Attorney: California Legislature should take up credit card surcharge ban

By Karen Kidd | Jan 24, 2018

LOS ANGELES (Northern California Record) — A U.S. Ninth Circuit Court of Appeals ruling earlier this month that California's law banning surcharges for credit card purchases is unconstitutional should prompt the California State Legislature to take another look at the ban, a regulatory enforcement attorney said during a recent interview.

"Laws of this type have faced problems not only in the Ninth Circuit, but in other jurisdictions as well," Scott M. Pearson, a partner in Ballard Spahr's Los Angeles office, said during a Northern California Record email interview. "The legislators who favor these restrictions may want to try to draft something more defensible."

Meanwhile, the latest ruling was narrowly in favor of the handful of small businesses challenging the law, which means other businesses could still run into problems if they attempt to apply a surcharge, Pearson said. "Because the injunction in the case was limited to the plaintiffs and their specific business practice, the government, in theory, can continue to enforce the law against other merchants who don't do exactly what these plaintiffs were doing. 

"As a practical matter, however, the California Legislature probably needs to revisit the law if it wants it enforced."

On Jan. 3, the Ninth Circuit upheld a challenge by the small California businesses who objected to a state law that bars them from imposing a surcharge on credit card purchases. Owners of the five business claim the law violates free speech rights under the U.S. Constitution.

In its 3-0 decision, the court affirmed a district court ruling that granted of summary judgment for the businesses on their on the First Amendment claim. The court also modified the district court's declaratory and injunctive relief to apply only to plaintiffs in the case "and only with respect to the specific pricing practice that plaintiffs, by express declaration, seek to employ."

The five businesses in the case are Italian Colors Restaurant, Laurelwood Cleaners, Milo's Cleaners and Laundry, Family Graphics, Stonecrest Gas & Wash and Leon's Transmission Service.

The modification portion of the appeals court's ruling means the California law has not been broadly invalidated.

This month's ruling out of the Ninth Circuit isn't the first time a federal court said California's credit card surcharge law is unconstitutional. In March 2015, the U.S. District Court for California's Eastern District ruled the law is an unconstitutional free speech restriction and also that it is unconstitutionally vague.

Plaintiffs in the 2015 case also included Italian Colors Restaurant, Laurelwood Cleaners,  Family Graphics and Leon's Transmission Service

California Attorney General Xavier Becerra has publicly said the 2015 ruling "is incorrect" but has followed the court's prohibition on his office's enforcement of the law. Becerra has not made a public statement out this month's ruling. "I'm not aware of any public statements from Attorney General Becerra, but I would not be surprised to see an appeal given the policy of his office," Pearson said.

Even more credit surcharge lawsuits "quite possibly" could be filed in California, Pearson said, adding. "This is an important issue for many merchants." 

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Ballard Spahr LLP California State Legislature U.S. Court of Appeals for the Ninth Circuit

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