GRODENSKY v. CASINO







Filed 3/11/09


CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO

HARVEY GRODENSKY, Plaintiff and Respondent, v. ARTICHOKE JOE’S CASINO et al., Defendants and Appellants.	A119035 (San Mateo County Super. Ct. No. CIV424170)
HARVEY GRODENSKY, Plaintiff and Appellant, v. ARTICHOKE JOE’S CASINO et al., Defendants and Respondents.	A119036 (San Mateo County Super. Ct. No. CIV424170)

STORY CONTINUE FROM PART I….

3. The Relevant Statutes
Labor Code section 351 states: “No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. . . .”
Labor Code section 354 provides: “Any employer who violates any provision of this article [including section 351] is guilty of a misdemeanor, punishable by a fine not exceeding one thousand dollars ($1,000) or by imprisonment for not exceeding 60 days, or both.” Labor Code section 355 authorizes enforcement of Labor Code section 351 by the Department of Industrial Relations. Specifically, Labor Code section 355 reads: “The Department of Industrial Relations shall enforce the provisions of this article. All fines collected under this article shall be paid into the State treasury and credited to the general fund.” The policy underlying the statute is set forth as follows in Labor Code section 356: “The Legislature expressly declares that the purpose of this article is to prevent fraud upon the public in connection with the practice of tipping and declares that this article is passed for a public reason and can not be contravened by a private agreement. As a part of the social public policy of this State, this article is binding upon all departments of the State.”
4. Interpreting Labor Code Section 351 to Determine Whether it Provides a Private Right of Action
Here, the statutes provide for administrative enforcement of the tip protection law and they set forth a remedy other than private damages or restitution. The Department of Industrial Relations has the authority to enforce Labor Code section 351, and any violation of this statute results in the employer’s being guilty of a misdemeanor and being fined up to $1,000 or imprisonment. (Lab. Code, §§ 354 & 355.) The role of the Department of Industrial Relations is to prevent fraud upon the public. This agency does not have the authority to recover gratuities wrongfully taken by the employer.
By expressly stating in the statute that every gratuity is “the sole property of the employee or employees to whom it was paid, given, or left for” (Lab. Code, § 351), the Legislature appears to be strongly implying that the employee has a private right of action; otherwise, the statute provides the employee with an unenforceable right. Code of Civil Procedure section 30 provides: “A civil action is prosecuted by one party against another for the declaration, enforcement or protection of a right, or the redress or prevention of a wrong.”^[1] As already stressed, the Department of Industrial Relations has no authority to enforce an employee’s property interest. Consequently, any civil action to enforce the property right against an employer who has unlawfully taken an employee’s tip can only be taken by an employee.
As noted earlier, in Lu, supra, 170 Cal.App.4th 466, the Second District has recently considered whether Labor Code section 351 creates a private right of action. The Lu court, however, did not take an extensive look at the legislative history; nor did it even consider the significance of the amendment to the statute providing the employee with a property right. Moreover, a federal court has considered this issue and also concluded there was no private right of action. In Matoff v. Brinker Restaurant Corp. (C.D. Cal. 2006) 439 F.Supp.2d 1035 (Matoff), the court applied California law when determining whether the plaintiff’s claim under Labor Code section 351 should be dismissed because the statute did not create a private cause of action. The court noted that the statute provided for administrative enforcement and stated that it was not aware of any legislative history “that demonstrates a legislative intent to create a private right to sue.” (Matoff, supra, at p. 1037.) The court without any further analysis held that the statute did not provide a private right of action.
Since there was little analysis in Matoff, and neither the federal court in Matoff nor the state court in Lu considered the significance of the language in the statute regarding the employee’s property interest in the gratuity, we do not find these cases to be particularly persuasive. As already stressed, providing an employee with a property interest in his or her tips seems to indicate strongly that the Legislature intended to give the employee a private cause of action. Since no case has considered the significance of adding this right to the statute, we conclude that the statute is ambiguous and examine the legislative history and other Labor Code statutes to discern the Legislature’s intent.
In Henning, supra, 46 Cal.3d 1262, our Supreme Court reviewed the history of Labor Code section 351 to determine whether a two-tiered minimum wage system for employees who receive tips was barred under the statute. The Henning court noted that, in 1917, the Legislature enacted the statute that was the precursor of Labor Code section 351. (Henning, supra, at p. 1270.) This statute prohibited an employer from collecting any tips, but the Supreme Court struck the 1917 statute down as violating principles of substantive due process. (Henning, supra, at pp. 1270-1271, citing In re Farb (1918) 178 Cal. 592, 598.) In response, the Legislature enacted the statutes of 1929, which specified that whenever employers demanded a portion of any employee’s tip they must provide notice in a conspicuous place of this policy. (Henning, supra, at p. 1271.) The policy underlying the statutes was “ ‘to prevent fraud upon the public in connection with the practice of tipping . . . .’ ” (Henning, supra, at p. 1271.) The statutes of 1929 also provided that the Department of Industrial relations “shall enforce the provisions hereof and all fines imposed and collected thereunder shall be paid into the state treasury and credited to the general fund.”
In 1937, the Legislature codified the relevant provisions of the statutes of 1929, modifying some, as sections 351, 352, 355, and 356 of the Labor Code. Labor Code section 351 remained a notice statute and simply required the employer to post any notice of a policy of collecting the employees’ tips. (Henning, supra, 46 Cal.3d at pp. 1271-1272.) Section 352 required the notice to set forth the extent to which the employees were required by the employer to accept tips instead of wages. (Henning, supra, at p. 1272.) Section 356 reiterated that the purpose of the statute was to prevent fraud upon the public. (Henning, supra, at p. 1272.) Labor Code section 355 provided that the Department of Industrial Relations “shall enforce the provisions of this article.” It further stated that all fines collected should be paid into the state treasury and credited to the general fund. A violation of Labor Code sections 351 and 356 resulted in a misdemeanor punishment but did “not render void the [employment] agreement [between the employer and employee] with respect to the ownership or application of the tips.” (Anders v. State Board of Equalization (1947) 82 Cal.App.2d 88, 97.)
Labor Code sections 351 and 352 were amended in 1965, but they remained notice statutes. In 1968, the Industrial Welfare Commission (IWC) established a “tip credit” system, which permitted an employer to credit gratuities towards the minimum wage. (Henning, supra, 46 Cal.3d at pp. 1272-1273.)
In 1965, the Legislature amended Labor Code sections 350 and 351 to indicate that the employer must post the notice of taking the employees’ tips in a conspicuous place. (Henning, supra, 46 Cal.3d at p. 1272.) The law since 1937 and before 1965 merely provided that the notice had to be posted. The amended statutes provided that unless notice was conspicuously posted, the employer could not take any part of the gratuities. (Former Lab. Code, §§ 350 & 351.)
In 1972, Assemblyman Leroy F. Greene introduced a bill to amend former Labor Code section 351 to remove the notice provision and to declare that every gratuity is the sole property of the employee. (Henning, supra, 46 Cal.3d at p. 1273.) “The opinion of the Legislative Counsel on the effect of [this bill] was in relevant part as follows. ‘[This bill], as introduced, would delete provisions of law that now, broadly speaking, enable employers to obtain the benefit (as, in effect, the payment of wages) of tips and other gratuities received by their employees, and thereby prohibit an employer from receiving such a benefit.’ ” (Ibid.) Additionally, the opinion stated that the regulations permitting the tip crediting would be invalid. (Ibid.) Assemblyman Greene wrote the following statement in a memorandum: “The basis for this legislation would appear to be that tips or gratuities are given for individual excellence of service above and beyond the basic duties of the employment, and as such, the employer has no vested right to consider tips a part of wages.” (Italics added.) This bill, however, “died” in committee. (Henning, supra, at p. 1273.)
The following year, in 1973, Assemblyman Greene introduced Assembly Bill No. 10, 1973-1974 Regular Session (Assem. Bill 10), which was identical in relevant part to the bill introduced the prior year. (Henning, supra, 46 Cal.3d at p. 1273.) The Legislature retained the provision declaring tips to be the employee’s property, but added a provision to preserve the validating of the tip credit system. (Id. at p. 1274.) Former Labor Code section 351 stated in relevant part: “ ‘No employer or agent shall collect, take, or receive any gratuity or a part thereof, paid, given to or left for an employee by a patron, or deduct any amount from wages due an employee on account of such gratuity, or require an employee to credit the amount . . . due the employee from the employer, except to the extent that may be permitted by a valid regulation of the California Division of Industrial Welfare . . . . Every such gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for [sic].’ ” (Henning, supra, at p. 1274.)
In 1974, the Legislature again considered a bill that would amend Labor Code section 351 to bar any crediting of tips. (Henning, supra, 46 Cal.3d at p. 1275.) A memorandum by the senate Committee on Industrial Relations stated that “ ‘[t]he effect of this bill would be to require employers to pay employees at least the minimum wage regardless of the amount of tips the employees receive.’ ” (Henning, supra, at p. 1275.) In 1975, the Legislature amended the statute by deleting the crediting exception and thereby revoking the authority of the IWC to allow an employer to obtain the benefit of tips received by its employees. (Henning, supra, at p. 1275.)
A careful consideration of this legislative history supports a conclusion that the Legislature, in 1973, intended to provide employees with a private right of action to recover any tips unlawfully taken by their employers. In 1929, when tips were not considered the property of the employees, employers could take a portion of the tips as long as they provided notice of this practice to the public. The policy concern was that the public should be aware that the employees were not receiving all of the tip money. The statutes gave the Department of Industrial Relations the authority to protect the public’s interest and this agency could prosecute the employer for any violation of the notice or record keeping requirements. Violations resulted in a misdemeanor punishment.
Assemblyman Greene, however, made it plain that the purpose of amending Labor Code section 351 to strike the notice provision and to prohibit an employer from collecting any of the tip money was to make it clear that the employer did not have a vested interest in this money. No corresponding legislation expanded the authority of the Department of Industrial Relations to prosecute an action to enforce or recover this newly created property interest of the employees. Thus, the only way for an employee to recover money unlawfully taken by an employer would be for the employee to bring his or her own civil action. Accordingly, it would be an absurd construction to interpret the statute as giving an employee a property right in the gratuity with no means of enforcing that right.
The casino argues that if the Legislature intended to provide a private right of action, it would have expressly stated that. It claims that the Legislature made its intention clear in Labor Code section 1194, subdivision (a), which reads: “Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.”
We conclude, however, that Artichoke Joe’s ignores the context of Labor Code section 1194. Labor Code sections 98 through 98.2 confer authority on the commissioner to adjudicate wage claims through an administrative process. Since employees have an administrative remedy, the Legislature needed to specify that an employee could also bring a “civil action.”
In contrast, an employee has no administrative remedy when an employer unlawfully collects the employee’s tips. Accordingly, the Legislature did not need to specify in Labor Code section 351 that there could be a civil action because the only method for recovering a tip is a civil action.
The Lu court determined that the Labor Code Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.), provides further support for its holding that Labor Code section 351 confers no right of action on private parties. (Lu, supra, 170 Cal.App.4th at p. 476.) In relevant part, PAGA provides, “Notwithstanding any other provision of law, any provision of [the Labor Code] that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency [the Agency] or any of its departments, divisions, commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees pursuant to the procedures specified in Section 2699.3.” (Lab. Code, § 2699, subd. (a).) PAGA establishes a default penalty and a private right of action for an aggrieved employee for violations of “all provisions of [the Labor Code] except those for which a civil penalty is specifically provided . . . .” (Lab. Code, § 2699, subds. (f) & (g)(1).) Employees also have the right “to pursue or recover other remedies available under state or federal law, either separately or concurrently with an action taken under this part.” (Lab. Code, § 2699, subd. (g)(1).)
The Lu court concluded that “[t]he enactment of PAGA as an enforcement vehicle implies a legislative recognition that a direct, private cause of action under [Labor Code section] 351 is not viable.” (Lu, supra, 170 Cal.App.4th at p. 476.) We, however, do not agree that PAGA bars a private action to recover tip money wrongly taken. PAGA “empowers or deputizes an aggrieved employee to sue for civil penalties ‘on behalf of himself or herself and other current or former employees’ (§ 2699, subd. (a)), as an alternative to [Agency] enforcement . . . .” (Dunlap v. Superior Court (2006) 142 Cal.App.4th 330, 337.) Here, Grodensky is not suing for civil penalties but to recover the tip money wrongfully taken.
Finally, we believe that there is an additional policy reason for concluding that Labor Code section 351 creates a private right of action. Here, as was the situation in Lu, the plaintiff also included a UCL action. It would not be good policy to require a plaintiff always to include a UCL action whenever the plaintiff is deprived of his or her tip by the employer. Rather, employees should be able to recover their tips by a simple action under Labor Code section 351.
We conclude that the context of the statutes and the legislative history confirm that the Legislature intended to provide employees with a private right of action under Labor Code section 351. This action is not duplicative of any action that can be taken by an administrative agency. Further, as discussed earlier, it would be an absurd result to bestow employees with a property interest in their tips, but then deprive them of any means to recover their property.
C. Claim for Restitution Under the UCL
The trial court found that paying a portion of the dealers’ tips to the shift managers violated the UCL (Bus. & Prof. Code, § 17200 et seq.). Business and Professions Code section 17203 provides in relevant part: “Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments . . . as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition. . . .”
“A UCL action is an equitable action by means of which a plaintiff may recover money or property obtained from the plaintiff or persons represented by the plaintiff through unfair or unlawful business practices. It is not an all-purpose substitute for a tort or contract action. ‘[D]amages are not available under [Business and Professions Code] section 17203.” (Cortez v. Purolator Air Filtration Products Co. (2008) 23 Cal.4th 163, 173 (Cortez).)
The casino does not challenge the lower court’s findings that a violation of Labor Code section 351 supports a UCL cause of action. However, it argues that the trial court erred in determining that the dealers could receive the remedy of restitution.^[2] Artichoke Joe’s maintains that the components necessary for restitution were not present here. Additionally, it asserts that the equities of the situation dictate that it should not have to disgorge any portion of the tip money given to the shift managers.
1. Standard of Review
The casino maintains that the issue of restitution is a mixed question of law and fact. The casino, however, is not arguing that the UCL claim was invalid; rather, it is challenging the order of restitution. Once an unfair business practice has been shown under the Business and Professions Code section 17203, the court “ ‘may make such orders or judgments . . . as may be necessary to prevent the use or employment . . . of any practice which constitutes unfair competition . . . or . . . to restore . . . money or property.’ [Citation.] That is, as our cases confirm, a grant of broad equitable power. A court cannot properly exercise an equitable power without consideration of the equities on both sides of a dispute.” (Cortez, supra, 23 Cal.4th at p. 180.) Accordingly, we review the court’s order of restitution for abuse of discretion.
2. The Remedy of Restitution in a Tip Pooling Case
Restitution under the UCL includes two separate components. “The offending party must have obtained something to which it was not entitled and the victim must have given up something which he or she was entitled to keep.” (Day v. AT & T Corp. (1998) 63 Cal.App.4th 325, 340.) Restitution is available where “ ‘a defendant has wrongfully acquired funds or property in which a plaintiff has an ownership or vested interest.’ ” (Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1012.) The Supreme Court has defined orders for restitution as “orders compelling a UCL defendant to return money obtained through an unfair business practice to these persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.” (Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126-127.)
Artichoke Joe’s contends that neither component of restitution was present in this case. The casino maintains that the trial court found that it did not keep any of the tip money for itself and therefore, according to the casino, it could not have obtained anything to which it was not entitled. Further, it insists that courts have held that tips belong to all of the employees serving the customers and therefore the dealers did not have an exclusive ownership interest in the tips.
The casino argues that the court in Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1070 (Leighton) made it clear that tipping pools are legal and as long as the employer does not keep the money, there is no violation. In Leighton, the appellate court held that requiring a waitress to share her tips with the employer’s busboys was not prohibited by Labor Code section 351. (Leighton, supra, at p. 1070.) The court explained that, “if more than one employee, for example a waitress and a busboy, directly serve the table of a patron, the gratuity is left for the ‘employees’ within the meaning of [Labor Code] section 351, and thereunder becomes their sole property as against the employer, to be equitably distributed between them.” (Ibid., fn. omitted.) The court cautioned, “Under the tip pooling arrangement in this case, there is no way in which a gratuity can be appropriated by the employer either for himself or to make up part of an employee’s wages . . . .” (Ibid.)
Under Labor Code section 351, Grodensky and the other dealers had a property interest in the tips given to them. (See also Matoff, supra, 439 F.Supp.2d at pp. 1038-1039 [rejected defendant restaurant’s argument that restitution under the UCL was improper because the tips the employee sought to recover were in possession of the bartender rather than the restaurant when the restaurant directed that the funds be given to the bartenders].) Consistent with the clear mandate of the Labor Code and the reasoning of Leighton, the dealers have a property interest in the tips. The fact that other employees in addition to the dealers had a property interest in the dealers’ tips did not eviscerate the dealers’ property interest in their tips.
Further, the present situation is significantly different from the one in Leighton. In Leighton, the defendant restaurant had not violated Labor Code section 351. However, the Leighton court made it clear that tips could not be kept by the employer or its agents. (Leighton, supra, 219 Cal.App.3d at p. 1065.) The Leighton court stated that when several people attend to the table the tips belong to all of the employees and they never belong to the employer or to the employer’s agents. Thus, the tips were the property of both the waitresses and the busboys. Here, the trial court found that the casino did not keep any money for itself but it determined that the shift managers were agents of the casino and they illegally received a portion of the dealers’ gratuity.
It is undisputed that Artichoke Joe’s instituted a mandatory tip pool effective October 26, 1998. The record establishes that the casino obtained the dealers’ tips and then distributed a portion of them to the shift managers. Dealers were to pay a set hourly amount into the tip pool of $3.00 or $5.00 per hour, depending upon their shift, regardless of the amount of tips actually received. The payments to shift managers was pursuant to a point system where shift managers received six points per eight-hour shift, and points were worth approximately $15 to $17 each. The parties stipulated that the amount of money taken from the 78 dealers in the class that was paid to shift managers by the casino was $344,761.93. Thus, the record supported the lower court’s finding that the casino took the tips given to the dealers and distributed a portion of this property to its agents, the shift managers, in violation of Labor Code section 351.
In addition to the Leighton case, the casino cites Bradstreet v. Wong (2008) 161 Cal.App.4th 1440 (Bradstreet), and quotes the following language: “In the absence of a finding that intervener performed labor for defendants personally, rather than for the benefit of Wins Corporations, or that defendants appropriated for themselves corporate funds that otherwise would have been used to pay the unpaid wages, we agree with the trial court’s conclusion that an order requiring defendants to pay the unpaid wages would not be ‘restitutionary as it would not replace any money or property that defendants took directly from’ intervener.” (Id. at p. 1460.)
In citing the foregoing language to support its argument that restitution was not an appropriate remedy, the casino ignores the fact that the court in Bradstreet was concerned with the principals of the corporation, not the corporation. (Bradstreet, supra, 161 Cal.App.4th at p. 1460.) In Bradstreet, former employees brought a claim under the UCL against the principals of closely held garment corporations and sought restitution. (Bradstreet, at pp. 1458-1461.) The court explained that the issue before it was whether these individual defendants, “who were not the employers, and who were not found to have required any employee to work for them personally, or to have misappropriated corporate funds for their own use, may also be required to pay the earned but unpaid wages as restitution.” (Id. at p. 1459, fn. omitted.) The court noted that the labor was for the benefit of the employer; the employer, not the individuals, was obliged to pay the wages. (Id. at p. 1460.)
Indeed, the casino’s reliance on Bradstreet is particularly surprising given that the court made it clear that restitution could be properly ordered against the corporation or the actual employer. (Bradstreet, supra, 161 Cal.App.4th at p. 1459.) The court explained: “Nor is there any dispute that the unpaid wages could be recovered from the Wins Corporations as restitution pursuant to Business and Professions Code section 17203. ‘[A]n order that a business pay to an employee wages unlawfully withheld is consistent with the legislative intent underlying the authorization in [Business and Professions Code] section 17203 for orders necessary to restore to a person in interest money or property acquired by means of an unfair business practice.’ [Citation.] ‘The employer has acquired the money to be paid by means of an unlawful practice that constitutes unfair competition as defined by [Business and Professions Code] section 17200. The employee is, quite obviously, a “person in interest” [citation] to whom that money may be restored. The concept of restoration or restitution, as used in the UCL, is not limited only to the return of money or property that was once in the possession of that person. The commonly understood meaning of “restore” includes a return of property to a person from whom it was acquired [citation], but earned wages that are due and payable pursuant to section 200 et seq. of the Labor Code are as much the property of the employee who has given his or her labor to the employer in exchange for that property as is property a person surrenders through an unfair business practice. An order that earned wages be paid is therefore a restitution remedy authorized by the UCL. The order is not one for payment of damages.’ ” (Id. at p. 1459.)
Similarly, the casino’s citations to other cases that do not involve the misappropriation of an employee’s gratuity by the employer have no bearing on the issue before us. (See, e.g., McBride v. Boughton (2004) 123 Cal.App.4th 379, 389-390 [man who falsely believed that he was the child’s biological father and provided financial support to the child did not have a claim of unjust enrichment against biological mother and her husband]; Cruz v. U. S. (N.D. Cal. 2002) 219 F.Supp.2d 1027, 1041-1042 [in a lawsuit by individuals from Mexico who claimed they were owed money withheld from their wages while working in the United States during World War II, the court dismissed their claim for unjust enrichment against the bank when the bank, which had held the deposited money and then transferred it to a Mexican bank, was merely an intermediary and had received no benefit from the plaintiffs]; Inline, Inc. v. Apace Moving Systems, Inc. (2005) 125 Cal.App.4th 895, 903 [owner of goods stored at warehouse by third party could only receive the amount of money that the warehouse received from selling the goods and not the goods’ fair market value]; Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1149 [restitution not the proper remedy because plaintiff did not have an ownership interest in the property].)
Finally, the casino argues that ordering the return of the tip money distributed to the shift managers would not restore the “status quo” because the money now belongs to the shift managers, not the casino. It is irrelevant that the casino did not keep the money and chose to distribute it to another party, because the other party is an agent of the casino. “The object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.” (Korea Supply Co. v. Lockheed Martin Corp., supra, 29 Cal.4th at p. 1149.) Thus, restoring the status quo in the present case is returning this wrongfully obtained money to the dealers.
Accordingly, we conclude that the dealers had a property interest in their tips under Labor Code section 351, and the trial court did not abuse its discretion in ordering the disgorgement of the sum taken from the dealers’ tips and distributed to the casino’s agents.


TO BE CONTINUED AS PART III….

Publication courtesy of San Diego pro bono legal advice.
Analysis and review provided by Poway Property line attorney.
San Diego Case Information provided by www.fearnotlaw.com

---