Why it matters

Setting the stage for a possible visit to the U.S. Supreme Court, the Eleventh Circuit Court of Appeals ruled that Florida's prohibition on imposing a surcharge on credit card purchases while simultaneously permitting a discount for cash runs afoul of the First Amendment. The divided panel reached the opposite conclusion of the Second Circuit, where the court held last month that New York's anti-surcharge statute did not violate the First Amendment. Unlike the Second Circuit panel—which determined that the law only regulated conduct and not speech—the Eleventh Circuit said Florida's law targeted "expression alone" and could fairly be called a "surcharges-are-fine-just-don't-call-them-that law." A dissenting opinion agreed with the Second Circuit's finding that the law targeted conduct when a merchant added an additional amount to a credit card purchase and not the description of the amount. The newly created circuit split is likely to expand, as similar suits are now pending before the Fifth Circuit (where a federal district court upheld Texas's law) and the Ninth Circuit (an appeal of a California court's determination the law was unconstitutional on First Amendment grounds).

Detailed discussion

In March 2013, family-run hobby shop Dana's Railroad Supply posted a sign indicating that customers would be subject to a fee for using credit cards to make purchases. Not long after, the business received a cease and desist letter from the Florida Attorney General demanding that Dana's refrain from practices that violated the state's no-surcharge law.

Together with three other recipients of such letters, Dana's filed suit in Florida federal court. Each of the businesses charged lower prices for customers paying with cash and higher prices for those using credit cards, telling the court they wished to express the price differential as an additional amount for credit card use rather than a lesser amount for cash payment.

Pursuant to Section 501.0117(1)-(2) of the Florida Statutes, a "seller or lessor in a sales or lease transaction" can be convicted of a second-degree misdemeanor for imposing "a surcharge on the buyer or lessee for electing to use a credit card," while allowing "the offering of a discount for the purpose of inducing payment by cash."

The AG moved for summary judgment, and after a rational-basis review of the law, a federal district court granted the motion. The plaintiffs appealed to the Eleventh Circuit Court of Appeals, where a divided panel reversed.

"Tautologically speaking, surcharges and discounts are nothing more than two sides of the same coin; a surcharge is simply a 'negative' discount, and a discount is a 'negative' surcharge," the majority wrote. "As a result, a merchant who offers the same product at two prices—a lower price for customers paying cash and a higher price for those using credit cards—is allowed to offer a discount for cash while a simple slip of the tongue calling the same price difference a surcharge runs the risk of being fined and imprisoned."

The First Amendment "prevents staking citizens' liberty on such distinctions in search of a difference," the court said. "Florida's no-surcharge law directly targets speech to indirectly affect commercial behavior. It does so by discriminating on the basis of the speech's content, the identity of the speaker, and the message being expressed. Because the at-best plausible justifications on which the no-surcharge law rest provide no firm anchor, the law crumbles under any level of heightened First Amendment scrutiny. We, therefore, must strike down Section 501.0117 as an unconstitutional abridgement of free speech."

Finding that the cease and desist letters from the Florida Attorney General were sufficient to establish standing for the plaintiffs to challenge the law, the court considered the facial validity of the statute under the First Amendment.

Unlike the Second Circuit Court of Appeals, which found that an anti-surcharge law in New York survived constitutional scrutiny because it regulated conduct and not speech, the Eleventh Circuit said the statute only regulated speech.

"[M]erchants can engage in dual-pricing so long as they offer only cash discounts, while credit-card surcharges are verboten," the majority wrote. "In order to violate the statute, a defendant must communicate the price difference to a customer and that communication must denote the relevant price difference as a credit-card surcharge. Calling Section 501.0117 a 'no-surcharge law,' then, is something of a misnomer. That statute targets expression alone. More accurately it should be called a 'surcharges-are-fine-just-don't-call-them-that law.'"

Florida's statute governs how to express relative values and imposes criminal liability for making the "wrong choice" between "equally plausible alternative descriptions of an objective reality," the court added. "Given our abhorrence of putting citizens of a free society to such 'choices,' laws that restrict speech in this fashion must overcome the robust protections of the First Amendment."

The court acknowledged that economic consequences might flow from how a cash or credit price difference is characterized, but as "a legal matter, potential incident effect, whether intended by the legislature or not, does not alter the fact that the no-surcharge law directly restricts speech."

Applying heightened scrutiny to the statute, the court found it failed to pass muster, depriving "the marketplace of ideas of the full range of public sentiment," and imposing "a direct and substantial burden on disfavored speech" by silencing it. "The no-surcharge law is content based: it applies only to how a merchant may frame the price difference between cash and credit-card payments," the court said.

Such a viewpoint-based restriction on speech warrants the greatest level of First Amendment protection, the majority said, and simply because some modicum of economic conduct was implicated did not permit the law to unconstitutionally restrict speech.

The Attorney General's asserted governmental interests failed to change the majority's mind. A generalized interest in consumer protection was "formulated too abstractly," the court said, while preventing bait-and-switch tactics, providing advance notice to consumers, and leveling the playing field among merchants could all be better served by direct regulation of actual pricing behavior.

"The available less strict-restrictive alternatives are legion," the court said. "What Florida cannot do, as a Constitution matter, is what its no-surcharge law does: abridge protected speech."

In a footnote, the majority distinguished the Second Circuit decision as "a combination of Pullman abstention and a narrow reading of the relevant statutory text and legislative history, both of which differ from Section 501.0117's."

A dissenting opinion argued that the majority neglected to consider the statute's definition of surcharge, which includes the limiting words "imposed at the time of a sale." That language demonstrates the law was intended to regulate conduct, such as when a customer goes to pay for an item with a credit card and is charged more than expected.

"The merchant can speak in any way he chooses so long as he does not ambush the credit-card-using customer with a higher price at the register," the dissent said. "What matters is when, from the customer's perspective, the merchant adds the additional amount to the price because a credit card is used, not how the merchant describes it."

To read the opinion in Dana's Railroad Supply v. Attorney General, State of Florida, click here.