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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2016

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0666%3A02. Public record. Not legal advice.