Italian Colors Restaurant v. Xavier Becerra , 878 F.3d 1165 ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ITALIAN COLORS RESTAURANT, a No. 15-15873
California Business Entity; ALAN
CARLSON, Owner, Italian Colors D.C. No.
Restaurant; LAURELWOOD 2:14-cv-00604-
CLEANERS, LLC, DBA Laurelwood MCE-DAD
Cleaners and Laundry, DBA Milo’s
Cleaners and Laundry, a California
Limited Liability Company; OPINION
JONATHAN EBRAHIMIAN, Owner,
Laurelwood Cleaners, LLC; FAMILY
LIFE CORPORATION, DBA Family
Graphics, a California Corporation;
TOSHIO CHINO, Owner, Family Life
Corporation; STONECREST GAS &
WASH, a California Business Entity;
SALAM RAZUKI, Co-owner,
Stonecrest Gas & Wash; LEON’S
TRANSMISSION SERVICE, INC., a
California Corporation; VINCENT
ARCHER, Administrator/Controller,
Leon’s Transmission Service, Inc.,
Plaintiffs-Appellees,
v.
XAVIER BECERRA, Attorney General,
State of California,
Defendant-Appellant.
2 ITALIAN COLORS RESTAURANT V. BECERRA
Appeal from the United States District Court
for the Eastern District of California
Morrison C. England, Jr., District Judge, Presiding
Argued and Submitted August 17, 2017
San Francisco, California
Filed January 3, 2018
Before: Diarmuid F. O’Scannlain and Johnnie B.
Rawlinson, Circuit Judges, and Sarah S. Vance, *
District Judge.
Opinion by Judge Vance
SUMMARY **
Civil Rights
The panel affirmed the district court’s summary
judgment in favor of plaintiffs in an action challenging the
constitutionality of California Civil Code Section 1748.1(a),
which prohibits retailers from imposing a surcharge on
customers who make payments with credit cards, but permits
discounts for payments by cash or other means.
The panel first held that it was satisfied that plaintiffs had
modified their speech and behavior based on a credible
*
The Honorable Sarah S. Vance, United States District Judge for
the Eastern District of Louisiana, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
ITALIAN COLORS RESTAURANT V. BECERRA 3
threat of Section 1748.1’s enforcement. Plaintiffs therefore
satisfied their burden of establishing standing.
The panel limited its review of the surcharge law to a
First Amendment as-applied challenge based on plaintiffs’
representation that they were not bringing a facial challenge.
The panel further held that Section 1748.1 regulated speech
and rejected the Attorney General’s argument that the
Section instead regulated conduct.
Applying intermediate scrutiny, the panel held that the
activity to which plaintiffs’ desired speech was directed –
charging credit card users more than cash users – was not
unlawful or misleading. The panel held that enforcing
section 1748.1 against plaintiffs did not directly advance
California’s asserted interest in preventing consumer
deception. Finally, the panel held that there was no
reasonable fit between the broad scope of Section 1748.1 and
the asserted state interest, and therefore the statute was more
extensive than necessary. The panel therefore agreed with
the district court that Section 1748.1 violated the First
Amendment, but only as applied to plaintiffs.
COUNSEL
John W. Killeen (argued) and Anthony R. Hakl, Deputy
Attorneys General; Stepan A. Haytayan, Supervising
Deputy Attorney General; Douglas J. Woods and Thomas S.
Patterson, Senior Assistant Attorneys General; Xavier
Becerra, Attorney General; Office of the Attorney General,
Sacramento, California; for Defendant-Appellant.
Deepak Gupta (argued) and Jonathan E. Taylor, Gupta
Wessler PLLC, Washington, D.C.; Mark Wendorf,
4 ITALIAN COLORS RESTAURANT V. BECERRA
Reinhardt Wendorf & Blanchfield, St. Paul, Minnesota;
Kevin K. Eng, Markun Zusman Freniere & Compton LLP,
San Francisco, California; for Plaintiffs-Appellees.
Michael E. Chase, Boutin Jones Inc., Sacramento,
California, for Amicus Curiae Credit Union National
Association.
Richard A. Arnold, William J. Blechman, and James T.
Almon, Kenny Nachwalter PA, Miami, Florida, for Amici
Curiae Safeway Inc., The Kroger Co., Walgreen Co.,
Albertson’s LLC, and Hy-Vee Inc.
Thomas S. Knox, Knox Lemmon & Anapolsky LLP,
Sacramento, California, for Amicus Curiae California
Retailers Association.
Dale A. Stern, Downey Brand LLP, Sacramento, California,
for Amicus Curiae California Grocers Association.
Eric L. Bloom, Hangley Aronchick Segal Pudlin & Schiller,
Harrisburg, Pennsylvania, for Amicus Curiae Rite Aid
Corporation.
John J. McDermott, General Counsel, Arlington, Virginia,
as and for Amicus Curiae National Apartment Association.
OPINION
VANCE, District Judge:
Plaintiffs challenge the constitutionality of California
Civil Code Section 1748.1(a). This statute prohibits retailers
ITALIAN COLORS RESTAURANT V. BECERRA 5
from imposing a surcharge on customers who make
payments with credit cards, but permits discounts for
payments by cash or other means. The district court granted
summary judgment in favor of plaintiffs, declared the statute
both an unconstitutional restriction of speech and
unconstitutionally vague, and permanently enjoined its
enforcement. We hold that the statute as applied to these
plaintiffs violates the First Amendment. Thus, we affirm the
district court’s judgment. We also narrow the scope of the
district court’s relief to apply only to plaintiffs.
I. BACKGROUND
A. Factual Background
Plaintiffs are five California businesses and their owners
or managers: Italian Colors Restaurant and owner Alan
Carlson; Laurelwood Cleaners and owner Jonathan
Ebrahimian; Family Graphics and owner Toshio Chino;
Stonecrest Gas & Wash and owner Salam Razuki; and
Leon’s Transmission Service and administrator Vincent
Archer. Plaintiffs pay thousands of dollars every year in
credit card fees, which are typically 2–3% of the cost of each
transaction. With the exception of Stonecrest, each plaintiff
charges a single price for goods, with prices slightly higher
than they would be otherwise to compensate for the credit
card fees. Stonecrest currently offers discounts to customers
who use cash or debit cards.
Each plaintiff represents that it would impose a credit
card surcharge if it were legal to do so. Stonecrest, which
already offers different prices for cash customers and credit
card customers, would describe this difference as a
surcharge rather than a discount. Italian Colors would also
charge different prices and label the difference as a
surcharge. Laurelwood would charge different prices and
6 ITALIAN COLORS RESTAURANT V. BECERRA
“express the price difference as an additional percentage fee,
or surcharge, that [customers] will pay if they decide to use
credit.” Likewise, Family Graphics “would have two
different prices,” and “would express that difference as a
percentage fee that is incurred for using a credit card.” And
Leon’s Transmission would “charge a fee for credit-card
transactions,” i.e., offer a base price and impose an
additional surcharge for using a credit card. Plaintiffs have
not imposed credit card surcharges for fear of violating
Section 1748.1.
Plaintiffs put forth several reasons why they desire to
impose credit card surcharges rather than offer cash
discounts. First, they contend that credit card surcharges are
a more effective way of conveying to customers the high cost
of credit card fees. Second, plaintiffs state that their current
practice forces them to raise their prices slightly to
compensate for the credit card fees, making their goods and
services appear more expensive than they would be
otherwise.
Third, plaintiffs believe that imposing a credit card
surcharge would be more effective than offering a cash
discount in encouraging buyers to use cash. Scholars have
posited that credit card companies prefer cash discounts over
credit card surcharges for precisely this reason. See Amos
Tversky & Daniel Kahneman, Rational Choice and the
Framing of Decisions, 59 J. Bus. S251, S261 (1986).
Although mathematically equivalent, surcharges may be
more effective than discounts because “the frame within
which information is presented can significantly alter one’s
perception of that information, especially when one can
perceive the information as a gain or a loss.” Jon D. Hanson
& Douglas A. Kysar, Taking Behavioralism Seriously: Some
Evidence of Market Manipulation, 112 Harv. L. Rev. 1420,
ITALIAN COLORS RESTAURANT V. BECERRA 7
1441 (1999). Indeed, research has shown that economic
actors are more likely to change their behavior if they are
presented with a potential loss than with a potential gain.
Plaintiffs point to one study in which 74% of consumers
reacted negatively to a credit card surcharge, while only 22%
reacted positively to cash discounts. See Adam J. Levitin,
The Antitrust Super Bowl: America’s Payment Systems, No-
Surcharge Rules, and the Hidden Costs of Credit, 3 Berkeley
Bus. L.J. 265, 280–81 (2005).
B. Statutory Background
Section 1748.1 succeeded a now-lapsed federal
surcharge ban. In 1974, Congress amended the Truth in
Lending Act (TILA) to provide that credit card companies
“may not, by contract or otherwise, prohibit any [retailer]
from offering a discount to a cardholder to induce the
cardholder to pay by cash, check, or similar means rather
than use a credit card.” Act of Oct. 28, 1974, Pub. L. No.
93-495, § 167, 88 Stat. 1500 (codified at 15 U.S.C.
§ 1666f(a)). Two years later, Congress again amended
TILA to prohibit retailers from “impos[ing] a surcharge on a
cardholder who elects to use a credit card in lieu of payment
by cash, check, or similar means.” Act of Feb. 27, 1976,
Pub. L. No. 94-222, § 3(c)(1), 90 Stat. 197 (formerly
codified at 15 U.S.C. § 1666f(a)(2)). This amendment also
added definitions to the statute, defining “discount” as “a
reduction made from the regular price,” and “surcharge” as
“any means of increasing the regular price to a cardholder
which is not imposed upon customers paying by cash, check,
or similar means.” Id. § 3(a) (codified at 15 U.S.C.
§ 1602(q)–(r)).
Congress renewed the surcharge ban in 1981. Act of
July 27, 1981, Pub. L. No. 97-25, § 201, 95 Stat. 144. At
that time, Congress also added a definition of “regular
8 ITALIAN COLORS RESTAURANT V. BECERRA
price”: the posted price if only one price was posted, or the
credit card price if either no price was posted or both a credit
card price and a cash price were posted. Id. § 102(a)
(codified at 15 U.S.C. § 1602(y)). This definition effectively
limited the scope of the surcharge ban to only “posting a
single price and charging credit card users more than that
posted price.” Expressions Hair Design v. Schneiderman
(Expressions III), 137 S. Ct. 1144, 1147 (2017).
The federal surcharge ban expired in 1984. Several
states, including California, then adopted surcharge bans of
their own. See Cal. Civ. Code § 1748.1; Colo. Rev. Stat. § 5-
2-212; Conn. Gen. Stat. § 42-133ff; Fla. Stat. § 501.0117;
Kan. Stat. § 16a-2-403; Me. Rev. Stat. tit. 9-A, § 8-303(2)
(repealed Sept. 27, 2011); Mass. Gen. Laws ch. 140D,
§ 28A; N.Y. Gen. Bus. Law § 518; Okla. Stat. tit. 14a, § 2-
211; Tex. Bus. & Com. Code § 604A.0021.
California enacted its surcharge ban, codified at Civil
Code Section 1748.1, in 1985. The law provides: “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.” Cal. Civ. Code § 1748.1(a). But the law
permits a retailer to “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.” Id. Willful violators of
the surcharge ban are liable for three times actual damages,
as well as the cardholder’s attorney’s fees and costs in an
action enforcing the ban. Id. § 1748.1(b). The stated
purpose of Section 1748.1 is “to promote the effective
operation of the free market and protect consumers from
deceptive price increases for goods and services by
prohibiting credit card surcharges and encouraging the
ITALIAN COLORS RESTAURANT V. BECERRA 9
availability of discounts by those retailers who wish to offer
a lower price for goods and services” purchased by cash
customers. Id. § 1748.1(e).
In addition to these statutory provisions, credit card
companies also restricted surcharges by contract. Although
under federal law credit card companies could not prohibit
retailers from offering cash discounts, see 15 U.S.C.
§ 1666f(a), they could—and did—contractually prohibit
surcharges. See Expressions III, 137 S. Ct. at 1147. These
contractual surcharge bans have been subject to antitrust
challenges, culminating in a since-vacated class action
settlement that required Visa and MasterCard to eliminate
their surcharge bans. In re Payment Card Interchange Fee
& Merch. Disc. Antitrust Litig., 986 F. Supp. 2d 207, 230–
34 (E.D.N.Y. 2013), rev’d and vacated, 827 F.3d 223 (2d
Cir. 2016).
C. Procedural History
On March 5, 2014, plaintiffs sued the Attorney General
of California in her official capacity 1 in the District Court for
the Eastern District of California. 2 Plaintiffs alleged that
Section 1748.1 operates in a manner that restricts speech,
based on both content and the identity of the speaker, in
violation of the First Amendment. Plaintiffs also alleged that
Section 1748.1 is unconstitutionally vague under the Due
Process Clause of the Fourteenth Amendment. Plaintiffs
1
Kamala Harris was the California Attorney General when the
lawsuit was filed. After Harris was elected to the United States Senate,
Xavier Becerra replaced Harris as Attorney General.
2
Plaintiffs amended their complaint to add Stonecrest and Leon’s
Transmission, and their respective owners, as plaintiffs on April 1, 2014.
10 ITALIAN COLORS RESTAURANT V. BECERRA
sought a declaration that Section 1748.1 is unconstitutional
and asked for its enforcement to be permanently enjoined.
The parties filed cross-motions for summary judgment.
On March 25, 2015, the district court ruled that plaintiffs had
standing to pursue their constitutional claims, that the First
Amendment applied to Section 1748.1 because it regulated
more than economic conduct, and that Section 1748.1 did
not pass muster under intermediate scrutiny. The district
court also found that Section 1748.1 was unconstitutionally
vague. Accordingly, the district court granted plaintiffs’
motion for summary judgment, denied the Attorney
General’s motion for summary judgment, declared the
statute unconstitutional, and permanently enjoined its
enforcement.
II. DISCUSSION
A. Standard of Review
This Court reviews summary judgment rulings de novo.
Zetwick v. County of Yolo, 850 F.3d 436, 440 (9th Cir. 2017).
“Summary judgment is appropriate when, viewing the
evidence in the light most favorable to the nonmoving party,
there is no genuine dispute as to any material fact.” Id.
(quoting United States v. JP Morgan Chase Bank Account
No. Ending 8215, 835 F.3d 1159, 1162 (9th Cir. 2016)). The
Court also reviews standing determinations de novo. Fair
Hous. of Marin v. Combs, 285 F.3d 899, 902 (9th Cir. 2002).
B. Standing
The district court held that, notwithstanding the meagre
enforcement history of Section 1748.1, there is a credible
threat of enforcement should plaintiffs communicate prices
in the way they desire. We agree.
ITALIAN COLORS RESTAURANT V. BECERRA 11
To establish standing, a plaintiff must show: (1) she
suffered an “injury in fact,” which is an “actual or imminent”
invasion of a legally protected interest that is “concrete and
particularized”; (2) the injury must be “fairly traceable” to
the challenged conduct of the defendant; and (3) it must be
likely that the plaintiff’s injury will be redressed by a
favorable judicial decision. Lujan v. Defs. of Wildlife,
504 U.S. 555, 560–61 (1992) (internal citations and
alterations omitted). The injury requirement does not force
a plaintiff to “await the consummation of threatened injury
to obtain preventive relief.” Blanchette v. Conn. Gen. Ins.
Corps., 419 U.S. 102, 143 (1974) (quoting Pennsylvania v.
West Virginia, 262 U.S. 553, 593 (1923)). Instead, “[i]t is
sufficient for standing purposes that the plaintiff intends to
engage in ‘a course of conduct arguably affected with a
constitutional interest’ and that there is a credible threat that
the challenged provision will be invoked against the
plaintiff.” LSO, Ltd. v. Stroh, 205 F.3d 1146, 1154–55 (9th
Cir. 2000) (quoting Babbitt v. United Farm Workers Nat’l
Union, 442 U.S. 289, 298 (1979)).
First Amendment challenges “present unique standing
considerations” because of the “chilling effect of sweeping
restrictions” on speech. Ariz. Right to Life Political Action
Comm. v. Bayless (ARLPAC), 320 F.3d 1002, 1006 (9th Cir.
2003). In order to avoid this chilling effect, the “Supreme
Court has endorsed what might be called a ‘hold your tongue
and challenge now’ approach rather than requiring litigants
to speak first and take their chances with the consequences.”
Id. (citing Dombrowski v. Pfister, 380 U.S. 479, 486 (1965)).
Even in the First Amendment context, a plaintiff must
show a credible threat of enforcement. Lopez v. Candaele,
630 F.3d 775, 786 (9th Cir. 2010); LSO, 205 F.3d at 1155.
In determining whether a plaintiff faces such a credible
12 ITALIAN COLORS RESTAURANT V. BECERRA
threat in the pre-enforcement context, this Court considers
three factors: 1) the likelihood that the law will be enforced
against the plaintiff; 2) whether the plaintiff has shown,
“with some degree of concrete detail,” that she intends to
violate the challenged law; and 3) whether the law even
applies to the plaintiff. Lopez, 630 F.3d at 786. But “when
the threatened enforcement effort implicates First
Amendment rights, the [standing] inquiry tilts dramatically
toward a finding of standing.” LSO, 205 F.3d at 1155.
The Court first addresses whether Section 1748.1 applies
to plaintiffs. This inquiry requires us to interpret the scope
of the statute. By its terms, Section 1748.1 simply prohibits
credit card surcharges. The statute does not define
“surcharge,” nor has the California Supreme Court
interpreted the provision. Of course, the statute does not
generally prohibit charging credit card customers more than
cash customers—to the contrary, it explicitly permits cash
discounts. And a California Court of Appeal has held that
the statute does not prohibit a “two-tier pricing system” in
which the difference in prices is communicated neither as a
surcharge nor as a discount. Thrifty Oil Co. v. Superior
Court of L.A. Cty., 111 Cal. Rptr. 2d 253, 259–60 (Cal. Ct.
App. 2001)
There are two remaining pricing schemes possibly
covered by the statute. First, a retailer may post a single
sticker price and then charge an extra fee for credit card
users. As counsel for the Attorney General conceded at oral
argument, Section 1748.1 plainly covers this single-sticker-
pricing scheme. See Expressions Hair Design v.
Schneiderman (Expressions II), 808 F.3d 118, 129 (2d Cir.
2015) (noting that New York’s surcharge ban “clearly
prohibits” a single-sticker-pricing scheme), vacated, 137 S.
Ct. 1144; cf. Lopez, 630 F.3d at 788 (noting that “plaintiffs’
ITALIAN COLORS RESTAURANT V. BECERRA 13
claims of future harm lack credibility when . . . the enforcing
authority has disavowed the applicability of the challenged
law to the plaintiffs”). Indeed, this scheme accords with the
ordinary meaning of “surcharge”: an extra fee in addition to
the price the retailer would otherwise charge a customer. See
Random House College Dictionary 1321 (rev’d ed. 1980)
(defining “surcharge” as “an additional charge, tax, or
cost”); see also Surcharge, Merriam-Webster Dictionary
Online, www.merriam-webster.com (defining “surcharge”
as “an additional tax, cost, or impost”). Second, a retailer
may post two prices—one for cash customers, the other for
credit card customers—and label the credit card price a
surcharge. See Expressions Hair Design v. Schneiderman
(Expressions I), 975 F. Supp. 2d 430, 442–44 (S.D.N.Y.
2013) (Rakoff, J.) (distinguishing between single-sticker-
pricing and dual-sticker-pricing schemes, but finding that
New York’s surcharge ban covers both). We need not reach
whether Section 1748.1 covers this dual-sticker-pricing
scheme because, as explained below, it is not at issue in this
as-applied challenge.
All five plaintiffs desire to post a single price and charge
an extra fee on customers who use credit cards. Admittedly,
some of the plaintiffs are clearer about their intentions than
others. Ebrahimian’s declaration states that Laurelwood
would impose “an additional percentage fee, or surcharge,
that [customers] will pay if they decide to use credit.”
Chino’s declaration states that Family Graphics would also
impose “a percentage fee that is incurred for using a credit
card.” Likewise, Archer’s declaration states that Leon’s
Transmission would “charge a fee for credit-card
transactions.” These plaintiffs’ desired pricing schemes
clearly qualify as surcharges under Section 1748.1.
14 ITALIAN COLORS RESTAURANT V. BECERRA
The owners of Stonecrest and Italian Colors state
somewhat vaguely that they would charge different prices to
cash customers and credit card customers, and would label
the difference as a surcharge. But a close reading of the
declarations reveals that these plaintiffs seek to impose a
single-sticker-pricing scheme like the other plaintiffs.
Carlson states that Italian Colors does not want to use cash
discounts because they would make the restaurant’s
“advertised prices look higher than they are.” This statement
suggests that Italian Colors contemplates posting only a
single set of “advertised prices,” and desires to charge an
extra fee on top of those prices for credit card customers.
Razuki states that Stonecrest’s customers would react
differently if Stonecrest were able to say that it charges “a
fee, or a surcharge, for credit card transactions,” rather than
offers a cash discount. This statement suggests that Razuki
equates surcharges with fees, and wants to impose an added
fee on credit card users—not merely label the price
difference as a “surcharge.” Moreover, at oral argument,
counsel for plaintiffs confirmed that all plaintiffs—including
Stonecrest and Italian Colors—would like to employ a
single-sticker-pricing scheme. Therefore, the record shows
that all plaintiffs wish to post a single sticker price and then
charge an extra fee for credit card users, a pricing scheme
clearly prohibited by Section 1748.1.
Turning to the likelihood of enforcement, plaintiffs
concede that California has not communicated any threat or
warning of impending proceedings against them. But a
plaintiff may suffer injury by being “forced to modify [her]
speech and behavior to comply with the statute.” ARLPAC,
320 F.3d at 1006. Such “self-censorship” may be a sufficient
injury under Article III, “even without an actual
prosecution.” Virginia v. Am. Booksellers Ass’n, 484 U.S.
383, 393 (1988); see also Libertarian Party of L.A. Cty. v.
ITALIAN COLORS RESTAURANT V. BECERRA 15
Bowen, 709 F.3d 867, 870 (9th Cir. 2013) (“[A] chilling of
the exercise of First Amendment rights is, itself, a
constitutionally sufficient injury.”).
Plaintiffs assert that they have avoided posting credit
card surcharges for fear of an enforcement action against
them. Several circumstances suggest that this fear is
reasonable. First, California has not suggested that Section
1748.1 will not be enforced if plaintiffs (or others) decide to
violate the law, nor has the law “fallen into desuetude.”
ARLPAC, 320 F.3d at 1006–07 (citing Bland v. Fessler,
88 F.3d 729, 737 (9th Cir. 1996)); see also LSO, 205 F.3d at
1155 (“Courts have also considered the Government’s
failure to disavow application of the challenged provision as
a factor in favor of a finding of standing.”). At a hearing on
the cross-motions for summary judgment, the Deputy
Attorney General refused to stipulate that California will not
enforce the statute. And when the district court suggested
enforcement would be likely if a chain like Home Depot or
Wal-Mart initiated surcharges, the Deputy Attorney General
responded that the suggestion was “certainly a reasonable
assertion.” Moreover, even if the Attorney General would
not enforce the law, Section 1748.1(b) gives private citizens
a right of action to sue for damages. In fact, a California
citizen recently filed a class action lawsuit in the Central
District of California alleging violations of Section 1748.1.
The court in that case agreed with the district court below
that the statute violates the First Amendment, and granted
defendants’ motion for summary judgment. See Jang v.
Asset Campus Hous., Inc., No. 15-1067, 2017 WL 2416376,
at *3–7 (C.D. Cal. May 18, 2017).
California’s reliance on Section 1748.1’s sparse
enforcement history is misplaced. Although the parties cite
only one published case involving the enforcement of
16 ITALIAN COLORS RESTAURANT V. BECERRA
Section 1748.1, see Thrifty Oil, 111 Cal. Rptr. 2d 253,
“enforcement history alone is not dispositive.” LSO,
205 F.3d at 1155. Moreover, as the Supreme Court
recognized in Expressions III, major credit card companies
did not drop their contractual provisions banning surcharges
until 2013. 137 S. Ct. at 1148. California’s ban on
surcharges was likely not enforced in the past because
retailers were contractually barred from surcharging, and
thus there were few, if any, violations to punish.
Finally, the Court examines whether plaintiffs have
shown that they have a concrete plan to impose credit card
surcharges. “A general intent to violate a statute at some
unknown date in the future does not rise to the level of an
articulated, concrete plan.” Thomas v. Anchorage Equal
Rights Comm’n, 220 F.3d 1134, 1139 (9th Cir. 2000) (en
banc). But “plaintiffs may carry their burden of establishing
injury in fact when they provide adequate details about their
intended speech.” Lopez, 630 F.3d at 787. Each declaration
makes clear that if it were legal to do so, plaintiffs would
charge more for credit card purchases at their respective
businesses and communicate to their customers that this
additional charge is a surcharge for credit cards. 3 Far from
asserting a vague, generalized, or “hypothetical intent to
violate the law,” Thomas, 220 F.3d at 1139, plaintiffs have
declared their specific intent to impose these surcharges.
Moreover, they describe “when, to whom, where, [and]
under what circumstances,” id., they would do so: plaintiffs
would impose credit card surcharges at their stores, on their
3
Indeed, Ebrahimian states that Laurelwood charged additional fees
for credit card users in the 1990s before learning of California’s
surcharge ban.
ITALIAN COLORS RESTAURANT V. BECERRA 17
customers, when credit card surcharges are legal. This is
enough to show a concrete plan.
Considering these factors, and keeping in mind that
“when the threatened enforcement effort implicates First
Amendment rights, the [standing] inquiry tilts dramatically
toward a finding of standing,” LSO, 205 F.3d at 1155, the
Court is satisfied that plaintiffs have modified their speech
and behavior based on a credible threat of Section 1748.1’s
enforcement. This is an actual injury to a legally protected
interest, fairly traceable to Section 1748.1, and it is likely
that this injury will be redressed by a favorable decision
enjoining the enforcement of the law. Plaintiffs have
therefore satisfied their burden of establishing standing.
C. Plaintiffs’ First Amendment Challenge
The district court held that Section 1748.1 is a content-
based restriction on commercial speech rather than an
economic regulation. Applying intermediate scrutiny, see
Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of
N.Y., 447 U.S. 557, 561–66 (1980), the district court found
that the surcharges plaintiffs desire to post are 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.
1. Whether Plaintiffs’ Challenge Is Facial or As
Applied
As an initial matter, the parties dispute whether
plaintiffs’ First Amendment challenge is facial or as applied.
The distinction affects plaintiffs’ burden of establishing
18 ITALIAN COLORS RESTAURANT V. BECERRA
Section 1748.1’s unconstitutionality. If plaintiffs’ challenge
is as applied, then they must show only that the statute
unconstitutionally regulates plaintiffs’ own speech. But if
their challenge is facial, then they must show either that “‘no
set of circumstances exists under which [the challenged law]
would be valid,’ or that it lacks any ‘plainly legitimate
sweep.’” Ctr. for Competitive Politics v. Harris, 784 F.3d
1307, 1314–15 (9th Cir. 2015) (alteration in original)
(quoting United States v. Salerno, 481 U.S. 739, 745 (1987);
Washington v. Glucksberg, 521 U.S. 702, 740 n.7 (1997)
(Stevens, J., concurring)). The distinction also affects the
proper scope of injunctive relief. While “[a] successful
challenge to the facial constitutionality of a law invalidates
the law itself,” a successful as-applied challenge invalidates
“only the particular application of the law.” Foti v. City of
Menlo Park, 146 F.3d 629, 635 (9th Cir. 1998).
Before this Court, plaintiffs press only an as-applied
challenge. They did the same before the district court. 4 The
district court nevertheless enjoined the law in its entirety—
relief that would have been appropriate only if plaintiffs had
prevailed on a facial challenge. A lower court’s treatment of
a claim as facial in nature, however, does not require an
appellate court to do the same. In Expressions II, for
example, the Second Circuit treated the plaintiffs’ challenge
as both facial and as applied. 808 F.3d at 130. But before
the Supreme Court, the plaintiffs disclaimed any facial
4
Plaintiffs stated in a summary judgment brief that they were
“simply requesting the same relief granted by Judge Rakoff in
Expressions.” Judge Rakoff enjoined New York’s enforcement of the
law only against the plaintiffs in that case. See Stipulated Final Judgment
and Permanent Injunction, Expressions I, 975 F. Supp. 2d 430 (No. 13-
3775), 2013 WL 7203883, at *2 (“[T]he Court permanently enjoins the
defendants from enforcing New York General Business Law § 518
against the plaintiffs.” (emphasis added)).
ITALIAN COLORS RESTAURANT V. BECERRA 19
challenge. See Expressions III, 137 S. Ct. at 1149. The
Court took the plaintiffs “at their word” and limited its
review to their as-applied challenge. Id. We do the same.
2. Whether Section 1748.1 Restricts Plaintiffs’
Commercial Speech
The parties also dispute whether Section 1748.1 even
regulates speech. The Attorney General argues that Section
1748.1 restricts conduct—namely, the practice of imposing
a surcharge for credit card users. The Supreme Court’s
opinion in Expressions III, published after the parties
submitted briefing in this case, forecloses the Attorney
General’s argument.
The Court in Expressions III held that New York’s
surcharge ban “regulat[es] the communication of prices
rather than prices themselves.” 137 S. Ct. at 1151. The
Second Circuit had held that the law “regulates conduct, not
speech.” Expressions II, 808 F.3d at 135. New York’s law
provides that “[n]o 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, check, or similar means.” 5
N.Y. Gen. Bus. Law § 518. The Supreme Court first noted
that this statute “tells merchants nothing about the amount
they are allowed to collect from a cash or credit card payer.”
Expressions III, 137 S. Ct. at 1151. “What the law does
regulate is how sellers may communicate their prices.” Id.
The Court noted, by way of example:
5
Although New York’s law does not explicitly permit discounts, the
law has been interpreted to allow them. See Expressions I, 975 F. Supp.
2d at 436.
20 ITALIAN COLORS RESTAURANT V. BECERRA
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.
Id. The Court therefore vacated the Second Circuit’s
decision and remanded for consideration of whether New
York’s surcharge ban survives First Amendment scrutiny. 6
Id. at 1152.
Like the plaintiffs in Expressions, plaintiffs in this case
want to post a single sticker price and charge an extra fee for
credit card use. Section 1748.1 prohibits plaintiffs from
expressing their prices in this way, but it does allow retailers
to post a single sticker price and offer discounts to customers
paying with cash—despite the mathematical equivalency
between surcharges and discounts. Thus, Section 1748.1,
like New York’s surcharge ban, regulates commercial
speech.
6
Two other circuits have weighed in on whether surcharge bans
implicate the First Amendment. In Rowell v. Pettijohn, 816 F.3d 73 (5th
Cir. 2016), the Fifth Circuit held that Texas’s surcharge law did not
regulate speech, while in Dana’s Railroad Supply v. Attorney General,
Florida, 807 F.3d 1235, 1239 (11th Cir. 2015), the Eleventh Circuit held
that Florida’s ban did. The Supreme Court vacated the Fifth Circuit’s
decision, Rowell v. Pettijohn, 137 S. Ct. 1431 (2017), and denied
certiorari in the Florida case, Bondi v. Dana’s R.R. Supply, 137 S. Ct.
1452 (2017).
ITALIAN COLORS RESTAURANT V. BECERRA 21
3. Whether Section 1748.1 Survives Intermediate
Scrutiny
Restrictions on commercial speech must survive
intermediate scrutiny under Central Hudson. See Retail
Digital Network, LLC v. Prieto, 861 F.3d 839, 841 (9th Cir.
2017) (en banc). The Central Hudson test first asks whether
the speech is either misleading or related to illegal activity.
447 U.S. at 563–64. If the speech “is neither misleading nor
related to unlawful activity,” then “[t]he State must assert a
substantial interest to be achieved by” the regulation. Id. at
564. The regulation must directly advance the asserted
interest, and must not be “more extensive than is necessary
to serve that interest.” Id. at 566. California’s burden under
this test is “heavy,” 44 Liquormart, Inc. v. Rhode Island,
517 U.S. 484, 516 (1996), and the Attorney General cannot
satisfy it “by mere speculation or conjecture,” Edenfield v.
Fane, 507 U.S. 761, 770 (1993).
a. Plaintiffs’ speech concerns lawful activity and is
not misleading
It is obvious that the activity to which plaintiffs’ desired
speech is directed—charging credit card users more than
cash users—is not unlawful. Cent. Hudson, 447 U.S. at 564.
After all, Section 1748.1 permits cash discounts.
Additionally, the Attorney General does not articulate
why plaintiffs’ desired pricing scheme would be misleading.
Plaintiffs can already charge credit card customers more than
cash customers. They seek to communicate the difference
in the form of a surcharge rather than a discount. To
paraphrase the Eleventh Circuit, imposing a surcharge rather
than offering a discount is no more misleading than calling
the weather warmer in New Orleans rather than colder in
San Francisco. Dana’s R.R. Supply, 807 F.3d at 1249.
22 ITALIAN COLORS RESTAURANT V. BECERRA
To be sure, credit card surcharges can be deceptive,
especially if they are imposed surreptitiously at the point of
sale. The Attorney General focuses on such bait-and-switch
surcharges, and their potential to deceive, in arguing that
Section 1748.1 targets misleading speech. But nothing in the
record suggests that plaintiffs desire to impose credit card
surcharges in this way. To the contrary, plaintiffs’
declarations all state that plaintiffs want to communicate, not
conceal, credit card surcharges. Thus, plaintiffs’ desired
pricing schemes are not misleading.
b. Enforcing Section 1748.1 against plaintiffs does
not directly advance California’s asserted
interest
The Attorney General, quoting Section 1748.1 itself,
asserts that the state’s interest in banning surcharges is to
“promote the effective operation of the free market and
protect consumers from deceptive price increases.” Cal.
Civ. Code § 1748.1(e). The Supreme Court has accepted
that preventing consumer deception by “ensuring the
accuracy of commercial information in the marketplace” is
a substantial state interest. Edenfield, 507 U.S. at 769.
But the Attorney General must do more than merely
identify a state interest served by the statute. Under the third
prong of the Central Hudson test, the Attorney General
“must demonstrate that the harms [he] recites are real and
that [the speech] restriction will in fact alleviate them to a
material degree.” Greater New Orleans Broad. Ass’n, Inc.
v. United States, 527 U.S. 173, 188 (1999) (quoting
Edenfield, 507 U.S. at 770–71).
The Attorney General relies solely on the legislative
history of Section 1748.1 to argue that “the California
Legislature understood the economic dangers of credit card
ITALIAN COLORS RESTAURANT V. BECERRA 23
surcharges to be real” and adopted Section 1748.1 to
“eliminate that danger.” But the Attorney General has
pointed to no evidence that surcharges posed economic
dangers that were in fact real before the enactment of Section
1748.1, or that Section 1748.1 actually alleviates these
harms to a material degree. See Edenfield, 507 U.S. at 771–
72 (noting that the record contained no studies or anecdotal
evidence indicating that ban on solicitation by certified
public accountants advanced Florida’s asserted interests).
Indeed, Section 1748.1 does not promote the accuracy of
information in plaintiffs’ places of business. The law has the
effect of allowing retailers to charge credit card users more
for the same goods, but only if this price differential is
expressed as a discount to cash users, rather than a surcharge
for credit card users. But the higher cost is a result of credit
card fees, and referring to the price differential as a discount
prevents retailers from accurately conveying that causal
relationship. In other words, Section 1748.1 prevents
retailers like plaintiffs “from communicating with [their
customers] in an effective and informative manner” about
the cost of credit card usage and why credit card customers
are charged more than cash users. Sorrell v. IMS Health Inc.,
564 U.S. 552, 564 (2011). We fail to see how a law that
keeps truthful price information from customers increases
the accuracy of information in the marketplace. Cf. id. at
577 (“The First Amendment directs us to be especially
skeptical of regulations that seek to keep people in the dark
for what the government perceives to be their own good.”
(quoting 44 Liquormart, 517 U.S. at 503)).
Even if there were evidence of consumer deception, or
other harm to the free market, the statute’s broad swath of
exemptions would undermine any ameliorative effect. See
Rubin v. Coors Brewing Co., 514 U.S. 476, 489 (1995)
24 ITALIAN COLORS RESTAURANT V. BECERRA
(noting that a law’s “exemptions and inconsistencies” meant
that the law “will fail to achieve” the asserted government
interest). Section 1748.1 itself establishes that it “does not
apply to charges for payment by credit card or debit card that
are made by an electrical, gas, or water corporation and
approved by the Public Utilities Commission.” Cal. Civ.
Code § 1748.1(f). The state has also broadly exempted itself
and its municipalities from the coverage of Section 1748.1.
See Cal. Gov. Code § 6159(h)(1) (allowing “a court or agent
of the court, city, county, city and county, or any other public
agency [to] impose a fee for the use of a credit or debit
card”); Cal. Civ. Proc. Code § 1010.5 (“[A]ny court
authorized to accept a credit card as payment pursuant to this
section may add a surcharge to the amount of the transaction
. . . .”); Cal. Food & Agric. Code § 31255(b) (permitting state
animal-control officers to impose credit card surcharges).
That California exempted itself and its subdivisions from the
asserted free market protections of Section 1748.1 suggests
that this justification is thin. See Dana’s R.R. Supply,
807 F.3d at 1250 (noting that the many exemptions to
Florida’s surcharge ban “betray[] the frailty of any potential
state interests”); see also Valley Broad. Co. v. United States,
107 F.3d 1328, 1334–36 (9th Cir. 1997) (striking down law
under Central Hudson and noting that “numerous
exceptions” to the law “undermine the government’s
purported interest”). The Attorney General offers no
explanation why these exempt surcharges are any less
harmful or deceptive than the surcharges plaintiffs seek to
impose. Thus, enforcing Section 1748.1 against plaintiffs
does not directly advance the state’s interest in preventing
consumer deception.
ITALIAN COLORS RESTAURANT V. BECERRA 25
c. Section 1748.1 is more extensive than necessary
The final prong of the Central Hudson test asks “whether
the speech restriction is not more extensive than necessary
to serve the interests that support it.” Greater New Orleans
Broad., 527 U.S. at 188. California is not required to
“employ the least restrictive means conceivable, but it must
demonstrate narrow tailoring of the challenged regulation to
the asserted interest,” or, in other words, a reasonable fit. Id.
But when challenged laws have “numerous and obvious less-
burdensome alternatives to the restriction on commercial
speech,” these alternatives will be a “relevant consideration
in determining whether the ‘fit’ between ends and means is
reasonable.” City of Cincinnati v. Discovery Network, Inc.,
507 U.S. 410, 417 n.13 (1993).
There is no reasonable fit between the broad scope of
Section 1748.1—covering even plaintiffs’ non-misleading
speech—and the asserted state interest. California has other,
more narrowly tailored, means of preventing consumer
deception. For example, the state could simply ban
deceptive or misleading surcharges. See Expressions I,
975 F. Supp. 2d at 447. Alternatively, California could
require retailers to disclose their surcharges both before and
at the point of sale, as Minnesota does. See Minn. Stat.
§ 325G.051(1)(a) (allowing retailers to impose surcharges
provided the “seller informs the purchaser of the surcharge
both orally at the time of sale and by a sign conspicuously
posted on the seller’s premises”). California could also
enforce its existing laws banning unfair business practices
and misleading advertising in pricing. See Cal. Bus. & Prof.
Code §§ 17200, 17500. These alternatives would restrict
less speech and would more directly advance California’s
asserted interest in preventing consumer deception.
26 ITALIAN COLORS RESTAURANT V. BECERRA
Given these more narrowly drawn alternatives,
California cannot prevent plaintiffs from communicating
credit card surcharges to their customers because of the
potential for misleading information in other cases. See In
re R.M.J., 455 U.S. 191, 203 (1982) (“States may not place
an absolute prohibition on certain types of potentially
misleading information, . . . if the information also may be
presented in a way that is not deceptive.”). Section 1748.1,
therefore, is more extensive than necessary.
In sum, Section 1748.1 restricts plaintiffs’ non-
misleading commercial speech. This restriction does not
directly advance the Attorney General’s asserted state
interest in preventing consumer deception, nor is it narrowly
drawn to achieving that interest. For these reasons, we agree
with the district court that Section 1748.1 violates the First
Amendment, but only as applied to plaintiffs. 7
III. CONCLUSION
For the foregoing reasons, we AFFIRM the district
court’s grant of summary judgment for plaintiffs on the First
Amendment claim. Because a successful as-applied
challenge invalidates only a particular application of the
challenged law, see supra Part II.C.1, we MODIFY the
district court’s declaratory and injunctive relief to apply only
to plaintiffs, and only with respect to the specific pricing
practice that plaintiffs, by express declaration, seek to
employ.
7
Because plaintiffs’ as-applied challenge is successful on First
Amendment grounds, we need not reach their vagueness challenge to
accord them the relief they seek. Moreover, counsel stated at oral
argument that plaintiffs no longer press their vagueness challenge. We
therefore do not reach the vagueness issue.