Kawakami v. Kahala Hotel Investors, LLC
| Decision Date | 22 December 2014 |
| Docket Number | No. SCWC–11–0000594.,SCWC–11–0000594. |
| Citation | 134 Hawai'i 352,341 P.3d 558 |
| Parties | Jason KAWAKAMI, individually and on behalf of all others similarly situated, Petitioner/Plaintiff–Appellant/Cross–Appellee, v. KAHALA HOTEL INVESTORS, LLC, dba Kahala Hotel and Resort, Respondent/Defendant–Appellee/Cross–Appellant. |
| Court | Hawaii Supreme Court |
John Francis Perkin and Brandee J.K. Faria, Honolulu, for petitioner.
David J. Minkin and Dayna H. Kamimura–Ching, Honolulu, for respondent.
In this case, we are once again confronted with alleged violations of Hawaii's hotel or restaurant service charge law, Hawai‘1 " wages" without disclosing such practice to its customers constitute an unfair or deceptive act or practice in the conduct of trade or commerce ("UDAP") and/ or an unfair method of competition ("UMOC") pursuant to HRS § 480–2 (2008). As discussed below, we conclude in the affirmative.
Jason Kawakami ("Kawakami") held his wedding reception at the Kahala Hotel and Resort ("Kahala Hotel") in July 2007. Kahala Hotel collected a 19% service charge on the purchase of food and beverages for his reception. Kahala Hotel did not distribute the 19% service charge directly to its employees as "tip income." Instead, 15% of the service charge was retained by Kahala Hotel as a "management share," then reclassified and used to pay for the banquet employees' "wages." No disclosure was made to Kawakami that a portion of the service charge was used as wages, rather than tip income.
Kawakami, individually and on behalf of all other similarly situated individuals ("Plaintiff Class") filed a lawsuit in the Circuit Court of the First Circuit ("circuit court") alleging that Kahala Hotel violated HRS § 481B–14 when it failed to either distribute the service charges directly to its employees as tip income or disclose to the Plaintiff Class that the service charges were being used to pay for costs or expenses other than "wages and tips" of employees.
The circuit court2 held that pursuant to HRS § 481B–14, the plaintiff customer is entitled to know that a portion of the service charge would not be paid to employees as tip income, but would, instead, become the property of Kahala Hotel to be used as the hotel deemed appropriate. Specifically, the circuit court held: "That the hotel decides to use its 15 percent share of the service charge to offset employees' wages, does not alter, reduce, negate, or discharge the Defendant's disclosure obligations under HRS section 481 B–14."
The Intermediate Court of Appeals ("ICA") disagreed. In its March 25, 2014 Memorandum Opinion, the ICA held that because the hotel had reclassified its 15% management share to pay its banquet employees' wages, Kahala Hotel was in compliance with HRS § 481B–14 pursuant to this court's interpretation of "tip income" in Villon v. Marriott Hotel Services, Inc., 130 Hawai‘i 130, 306 P.3d 175 (2013). The ICA thus concluded that no disclosure was required.
On certiorari, Kawakami challenges the ICA's conclusion that HRS § 481B–14 does not mandate disclosure of service fees used for wages.3
We hold that pursuant to HRS § 481B–14, a hotel or restaurant that applies a service charge for food or beverage services must either distribute the service charge directly as tip income to the non-management employees who provided the food or beverage services, or disclose to its customers that the service charges are not being distributed as tip income.
Kahala Hotel generally levies a 19% or 20% service charge for banquet events at the hotel in connection with the purchase of food or beverages. The service charges are placed in one fund. Pursuant to a Collective Bargaining Agreement ("CBA") between Kahala Hotel and Unite Here! Local 5, the union representing Kahala Hotel employees, 85% of the service charges are distributed to the employees as tip income. The CBA then permits the hotel to retain the other 15% as the "management's share." At the end of the month, this portion is reclassified to offset Kahala Hotel's wage obligations to its banquet employees. Here, Kahala Hotel collected a 19% service charge from Kawakami on the purchase of food and beverages for his wedding reception. Kahala Hotel then retained 15% of the service charge as its management share before reclassifying the charges to pay its employees' wages.
On December 3, 2008, Kawakami filed a lawsuit individually and on behalf of the Plaintiff Class,4 which consisted of customers who paid a service charge to Kahala Hotel in connection with the purchase of food or beverages. In the Complaint, Kawakami alleged that Kahala Hotel charged customers a "service charge" that was calculated as a percentage of the total cost of food and beverage, typically ranging between 15% and 23%. Kawakami alleged that Kahala Hotel failed to clearly disclose to Kawakami and its other customers that Kahala Hotel was not distributing a portion of the service charge to its employees and in fact, retained that portion for itself.
In addition, Kawakami alleged that Kahala Hotel had a policy and practice of retaining a portion of the service charges and using this portion to pay managers and non-tipped employees who did not serve or assist in serving food and beverages. Kawakami alleged that such conduct was a direct violation of HRS § 481B–14 and thus, constituted a UDAP or UMOC pursuant to HRS § 480–2.
Kahala Hotel asserted that Kawakami was not informed that the service charge was being used to pay for costs and expenses other than wages and tips of employees because the service charge was in fact being used to pay for the wages and tips of banquet employees through its reclassification system.
On August 19, 2009, Kawakami, on behalf of the Plaintiff Class, filed a motion for summary judgment, arguing that the failure to disclose the fact that part of the service charge was not being distributed directly to its employees as tip income was a violation of HRS § 481B–14, and thus, a per se UDAP violation under HRS § 480–2.
On September 13, 2010, Kahala Hotel also filed a motion for summary judgment. Kahala Hotel argued that because it distributed all of the service charges it collected as employee wages and tips, it was not required by statute to make any disclosures to consumers; therefore, its practice did not violate HRS § 481B–14.
Because neither summary judgment motion sought a complete adjudication of all claims and defenses, the court construed both motions as motions for partial summary judgment, specifically addressing the construction of HRS § 481B–14. The court then granted Kawakami's motion for partial summary judgment, agreeing with Kawakami's interpretation of the statute. The court reasoned that the CBA permitted the employer to treat its 15% share of the service charge as its property, rather than employee property. Thus, employees received their specified 85% of the service charge as tip income; however, Kahala Hotel reclassified the remaining 15% of the service charge as the management share before distributing it as wages. The court concluded that Kahala Hotel's entitlement to, or use of, the 15% management share did not violate HRS § 481B–14 ; failure to disclose such use did.
The court held that based on the language of HRS § 481B–14 and its legislative history, the law required Kahala Hotel to either distribute the service charge to its employees as tip income, or make a disclosure of the purpose for which the service charge was being used. The court explained: "The point is that 15 percent of the service charge is not being paid as tip income to employees, and the law entitles the customer to be informed of that fact." The court thus rejected Kahala Hotel's argument that disclosure was not required because Kahala Hotel used its 15% of the service charge to pay wages.
A jury trial was held to determine the issue of damages. At the close of Kawakami's evidence, Kahala Hotel moved for judgment as a matter of law ("JMOL") on the basis that Kawakami failed to provide any evidence regarding economic loss or injury. Kahala Hotel renewed its motion at the close of its own evidence. The circuit court denied both motions.
On December 17, 2010, the jury returned its verdict, finding that Kahala Hotel's failure to disclose that not all of the service charges were directly distributed to its employees as tip income was the legal cause of the injuries to the Plaintiff Class. The jury awarded the Plaintiff Class $269,114.73, which represented the management share of the service charges. Following the verdict, Kahala Hotel again moved for JMOL, which the court denied. On February 8, 2011, Kahala Hotel filed a renewed motion for JMOL. The circuit court granted this fourth JMOL motion noting that the record failed to establish 1) that plaintiffs suffered any injury, and 2) the amount of plaintiffs' damages. The court then issued its Final Judgment, which effectively reversed the jury's verdict, and entered judgment in favor of Kahala Hotel.
Both parties appealed to the ICA. Kawakami challenged the circuit court's determination that, as a matter of law, Kawakami and the Plaintiff Class were not entitled to damages. Specifically, in his appeal, Kawakami contended that the circuit court erred in granting Kahala Hotel's fourth motion for JMOL; Kawakami argued there was substantial evidence of injury to support the jury's damages award. Kawakami also argued that the circuit court erred in allowing Kahala Hotel to introduce evidence of how it distributed its service charges, claiming that such evidence was not relevant to the calculation of damages. As discussed further below, the ICA did not address the...
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...v Dahana Ranch, Inc., 141 P.3d 427, 434 (Haw. 2006). 907. Courbat, 141 P.3d at 435. 908. Id. 909. Kawakami v. Kahala Hotel Investors, LLC, 341 P.3d 558, 563-66 (Haw. 2014). 910. Id. 911. U.S. Bank National Ass’n v. Salvacion, 338 P.3d 1185, 1188-89 (Haw. App. 2014) (affirming summary judgme......