Gurrobat v. HTH Corp.

133 Hawai'i 1

323 P.3d 792

Raymond GURROBAT, individually and on behalf of all others similarly situated, Petitioner/Plaintiff–Appellee/Cross–Appellant,

v.HTH CORPORATION; Pacific Beach Corporation, Respondents/Defendants–Appellants/Cross–Appellees.

No. SCAP–12–0000764.

Supreme Court of Hawai‘i.

Feb. 25, 2014.

James J. Bickerton, John F. Perkin, and Brandee J.K. Faria, Honolulu, for petitioner.

Paul Alston, Tina L. Colman and John Rhee, Honolulu, for respondent.

Opinion of the Court by McKENNA, J.

I. Introduction

This case arises from a class action lawsuit filed against HTH Corporation and Pacific Beach Corporation (collectively, "Defendants"), in which Raymond Gurrobat ("Gurrobat"), individually and on behalf of a class of similarly situated persons ("Plaintiff Class"), asserted claims of unlawful withholding of wages under Hawai‘i Revised Statutes ("HRS") §§ 388–6 and 388–10, and unfair methods of competition ("UMOC") under HRS §§ 480–2(e) and 480–13(a). Gurrobat's claims were based on alleged violations of Hawaii's hotel or restaurant service charge law, HRS § 481B–14 (2008). Pursuant to HRS § 602–58(b)(1) (Supp.2011), we accepted a discretionary transfer of this case from the Intermediate Court of Appeals.

Gurrobat alleged that Defendants charged service charges to customers of the Pacific Beach Hotel and the Pagoda Hotel, but failed to distribute the entirety of those service charges to service employees and failed to disclose to customers its practice of retaining a portion of those charges. The Circuit Court of the First Circuit ("circuit court")¹ granted summary judgment in favor of Gurrobat on the claim of unlawful withholding of wages, but in favor of Defendants on the UMOC claim.

On appeal, Defendants argued that the circuit court erred in: (1) granting Gurrobat's motion for class certification because he never worked at the Pagoda Hotel and he failed to establish that he would be an adequate representative of the class under Hawai‘i Rules of Civil Procedure ("HRCP") Rule 23 ; (2) granting summary judgment in favor of Gurrobat on the claim for unpaid wages under HRS § 388–6 because he failed to show that Defendants withheld wages "earned" by class members; (3) granting double damages and attorneys' fees/costs, and in concluding that the Plaintiff Class were entitled to those portions of the service charge income Defendants had paid to management employees; (4) imposing joint and several liability against Defendants; (5) granting final judgment in favor of Gurrobat because it was premised on a manifest error of fact concerning Defendants' status as an "employer"; and (6) denying Defendants' motion for reconsideration on the basis of judicial and equitable estoppel with regard to joint and several liability because neither party requested the imposition of joint and several liability and it was only first mentioned in the Final Judgment.

On cross-appeal, Gurrobat argued that the circuit court erred in granting summary judgment to Defendants under HRS § 480–13(a) because: (1) it applied an erroneous legal standard imposing requirements of proof not required under Davis v. Four Seasons Hotel Ltd., 122 Hawai‘i 423, 228 P.3d 303 (2010) or any other Hawai‘i law; (2) Defendants did not carry their burden of showing that Gurrobat would be unable at trial to present evidence to establish the requisite injury under the applicable standard; and (3) the record presented genuine issues of material fact with respect to whether Gurrobat had the requisite injury for a HRS § 480–13(a) claim.

We hold that the circuit court did not err with respect to the issues of: class certification, Gurrobat's claim for unpaid wages under HRS Chapter 388, the award of double damages and attorneys' fees and costs, and Defendants' status as an "employer." However, we hold that the circuit court erred in imposing joint and several liability against the Defendants, and also erred in denying Defendants' motion for reconsideration on the basis of judicial and equitable estoppel with respect to the issue of joint and several liability.

Specifically, we hold the following on the issues raised by the Defendants: (1) Gurrobat established that he could fairly and adequately protect the interests of the class members; (2) a service charge is compensation "earned" as tip income under HRS Chapter 388; (3) the Plaintiff Class was entitled to the portion of the service charges that Defendants paid to "management employees," and to double damages and attorneys' fees/costs because there was no equitable justification for Defendants' service charge distribution practices; (4) HTH Corporation and Pacific Beach Corporation are not jointly and severally liable; (5) HTH Corporation is an "employer"; and (6) judicial and equitable estoppel did not apply to Defendants' joint and several liability arguments in its motion for reconsideration.

As to Gurrobat's cross appeal, we hold that the circuit court erred in granting Defendants' motion for summary judgment on Gurrobat's UMOC claim because Gurrobat satisfied the "nature of the competition" requirements set forth in Davis by alleging and proving (1) how Defendants' HRS § 481B–14 violation negatively affected competition and (2) that the injury to his property flowed from Defendants' conduct that negatively affects competition.

II. Background

A. Factual Background

The instant case involves a class action lawsuit, alleging that Defendants withheld tip income from non-management employees who provided food and beverage services at the Pacific Beach Hotel and the Pagoda Hotel (sometimes collectively referred to as "Hotels"). Defendants HTH Corporation and Pacific Beach Corporation together operate the Pacific Beach Hotel on O‘ahu, Hawai‘i; and Defendant HTH Corporation operates the Pagoda Hotel on O‘ahu, Hawai‘i. The certified Plaintiff Class consists of all non-management employees of the Hotels who provided services in connection with the sale of food and/or beverages on and after December 8, 2004, for which a service charge or gratuity was imposed by the Hotels, and not distributed one-hundred percent to those service employees.

Gurrobat was an employee at the Pacific Beach Hotel from February 1990 until December 2007. Between December 8, 2004 and December 2007, and at other times prior to that period, Gurrobat worked as a food and beverage server at numerous banquets and other functions at the Pacific Beach Hotel. Gurrobat did not at any point work at the Pagoda Hotel; he claimed, however, that "[s]imilar functions, served by other members of the Class, took place at the Pagoda Hotel during the Class Period."

According to Defendants, the practice for distributing service charges at the Pacific Beach Hotel was generally to distribute eighty-five percent (85%) of service charges to service employees and fifteen percent (15%) to managerial employees (e.g., catering coordinator and pastry chef); the practice at the Pagoda Hotel was generally to distribute eighty-two percent (82%) of service charges to service employees and eighteen percent (18%) to managerial employees.

B. Circuit Court Proceedings

1. Gurrobat's Complaint

On December 8, 2008, Gurrobat, individually and on behalf of the Plaintiff Class, filed suit against Defendants. Gurrobat alleged that, as operators of the Pacific Beach Hotel and the Pagoda Hotel, Defendants charged customers at the Hotels a "service charge" or "gratuity" that was calculated as a percentage of the total cost of food and beverage (typically, between seventeen and twenty percent), failed to distribute the entirety of these service charges to non-managerial employees who served the customers, and failed to clearly disclose to customers that portions of the service charges were not distributed to non-managerial employees. Gurrobat claimed that this practice violated HRS § 481B–14, that any violation of Chapter 481B was deemed to be an UMOC under HRS § 480–2 ; therefore, members of the proposed class were entitled to treble damages under HRS § 480–13(a). Gurrobat sought (1) a declaratory judgment that Defendants' practice of retaining a portion of the service charge without clearly disclosing so to customers was an UMOC, and (2) an injunction prohibiting Defendants from further engaging in this practice.

On March 29, 2010, this court issued its decision in Davis v. Four Seasons Hotel, holding in part, that the "nature of the competition" must be sufficiently alleged in a complaint to bring a claim for damages under HRS §§ 480–2(e) and 480–13(a) for a violation of HRS § 481B–14. 122 Hawai‘i at 425, 228 P.3d at 305.

Gurrobat then amended his complaint on May 24, 2010, supplementing his claim for damages under HRS §§ 480–2(e) and 480–13(a) by adding the following allegations regarding the "nature of the competition" affected by Defendants' conduct:

18. The competition in which Defendants are engaged or participating is the competition with other providers of hotel, restaurant and banquet services. Defendants derive an unfair advantage over their law-abiding competitors by (a) lowering their overall costs through the means of retaining tip income due under law to Plaintiff and other Class members, (b) attracting customers by being able to offer seemingly lower "base" prices than law-compliant competitors through the retention of tip income, and (c) misleading customers into believing that the service charge will be paid as tip income and thereby obtaining the business of customers through an unfair and illegal business advantage over law-compliant hotels, restaurants and banquet service providers.

19. These unfair competitive advantages were gained by Defendants at the direct expense of Plaintiff and other members of the Class, and Plaintiff and the Class members were injured as a result of Defendants' unfair method of competition and the Defendants' unfair competitive behavior in the hotel food and beverage market.

On July 15, 2013, this court issued its decision in Villon v. Marriott Hotel...