Food and Beverage Law Update: February 2018

By Nathan A. Adams IV

In United States ex rel. Barrick v. Parker-Migliorini Int'l, LLC, 878 F. 3d 1224 (10th Cir. 2017), the court affirmed dismissal of the qui tam relator's lawsuit against his former employer, a meat exporter, alleging it avoided paying an obligation owed to the government in violation of the False Claims Act (FCA) when it illegally smuggled beef into Japan and China. The U.S. Department of Agriculture (USDA) charges an hourly rate for the process of inspecting and certifying meat for export to a country if the country has higher standards than the U.S. In order to smuggle beef into Japan and China, the defendant gave sham destinations for countries that have import standards equal to or less than the U.S. As a result, the USDA provided a free inspection rather than a heightened inspection of the beef. If the defendant had accurately reported the destination countries, the government should have been paid for the inspections that would have occurred were the exports lawful. The court ruled that the defendant had no "established duty" to pay the government for inspection of beef it allegedly smuggled into China or Japan. This is significant because "there is no liability for obligations to pay that are merely potential or contingent." The defendant never would have paid the inspection fees because it never wanted the meat inspected. The court observed that "the whole point was that the meat would not have passed inspection under the applicable standards. And the beef headed to China could not have been inspected, since China banned all U.S. beef. So there would never have been an obligation to pay inspection fees."

By Nathan A. Adams IV

In Italian Colors Restaurant v. Becerra, 8787 F. 3d 1165 (9th Cir. 2018), the court affirmed the district court's grant of summary judgment in favor of the plaintiffs on their challenge to 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 payment by cash or other means. The state argued that the regulation is necessary to advance its interest in preventing consumer deception. The court ruled that the provision does not actually advance this interest, as it prevents retailers from communicating with their customers about the cost of credit card usage and why credit card customers are charged more than cash users. In addition, the statute exempts the state, municipalities, and electrical, gas or water companies. The court also ruled that the state has more narrowly tailored means of preventing consumer deception, such as by banning deceptive or misleading surcharges. As a result, the court determined that the law violates intermediate scrutiny and the commercial speech doctrine of the First Amendment. But the court modified the district court's declaratory and injunctive relief to apply only to the plaintiffs, and only with respect to the specific pricing practice that plaintiffs seek to employ; namely, posting a single price and charging an extra fee on customers who use credit cards.

By Michael Starr

In Stevens v. Farmers Restaurant Group, 2018 WL 647638 (D.D.C. Jan. 31, 2018), the district court's grant of conditional certification in a wage-hour opt-in class contains important lessons for restaurants and other hospitality employers. The case shows that small but significant gains can be achieved early in a lawsuit if issues are properly presented to the court. Based on a "modest" showing of a common policy, the court allowed the plaintiff servers to proceed on a collective basis with respect to their attempt to disallow the tip credit for "close-out" work, which included rolling silver, resetting tables and also sweeping, cleaning and preparing the restaurant to open for the next day.

Tip Pools. The court refused to certify conditionally an opt-in class that included bartenders with whom the servers claimed, among other things, their tips were pooled and improperly shared because the bartenders had not contributed tips to the allegedly invalid tip pool. That result follows naturally from the fact that even if there is an invalid tip pool, the only persons with a claim of harm are those who contributed to the pool, not those who only received money from it.

Email Notice: In addition, the court rejected the plaintiffs' request for telephone numbers of potential class members, as that would intrude on the privacy of class members and subject them to unsolicited phone calls and text messages. The court required the restaurants just to provide mail and email addresses of the potential class members.

Paycheck Notice: The court also rejected the proposal that the defendants include the class notice in paychecks, accepting the argument that this would imply the restaurant defendants' endorsement of the notice and put managers in the uncomfortable position of possibly being asked by employees to explain the lawsuit.

By Loren L. Forrest Jr.

In Rios v. BBQ Chicken Don Alex Inc., et. al., 2018 WL264512, (E.D.N.Y. Jan. 1, 2018) in an uncontested action, the plaintiff, a waitress, alleged that the defendants' restaurants in Queens, New York, and one individual defendant violated the...