Italian Colors Restaurant, et al. v. Harris, No. 2:2014cv00604 - Document 42 (E.D. Cal. 2015)
Court Description: ORDER granting 11 Motion for Summary Judgment and denying 22 Motion for Summary Judgment signed by Chief Judge Morrison C. England, Jr on 3/25/15: The Court declares the California Civil Code section 1748.1 unconstitutional and permanently enjoins its enforcement. (Kaminski, H)
Download PDF
<![CDATA[
Italian Colors Restaurant, et al. v. Harris Doc. 42 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 12 13 14 15 ITALIAN COLORS RESTAURANT, ALAN CARLSON, LAURELWOOD CLEANERS, LLC, JONATHAN EBRAHIMIAN, LEON’S TRANSMISSION SERVICE, INC., VINCENT ARCHER, FAMILY LIFE CORPORATION d/b/a FAMILY GRAPHICS, TOSHIO CHINO, 18 19 20 MEMORANDUM AND ORDER Plaintiffs, 16 17 No. 2:14-cv-00604-MCE-DAD v. KAMALA D. HARRIS, in her official capacity as Attorney General of the State of California, Defendant. 21 22 23 24 25 26 27 This action challenges the constitutionality of section 1748.1 of the California Civil Code, which states in subsection (a): No retailer in any sales, service, or lease transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means. A retailer may, however, offer discounts for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, provided that the discount is offered to all prospective buyers. 28 1 Dockets.Justia.com 1 If a retailer imposes a surcharge, the cardholder is entitled to recover three times the 2 amount of actual damages, plus attorney’s fees and costs. Id. § 1748.1(b). 3 Plaintiffs are five California businesses—a restaurant, gas station, dry cleaners, 4 transmission repair business, and web design company—and their respective owners. 5 They filed this action against the California Attorney General, in her official capacity, 6 alleging that section 1748.1 violates the First Amendment as an unlawful restriction on 7 commercial speech because the statute regulates how retailers can describe the price 8 difference between cash and credit purchases.1 For example, a retailer could charge 9 $102 for a product and give a $2 discount, but could not charge $100 and impose a $2 10 surcharge, despite the situations being mathematically equivalent. Thus, the statute 11 restricts how this $2 price difference is presented to the consumer. Plaintiffs also allege 12 that the statute violates the Due Process Clause of the Fourteenth Amendment because 13 the law is void for vagueness. Accordingly, in their operative First Amended Complaint 14 (“FAC”), Plaintiffs request that the Court declare the law unconstitutional and enjoin its 15 enforcement. FAC, ECF No. 5 at 19. 16 After reviewing the filings in this case and holding a hearing on December 18, 17 2014, the Court finds that this regulation is an unconstitutional restriction on Plaintiffs’ 18 freedom of speech and is void for vagueness. Accordingly, Plaintiffs’ Motion for 19 Summary Judgment (ECF No. 11) is GRANTED, and Defendant’s Motion for Summary 20 Judgment or, in the alternative, Summary Adjudication (ECF No. 22) is DENIED. 21 22 BACKGROUND 23 24 There is a long history of “no-surcharge” rules in the United States. Originally, 25 credit card companies contractually banned any attempt to differentiate between credit 26 and cash purchases. See Edmund W. Kitch, The Framing Hypothesis: Is it Supported 27 by Credit Card Issuer Opposition to a Surcharge on a Cash Price?, 6 J.L. Econ. & Org. 28 1 For convenience, payments made by cash, debit, and check are referred to as “cash.” 2 1 217, 219-20 (1991). But in 1974, American Express dropped its private ban on dual 2 pricing. Id. at 225. That same year, Congress amended the Truth in Lending Act 3 (“TILA”) to allow the practice. Fair Credit Billing Act, Pub. L. No. 93-495, tit. III, § 306, 4 88 Stat. 1500, 1515 (1974) (codified at 15 U.S.C. § 1666f(a)). The language used in the 5 1974 TILA amendment focused solely on the use of discounts: “a card issuer may not, 6 by contract, or otherwise, prohibit any such seller from offering a discount to a 7 cardholder to induce the cardholder to pay by cash, check, or similar means rather than 8 use a credit card.” Id. Then, in 1976, Congress enacted a temporary federal ban on 9 surcharges. See State Taxation of Depositories Act, Pub. L. No. 94-222, § 3(c)(1), 90 10 Stat. 197 (1976). This ban was extended twice. See Financial Institutions Regulatory & 11 Interest Rate Control Act, Pub. L. 95-630, § 1501, 92 Stat. 3641, 3713 (1978); Cash 12 Discount Act, Pub. L. No. 97-25, § 201, 95 Stat. 144 (1981). When Congress let the ban 13 lapse, credit card companies advocated for similar legislation at the state level. “No- 14 surcharge” laws were eventually enacted in ten states.2 15 In 1985, California passed its own “no-surcharge” law, which is the law now 16 challenged by Plaintiffs. The stated legislative intent in passing the law was “to promote 17 the effective operation of the free market and protect consumers from deceptive price 18 increases for goods and services by prohibiting credit card surcharges and encouraging 19 the availability of discounts by those retailers who wish to offer a lower price for goods 20 and services purchased by some form of payment other than credit card.” Cal. Civ. 21 Code § 1748.1(e). 22 Only one California case has resulted from the enforcement of section 1748.1: 23 Thrifty Oil Co. v. Superior Court, 91 Cal. App. 4th 1070 (2001). In Thrifty, the California 24 Court of Appeal held that the statute allows a non-deceptive dual-pricing scheme where 25 credit card users are charged more than cash users. At Thrifty’s California service 26 stations, both the cash price and the credit price for gasoline were prominently displayed 27 28 2 See N.Y. Bus. Law § 518; Colo. Rev. Stat. § 5-2-212(1); Conn. Gen. Stat. § 42-133ff(a); Fla. Stat. § 501.0117; Kan. Stat. Ann. § 16a-2-403; Me. Rev. Stat. 9-A, § 8-303(2) (repealed Sept. 27, 2011); Mass. Gen. Laws Ch. 140D, § 28A(a); Okla. Stat. tit. 14a, § 2-211(A); Tex. Fin. Code § 339.001. 3 1 and disclosed to customers. Id. at 1074. Further, Thrifty claimed that the higher credit 2 price represented the actual cost charged to Thrifty by the credit card company. Id. at 3 1077. While the plaintiff argued that the pricing scheme was unlawful because the credit 4 card price was higher than the “normal price,” the court reasoned that the two-tiered 5 pricing was permissible since there was a “clear as day” disclosure of the price 6 difference and the price reflected the increased cost to Thrifty for credit card 7 transactions. While not conclusively determined, the court suggested that any dual 8 pricing system was legal under section 1748.1 as long as the price difference was 9 disclosed and limited to the additional credit card cost to the merchant. Id. at 1077-79. 10 However, in concluding that this pricing system constituted a “permissible discount, not 11 an unlawful surcharge,” the court provided no further guidance on the boundary between 12 a discount and a surcharge. Id. at 1073. 13 Thus, section 1748.1 appears to permit Plaintiffs to charge more for credit card 14 purchases than cash purchases, regardless of the “normal price” of the item, as long as 15 this price difference is framed as a discount rather than a surcharge. Plaintiffs claim that 16 the statute is unconstitutional because, while it does not affect pricing, it does affect how 17 Plaintiffs can convey the prices to their customers. Retailers would like to emphasize 18 that the higher price is a surcharge because behavioral economics research has shown 19 that customers are “loss averse” and a potential economic penalty will motivate them to 20 change their behavior more than a potential economic benefit. See generally Daniel 21 Khneman et al., Anomalies: The Endowment Effect, Loss Aversion, and Status Quo 22 Bias, 5 J. Econ. Persp. 193, 199 (1991); Adam Levitan, The Antitrust Super Bowl: 23 America’s Payment Systems, No-Surcharge Rules, and the Hidden Cost of Credit, 24 3 Berkeley Bus. L.J. 265, 280-81 (2006). It follows, Plaintiffs reason, that the most 25 effective way to encourage customers to switch from credit cards to cash payments is to 26 emphasize an economic penalty associated with the use of credit cards. 27 28 Retailers would like to discourage the use of credit cards because a “merchant” or “swipe” fee (usually 2-3% of the purchase price) is charged when customers pay with a 4 1 credit card. These fees can be incredibly expensive to a retailer. Plaintiff Vincent Archer 2 states that credit card fees are the largest non-payroll-related expense at his business, 3 Leon’s Transmission Service, Inc. and that, since 2004, the business has spent 4 $300,000.00 on swipe fees to Visa alone. Archer Decl., ECF No. 14 at ¶¶ 4, 6. 5 Instead of raising the prices for credit card users and offering a discount for cash 6 users, many businesses just raise the price of the product to include the cost of the 7 swipe fee. Since low-income customers are more likely to use cash, this can result in 8 low-income customers subsidizing the cost of the swipe fees. Elizabeth Warren, 9 Antitrust Issues in Credit Card Merchant Restraint Rules, Tobin Project Risk Policy 10 Working Group, 1 (May 6, 2007); see also Scott Schuh et al., Who Gains and Who 11 Loses from Credit Card Payments?, 21 (Fed. Reserve Bank of Boston, Public Policy 12 Discussion Paper No. 10-03, 2010) (finding that “[t]he average cash-paying household 13 transfers $149 . . . annually to card users,” each of whom on average “receives a 14 subsidy of $1,333 . . . annually from cash users”). 15 Additionally, it has been found that when countries allow surcharges, swipe fees 16 decrease significantly. As the swipe fees become more transparent, credit card 17 companies are incentivized to lower the fees to remain competitive. America currently 18 has some of the highest swipe fees in the world. Stuart E. Weiner and Julian Wright, 19 Interchange Fees in Various Countries: Developments and Determinants 14 (Fed. 20 Reserve Bank of Kansas City, Working Paper No. 05-01, 2005). 21 Until fairly recently, the state “no surcharge” statutes were redundant because 22 credit card companies had contractual provisions that prohibited retailers from imposing 23 surcharges. However, in 2013, a nationwide settlement agreement with the credit card 24 companies resulted in the removal of these contractual provisions. See In re Payment 25 Card Interchange Fee & Merch. Disc. Antitrust Litig., 986 F. Supp. 2d 207, 234 (E.D.N.Y. 26 2013). Instead, retailers are now required to engage in truthful and prominent disclosure 27 of surcharge information to consumers and cannot recoup more than the cost of the 28 merchant fees as a surcharge. Id. Plaintiffs would like to impose surcharges now that 5 1 they are contractually permitted to do so, but fear that their actions would be illegal 2 under section 1748.1. 3 4 STANDARD 5 6 The Federal Rules of Civil Procedure provide for summary judgment when “the 7 movant shows that there is no genuine dispute as to any material fact and the movant is 8 entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. 9 Catrett, 477 U.S. 317, 322 (1986). In a summary judgment motion, the moving party 10 always bears the initial responsibility of informing the court of the basis for the motion 11 and identifying the portions in the record “which it believes demonstrate the absence of a 12 genuine issue of material fact.” Celotex, 477 U.S. at 323. If the moving party meets its 13 initial responsibility, the burden then shifts to the opposing party to establish that a 14 genuine issue as to any material fact actually does exist. Matsushita Elec. Indus. Co. v. 15 Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); First Nat’l Bank v. Cities Serv. Co., 16 391 U.S. 253, 288-89 (1968). 17 18 ANALYSIS 19 A. Standing 20 The Court must first address whether Plaintiffs have standing to bring this suit. 21 The jurisdiction of federal courts is limited to “cases” and “controversies” under Article III 22 of the Constitution. Lujan v. Defenders of Wildlife, 504 U.S. 555, 559 (1992). To 23 establish a case or controversy, Plaintiffs must show that there is (1) a concrete “injury in 24 fact”; (2) a causal connection between the injury and Defendant’s conduct; and (3) a 25 likelihood that the injury will be redressed by a favorable decision. Id. at 560-61. 26 “When the threatened enforcement effort implicates First Amendment rights, the 27 inquiry tilts dramatically toward a finding of standing.” LSO, Ltd. v. Stroh, 205 F.3d 1146, 28 1155 (9th Cir. 2000). Because of the potential for chilling speech, Plaintiffs do not have 6 1 to wait until the injury occurs. Ariz. Right to Life Political Action Comm. v. Bayless, 2 320 F.3d 1002, 1006 (9th Cir. 2003) (referring to this as the “hold your tongue and 3 challenge now” approach). “In First Amendment cases, ‘[i]t is sufficient for standing 4 purposes that the plaintiff intends to engage in a course of conduct arguably affected 5 with a constitutional interest and that there is a credible threat that the challenged 6 provision will be invoked against the plaintiff.’” ACLU of Nev. v. Heller, 378 F.3d 979, 7 984 (9th Cir. 2004) (quoting LSO, 205 F.3d at 1154-55). Plaintiffs must only show “a 8 realistic danger of sustaining a direct injury as a result of the statute’s operation or 9 enforcement.” Ariz. Right to Life, 320 F.3d at 1006 (internal quotation marks omitted). 10 Plaintiffs concede that no legal proceedings have been brought or threatened 11 against Plaintiffs under section 1748.1, nor has there been a history of past prosecution 12 or enforcement of the statute generally. However, due to contractual agreements with 13 the credit card companies, retailers were not permitted to impose surcharges until 2013, 14 thus limiting the possibility of any enforcement actions under section 1748.1. Plaintiffs 15 have provided declarations stating that they would like to implement surcharges now, but 16 believe they may be prevented from doing so by the statute. Archer Decl., ECF No. 14 17 at ¶¶ 9-11; Chino Decl., ECF No. 16 at ¶¶ 7; Carlson Decl., ECF No. 15 at ¶¶ 7-8; 18 Ebrahimian Decl., ECF No. 17 at ¶ 7; Razuki Decl., ECF No. 18 at ¶ 7. 19 While the Attorney General claims that Plaintiffs can engage in their desired 20 behavior without facing prosecution, it is the citizens, not the state, who would enforce 21 this law. See § 1748.1(b) (giving the cardholder a cause of action when a retailer 22 imposes a surcharge). Thus, the Attorney General’s promises hold little weight. At the 23 hearing on this matter, the State conceded that if large retailers across the state began 24 engaging in dual-pricing behavior and used the word “surcharge” to describe the price 25 difference, an enforcement action would likely occur. That is enough to convince the 26 Court that Plaintiffs have standing to challenge the constitutionality of the statute. 27 /// 28 /// 7 1 B. 2 First Amendment The central question in this case is whether the restriction on surcharges imposes 3 an impermissible burden on commercial speech in violation of the First Amendment. 4 Other district courts reviewing similar state statutes have come to different conclusions. 5 Compare Expressions Hair Design v. Schneiderman, 975 F. Supp. 2d 430, 444-47, 450 6 (S.D.N.Y. 2013) (finding New York statute limits how retailers can communicate their 7 pricing and therefore implicates the First Amendment, applying intermediate scrutiny, 8 and granting a preliminary injunction against enforcement), with Dana’s R.R. Supply v. 9 Bondi, No. 4:14cv134-RH/CA, ECF No. 29 at *5 (N.D. Fla. Sept. 2, 2014) (finding Florida 10 statute to be purely economic and upholding statute under rational basis test), and 11 Roswell v. Abbott, No. 1:14-cv-190-LY, ECF No. 55 at *6-7 (W.D. Tex. Feb. 4, 2015) 12 (finding Texas statute to be constitutional after conducting a similar analysis). 13 The first inquiry is whether Plaintiffs have met their burden of showing that the 14 First Amendment applies. Clark v. Cmty. For Creative Non-Violence, 468 U.S. 288, 293 15 n.5 (1984). According to Plaintiffs, the law “prohibits a certain class of speakers 16 (merchants) from communicating a certain disfavored message (identifying the added 17 cost of credit as a surcharge) and does so to discourage consumers from acting on that 18 message (by deciding to use a credit card).” Pl.’s Mem. Supp. Summ. J., ECF No. 12, at 19 14-15. 20 The Attorney General counters that section 1748.1 only prevents retailers from 21 charging an additional amount to credit card users, separate from and in addition to the 22 assigned price, at the point of sale. The government points to the legislative history for 23 the statute, which states that the purpose of the law was to prevent a “bait and switch” 24 situation where an additional charge is added at the cash register if the customer 25 chooses to use a credit card. Instead, if retailers are going to make a last-minute price 26 change due to the payment method, under section 1748.1 they can only discount the 27 price for non-credit card users. 28 /// 8 1 Under the State’s interpretation, section 1748.1 does not instruct retailers how to 2 assign their prices or otherwise communicate pricing or cost information to their 3 customers. Because only economic activity (adding a surprise surcharge at the cash 4 register) is prohibited by the statute, the Attorney General argues that no speech is 5 implicated and the statute should only be subject to rational basis review. Nebbia v. 6 New York, 291 U.S. 502, 537 (1933) (explaining that economic regulations will be upheld 7 if they “have a reasonable relation to a proper legislative purpose, and are neither 8 arbitrary nor discriminatory”). Under a rational basis review, the statute would most likely 9 be upheld. See Williamson v. Lee Optical of Okla., Inc., 348 U.S. 483, 488 (1955) (“If 10 the challenged classification bears a reasonable relationship to the accomplishment of 11 some legitimate government objective, the statute must be upheld.”). 12 The Court finds that this is not an economic regulation that controls what is 13 charged or paid for something. See Munn v. Illinois, 94 U.S. 113, 125 (1876). As 14 conceded by the government in its briefing, “section 1748.1 [does not] instruct retailers 15 how to assign their prices.” Def. Reply, ECF No. 29, at 8. Instead, section 1748.1 16 regulates speech that conveys price information, which is protected by the First 17 Amendment. Va. Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 18 748, 770 (1976). Here, what is regulated is how those prices are conveyed to 19 customers, not the prices themselves. See Expressions Hair Design, 975 F. Supp. 2d at 20 455 (“Pricing is a routine subject of economic regulation, but the manner in which price 21 information is conveyed to buyers is quintessentially expressive, and therefore protected 22 by the First Amendment.”) 23 The State argues that Plaintiffs are able to communicate pricing as they choose 24 because Plaintiffs are already permitted to tell their customers about merchant fees. 25 But this does not mean, as the State claims, that Plaintiffs are free to “express 26 themselves regarding California’s no-surcharge law.” Def. Mem. Supp. Summ. J., ECF 27 No. 22, at 10. Plaintiffs cannot frame their price how they would like, even though they 28 are allowed to speak with their customers generally about the credit card industry and 9 1 the merchant fees that the industry charges. “An individual's right to speak is implicated 2 when information he or she possesses is subjected to ‘restraints on the way in which the 3 information might be used’ or disseminated.” Sorrell v. IMS Health Inc., 131 S. Ct. 2653, 4 2665 (2011) (quoting Seattle Times Co. v. Rhinehart, 467 U.S. 20, 32 (1984)). 5 In Sorrell, the Supreme Court struck down a Vermont restriction on the sale, 6 disclosure, and use of pharmacy records to pharmaceutical companies for marketing 7 purposes as a violation of the pharmaceutical manufacturers’ First Amendment rights. 8 Id. at 2665. Justice Kennedy, writing for the majority, found that the statute singled out a 9 specific class of speakers (the pharmaceutical companies) and certain content (product 10 marketing). Other groups, like those who wished to engage in certain “educational 11 communications,” were permitted to use the pharmacy records. Id. at 2663. 12 Similarly, section 1748.1 exempts government speakers from restrictions that 13 continue to apply to retailers. See Cal. Civ. Code § 1748.1(f) (exemption for payments 14 made to electrical, gas, or water corporation). Other California statues create similar 15 distinctions. See Cal. Gov. Code § 6159(h) (cities, counties, courts, and other public 16 agencies exempt); Cal. Civ. Proc. Code § 1010.5 (state courts can impose surcharges 17 on fax filings); Cal. Food & Agric. Code § 3125(b) (state animal control officers can 18 impose credit card surcharges). Nonetheless, as one court notes, “the Government 19 presents no convincing reason for pegging its speech ban to the identity of the owners or 20 operators of the [speaker].” Greater New Orleans Broad. Ass’n v. United States, 21 527 U.S. 173, 191 (1991). 22 In addition to singling out a specific class of speakers, the Court also finds that 23 section 1748.1 is a content-based restriction. “As a general rule, laws that by their terms 24 distinguish favored speech from disfavored speech on the basis of the ideas or views 25 expressed are content based.” Turner Broad. Sys. v. F.C.C., 512 U.S. 622, 643 (1994). 26 “A speech restriction is content-neutral if it is ‘justified without reference to the content of 27 the regulated speech.’” S.O.C., Inc. v. Cnty. of Clark, 152 F.3d 1136, 1145 (9th Cir. 28 1998) (quoting Clark, 468 U.S. at 293). “Content-based regulations are presumptively 10 1 unconstitutional” and “pass constitutional muster only if they are the least restrictive 2 means to further a compelling interest.” Id. Here, the content of the retailers’ speech 3 must be scrutinized to determine if the price is framed as a permissible discount or an 4 impermissible surcharge, making this a content-based restriction. 5 Even a statute that appears neutral on its face as to content and speaker can be 6 rendered unconstitutional if its purpose is to suppress speech and it unjustifiably burdens 7 expression. Sorrell, 131 S. Ct at 2664. “Commercial speech is no exception.” Id. A 8 “consumer’s concern for the free flow of commercial speech often may be far keener 9 than his concern for urgent political dialogue.” Bates v. State Bar of Ariz., 433 U.S. 350, 10 364 (1977). “Commercial speech is that ‘which does no more than propose a commercial 11 transaction.’” Valle Del Sol Inc. v. Whiting, 709 F.3d 808, 818 (9th Cir. 2013) (quoting 12 Va. State Bd. of Pharmacy, 425 U.S. at 762 (internal quotation marks omitted). “Such 13 speech is protected by the First Amendment, but to a lesser degree than other types of 14 speech.” Id. 15 Restrictions on commercial speech are traditionally subject to intermediate 16 scrutiny under the test laid out in Cent. Hudson Gas & Elec. Corp v. Pub. Serv., Comm’n 17 of N.Y., 447 U.S. 557, 566 (1980). Under the so-called Hudson test, the court asks four 18 questions: (1) whether the speech concerns lawful activity and is not misleading; 19 (2) whether the asserted governmental interest justifying the regulation is substantial; 20 (3) whether the regulation directly advances the governmental interest asserted; and 21 (4) whether the regulation is more extensive than is necessary to serve that interest. Id. 22 The burden is on the government to show that the elements of the test are satisfied. 23 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 504 (1996). 24 While the Attorney General argues that surprise surcharges would be misleading 25 to consumers, the State “may not place an absolute prohibition on certain types of 26 potentially misleading information . . . if the information also may be presented in a way 27 that is not deceptive.” In re R.M.J., 455 U.S. 191, 203 (1982). “[R]estrictions . . . may be 28 no broader than reasonably necessary to prevent the deception.” Id. While a surprise 11 1 surcharge would be misleading for the consumer, there are other ways to present the 2 information that is not deceptive. For example, if the retailer displayed information about 3 the surcharge throughout the store and noted that the surcharge was due to merchant 4 fees, this speech would not be misleading, but would actually be informative and 5 accurate. In that sense, this regulation has the effect of preventing one class (retailers) 6 from speaking “in an effective and informative manner” to their customers. Sorrell, 7 131 S. Ct. at 2663. 8 The stated intent of the Legislature was “to promote the effective operation of the 9 free market and protect consumers from deceptive price increases for goods and 10 services by prohibiting credit card surcharges and encouraging the availability of 11 discounts by those retailers who wish to offer a lower price for goods and services 12 purchased by some form of payment other than credit card.” Cal. Civ. Code 13 § 1748.1(e). The prevention of consumer deception is certainly a noble goal, and while 14 the Court assumes that these interests are indeed significant; that does not end the 15 Court’s inquiry. See Sorrell, 131 S. Ct. at 2559 (finding that Vermont had a significant 16 interest in safeguarding medical privacy with its restriction but that the statute still could 17 not satisfy heightened judicial scrutiny). The State is also required to point to something 18 more than “mere speculation or conjecture” to “demonstrate that the harms it recites are 19 real and that its restriction will in fact alleviate them to a material degree.” Greater 20 New Orleans, 527 U.S. at 188 (citation omitted). 21 The State’s position that surcharges present a real harm is undermined by the 22 fact that the statute exempts government agencies from the law. “Exemptions from an 23 otherwise legitimate regulation of a medium of speech may be noteworthy for a reason 24 quite apart from the risks of viewpoint and content discrimination: they may diminish the 25 credibility of the government’s rationale for restricting speech in the first place.” City of 26 Ladue v. Gilleo, 512 U.S. 43, 52 (1994). If this speech is so deceptive and harmful, why 27 is the government allowed to engage in it? 28 /// 12 1 2 Finally, there must be a reasonable fit between a legitimate state interest and the scope of the speech restriction. 3 The Government is not required to employ the least restrictive means conceivable, but it must demonstrate narrow tailoring of the challenged regulation to the asserted interest—“a fit that is not necessarily perfect, but reasonable; that represents not necessarily the single best disposition but one whose scope is in proportion to the interest served.” 4 5 6 7 Greater New Orleans, 527 U.S. at 188 (quoting Bd. of Trs. of State Univ. of N.Y. 8 v. Fox, 492 U.S. 469, 480 (1989)). “[T]hese standards ensure not only that the State’s 9 interests are proportional to the resulting burdens placed on speech but also that the law 10 does not seek to suppress a disfavored message.” Sorrell, 131 S. Ct. at 2668. 11 “Restrictions must be narrowly drawn, and the State lawfully may regulate only to the 12 extent regulation furthers the State's substantial interest.” In re R.M.J., 455 U.S. at 203. 13 If the purpose of the statute is to prevent unfair surprise to the consumers at the 14 cash register, California’s law is much broader than necessary. A law mandating 15 disclosure of surcharges would be the most direct way to prevent consumer deception. 16 This method would also prevent any encroachment on the freedom of speech. See, 17 e.g.,, Minn. Stat § 325G.051(1)(a) (allowing merchants to “impose a surcharge on a 18 purchaser who elects to use a credit card” so long as the merchant “informs the 19 purchaser of the surcharge both orally at the time of sale and by a sign conspicuously 20 posted on the seller’s premises”); In re Payment Card Interchange, 986 F. Supp. 2d at 21 234 (limiting amount of surcharge to cost of acceptance and requiring retailers to engage 22 in truthful and prominent disclosure of surcharge information to consumers). 23 For the foregoing reasons, section 1748.1 cannot pass the intermediate scrutiny 24 required for a content-based, speaker-specific restriction on consumer speech. The 25 Court must therefore strike down the statute as an unconstitutional restriction on First 26 Amendment rights. 27 /// 28 /// 13 1 C. 2 Plaintiffs also argue that section 1478.1 is unconstitutionally vague. “A Vagueness 3 fundamental requirement of due process is that a statute must clearly delineate the 4 conduct it proscribes.” Kev, Inc. v. Kitsap Cnty., 793 F.2d 1053, 1057 (9th Cir. 1986). A 5 law is unconstitutionally vague when it fails “to give persons of ordinary intelligence 6 adequate notice of what conduct is proscribed” or that “permit[s] or authorize[s] ‘arbitrary 7 and discriminatory enforcement.’” G.K. Ltd. Travel v. City of Lake Oswego, 436 F.3d 8 1064, 1084 (9th Cir. 2006) (quoting Hill v. Colorado, 530 U.S. 703, 732 (2000)). 9 “Statutes that are insufficiently clear are void for three reasons: (1) to avoid punishing 10 people for behavior that they could not have known was illegal; (2) to avoid subjective 11 enforcement of the laws based on ‘arbitrary and discriminatory enforcement’ by 12 government officers; and (3) to avoid any chilling effect on the exercise of First 13 Amendment freedoms . . . when First Amendment freedoms are at stake, an even 14 greater degree of specificity and clarity of laws is required.” Foti v. City of Menlo Park, 15 146 F.3d 629, 638-39 (9th Cir. 1998) (citing Grayned v. City of Rockford, 408 U.S. 104, 16 108-09 (1972); NAACP v. Button, 371 U.S. 415, 432-33 (1963)). 17 According to Plaintiffs, the law “does not clearly define the line between a 18 permissible ‘surcharge’ and a mathematically equivalent but illegal ‘discount.’” Pl.’s 19 Mem. Supp. Summ. J. at 3. Thus, “merchants are forced either to operate in constant 20 fear of inadvertently describing a dual-pricing policy in an illegal way or to refrain from 21 dual pricing altogether, as many of the Plaintiffs have done, even though it is legal.”3 Id. 22 The Attorney General argues that the statute is a straightforward business regulation 23 clearly apprising retailers that they may not impose a surcharge on credit card sales but 24 may offer a discount to induce payment by cash. The government argues there is a 25 26 27 28 3 Only one Plaintiff, Salam Razuki, currently uses a dual-pricing system with the lower price framed as a discount. See Ruzuki Decl., ECF No. 18 at ¶ 5. Another Plaintiff, Jonathan Ebrahimian, previously had a dual-pricing system in the 1990s, but stopped the practice after several months due to his fear of violating section 1478.1. See Ebrahimian Decl., ECF No. 17 at ¶ 4. The other Plaintiffs in this case would like to have a dual-pricing system but do not. See Archer Decl., ECF No. 14 at ¶¶ 13-14; Chino Decl., ECF No. 16 at ¶¶ 4-7; Carlson Decl., ECF No. 15 at ¶¶ 8-12. 14 1 distinction between a surcharge and a discount because surcharges are “charged 2 separately from and in addition to the assigned price of an item” and imply that this 3 additional charge would occur “at the register.” Def.’s Reply at 3. 4 Even under the State’s interpretation of the statute, it is not clear when a retailer’s 5 conduct violates section 1748.1. Prior California case law has already established that 6 charging $102 for credit payments and $100 for cash is lawful, regardless of the “normal 7 price” of the product, as long as the price difference is disclosed and justifiable based on 8 the price charged to the merchant for credit card transactions. See Thrifty Oil Co., 9 91 Cal. App. 4th at 1077-79. According to the Attorney General, the price difference can 10 even be described in any way the retailer likes without violating section 1478.1. See 11 Def.’s Reply at 4 (stating that the statute does not “instruct retailers how to assign their 12 prices or otherwise communicate pricing or cost information to their customers [including 13 the use of the word ‘surcharge’]”). But what happens if the price is listed as a “$100+2% 14 surcharge”? Does that scenario constitute an unlawful surcharge since the percentage 15 is calculated at the cash register? Or what would be the result if the price is listed as 16 $100, but there are large signs displayed throughout the establishment stating that a 2% 17 surcharge will be applied for purchases made with credit cards? Does that cross the line 18 into unlawful conduct because it could be perceived as a surprise addition to the price? 19 How prominently must the surcharge price be displayed to avoid a “bait-and-switch” 20 situation? 21 While the Attorney General dismisses questions like these as “hypothetical,” in 22 fact, these questions represent legitimate concerns that retailers must face when 23 determining whether to impose a legal dual-pricing system. And despite having access 24 to extensive briefing from the Attorney General on the meaning of this statute and the 25 opportunity to question counsel at the hearing on summary judgment, the answers to 26 these questions are not clear to the Court. Nor are the answers clear to the Plaintiffs, all 27 small businesses, or even the large national chains who have submitted an amicus brief 28 in this case. See Amicus Brief from California Retail Association, California Grocers 15 1 Association, Safeway Inc., The Kroger Co., Walgreen Co., Albertson’s LLC, Hy-Vee, 2 Inc., and Rite Aid Corporation, ECF No. 24. These retailers would like to have a pricing 3 system where a surcharge is imposed for credit card purchases, but do not feel confident 4 that they could do so lawfully. The fact that retailers—even large national retailers with 5 teams of in-house attorneys—do not use a dual-pricing system under the current law 6 due to fear of enforcement is proof that the law is not clear. 7 Finally, the State argues that the Court must work to save the statute under the 8 doctrine of constitutional avoidance. Although the doctrine requires the Court to 9 “consider the [government’s] limiting construction of the ordinance,” the Court is “not 10 required to insert missing terms into the statute or adopt an interpretation precluded by 11 the plain language of the ordinance.” Foti, 146 F.3d at 639; see Nat’l Adver. Co. v. City 12 of Orange, 861 F.2d 246, 247 (refusing to limit ordinance’s ban of off-site commercial 13 billboards when plain language of ordinance applied to all speech in off-site billboards). 14 The State’s interpretation is not clear from the text of the statute. There is no definition 15 for surcharge in the statute; there is nothing that would alert retailers to the fact that the 16 surcharges are only additional charges taken at the cash register. The Court cannot add 17 these terms into the statute and retailers should not be expected to read the Attorney 18 General’s brief to learn what the law means. Thus, in addition to being an 19 unconstitutional restriction on free speech, the Court finds that section 1478.1 is also 20 unconstitutionally vague. 21 22 CONCLUSION 23 24 Accordingly, Plaintiffs’ Motion for Summary Judgment (ECF No. 11) is GRANTED, 25 and Defendant’s Motion for Summary Judgment or, in the alternative, Summary 26 Adjudication (ECF No. 22) is DENIED. 27 /// 28 /// 16 1 2 3 4 The Court declares the California Civil Code section 1748.1 unconstitutional and permanently enjoins its enforcement. IT IS SO ORDERED. Dated: March 25, 2015 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
