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

United States District Court, S.D. New York

November 14, 2014

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., RC1 ENTERTAINMENT (NEW YORK), INC., and PEREGRINE ENTERPRISES, INC., Defendants

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[Copyrighted Material Omitted]

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For Sabrina Hart, on behalf of herself, all others similarly situated, and the Proposed New York Rule 23 Class, Plaintiff: Eleanor Michelle Drake, LEAD ATTORNEY, Eleanor Michelle Drake, Paul J. Lukas, Rebekah Lynn Bailey, Steven Andrew Smith, PRO HAC VICE, Michele Renee Fisher, Nichols Kaster, PLLP, Minneapolis, MN USA; Anna Purna Prakash, PRO HAC VICE, Nichols Kasters, L.L.P., Minneapolis, MN USA.

For Rci Entertainment (New York) Inc., Peregrine Enterprises, Inc., Defendants: Howard Scott Davis, Jeffrey A. Kimmel, Racquel Crespi Weintraub, Meister Seelig & Fein LLP, New York, N.Y. USA.

For Rick's Cabaret International Inc., Defendant: Howard Scott Davis, Racquel Crespi Weintraub, Meister Seelig & Fein LLP, New York, N.Y. USA.

For Jane Does 1-5, Intervenor: John H. Weston, LEAD ATTORNEY, Weston, Garrou & DeWitt, Los Angeles, CA USA.

For Rci Entertainment (New York) Inc., Peregrine Enterprises, Inc., Counter Claimants: Howard Scott Davis, Jeffrey A. Kimmel, Racquel Crespi Weintraub, Meister Seelig & Fein LLP, New York, N.Y. USA.

For Rick's Cabaret International Inc., Counter Claimant: Jeffrey A. Kimmel, Meister Seelig & Fein LLP, New York, N.Y. USA.

For Reka Furedi, on behalf of herself, all others similarly situated, and the Proposed New York Rule 23 Class, Sabrina Hart, on behalf of herself, all others similarly situated, and the Proposed New York Rule 23 Class, Counter Defendant: Eleanor Michelle Drake, LEAD ATTORNEY, Eleanor Michelle Drake, Paul J. Lukas, Rebekah Lynn Bailey, Steven Andrew Smith, PRO HAC VICE, Michele Renee Fisher, Nichols Kaster, PLLP, Minneapolis, MN USA; Anna Purna Prakash, PRO HAC VICE, Nichols Kasters, L.L.P., Minneapolis, MN USA.

For Peregrine Enterprises, Inc., Rci Entertainment (New York) Inc., Counter Claimants: Howard Scott Davis, Jeffrey A. Kimmel, Racquel Crespi Weintraub, Meister Seelig & Fein LLP, New York, N.Y. USA.

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OPINION & ORDER

Paul A. Engelmayer, United States District Judge.

This is the latest in a series of pretrial decisions in this case, in which a class of exotic dancers seeks to recoup pay which they allege was denied them 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. Plaintiffs bring claims for: (1) failure to pay minimum wages under the FLSA (" Claim One" ); (2) failure to pay minimum wages under the NYLL (" Claim Two" ); (3) unlawful requesting and receiving portions of wages under NYLL § 198-b (" Claim Three" ); (4) unlawful retention of gratuities under NYLL § 196-d (" Claim Four" ); and (5) unlawful deductions from wages under NYLL § 193(3)(a) (" Claim Five" ).

The Court's prior decisions have held, most centrally, that plaintiffs were employees of Rick's Cabaret N.Y. strip club (" Rick's NY" or " the Club" ), and thereby entitled to the protections of the FLSA and NYLL. Today's decision resolves other, recently briefed issues, and narrows to a discrete few the issues to be resolved at trial.

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

To recap the Court's prior rulings:

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 to the extent of any finding of liability. Id. But, the Court held, whether the other two defendants--RCI Entertainment New York (" RCI NY" ) and Rick's Cabaret International, Inc. (" RCIF')--were also plaintiffs' employers turned on material factual disputes and could not be resolved on summary judgment. Id. The Court also granted summary judgment to plaintiffs on defendants' counterclaim for unjust enrichment. Id.

On November 18, 2013, the Court: (1) denied defendants' motion for reconsideration of the Court's holding that, even after February 28, 2010, plaintiffs were employees of Rick's NY; (2) denied defendants' motion to set the class period end-date as February 28, 2010, or alternatively as December 20, 2010; the Court instead set the class period end-date as October 31, 2012; and (3) 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 (" November 2013 Decision" ), reported at Hart v. Rick's Cabaret Int'l, Inc., No. 09 Civ. 3043 (PAE), 967 F.Supp.2d 901, (S.D.N.Y. Nov. 18, 2013).

Together, these decisions established that Peregrine is liable to plaintiffs on Claims One, Two, and Five.[1]

This decision resolves the following five additional pre-trial motions:

(1) On the cross-motions for summary judgment on whether performance fees paid by customers to the dancers " offset"

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wages under the NYLL, and therefore reduce damages on Claim Two, the Court holds that, much as such fees do not offset defendants' minimum wage obligations under the FLSA, they do not offset defendants' minimum wage obligations under the NYLL.

(2) On the cross-motions for summary judgment on whether Peregrine is liable on Claim Four for retaining gratuities in violation of NYLL § 196-d--specifically, the $2 that defendants systematically retained, without disclosure to customers, of each $24 " Dance Dollar" purchased by customers by means of a credit card--the Court holds that Peregrine is so liable.

(3) The Court denies defendants' motion to strike the expert reports and testimony of plaintiffs' expert witness, Dr. David Crawford.

(4) The Court denies defendants' motion to decertify the Rule 23(b)(3) class, which was initially certified by Judge Koeltl on December 20, 2010. See Dkt. 253 (" December 20, 2010 Decision" ), reported at Hart v. Rick 's Cabaret Int'l Inc., No. 09 Civ. 3043 (JGK), 2010 WL 5297221, at *1-2 (S.D.N.Y. Dec. 20, 2010).

(5) The Court grants, in part, plaintiffs' motion for partial summary judgment against Peregrine as to damages on Claims One (FLSA minimum wage) and Two (NYLL minimum wage); grants in full plaintiffs motion for summary judgment as to damages on Claims Four (NYLL unlawful retention of gratuities); and grants in part plaintiffs' motion for summary judgment as to Count Five (NYLL unlawful fines and fees).

These, in conjunction with the Court's previous rulings, leave the following issues to be resolved at trial: whether (1) plaintiffs are entitled to additional damages on Claims One, Two, and Five, beyond those which the Court holds can properly be awarded on summary judgment; (2) the violations of the FLSA (Claim One) and the NYLL (Claims Two, Four and Five) were willful and/or made other than in good faith; these respective determinations bear on the duration of Peregrine's FLSA liability and whether additional, liquidated damages are available under the FLSA and NYLL; and (3) RCI N.Y. and RCII are, along with Peregrine, employers of plaintiffs and, thus, jointly liable with Peregrine for all damages.[2]

II. Legal Standards for Summary Judgment

To prevail on a motion for summary judgment, the movant must " show[] that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The movant bears the burden of demonstrating the absence of a question of material fact. In making this determination, the Court must view all facts " in the light most favorable" to the non-moving party. Holcomb v. Iona Coll., 521 F.3d 130, 132 (2d Cir. 2008); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

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To survive a summary judgment motion, the opposing party must establish a genuine issue of fact by " citing to particular parts of materials in the record." Fed.R.Civ.P. 56(c)(1); see also Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). " A party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (citation omitted). Only disputes over " facts that might affect the outcome of the suit under the governing law" will preclude a grant of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In determining whether there are genuine issues of material fact, the Court is " required to resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought." Johnson v. Killian, 680 F.3d 234, 236 (2d Cir. 2012) (quoting Terry v. Ashcroft, 336 F.3d 128, 137 (2d Cir. 2003)).

III. Cross-Motions for Summary Judgment on " Offset" and Retention of Gratuities[3]

A. Defendants' Claim that Performance Fees " Offset" Its NYLL Obligations

The Court first addresses defendants' argument that the Club may use the performance fees that customers paid to its dancers to offset the Club's minimum-wage obligations under the NYLL. The Court previously rejected defendants' parallel argument under the FLSA. See September 2013 Decision, at 35-48.

1. Facts

The pertinent facts are set out in full in the Court's September 2013 Decision, rejecting the Club's parallel claim under the FLSA. See id. at 35-38. In brief, performance fees were paid to dancers for time they spent with customers at Rick's NY. Customers paid $20 to dancers for each personal dance-- i.e., a lap dance or table dance--that they received from a dancer. SF ¶ ¶ 180-81. Customers also paid dancers for spending time with them in one of the Club's semiprivate rooms--the fee was set by Rick's at $100 for 15 minutes, $200 for 30 minutes, and $400 for an hour. DeAngelo Decl. ¶ 5. Customers also paid a separate fee to the Club for using the rooms. Id. ¶ 6.

Customers could pay performance fees in one of two ways: If paying in cash, the customer paid the dancer directly. The dancer retained 100% of that cash payment, which was not recorded in any way by the Club. SF ¶ 220. Alternatively, the customer could acquire from the Club, by credit card, a " Dance Dollar" voucher.

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Each voucher cost $24 and entitled the customer to one personal dance. SF ¶ 185. At the end of each shift, dancers who had received Dance Dollars from customers for performing dances could exchange these vouchers for cash from the Club's cashier. SF ¶ 190. The dancer received $18 for each redeemed Dance Dollar, and the Club retained the $6 balance. Id. ¶ ¶ 185, 190. Rick's did not record these payments in its gross receipts. Only by analysis of records undertaken after this litigation was initiated were individual dancers' receipts from redeemed Dance Dollars reconstructed. Prakash Decl. Ex. 1 (" Dr. Crawford Expert Report" ).

2. Analysis

Defendants, characterizing the performance fees paid to dancers by credit-card-using customers as " service charges," argue that the Club may use these fees to offset, or discharge altogether, its minimum wage obligations under the NYLL. For two broad reasons, the Court rejects defendants' claim.

First, there is no charter under the NYLL for an employer to treat a performance fee as either a " wage" or as an offset to its statutory wage obligations. The text of the NYLL--as well as its implementing regulations, its purpose, and the cases interpreting it--does not support defendants' interpretation.

Second, the line of cases beginning with Samiento v. World Yacht, Inc., 10 N.Y.3d 70, 883 N.E.2d 990, 854 N.Y.S.2d 83 (2008), on which defendants rely, is inapposite. These cases address the distinction between a service charge, on the one hand, and a gratuity (or a purported gratuity), on the other. They do so to determine who--as between the employer and the employee--is entitled to keep a customer payment. But that is not at issue here--the dancers undisputedly were entitled to, and did, keep $18 of each Dance Dollar.[4] And the World Yacht line of cases does not supply any authority for allowing an employer to use direct customer payments to employees after the fact to offset an employer's wage obligations. And even if the World Yacht line did permit customer payments classified as service charges to be used retrospectively to offset an employer's wage obligations, the payments here are not properly so classified. The World Yacht standard looks to a customer's reasonable expectations; here, a reasonable customer would have understood the performance fees which customers paid dancers as gratuities belonging to particular dancers, not as service charges belonging to the Club.

a. The NYLL does not allow an employer to treat a performance fee as a wage or as an offset to its statutory wage obligations.

Most fundamentally, there is no charter under the NYLL for an employer to treat such a performance fee, or any other non-gratuity charge paid by customers, as either a " wage" or as an offset to its statutory wage obligations. The NYLL defines " wage" as " the earnings of an employee for labor or services rendered, regardless of whether the amount of earnings is determined on a time, piece, commission or other basis." NYLL § 190(1). " 'Wage' includes allowances, in the amount determined in accordance with the provisions of this article, for gratuities and, when furnished by the employer to employees, for meals, lodging, apparel, and other such items, services, and facilities." NYLL § 651(7). The NYLL also requires employers to treat wages in certain

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ways, including paying wages with frequency and regularity, see NYLL § 191, and to give employees notice of these wages and to keep records of them, see NYLL § 195.

Defendants--who have taken the position that the dancers were not employees--do not claim that the performance fees were themselves " wages," and under the statute, they manifestly were not. The performance fee paid by a customer to the dancer for a dance can certainly be viewed as a form of " earnings . . . for services rendered." But, otherwise, these performance fees lack the characteristics of wages as defined by the NYLL. Most critically, the performance fees were not " furnished by the employer to employees." NYLL § 651(7). Instead, whether paid in cash or in Dance Dollars purchased by means of a credit card, they were made directly by the Club's customers to its dancers. Only by happenstance was the Club momentarily involved, in some circumstances: where the customer paid by credit card to acquire Dance Dollars, the dancer needed to convert that scrip into cash, which led the Club to play a minimal role in the dancer's receipt of money. See September 2013 Decision, at 46 (" [T]he performance fees were paid directly by the customer to the dancer, either in the form of cash or Dance Dollars; only the process of converting these vouchers into liquid currency brought Rick's NY, fleetingly, into the transaction." ).

And, in redeeming these Dance Dollars, the Club did not treat the $18 per Dance Dollar that it remitted to the dancers consistent with their being wages. It did not keep any record of these payments; it did not give employees notice that it was treating them as wages ( e.g., by giving them a wage statement listing these amounts); it did not take the dancer's $18 share of the performance fee into gross receipts; and it did not make any mandatory wage deductions ( e.g., for Social Security and Medicare) from these payments. The Club also failed to comply with NYLL § 191, which requires that wage payments be made with frequency and regularity; the Club instead redeemed Dance Dollars episodically and non-systematically, doing so only when the dancer presented Dance Dollars for redemption. And, in failing to keep any record of these performance fees save via the credit-card payment process, the Club breached NYLL § 195, which imposes mandatory notice and record-keeping requirements with respect to wage payments. Finally, these payments do not fit within any of the limited categories of payments by an employer on an employee's behalf, e.g. for meals or clothing, for which, under NYLL § 651(7), a wage " allowance" may be taken. There is no other provision of the NYLL that supports treating a performance fee paid by a customer to a dancer as a wage or an offset to her employer's NYLL minimum-wage obligation.

The regulations implementing the NYLL likewise provide no support for defendants' notion that they may use money paid by customers to workers as an offset to their statutory minimum-wage obligation. Amplifying on the wage allowances authorized by NYLL § 651(7), these regulations do allow employers, under specified conditions, to apply a " tip credit" and to apply some of its payments for meals and lodging towards wages. See N.Y. Comp. Codes R. & Regs. tit. 12, § 137-1.5, 1.9; id. § 146-1.3; NYLL § 652(4)-(6); see also Padilla v. Manlapaz, 643 F.Supp.2d 302, 309 (E.D.N.Y. 2009). Defendants do not claim that these allowances apply here. And they plainly do not. There is no authority for treating customer-paid service charges as an offset to wages where the Club did not treat them

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as wages. And, assuming arguendo that the $18 portion of each Dance Dollar were treated as a " tip" (as opposed to a service charge), the Club would not satisfy the NYLL's requirements under which an employer may apply a " tip credit" against its wage obligations. These include " furnish[ing] to each employee a statement with every payment of wages listing . . . allowances . . . claimed as part of the minimum wage. . . ." N.Y. Comp. Codes R. & Regs. tit. 12, § 137-2.2; see also id. at § 146-1.3 (" An employer may take a credit towards the basic minimum hourly rate if a service employee or food service worker receives enough tips and if the employee has been notified of the tip credit as required in section 146-2.2 of this Part." ) (emphasis added); id. at § 146-2.2 (" Prior to the start of employment, an employer shall give each employee written notice of the employee's regular hourly pay rate, overtime hourly pay rate, the amount of tip credit, if any, to be taken from the basic minimum hourly rate, and the regular payday. The notice shall also state that extra pay is required if tips are insufficient to bring the employee up to the basic minimum hourly rate." ). It is undisputed that defendants did not provide the dancers with any such statement. Instead, the Club's bid to treat $18 from each Dance Dollar as a wage offset arose much later, during this litigation, to limit the Club's damages exposure.

Notably, insofar as it lacks any mechanism to use service charges as an offset to wages, the NYLL contrasts with the FLSA. As explained in the Court's September 2013 Decision, the regulations implementing the FLSA provide for narrow, defined circumstances under which a " compulsory charge for service . . . imposed on a customer by an employer's establishment," 29 C.F.R. § 531.55(a), and distributed by the employer to its employees, " may be used in their entirety to satisfy the monetary requirements of the Act," 29 C.F.R. § 531.55(b). As the Court has explained, for such a charge to constitute a service charge that may be applied against an establishment's FLSA minimum-wage duty, the establishment must have included this charge in its gross receipts. See September 2013 Decision, at 39 (collecting cases); see also McFeeley v. Jackson St. Entm't, LLC, No. 12 Civ. 1019 (DKC), 2012 WL 5928769, at *4 (D. Md. Nov. 26, 2012) (" '[A]n employer must include payments in its records as gross receipts as a prerequisite to 'service charge' classification under the FLSA.'" (quoting Reich v. ABC/York-Estes Corp., No. 91 Civ. 6265 (BM), 1997 WL 264379, at *5 (N.D.Ill. May 12, 1997))). Otherwise, the charge is treated, under the FLSA, as a " tip" and may not be applied against the establishment's minimum-wage obligations. As the Court further explained, this bright-line requirement of inclusion in gross receipts serves important goals. It advances the FLSA's goal of assuring that the employee is paid, and with mandatory deductions ( e.g., Social Security, Medicare) taken from the employee's wages. By contrast, permitting an employer's FLSA minimum-wage obligation to be satisfied by payments not included in gross receipts but shown only later ( e.g., in litigation) to have been made to a worker by customers would diminish these protections and invite " intolerable problems of proof." September 2013 Decision, at 40-42.

Rick's N.Y. failed to satisfy these standards. The only part of the $24 credit-card payment for each Dance Dollar that the Club had included in its gross receipts was the $6 portion that the Club kept for itself. The $18 balance at issue here, which the Club passed along to the dancer after the customer's credit card was charged, was unrecorded, and was not included in the Club's gross receipts. These

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payments, and the aggregate amounts paid to each dancer, were reconstructed only later, during this litigation. The Court therefore held that Rick's N.Y. could not apply any part of the performance fees paid by customers to reduce its minimum wage obligation under the FLSA.[5] Id. at 42.

In asking the Court to recognize an offset to their NYLL minimum-wage obligations, defendants thus not only ask the Court to rewrite that statute to include an offset unsupported by the NYLL's text, implementing regulations, and the case law. Defendants also ask the Court to devise an offset only loosely patterned on federal law. Defendants cherry-pick the one aspect of the FLSA regime that favors them (the broad concept of a wage offset for service charges) while airbrushing out the FLSA's strict limitations for when such an offset may lawfully be made. The Court declines this invitation to so legislate from the bench. Should defendants wish to revise the NYLL to provide the offset they seek, their proper audience is the New York State Legislature.

Defendants' notion that an offset against minimum wages ought be allowed here would also undermine key purposes of the NYLL, such that, even if it were open to the Court to impute such an offset to the statute, the Court would not do so. The Club has not kept records of these charges, paid taxes on them, included them on any wage statement or information returns ( e.g., Forms W-2 or 1099), or used them to calculate deductions for Social Security and Medicare. Under these circumstances, allowing such charges to offset an employer's statutory wage obligations would undermine these important programs and facilitate non-payment of taxes to federal and state authorities. It would also put employers like the Club at an undeserved advantage over competitors who pay workers lawfully by means of paychecks, with wages fully subject to taxes and payroll deductions. And it would undermine the NYLL's guarantee that the required minimum wage be paid in full and on a regular basis. See N.Y. Comp. Codes R & Regs. tit. 12, § 146-2.6 (" The minimum wage provided by this Part shall be required for each week of work, regardless of the frequency of payment." ); Karic v. Major Automotive Cos., 992 F.Supp.2d 196, 201 (E.D.N.Y. Apr. 16, 2014) (" NYLL indisputably requires that employers pay minimum wage and overtime on a weekly basis . . . ." ) (emphasis in original).

To be sure, under the NYLL, there is a line of authority, beginning with the decision of the New York Court of Appeals in Samiento v. World Yacht, Inc., 10 N.Y.3d 70, 883 N.E.2d 990, 854 N.Y.S.2d 83 (2008), under which courts from time to time are called upon to differentiate between service charges, on the one hand, and gratuities or purported gratuities. Defendants seize on these cases in support of their offset claim. But the inquiry conducted pursuant to this line of authority serves a wholly different purpose. It determines, as between the employer and the employee, who is entitled to keep these customer payments. Under NYLL § 196-d, " [n]o employer or his agent . . . shall demand or

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accept . . . any part of the gratuities[] received by an employee, or retain any part of a gratuity or any charge purported to be a gratuity for an employee." Courts examining under this provision whether a mandatory payment is a gratuity or a " charge purported to be a gratuity," as opposed to a " service charge," therefore inquire, based on the totality of the circumstances, how a reasonable customer would have viewed the payment. See, e.g., World Yacht, 10 N.Y.3d at 79; Spicer v. Pier Sixty LLC, 269 F.R.D. 321, 328-29 (S.D.N.Y. 2010) (" Under the World Yacht standard, '[w]hether a charge purports to be a gratuity is measured by whether a reasonable patron would understand that a service charge was being collected in lieu of a gratuity.'" (quoting Krebs v. Canyon Club, Inc., 22 Misc.3d 1125[A], 880 N.Y.S.2d 873, 874, 2009 N.Y. Slip. Op. 50291[U] (N.Y. S.Ct. 2009))); Maldonado v. BTBEvents & Celebrations, Inc., 990 F.Supp.2d 382, 390-91 (S.D.N.Y. Nov. 22, 2013). Where a reasonable customer would view a mandatory charge as a gratuity--making it less likely that the customer would give the employee a separate tip--the payment belongs to the employee. Otherwise, the employer may retain it.

The World Yacht line of cases does not, however, hold that where an employer imposes a mandatory charge on customers but does not treat it as a wage, that this charge, if construed as a service charge rather than a tip, may be used after-the-fact to offset the employer's minimum wage duty under the NYLL. Defendants cite no authority for that proposition. And, as noted, allowing an employer post hoc to treat these payments as offsets to its statutory wage obligation would disserve the statute's purposes.

b. Even if the World Yacht standard applies, it does not help defendants.

In any event, the Court is firmly persuaded that, under the World Yacht standard, a reasonable customer would have regarded the mandatory performance fees that customers paid to the dancer as gratuities belonging to the dancer, not as service charges belonging to the Club.[6] Therefore, even if a mandatory service charge could in theory be treated--long after the fact--as wages or an offset to wages, the customer payments to dancers here were not such service charges. The factors bearing on the reasonable expectations of the customer tilt heavily, in fact, towards viewing the performance fees as tips. Significantly, these fees were paid directly by customers to dancers, and were largely paid in the form of cash, following a personalized service ( e.g., a dance or a lap dance). These cash payments, which were of varying size and were completely unrecorded by Rick's N.Y. in any form, undeniably were tips. And as the Court

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previously stated in its analysis under the FLSA:

The accident that a subset of the performance fees happened to have been paid by credit card and took the form of vouchers, and therefore that these fees temporarily passed from the dancer to Rick's N.Y. before being converted to cash, does not alter their essential character. That Rick's N.Y. maintained incomplete records of the total performance fees paid, with partial records being generated only by the happenstance that some customers chose to pay by credit card, does not make the recorded payments qualitatively different from the non-recorded ones.

September 2013 Decision, at 45. As the Court further noted:

[T]he performance fees (both the cash fees and the $18 portion of the credit-cardpaid fees retained by the dancers) were understood by Rick's to be the property of the dancers. . . . There is no record evidence that customers perceived the money they paid the dancers (whether in cash or Dance Dollars) otherwise, and the circumstances would not support such an inference. F[inally], the performance fees were paid directly by the customer to the dancer, either in the form of cash or Dance Dollars; only the process of converting these vouchers into liquid currency brought Rick's NY, fleetingly, into the transaction.

Id. at 45-46 (emphasis added).

These factors, considered together, persuade the Court that a reasonable customer would have understood the performance fees to be gratuities as opposed to service charges. Notably, the Club, in now arguing that these fees were service charges under the NYLL, has not pointed to any evidence contradicting the Court's conclusion that " [t]here is no record evidence that customers perceived the money they paid the dancers (whether in cash or Dance Dollars)" to be anything other than the property of the dancers, and that " the circumstances would not support such an inference." Id. at 46.

That the credit-card paid performance fees were a substitute for cash-paid fees is particularly significant. A reasonable customer paying that dancer $20 (or more) in cash would have expected, accurately, that the dancer would keep the entire amount. There is no sound reason to conclude that a customer who chose to pay in Dance Dollars would have viewed these payments as any less a gratuity to be retained by the dancers. Indeed, customers who purchased Dance Dollars were told that the service charge associated with their credit card transaction was 20%. See Pl. 56.1 ¶ ¶ 620-21. A reasonable customer who could do basic math would deduce that, because the total cost to him of a Dance Dollar was $24, the service charge associated with his credit card transaction was $4-- i.e., 20% of $20. See id. ΒΆ 621 (" Q: What are customers told at the time they purchase a dance dollar? A: They're told that they are charged 20 percent and that the dance dollars expire at the end of the day. Q: When you say that they're told that they're charged 20 percent, is that ...


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