Davis et al v. Four Seasons Hotel Limited

Filing 180

ORDER ADOPTING MAGISTRATE JUDGE'S FINDINGS AND RECOMMENDATION FOR CLASS CERTIFICATION 167 . Signed by JUDGE HELEN GILLMOR on 9/30/2011. ~ (ecs, )CERTIFICATE OF SERVICEParticipants registered to receive electron ic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
DARYL DEAN DAVIS; MARK APANA;
ELIZABETH VALDEZ KYNE; EARL
TANAKA; THOMAS PERRYMAN;
DEBORAH SCARFONE; on behalf of
themselves and all others
similarly situated,
Plaintiffs,
vs.
FOUR SEASONS HOTEL LIMITED,
dba FOUR SEASONS RESORT, MAUI
and FOUR SEASONS RESORT,
HUALALAI; MSD CAPITAL, INC.,

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Civ. No. 08-00525 HG-BMK

Defendants.
ORDER ADOPTING MAGISTRATE JUDGE’S FINDINGS AND RECOMMENDATION FOR
CLASS CERTIFICATION
On July 19, 2011, the Magistrate Judge issued a Findings and
Recommendation

for

Class

Certification.

On

August

2,

2011,

Defendant Four Seasons Hotel, Limited filed an Objection.

On

August 16, 2011, Plaintiffs filed a Response to the Objection. The
Magistrate Judge’s Findings and Recommendation are ADOPTED.

PROCEDURAL HISTORY
On

November

21,

2008,

Plaintiffs

filed

a

Class

Action

Complaint. (Doc. 1).
On January 12, 2009, Plaintiffs filed an Amended Class Action
Complaint. (Doc. 13).

1

On January 30, 2009, Defendant Four Seasons Hotel, Limited
filed a Motion to Dismiss. (Doc. 32).
On March 24, 2009, a hearing was held on Defendant’s Motion to
Dismiss. (See Doc. 53).

The Court denied the Motion and ordered

the parties to meet and confer in order to frame an appropriate
question

to

the

Hawaii

Supreme

Court

regarding

Plaintiffs’

standing. (See Doc. 53).
On June 2, 2009, the Court certified the question to the
Hawaii Supreme Court regarding Plaintiffs’ standing to pursue their
unfair competition claim under H.R.S. § 480-2(e) for a violation of
H.R.S. § 481B-14. (Doc. 75).
On July 28, 2009, the Court directed the Clerk’s Office to
close the case administratively, while the matter was before the
Hawaii Supreme Court. (Doc. 88).
On March 29, 2010, the Hawaii Supreme Court issued a ruling on
the certified question.

Davis, et al., v. Four Seasons Hotel Ltd,

et al., 228 P.3d 303 (Haw. 2010).

The Hawaii Supreme Court ruled

that Plaintiffs have standing to pursue a claim unfair competition
claim under H.R.S. § 480-2(e) for a violation of H.R.S. § 481B-14
if they sufficiently allege the nature of the competition that
caused their injuries. Id.
On April 9, 2010, the Defendant filed a Motion to Reopen the
Case. (Doc. 93).
On

April

19,

2010,

Plaintiffs

2

filed

a

Statement

of

No

Opposition to Defendant’s Motion to Reopen Case. (Doc. 100).
On May 6, 2010, the Court granted Defendant’s Motion to Reopen
Case. (Doc. 102).
On September 3, 2010, Plaintiffs filed a Second Amended Class
Action Complaint. (Doc. 122).
On November 3, 2010, Defendant filed an Answer to the Second
Amended Complaint. (Doc. 126).
On April 4, 2011, Plaintiffs filed a Motion to Certify Class.
(Doc. 130).
On May 6, 2011, Defendant filed an Opposition. (Doc. 139).
On June 27, 2011, Plaintiffs filed a Reply. (Doc. 152).
On July 11, 2011, Magistrate Judge Barry Kurren held a hearing
on Plaintiffs’ Motion for Class Certification. (Doc. 165).
On July 19, 2011, Magistrate Judge Barry Kurren issued a
Findings

and

Recommendation

that

Plaintiffs

Motion

for

Class

Certification be granted. (Doc. 167).
On August 2, 2011, Defendant filed an Objection. (Doc. 169).
On August 16, 2011, Plaintiffs filed a Response to Defendant’s
Objection. (Doc. 170).
On September 7, 2011, Defendant filed a Motion for Leave to
File Supplemental Authority in support of its Objection. (Doc.
172).
On September 9, 2011, the Court issued a Minute Order granting
the Motion for Leave to File Supplemental Authority. (Doc. 173).

3

On September 9, 2011, Defendant filed a Notice of Supplemental
Authority. (Doc. 174).
On September 16, 2011, Plaintiffs filed a Response to the
Notice of Supplemental Authority. (Doc. 178).

BACKGROUND
Plaintiffs are food and beverage servers who have worked at
the Four Seasons Resort, Maui (the “Maui resort”), and the Four
Seasons Resort, Hualalai (the “Hualalai resort”). (Second Amended
Complaint at ¶ 1 (Doc. 122); Defendant’s Answer at 3, ¶ 1 (Doc.
126)).

Defendant Four Seasons Hotel, Limited (the “Four Seasons”)

is responsible for managing both resorts. (Defendant’s Answer at ¶
3 (Doc. 126); Plaintiffs’ Reply in Support of Motion for Partial
Summary Judgment at 16 (Doc. 144)).

Defendant MSD Capital, Inc.

has an ownership interest in the two resorts. (Second Amended
Complaint at ¶ 4 (Doc. 122); Defendant’s Answer at ¶ 4 (Doc. 126)).
Defendant MSD Capital, Inc. has not appeared, and there is no
evidence that it was ever served.
Plaintiffs claim that Four Seasons adds a “service charge” to
resort customers’ food and beverage bills, which ranges from 18 to
22 percent of the food and beverage bill total. (Plaintiffs’
Statement of Facts at ¶¶ 2-3 (Doc. 133)).

According to the

Complaint, a portion of the service charge is distributed to
services

employees,

and

another

4

portion

is

retained

by

Four

Seasons. (Id. at ¶ 4).

Four Seasons does not dispute that resort

customers are billed an 18 to 22 percent service charge, and that
it retains a portion that is not distributed to service employees.
(Defendant’s Statement of Facts at ¶¶ 1-4 (Doc. 140)).

Four

Seasons disputes that it is responsible for this practice. (Id.).
Four Seasons maintains that it does not “operate” the resorts on a
“day-to-day basis.” (Defendant’s Statement of Facts at ¶ 1 (Doc.
140)).

According to Four Seasons, the “day-to-day” operation of

the Maui resort is performed by 3900 WA Associates, LLC, and the
“day-to-day” operation of the Hualalai resort is performed by
Hualalai Investors, LLC. (Defendant’s Answer at ¶ 3 (Doc. 126)).
Plaintiffs’ claims for relief are all based on an allegation
that Four Seasons failed to disclose to customers, prior to the
filing of this lawsuit, that the service charges were not remitted
in full to the employees who serve the food and beverages. (Second
Amended Complaint at ¶¶ 8-9 (Doc. 122); Plaintiffs’ Statement of
Facts at ¶ 5 (Doc. 133)).

Plaintiffs maintain that customers are

misled into believing that the entire service charge is distributed
to the service employees, and that customers who would otherwise be
inclined to leave an additional gratuity do not do so. (Second
Amended Complaint at ¶ 9 (Doc. 122)).

STANDARD
Portions of a Magistrate Judge’s Findings and Recommendation

5

to which an objection is made are reviewed do novo. 28 U.S.C. §
636(b)(1); Fed. R. Civ. P. 72(b); Local Rules 72.5, 74.2; Stow v.
Murashige, 288 F.Supp.2d 1122, 1127 (D. Haw. 2003).

The district

court may “accept those portions of the Magistrate Judge’s findings
and recommendation that are not objected to if it is satisfied that
there is no clear error on the face of the record. Stow, 288
F.Supp.2d at 1127; see also Campbell v. United States Dist. Court,
501 F.2d 196, 206 (9th Cir. 1974).

ANALYSIS
Defendant

Four

Seasons

objects

to

the

Findings

and

Recommendation for Class Certification (hereinafter “F&R”) on the
following grounds: (1) the F&R does not exclude employees who
signed arbitration agreements; (2) a class composed of casual
employees lacks sufficient numerosity or “impact”; (3) what each
customer knew about the disposition of the service charge requires
an individualized inquiry into customer knowledge; and (4) the F&R
excludes

managerial

employees

from

the

class,

but

permits

managerial employees to submit evidence regarding their right to
participate in the service charge.

1.

Employees Who Signed Arbitration Agreements
Four Seasons argues that the F&R errs by not excluding from

the class employees who signed arbitration agreements.

6

According

to Four Seasons, 24 of the members of the putative class signed an
“EmPact” agreement that requires their claims to be arbitrated on
an individual rather than class-wide basis. Four Seasons maintains
that three of the named Plaintiffs, Mark Apana, Elizabeth Valdez
Kyne, and Thomas Perryman, are employees who signed the arbitration
agreement.

Plaintiffs

allege

that

the

total

putative

class

contains more than 100 members.
Federal Rule of Civil Procedure 23 requires that a proposed
class have sufficient numerosity, commonality, typicality, and
adequate representation. See Wal-Mart Stores, Inc. v. Dukes, —
S.Ct. —, 2011 WL 2437013, at *6 (2011).

Rule 23 does not require,

however, that the class exclude any members against whom the
defendant might be able to assert a unique defense. Id.; Yokoyama
v. Midland Nat’l Life Ins. Co., 594 F.3d 1087, 1094 (9th Cir.
2010).

Rule 23 only requires that common issues predominate. See

Dukes, 2011 WL 2437013.
The possibility that Four Seasons may attempt to enforce an
arbitration agreement entered into by a portion of the members of
the class does not stand in the way of class certification.
Several courts have addressed the effect of arbitration agreements
among members of a putative class, and concluded that they do not
bar class certification.

As the court explained at length in

Herrera v. LCS Fin. Serv. Corp., 372 F.R.D. 666, 681 (N.D. Cal):
The fact that some members of a putative class may have
signed arbitration agreements or released claims against
7

a defendant does not bar class certification.
Other
courts presented with this issue have held that “class
certification should not be denied merely because some
class members may be subject to the defense that their
claims are barred by valid documents releasing the
defendant from liability.” Coleman v. GMAC, 220 F.R.D.
64, 91 (N.D. Tenn. 2004); see also Bittinger v. Tecumseh
Products Co., 123 F.3d 877, 884 (6th Cir. 1997). The
Ninth Circuit addressed this issue as it relates to a
statute of limitations defense and held that “the
presence of individualized issues of compliance with the
statute of limitations here does not defeat the
predominance of the common questions.” Cameron v. E.M.
Adams & Co., 547 F.2d 473, 478 (9th Cir. 1976).
See also Midland Funding, LLC v. Brent, 2010 WL 4628593, at *4
(N.D. Ohio 2010).

The F&R does not err in finding that the

presence of arbitration agreements with 24 members of a putative
class of over 100 individuals does not bar class certification.

A.

Potential Waiver of Right to Arbitrate

Plaintiffs also argue that Four Seasons waived its right to
compel arbitration against putative class members by extensively
litigating this action.

Four Seasons maintains that it could not

have waived its right to compel arbitration against members of the
putative class because the class has not yet been certified.
Four Seasons filed a Notice of Supplemental Authority in which
it cites three cases in support.

In Laguna v. Coverall N. Am.

Inc., 2011 WL 3176460, at *8 (S.D. Cal. 2011), the plaintiffs filed
a motion to compel discovery of arbitration agreements entered into
by putative class members.

The court denied the motion, reasoning

that because the defendants had not moved to compel arbitration
8

against the absent class members, there was no basis to require
production of the arbitration agreements.

In dicta, the court

proceeded to state: “In fact, Defendants cannot move to compel
arbitration against putative class members prior to certification
of a class.”

Four Seasons relies on this statement to support its

position that it cannot move to compel arbitration against putative
members of a class until after the class is certified.

Four

Seasons also cites In re TFT-LCD (Flat Panel) Antitrust Litig.,
2011 WL 1753784, at *4 (N.D. Cal. 2011), in which the court ruled
that the defendants did not waive their right to arbitrate with
unnamed members of a class.

Although the court found the issue

“extremely close,” it did “not appear to the Court that defendants
could have moved to compel arbitration against such entities prior
to the certification of a class [in the case] because . . .
‘putative class members are not parties to an action prior to class
certification.’” Id. (quoting Saleh v. Titan Corp., 353 F.Supp.2d
1087, 1091 (S.D. Cal. 2004).
None of these cases ruled that arbitration agreements among
members

of

a

putative

class

bar

class

certification.

The

possibility that Four Seasons may be able to compel unnamed members
of the putative class to arbitrate in the future does not preclude
class certification. See Herrera v. LCS Fin. Serv. Corp., 372
F.R.D. 666, 681 (N.D. Cal); Midland Funding, LLC v. Brent, 2010 WL
4628593, at *4 (N.D. Ohio 2010).

The F&R does not err in finding
9

that the possibility that Four Seasons may be able to enforce
arbitration agreements against 24 members of a putative class of
over 100 individuals does not bar class certification.

2.

Class Composed Only Of Casual Employees
Four Seasons argues that if the 24 employees who signed

arbitration agreements are excluded from the class, the remaining
class of 64 casual employees lacks sufficient numerosity because
the impact of each employee’s casual employment is de minimus.
Four Seasons argues that these smaller claims would be better
handled on an individualized basis.
The F&R does not err in failing to exclude the 24 employees
who signed arbitration agreements.

Four Seasons’ argument is

therefore moot.
Even if the class were to exclude the 24 employees who signed
arbitration agreements, the fact that the claims of the remaining
64 casual employees would be small is not grounds to deny class
certification.

A class action is the appropriate vehicle for

handling numerous small claims requiring the resolution of similar
issues. See, e.g., Sullivan v. Kelly Servs., Inc., 268 F.R.D. 356,
365 (N.D. Cal. 2010) (“The small amount of money at issue in each
individual case makes it highly unlikely that individual litigation
would ever be undertaken, but a class action would offer those with
small claims the opportunity for meaningful redress.”).
10

3.

Individualized Inquiry Into Customer Knowledge
Four Seasons argues that a critical issue in this case is what

each customer knew and understood about the disposition of the
service charges.

Four Seasons maintains that some customers were

aware that the service charge was not being distributed in full to
employees.

Determining what each customer knew, Four Seasons

argues, requires an individualized, case by case inquiry that is
not appropriate for a class action.
An individualized inquiry into the knowledge of individual
customers is not necessary to determine whether Four Seasons
violated H.R.S. § 481B-14.

H.R.S. 481B-14 states that hotels must

distribute service charges directly to their employees as tip
income or “clearly disclose to the purchaser of the services that
the service charge is being used to pay costs or expenses other
than wages and tips of employees.”

Section 481B-14 requires a

clear disclosure; it does not require customer knowledge.

As the

statute simply requires disclosure, there is no need to make an
inquiry

into

each

individual

customer’s

knowledge

about

the

disposition of the service charge.

4.

Managerial Employees Excluded From Class
Four Season argues that the F&R errs in excluding managerial

employees from the class.

Four Seasons argues that H.R.S. § 481B-

14 does not expressly state which employees are entitled to receive
11

the service charges as tip income.
The F&R does not err in excluding managerial employees from
the class.

H.R.S. § 481B-14

481B-14 states that the service

charge shall be distributed as “tip income.”

As section 481B-14

requires service charges to be distributed as tip income to
employees, it is apparent that service charges must be distributed
to the employees who provided the relevant service (in keeping with
the common, dictionary definition of a “tip”).
The legislative history of H.R.S. § 481B-14 clearly reflects
an intent to protect service employees who would otherwise receive
tips.

According to a report from the House Committee on Labor &

Public Employment, section 481B-14 was originally intended “to
protect employees who receive or may receive tips or gratuities.”
H. Stand. Comm. Rep. No. 479-00, in 2000 House Journal, at 1155.
A

report

from

the

Senate

Committee

on

Commerce

&

Consumer

Protection similarly states that the purpose of section 481B-14 was
to prevent employees who otherwise receive tips from being deprived
of that money:
[M]oneys collected as service charges are not always
distributed to the employees as gratuities and are
sometimes used to pay the employer’s administrative
costs. Therefore the employee does not receive the money
intended as gratuity by the customer, and the customer is
misled into believing that the employee has been rewarded
for providing good service.
S. Stand. Comm. Rep. No. 3077, in 2000 Senate Journal, at 1287.

12

Several courts have reviewed the legislative history of H.R.S.
§ 481B-14 and concluded that it was intended to protect service
employees. In Rodriguez v. Starwood Hotels & Resorts, Civ. No. 090016-LEK-RLP (Doc. 93) (D. Haw. 2010), the court stated “the
legislature’s focus on protecting employees who would otherwise be
tipped clearly demonstrates that § 481B-14 was intended to provide
protection for those specific employees.”

In Gurrobat v. HTH

Corporation, et al., Civ. No. 08-1-2528-12 (KKS) (Haw. Ct. 1st Cir.
2010),

a

legislative

Hawaii

state

history

court

behind

similarly

HRS

concluded

481B-14

that

demonstrates

“the
[the]

legislature’s intent to protect service employees who provide
direct service to customers and not managerial employees.”
As a result of the clear legislative intent to protect service
employees, courts that have considered class certification with
respect

to

claims

based

on

H.R.S.

§

481B-14

have

excluded

managerial employees from the class. See Gurrobat, Civ. No. 08-12528-12; Villion v. Marriott Hotel Serv. Inc., 2011 WL 2160483, at
*6-7 (D. Haw. 2011); Kyne v. Ritz-Carlton Hotel Co., L.L.C., Civ.
No. 08-00530 ACK-RLP (Doc. 93) (July 18, 2011); Wadsworth v. KSL
Grand Wailea Resort, Inc., Civ. No. 08-00527 ACK-RLP (Doc. 150)
(July 18, 2011).
The F&R does not err in excluding managerial employees from
the class.

13

CONCLUSION
The Magistrate Judge’s Findings and Recommendation for Class
Certification (Doc. 167) are ADOPTED as the Order of this Court.

IT IS SO ORDERED.
DATED: September 30, 2011, Honolulu, Hawaii.

/S/ Helen Gillmor
Helen Gillmor
United States District Judge

DAVIS, et al. v. FOUR SEASONS HOTEL LIMITED, et al.; Civil No. 0800525 HG-BMK; ORDER ADOPTING MAGISTRATE JUDGE’S FINDINGS AND
RECOMMENDATION FOR CLASS CERTIFICATION.

14