s surcharge prohibition is not

unconstitutionally vague as applied to pricing

schemes that collect credit-card fees in excess of a

seller’s regular, posted prices. All that due process

requires is that ordinary people and law-enforcement

officials can apply common sense to understand the

core conduct that New York’s statute prohibits. See

United States v. Williams, 553 U.S. 285, 304 (2008).

As the Second Circuit correctly concluded, this

principle disposes of plaintiffs’ vagueness claim

because both everyday experience and common

knowledge allow sellers and government enforcers to

understand that adding amounts above a seller's

regular, posted price is a prohibited surcharge, while

deducting amounts from a seller’s regular, posted

price is a permissible discount.

19

2. To the extent that petitioners separately seek

review of the Second Circuit’s distinct holding to

abstain from ruling on the constitutionality of New

York’s statute as applied to “dual-pricing” schemes,

that holding also does not warrant certiorari.'°

Pullman abstention safeguards against the

“serious disruption by federal courts of state

government [and] needless friction between state and

federal authorities” that results when a federal court

issues a premature and unnecessary ruling on a

federal constitutional question based on a mistaken

understanding of state law. La. Power & Light Co. v.

City of Thibodaux, 360 U.S. 25, 28 (1959); see

Pullman, 312 U.S. at 500-01. To avoid those hazards,

courts can appropriately abstain when a state statute

is readily susceptible to an interpretation that, if

adopted by the state courts, would avoid or modify

any federal constitutional claims at issue. See Moore

v. Sims, 442 U.S. 415, 429 (1979).

This case presents the paradigmatic circumstan-

ces warranting abstention. Petitioners’ constitutional

claims are premised on their assumption that New

York’s surcharge prohibition applies more broadly

than the prior federal surcharge ban—specifically, by

prohibiting pricing practices (such as “dual-pricing”)

in which sellers do not have regular, posted prices.

(See Pet. App. 32a; see also Pet. App. 28a-29a.) The

Second Circuit correctly recognized that there was a

© Petitioners’ “Question Presented” does not separately

seek certiorari to review the Second Circuit’s abstention holding

(sr Pet. i), although the petition |iscus+es that holding (see Pet

28-50.) See Sup. Ct. R. 14 (proving that Court will not consider

questions that are not set out as questions presented).

20

“dearth of authority” to support petitioners’

characterization of New York law. (Pet. App. 32a.)

Indeed, because New York’s statute was modeled on

the lapsed federal law, it is far more likely that the

state appellate courts would interpret New York’s

surcharge prohibition as having the same scope as

the federal statute, under which “dual-pricing” and

similar practices were permissible. See Cash

Discount Act, § 102(a), 95 Stat. at 144. In light of this

readily available limiting construction and the

absence of New York case law tc the contrary, the

Second Circuit appropriately declined to address

petitioners’ constitutional challenge pending further

state-court developments.

Contrary to petitioners’ assertions (Pet. 28-29),

this Court has never pronounced any categorical rule

barring courts from abstaining whenever a plaintiff

asserts a First Amendment or vagueness challenge to

a state statute. See, e.g., Babbitt v. United Farm

Workers Natl Union, 442 U.S. 289, 307-12 (1979)

(lower court should have abstained on First

Amendment and vagueness claims). The cases on

which petitioners rely (Pet. 28-29) simply confirm

that abstention is not automatic and instead requires

that the state statute at issue be susceptible to a

limiting construction.'' That standard is satisfied

here.

\! See, e.g., City of Houston v. Hill, 482 U.S. 451, 468 (1987)

(ordinance “not susceptible” to limiting construction); Procunier

v. Martinez, 416 U.S. 396, 403 (1974) (state interpretation

“would not avoid or substantially modify” constitutional

question); Zwickler v. Koota, 389 U.S. 241, 249 (1967) (“no

question of a [statutory] construction . . . that would avoid or

modify the constitutional question” (quotation marks omitted));

(continues on next page)

21

x*“***

In addition to the petition for a writ of certiorari

filed in this case, petitions have also been filed in

Rowell and Dana’s Railroad. See supra at 8. These

two petitions should be denied for substantially the

same reasons as explained above. However, if the

Court disagrees and is inclined to grant certiorari in

one or more of these cases, we respectfully request

that the Court grant the petition in this case to

provide the New York Attorney General with the

opportunity to defend New York’s law.

Dombrowski v. Pfister, 380 U.S. 479, 491 (1965) (“no readily

apparent” narrowing construction existed); Baggett v. Bullitt,

377 U.S. 360, 378 (1964) (“it is difficult to see how an abstract

construction” of challenged statutory terms “could eliminate”

vagueness).

22

CONCLUSION

The petition for a writ of certiorari should be

denied.

ERIC T. SCHNEIDERMAN

Attorney General

State of New York

BARBARA D. UNDERWOOD*

Solicitor General

STEVEN C. Wu

Deputy Solicitor General

JUDITH N. VALE

Assistant Solicitor General

(212) 416-8020

barbara.underwood@ag.ny.gou

August 2016 * Counsel of Record