Italian Colors Restaurant et al. v. Xavier Becerra, California AG, 1/3/18, Ninth Circuit
Under federal law, it used to be illegal for retailers to impose a surcharge on customers who purchased goods with a credit card; although retailers could offer discounts to people who paid with cash specifically to encourage payment with cash. (Mathematically there was no difference—this was special interest legislation for the benefit of credit card companies.). When that law expired in 1984, California passed its own version, Civil Code 1748.1, which included a treble damage provision. In 2014, a group of retailers wanted to set a single-sticker-price for their products and impose a surcharge for the use of credit cards. While they hadn’t done so, they claimed they were subject to an imminent invasion of a legally protected interest, and therefore had standing. They sued the California AG in federal court, alleging that 1748.1 violated their right to free speech under the First Amendment. The district court granted retailers summary judgment, and the California AG appealed. Held: Affirmed.
As the court noted, 1748.1 does not prohibit a retailer from having, and communicating to customers, a two tiered pricing system. It only applies to retailers who maintain a single-sticker-price and then propose to impose a surchage for credit card purchases.
The court found that plaintiffs had standing in part because a plaintiff suffers injury when it is forced to modify speech to comply with a statute. Plaintiffs said they would act differently but for the law.
Moreover, plaintiffs’ desired commercial speech—posting information about imposing surcharges for credit card purchases—deserved intermediate scrutiny. (Note: The U.S. Supreme Court held in the Expressions III that laws regulating communication of prices, affected speech and not just the conduct of setting prices.) The district court found that the surcharges plaintiffs desire to post were neither misleading nor related to unlawful activity; that the state’s asserted interest in preventing consumer deception, though substantial, is not advanced by Section 1748.1; and that there is no reasonable fit between that state interest and the scope of Section 1748.1. Thus, the district court struck down the statute as violating the First Amendment.
The Ninth Circuit agreed. Intermediate scrutiny asks whether commercial speech is misleading or related to illegal activity; if not, then the State must assert a substantial interest to be achieved by the regulation. The regulation must directly advance that interest, and not be more extensive than necessary.
California’s AG could not meet this challenge: The AG pointed to no evidence that the danger of misleading consumers by posting a credit card surcharge was real; and he failed to point to evidence that 1748.1 would actually alleviate said danger. On the contrary, the court found that 1748.1 prevented retailers from communicating with their customers in an effective and informative manner.