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Kawakami v. Kahala Hotel Investors, LLC

Supreme Court of Hawai'i

December 22, 2014

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

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS. (CAAP-11-0000594; CIVIL. NO. 08-1-2496).

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

OPINION

Page 559

[134 Hawai'i 353] WILSON, J.

I. Introduction

In this case, we are once again confronted with alleged violations of Hawaii's hotel or restaurant service charge law, Hawai'i Revised

Page 560

[134 Hawai'i 354] Statutes (" HRS" ) § 481B-14 (2008).[1] Specifically, we consider the following issue: Under HRS § 481B-14, does a hotel or restaurant's use of service charges to pay its employees' " 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 court[2] 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 481B-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.

II. Background

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

Page 561

[134 Hawai'i 355] 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 ...


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