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Edward Markarian Pens Civil Case of the Month for BAEC


Magavern Magavern Grimm partner Ed Markarian is a regular contributor to the “Civil Case of the Month” series circulated by the Bar Association of Erie County. Ed’s article for April 2017 is reprinted below:


ECBA Appellate Practice Committee
Civil Case of the Month: April 2017
Ed Markarian


The opinions in Expressions Hair Design v Schneiderman (___ US ___, 137 SCt 30 [dec. March 29, 2017]) are relevant to New York Law in two respects. First, they considered the constitutionality of New York General Business Law § 518. Second, the underlying Second Circuit opinion, and the concurring Supreme Court opinions, discussed New York State Court of Appeals Rule 500.27, which allows federal appellate courts, and state courts of last resort, to certify to our Court of Appeals "dispositive questions" of New York law.

I.

Does New York's no-credit-surcharge statute violate the First Amendment?

The majority Supreme Court opinion was authored by Chief Justice Roberts. He set the background for the issues in enjoyably plain language as follows:

Petitioners, five New York businesses and their owners, wish to impose surcharges on customers who use credit cards. Each time one of their customers pays with a credit card, these merchants must pay some transaction fee to the company that issued the credit card. The fee is generally two to three percent of the purchase price. Those fees add up, and the merchants allege that they pay tens of thousands of dollars every year to credit card companies. Rather than increase the prices across the board to absorb those costs, the merchants want to pass the fees along only to their customers who chose to use credit cards. They also want to make clear that they are not the bad guys -- that the credit card companies, not the merchants, are responsible for the higher prices.

Interestingly, it was undisputed that the merchants in Expressions Hair could legally offer discounts to cash users, but this is not what they wanted. They wanted to show that the credit card companies were the "bad guys" by surcharging credit users. However, New York General Business Law §518 provides that "no 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."

The merchants challenged the constitutionality of Section 518 in federal court, and the Second Circuit Court of Appeals abstained from deciding the question on the merits, finding that it turned on an unsettled question of state law.

The Supreme Court granted certiorari and reversed, but only to the extent of finding that abstention was improper and that Section 518 implicated constitutional questions of free speech. Chief Justice Roberts explained that "a merchant who wants to charge $10 for cash and $10.30 for credit may not convey that price any way he pleases. He is not free to say '$10, with a 3% credit card surcharge' or '$10, plus $0.30 for credit' because both of those displays identify a single sticker price -- $10 -- that is less than the amount credit card users will be charged. . . . In regulating the communication of prices rather than prices themselves, §518 regulates speech."

However, the Expressions Hair Court went no further than finding that speech was implicated. It did not address the ultimate question whether the statute's regulation of speech was unconstitutional. Instead, it remanded the case to the Second Circuit for consideration of the questions whether Section 518 could be upheld as a valid commercial speech regulation or a valid disclosure requirement.

II.

Is there a certifiable question of New York State law?

Authorized by Article VI, §3(b)(9) of the New York State Constitution, New York State Court of Appeals Rule 500.27(a) provides that "whenever it appears to the Supreme Court of the United States, any United States Court of Appeals, or a court of last resort of any other state that determinative questions of New York law are involved in a case pending before that court for which no controlling precedent of the Court of Appeals exists, the court may certify the dispositive questions of law to the Court of Appeals."

The Second Circuit's opinion in Expressions Hair (808 F3d 118) expressly addressed why it did not believe it should certify a question to the State Court of Appeals. It explained:

Here, we believe that certification is not preferable, primarily because of the way in which this case has been litigated. . . . [The] questions [presented] would likely prove difficult in light of the present state of the record, since this case has been litigated almost entirely on the pleadings and the parties have focused their legal analysis primarily on Section 518's application to single-sticker-price sellers. And, in determining whether a seller that posts separate cash and credit-card prices has actually been imposing a forbidden credit-card surcharge, a particularized understanding of how the seller displays its prices and communicates with customers would seem especially important. We will not burden the Court of Appeals with questions that potentially cannot be answered without additional factual development.

(808 F3d 118, 141).

Chief Justice Robert's opinion in Expressions Hair -- in which he was joined by five other Justices -- does not address whether certification of a question to the New York Court of Appeals would be appropriate. His silence may reflect agreement with the Second Circuit that certification would not be proper.

But three Supreme Court Justices suggested in concurring opinions that the Second Circuit should have certified a question to the New York Court of Appeals. Justice Sotomayor's concurrence, joined by Justice Alito, opined that "the Second Circuit should have exercised its discretion to certify the antecedent state-law question here: What pricing schemes or pricing displays does §518 prohibit?" Justice Breyer's separate concurrence agreed, indicating that "on remand, it may well be helpful for the Second Circuit to ask the New York Court of Appeals to clarify the nature of the obligations the statute imposes."

It will be interesting to see if the Second Circuit, on remand, certifies a question to the New York Court of Appeals. If it does, it will be interesting to see if the New York Court accepts the question. Our Court of Appeals may not wish to expound generally about which "pricing schemes . . . does §518 prohibit" (quoting Justice Sotomayor's concurrence), or "clarify the nature of the obligations the statute imposes" (quoting Justice Breyer's concurrence). These concepts may be too abstract. Indeed, the Court of Appeals has previously declined to accept certified questions it has deemed "abstract or overly generalized" (Yensil v Reno, 92 NY2d 455, 457).