Discrimination by Payment Processors – White v Square

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It is extremely common for payment processors to discriminate against adult industry businesses by denying them service as “prohibited business types.”  In the case of White v. Square, a major player in payment processing solutions, Square Inc., was sued over this practice.  The case was originally dismissed.  However, after appeal, a decision (“Decision”) issued on August 12, 2019 that will allow the lawsuit to move forward.  This is a case for adult industry and sex tech industry to watch, and here’s why.

In October of 2015, bankruptcy attorney Robert White brought a class-action suit against Square, alleging that Square’s seller agreement discriminated against bankruptcy attorneys in violation of the Unruh Civil Rights Act.  According to the recent Decision, page 2, Square offers an internet service that allows individuals and merchants to “‘accept electronic payments without themselves directly opening up a merchant account with any Visa or MasterCard member bank.’”

The Decision, page 2, further explained that Square’s terms of service state that when a user creates an account, the user must “‘confirm that you will not accept payments in connection with the following businesses or business activities: . . . (28) bankruptcy attorneys or collection agencies engaged in the collection of debt.’”

This case is relevant to adult industry businesses because pornography, and sometimes sex toys, or even almost anything sexually-oriented, is also usually on that prohibited business list of popular payment processors.  For example, currently, Square’s Prohibited Goods and Services with Square Point of Sale states, in pertinent part:

In this agreement, you confirmed that you will not accept payments in connection with the following businesses or business activities:

Adult entertainment oriented products or services (in any medium, including Internet, telephone or printed material)

Paypal’s current Acceptable Use Policy states:

You may not use the PayPal service for activities that:

  1. relate to transactions involving:
  • certain sexually oriented materials or services,

Stripe’s current Restricted Businesses policy states:

The following categories of businesses and business practices are restricted from using the Stripe Service (“Restricted Businesses”).

Adult content and services

Pornography and other obscene materials (including literature, imagery and other media) depicting nudity or explicitly sexual acts; sites offering any sexually-related services such as prostitution, escorts, pay-per view, adult live chat features; sexually oriented items (e.g., adult toys); adult video stores and sexually oriented massage parlors; gentleman’s clubs, topless bars, and strip clubs; sexually oriented dating services

As you can see, discrimination against adult industry, and sexual content in general, is epidemic.  It is actually so prevalent that an entire sub-industry in payment processing has been formed to fill in the gap (at higher processing rates, of course).  In the case at hand (White vs. Square), at issue is that Square’s list of prohibited business types includes bankruptcy attorneys.  Note that such list, as quoted above, also includes adult entertainment products or services.

The district court dismissed White’s case on the ground that he lacked “standing.”  In general terms, in order to maintain a lawsuit, a plaintiff must have standing, meaning that a person or company must have a basis to sue because they have been injured by the defendant.  Standing was questioned here because White did not enter a business agreement with Square.  Without going into complicated details of the standing issue, for the purposes of the article here, it is enough to know that White appealed the dismissal to the United States Court of Appeals for the Ninth Circuit, which determined that White’s allegations do show “…a concrete and particularized injury” and that he has met federal constitutional standing requirements  (White, supra, 891 F.3d at p. 1177).  The case was then sent back to the lower court for an answer as to whether White has also met standing requirements for the Unruh Civil Rights Act.

Substantively (outside of the formalistic issue of standing), the Unruh Civil Rights Act, the law at the center of the case, provides in pertinent part:

All persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.

(Civ. Code, § 51, subd. (b)).  The Decision, at page 4, used quotations from previous court decisions to explain the purpose of the Act:

The purpose of the Act is to create and preserve “a nondiscriminatory environment in California business establishments by ‘banishing’ or ‘eradicating’ arbitrary, invidious discrimination by such establishments.”  (Angelucci v. Century Supper Club (2007) 41 Cal.4th 160, 167 (Angelucci), citing Isbister v. Boys’ Club of Santa Cruz, Inc. (1985) 40 Cal.3d 72, 75–76.)  “The Act stands as a bulwark protecting each person’s inherent right to ‘full and equal’ access to ‘all business establishments.’  (§ 51, subd. (b); see Isbister, supra, 40 Cal.3d at p. 75.)”  (Angelucci, at p. 167.)

At this point in time, it is very important to note that the Court did not issue a substantive decision on the issue at the heart of the case – whether prohibiting service to certain business or professional types is a violation of the Unruh Civil Rights Act.  The outcome though is that such question might very well have its day in court, so to speak.  The Decision here concluded, at page 16, in pertinent part:

We conclude that a person who visits a business’s website with intent to use its services and encounters terms or conditions that exclude the person from full and equal access to its services has standing under the Unruh Civil Rights Act, with no further requirement that the person enter into an agreement or transaction with the business.

Keep your eyes peeled here.  It still must be determined whether the suit as a class-action was proper, among other formalities, before the case can move forward in the process toward any ruling on the substantive issue.  However, if it does get that far, a final decision in favor of White could mean that, at least in California, payment processors  would not be able to legally discriminate against particular business types.  A decision against White could mean that discriminatory business practices of payment processors would continue as business as usual.  For now, it remains to be seen what, if any, final substantive ruling will be, and how broadly it would be worded (e.g., would sexually-oriented businesses be included or excluded from the scope of the order).  A substantive decision on the “real” issue in this case would likely send waves throughout the country far beyond the suit’s home-state of California.  Watch this space for updates!

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