Hart v. Rick's Cabaret Int'l, Inc.

• Decision Date: 17 December 2014
• Docket Number: No. 09 Civ. 3043PAE.,09 Civ. 3043PAE.
• Citation: 73 F.Supp.3d 382
• Parties: Sabrina HART and Reka Furedi, on behalf of themselves and all others similarly situated, and the New York Rule 23 Class, Plaintiffs, v. RICK'S CABARET INTERNATIONAL, INC., RCI Entertainment (New York), Inc., and Peregrine Enterprises, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

73 F.Supp.3d 382

Sabrina HART and Reka Furedi, on behalf of themselves and all others similarly situated, and the New York Rule 23 Class, Plaintiffs

v.RICK'S CABARET INTERNATIONAL, INC., RCI Entertainment (New York), Inc., and Peregrine Enterprises, Inc., Defendants.

No. 09 Civ. 3043PAE.

United States District Court, S.D. New York.

Signed Dec. 17, 2014.

Eleanor Michelle Drake, Anna Purna Prakash, Eleanor Michelle Drake, John G. Albanese, Michele Renee Fisher, Paul J. Lukas, Rebekah Lynn Bailey, Steven Andrew Smith, Nichols Kaster, PLLP, Minneapolis, MN, for Plaintiffs.

Howard Scott Davis, Jeffrey A. Kimmel, Racquel Crespi Weintraub, Meister Seelig & Fein LLP, New York, NY, for Defendants.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

Trial in this case—in which a class of exotic dancers seeks to recoup pay which they allege was denied them during their work at the Rick's Cabaret NY strip club (“Rick's NY” or “the Club”), in violation of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et seq., and the New York Labor Law (“NYLL”), §§ 190 et seq. & §§ 650 et seq. —is scheduled to begin April 27, 2015. This decision resolves four open pre-trial issues: whether (1) the “performance fees” that a dancer demonstrably received from customers on a given day may offset the Club's liability for imposing mandatory “tip-out” fees of $60 the same day; (2) plaintiffs' claims arising out of the imposition of mandatory tip-out fees can be resolved on a classwide basis; (3) as defendants recently requested, the Court should certify three questions for interlocutory appeal; and (4) one trial should be held to resolve all remaining claims, or whether some claims relating to mandatory tip-out fees should be tried separately.

I. Recap of Prior Rulings and Summary of Today's Rulings

To recap the Court's prior rulings, as relevant here:

On September 10, 2013, the Court held that plaintiffs were employees of Rick's NY, that they were therefore entitled to be paid a minimum wage under the FLSA and the NYLL, and that the Club's duty under the FLSA to pay such a wage was not discharged by the payment to the dancers, by customers, of “performance fees” for dances. See Dkt. 460 (“September 2013 Decision”), reported at Hart v. Rick's Cabaret Int'l, Inc., 967 F.Supp.2d 901 (S.D.N.Y.2013). The Court also held that defendant Peregrine Enterprises, Inc. (“Peregrine”) was an employer of plaintiffs and therefore liable for any damages awarded. Id. The Court held that whether the other two defendants—RCI Entertainment New York and Rick's Cabaret International, Inc.—were also plaintiffs' employers turned on material factual disputes and could not be resolved at summary judgment.Id. On November 18, 2013, the Court granted plaintiffs' motion for summary judgment on Claim Five, holding that the Club's fines, fees, and tip-out requirements violated NYLL § 193. See Dkt. 487, reported at Hart v. Rick's Cabaret Int'l, Inc., No. 09 Civ. 3043(PAE), 2013 U.S. Dist. LEXIS 164354 (S.D.N.Y. Nov. 18, 2013).

On November 14, 2014, the Court: (1) held that performance fees paid by customers to dancers do not “offset” defendants' minimum wage obligations under the NYLL; (2) held Peregrine liable for retaining gratuities in violation of NYLL § 196–d—specifically, the $2 that defendants systematically retained, without disclosure to customers, from each $24 “Dance Dollar” purchased by customers using credit cards; (3) denied defendants' motion to strike the expert reports and testimony of plaintiffs' expert witness, Dr. David Crawford; (4) denied defendants' motion to decertify the Rule 23(b)(3) class; and (5) denied plaintiffs' motion for summary judgment on the tip-out fee issue, concluding that there was a material issue of disputed fact as to whether plaintiffs paid $60 in mandatory tip-out fees during every shift worked. See Dkt. 600 (“November 2014 Decision”), reported at Hart v. Rick's Cabaret Int'l, Inc., No. 09 Civ. 3043(PAE), 60 F.Supp.3d 447, 2014 WL 6238175 (S.D.N.Y. Nov. 14, 2014).

On November 17, 2014, the Court, sua sponte, directed briefing on two issues arising out of plaintiffs' claims that each dancer was unlawfully required to pay $60 per shift in tip-out fees ($20 each to the disc jockey (“DJ”), the “house mom,” and Club management): (1) With the Club's minimum-wage violation having been remedied by the Court's earlier ruling, is there a basis for allowing the performance fees that a dancer demonstrably received on a given day to offset the Club's liability under the NYLL for imposing mandatory tip-out fees the same day? And (2) Can plaintiffs' claims relating to tip-out fees properly be resolved on a classwide basis? Dkt. 602.

This decision resolves these two issues raised by the Court. In brief:

(1) The Court holds—as the parties have agreed—that in light of the Court's previous rulings that the performance fees were gratuities belonging to the dancers, there is no legal basis for allowing such fees to offset the Club's liability under the NYLL for mandating that dancers pay tip-out fees to the Club's management and staff.

(2) The Court holds that plaintiffs' claims under the NYLL as to mandatory tip-out fees are properly resolved on a classwide basis, because common issues relating to this claim predominate over individualized ones. The Court, therefore, declines to de-certify the class as to this claim.

This decision also addresses two other issues. First, on December 5, 2014, Rick's NY moved for certification of three questions for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b). Dkt. 616. Rick's NY seeks certification of the Court's November 2014 rulings that (1) a class was properly certified as to plaintiffs' minimum-wage claims; (2) under New York's “reasonable customer” standard, the dancers' performance fees were gratuities, not service charges; and (3) under the NYLL, the performance fees received by dancers from customers may not be used to offset the Club's liability for failing to pay the dancers a minimum wage. Id. The Court denies Rick's motion, holding that these issues do not meet the standards for certification of an interlocutory appeal. Second, at the December 9, 2014 conference, the Court raised the issue with counsel whether all open jury issues should be tried together, or bifurcated. The Court holds, as counsel agreed, that the interests of efficiency and expedition favor a single trial, and therefore the April 27, 2015 trial will resolve all open jury issues.

II. The Offset and Class Certification Questions Raised by the Court as to Tip–Out Fees

A. The Court's Sua Sponte Order

The Court's November 17, 2014 Order invited briefing on two questions. First, may performance fees received by a dancer offset the damages owed by the Club to the dancer to the extent the Club was found to have required the dancer to pay $60 per-shift tip-out fees? And second, are plaintiffs' claims relating to tip-out fees susceptible to resolution on a classwide basis? Dkt. 602. hi raising these issues, the Court noted that it had globally resolved (1) the Club's claim that it could use the performance fees to offset its liability under the NYLL, see Dkt. 600, at 5–21, and (2) the appropriateness of class certification, see id., 32–41. However, it noted, the Court and the parties had not given focused attention to these issues in the specific context of plaintiffs' claims regarding mandatory tip-out fees.

B. Analysis as to the Offset Question

As to the offset question, the Court's premise was that there assuredly must be a lawful way in which a club that pays its dancers a minimum wage could also require them, as a condition of eligibility to receive generous performance fees from customers, to pay daily fees to the club personnel (e.g., the DJ or “house mom”) whose work supports the dancers. Rick's NY, of course, had not paid the dancers a minimum wage, but the Court's prior rulings had now assured that the dancers would receive one. The Court therefore posed the question whether, given its minimum-wage ruling, the performance fees received by a dancer on a given day from customers should be allowed to offset the Club's liability for any mandatory tip-out fees paid by the dancer that day.

Notably, both parties agree that such an offset is not available in this case, given the Court's findings that the performance fees here were gratuities belonging to the dancers. See Dkt. 608 (“Def. Br.”), 12–13; Dkt. 612 (“Pl. Br.”), 2–4. As counsel together explained at the December 9, 2014 conference, there is indeed a way in which an adult-entertainment club could require its dancers to pay fees to club personnel as a condition of earning performance fees from customers. However, it would require the club to organize itself differently than Rick's NY had. Specifically, performance fees from customers would need to be received by the club and recorded in its books and records before being distributed to the dancers; and the club would need to inform customers that a given amount of the customer-paid performance fees to a particular dancer (e.g., the first $60 per day) would in fact be distributed to other club personnel such as the DJ or house mom. In other words, there would need to be sufficient notice to enable a reasonable customer to understand that the amount the Club withheld from the dancers and distributed to other personnel was not a gratuity belonging to the dancers.

However, as the parties agree, these conditions do not exist here. Customers' payments were made directly to dancers; they were not recorded in Rick's NY's books and records; and Rick's NY did not inform customers that $60 of a dancer's daily performance fees would be relinquished to others in the form of mandatory tip-out fees. Rather, as the Court has held, the circumstances under which customers paid performance fees to the dancers would lead a reasonable customer to view these payments as gratuities that the dancers were entitled to retain.See Dkt. 600, at 14–19. For these...