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Thread: Is adding a gratuity to a check legal?

  1. #1
    maxtfd Guest

    Is adding a gratuity to a check legal?

    What is the name of your state?ohio
    Is it ever legal to force someone to pay a gratuity? We have all been to dining establishments where it says on the menu or at the front door something such as "a 15% gatuity will be added to parties of five or more."

    Is this legal, if so why; if not why not?
    '
  2. #2
    I AM ALWAYS LIABLE is offline Senior Member
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    Quote Originally Posted by maxtfd
    What is the name of your state?ohio
    Is it ever legal to force someone to pay a gratuity? We have all been to dining establishments where it says on the menu or at the front door something such as "a 15% gatuity will be added to parties of five or more."

    Is this legal, if so why; if not why not?
    '

    My response:

    Of course it's legal!

    When you enter a restaurant, and you order, you're entering into a CONTRACT. All because you fail to read the terms and conditions of the contract you're about to enter, doesn't mean it's "illegal". Learn to read before you patronize a restaurant and, if you don't like the terms and conditions, no one is holding a gun to your head to keep you from getting up and walking out.

    IAAL
  3. #3
    bdunham7 Guest

    Iaal

    Geez, it seems there are some judges that disagree with you! If the term 'gratuity' is used, the customer cannot be forced to pay it according to some people.

    [url]http://www.abanet.org/journal/ereport/s24tip.html[/url]

    I couldn't find a link to the Indiana case that was cited.

    Just because you impose or pronounce a contract to exist doesn't mean it's enforceable. So, adding the 'gratuity' to the bill would be legal, but apparently refusing to pay it would be as well, at least in the jurisdictions where it has been decided. I suspect this doesn't come up all that much.

    There are consumer protection laws that might come into play as well. Without researching it (which means I could be wrong), just putting the actual price of the menu items in larger or bolder typeface than the part about the mandatory gratuity might be deemed a 'deceptive trade practice'.
  4. #4
    I AM ALWAYS LIABLE is offline Senior Member
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    My response:

    Here is an, as yet, UNPUBLISHED opinion of the California Court of Appeals, 4th District, that I'm using as "persuasive authority" on the subject of "gratuities"

    IAAL


    2004 WL 553008 (Cal.App. 4 Dist.)

    Court of Appeal, Fourth District, Division 3, California.
    Jeffrey MICHAELSON, Plaintiff and Appellant,
    v.
    The RITZ-CARLTON HOTEL COMPANY LLC, Defendant and Respondent
    .
    No. G032032.
    (Super.Ct.No. 02C00141).
    March 22, 2004.

    Appeal from a judgment of the Superior Court of Orange County, Raymond J. Ikola, Judge. Affirmed.
    Morris and Associates, Stephen B. Morris and Mark C. Hinkley for Plaintiff and Appellant.
    O'Melveny & Myers, Richard B. Goetz, Thomas M. Riordan and William R. Pletcher for Defendant and Respondent.


    OPINION

    MOORE, J.
    *1 Plaintiff Jeffrey Michaelson appeals after defendant's demurrer was sustained without leave to amend. In this purported class action, Michaelson argues the defendant's room service menu violates Business and Professions Code section 17200 et seq. Michaelson's chief complaint is that the menu states a taxable gratuity and service charge will be added to the listed menu prices. In accord with a previous decision of this district, we conclude the complaint does not successfully allege any cause of action. Further, we find the trial court did not abuse its discretion by denying further leave to amend.

    I
    FACTS AND PROCEDURAL BACKGROUND
    The first amended complaint alleges that plaintiff Jeffrey Michaelson stayed at the Ritz-Carlton in Laguna Niguel (the Hotel) in October 2001. Michaelson alleges, "He was induced to order room service from the RITZ-CARLTON by Defendant's in-room menu which advertises the food items available and purports to state the price of each such item." He claims, however, that the menu falsely stated the prices for room service. "[T]he in room menus also contain the following statement, in very small and nondescript print at the bottom of the page and away from where the layout of the page directs the eye to find the advertised prices, 'A taxable 16% gratuity charge and applicable sales tax will be added to all food and beverage prices. In room dining charges of $6.00 per delivery.' "
    In June 2002, Michaelson filed a lawsuit against the Hotel and the City of Laguna Niguel [FN1] as a putative class action, seeking declaratory relief and alleging unfair business practices and unjust enrichment. The Hotel filed a demurrer, which was sustained with leave to amend.


    FN1. The City of Laguna Niguel was apparently dismissed as a defendant after the Hotel's second demurrer was sustained.


    The first amended complaint (complaint) alleged the menus falsely stated the price of the menu items, because the 16 percent taxable gratuity charge was added to the advertised price. The statement at the bottom of the menu regarding this charge, Michaelson alleged, provided inadequate notice of this charge because of its typeface and placement on the menu. The complaint further asserted this inadequate notice itself contained false advertising, because a mandatory charge did not constitute a "gratuity," and there could never be such a thing as a "taxable gratuity." Thus, the Hotel's practices were "unlawful, unfair, and/or deceptive," and pursuant to the first cause of action for violation of Business and Professions Code sections 17200 and 17500, Michaelson sought restitution of all amounts collected to an enumerated class of hotel patrons. The second cause of action, for unjust enrichment, similarly sought restitution to the class. A final cause of action purported to seek "declaratory relief," but requested "creation of a common fund disgorgement of Defendants' ill-gotten gains from which to satisfy the claims of consumers who were injured by those practices."
    Once again, the Hotel demurred. After briefing and oral argument, the court sustained the Hotel's demurrer without further leave to amend. Michaelson now appeals.

    II
    DISCUSSION
    A. Standard of Review
    *2 "In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citation.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
    B. Unfair Competition Law
    The Unfair Competition Law (UCL) is codified in Business and Professions Code section 17200 et seq. (Unless otherwise noted, subsequent statutory references are to the Business and Professions Code.) The UCL prohibits any "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising" and any act prohibited by section 17500 et seq. Section 17500, in turn, prohibits "untrue or misleading" advertising.
    As a matter of pleading, a complaint states a cause of action under the UCL when the allegations demonstrate the public is likely to be deceived by the challenged practices. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 211.) "Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition--acts or practices which are unlawful, or unfair, or fraudulent." (Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647.) The scope of the law, however, "is not unlimited. Courts may not simply impose their own notions of the day as to what is fair or unfair.... If the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 182.)
    The three prongs of the law have different thresholds. Under its "unlawful" prong, "the UCL borrows violations of other laws ... and makes those unlawful practices actionable under the UCL." (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1505.) Thus, a violation of another law is a predicate for stating a cause of action under the UCL's "unlawful" prong. In a consumer case, determining whether a business practice is "unfair" involves balancing the utility of the defendant's conduct against the gravity of the alleged victim's harm. (Smith v. State Farm Mutual Auto. Ins. Co., 93 Cal.App.4th 700, 718- 720.) A "fraudulent" practice under the UCL requires showing that members of the public are likely to be deceived. (Olsen v. Breeze, Inc. (1996) 48 Cal.App.4th 608, 618.)
    1. The Searle Decision
    *3 Before we address each of Michaelson's contentions, we shall first discuss a case decided by Division One of this court, which was based on similar facts, Searle v. Wyndham Internat., Inc. (2002) 102 Cal.App.4th 1327 (Searle.) While the allegations in the instant complaint, as well as the menu language, are different from Searle, this case nonetheless provides useful guidance on this issue.

    CONTINUED . . .
  5. #5
    I AM ALWAYS LIABLE is offline Senior Member
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    The challenged menu provision in Searle stated: " 'A 17% service Charge and Applicable State Tax will be added. In Room Delivery Charge $3.' " (Searle, supra, 102 Cal.App.4th at p. 1330.) Searle alleged the billing practice was deceptive because guests were not advised the service charge was a gratuity paid to the server. (Ibid.) Searle also alleged the charge was unfair because it compels a gratuity, which should be, in Searle's opinion, strictly voluntary. (Id. at pp. 1330-1331.)
    The Searle court held the allegations were not actionable under the UCL, because hotel guests were free to obtain meals outside of their rooms and provide any gratuity, or none, as they deemed appropriate. (Searle, supra, 102 Cal.App.4th 1327, 1330.) Searle's complaint had not cited any law which the Wyndham's room service practice violated, including Labor Code section 351. That provision prevents employers from deducting from servers' wages any amount they receive by way of tips or gratuities. The court noted: " 'The purpose of section 351, as spelled out in the language of the statute, is to prevent an employer from collecting, taking, or receiving gratuity income or any part thereof, as his own part of his daily gross receipts, from deducting from an employee's wages any amount on account of such gratuity, and from requiring an employer to credit the amount of the gratuity or any part thereof against or as a part of his wages. [Citation.]' " (Id. at p. 1332.)
    Moreover, the Searle court held the menu provision was not unfair under the UCL, rejecting the argument that by "imposing the 17 percent service charge and failing to disclose to guests that the service charge is paid to the servers, [the hotel] is acting unfairly in two respects: it is compelling payment of a gratuity which should otherwise be entirely voluntary, and second it is tricking consumers into paying servers more than they would otherwise provide by way of a tip. The difficulty we have with this argument is its premise: that because the 17 percent service charge is paid entirely to the server, we must therefore treat it as a gratuity. Neither logic nor the customs and usage associated with tipping support such a conclusion." (Searle, supra, 102 Cal.App.4th at p. 1334.)
    Because the menu language referred to the 17 percent as a "service charge" the court reasoned that what the hotel does with that revenue is of no direct concern to the hotel's guests. "The hotel is free to retain for itself the large premium, as well as the service charge, or to remit all or some of the revenue to its employees. Because the service charge is mandatory and because the hotel is free to do with the charge it as it pleases, the service charge is simply not a gratuity which is subject to the discretion of the individual patron." (Searle, supra, 102 Cal.App.4th at pp. 1334-1335.) "Moreover, the hotel's decision to compensate its room service servers by way of the 17 percent service charge in no material way interferes with the patron's reasonable expectations with respect to the custom of tipping. As commentary, custom and Labor Code section 351 make clear, tipping is solely a matter between patron and server." (Id. at p. 1335.)
    *4 For similar reasons, the court rejected Searle's claim under the "fraudulent" prong of the UCL, stating, "In this situation the only obligation the hotel has to the patron is the one codified in Labor Code section 351: an assurance that, however large or small, the tip will go to the server, not the employer." (Searle, supra, 102 Cal.App.4th at p. 1335.) Finally, the court found no abuse of discretion in denying leave to amend. (Id. at pp. 1335-1336.)
    Unsurprisingly, Searle is cited throughout the Hotel's brief. Michaelson, however, does not cite the case at all in his opening brief, and has failed to offer any arguments on how it might be distinguished. Michaelson did not file a reply brief.
    2. "Falsely stating the advertised price"
    Michaelsen's first claim is that the Hotel's room service menus state "a falsely advertised price, in that the advertised price is actually 16% lower than the price which hotel guests may pay for all the items on the menu. This practice is, in and of itself, false and misleading advertising...." Michaelsen argues the Hotel's assertions that the menu provides the correct formula for determining the actual price (listed menu item price plus 16 percent) is "itself expressly made unlawful by statute." [FN2] Michaelsen refers us to Civil Code section 1770, subdivision (a)(20), which states: "Advertising that a product is being offered at a specific price plus a specific percentage of that price [is an unfair or deceptive practice] unless (1) the total price is set forth in the advertisement, which may include, but is not limited to, shelf tags, displays, and media advertising, in a size larger than any other price in that advertisement, and (2) the specific price plus a specific percentage of that price represents a markup from the seller's costs or from the wholesale price of the product." Thus, Michaelsen argues, the Hotel's practice of charging the menu price plus 16 percent is "unlawful" under the UCL.


    FN2. Violation of Civil Code section 1770 is not pled in the complaint. Because Michaelson sought leave to amend, however, we may consider arguments that address the merits of a possible amendment. (Yeap v. Leake (1997) 60 Cal.App.4th 591, 599, fn.6.)


    The Hotel, however, argues that room service menu items are outside the scope of Civil Code section 1770, subdivision (a)(20), because the food and the service are separate components of the room service order, and therefore appropriately charged separately. Michaelson addresses this argument by claiming the 16 percent charge is really just part of the price of room service meals, and not a separate charge, regardless of what the hotel does with that money once it is charged and collected. Michaelson relies on a tax regulation which requires mandatory gratuities to be included as part of a retailer's gross receipts: "Amounts designated as service charges, added to the price of meals, are a part of the selling price of the meals and, accordingly, must be included in the retailer's gross receipts subject to tax even though such service charges are made in lieu of tips and are paid over by the retailer to employees." (Cal.Code.Regs., tit.18, § 1603(g).)
    We disagree with Michaelson's contention that this regulation brings the service charge under the ambit of Civil Code section 1770, subdivision (a)(20). The regulation simply recognizes that a mandatory service charge is part of the taxable price of meals, not that the meals and the service are a single "product" within the meaning of Civil Code section 1770, subdivision (a)(20). Moreover, the legislative history of Civil Code section 1770, subdivision (a)(20) demonstrates the problem the legislature was attempting to address was not room service menu pricing, but deceptive advertising by supermarkets. (A.B. 2979 (Molina), 1984 Stat. Ch. 1171, Senate Committee on Judiciary, Consumer Protection Deceptive Pricing Practices, at p. 2. (Aug. 6, 1984).) Before the law was passed, some supermarkets would advertise the "base price" of the item prominently, while adding a less prominently disclosed percentage markup. (Id. at p. 3.)
    *5 A supermarket advertisement for a single food item is obviously quite different from the room service menu challenged here. A room service patron is not only receiving the food, but the service of delivery to their hotel room. Given this distinction, and the type of deception Civil Code section 1770, subdivision (a)(20) was drafted to address, we decline to judicially extend the reach of this section by declaring the room service food and the delivery service are a single "product."

    CONTINUED . . .
  6. #6
    I AM ALWAYS LIABLE is offline Senior Member
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    3. "Not a gratuity at all" and "false advertising"
    Michaelson next argues that a "taxable gratuity" is not a gratuity at all, because it is not voluntary. He asserts the Hotel had no legal authority to charge a "mandatory gratuity" and indeed, that no such creature exists, under either the law or in common practice. In support of this proposition, Michaelson relies on a single case more than 60 years old: Herbert's Laurel-Ventura, Inc. v. Laurel Ventura Holding Corp. (1943) 58 Cal.App.2d 684. (Laurel-Ventura.) This was a lease dispute turning on the question of whether tips paid to car-hops were to be included in a restaurant's gross receipts. Discussing a gratuity in the context of whether it is intended for the proprietor of a restaurant or a server, Laurel-Ventura describes a gratuity as "intended by the donor to be in excess of the compensation paid to the donee by the latter's employer or a gift where there is neither a consideration for it nor a legal obligation upon the donor to part with it." (Id. at p. 694.) The court held that such gratuities were not part of gross receipts. (Id. at pp. 694-696.)
    The Laurel-Ventura court, however, also notes that it was only considering "the prevailing concept of the 'tip' at the time appellant offered his lease to his lessee ..." (Laurel-Ventura, supra, 58 Cal.App.2d at p. 694.) It is not the equivalent of a statutory definition of "gratuity" as much as Michaelson might have us believe otherwise. Indeed, the same set of tax regulations Michaelson cited in support of his previous argument bolster the argument that mandatory gratuities are recognized by the law. "A mandatory tip, gratuity, or service charge is included in taxable gross receipts ... A gratuity is optional only if it is voluntarily added by the customer. Examples of mandatory tips, gratuities, or service charges include: 'A 15% gratuity [or service charge] will be added to parties of 8 or more.' ..." (Cal.Code.Regs., tit.18, § 1603(h)(3)(E).)
    Thus, not only does the law not prohibit a mandatory gratuity or service charge, such charges are specifically recognized. "If the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination. When specific legislation provides a 'safe harbor,' plaintiffs may not use the general unfair competition law to assault that harbor." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., supra, 20 Cal.4th at p. 182.) A regulation should provide no less safe harbor than specific legislation, or the lack thereof. Any reasonable business reading the cited tax regulations would certainly conclude that mandatory service charges were permitted under the law. Thus, there is nothing inherently unlawful about the Hotel's characterization of the 16 percent charge.
    *6 Relying on the notion that a gratuity can never be mandatory, Michaelson next argues that the menu constitutes false advertising because it includes a mandatory gratuity. Because we disagree with the premise, we also disagree with the conclusion. There is nothing inherently false about stating a gratuity charge "shall" be added and is therefore mandatory.
    Michaelson's remaining allegations of false advertising are without merit. The standard for false advertising is whether "the reasonable consumer to whom the practice was directed" is likely to be deceived. (South Bay Chevrolet v. General Motors Acceptance Corp. (1999) 72 Cal.App.4th 861, 878.) The standard requires more than an unreasonable interpretation by a few consumers, but indicates that a significant portion of targeted consumers could be misled. (Lavie v. Proctor & Gamble Co. 105 Cal.App.4th 496, 508.)
    Thus, Michaelson's bare allegation that the room service menus understate the actual prices by 16 percent is insufficient. The complaint also alleges that the menu states, "A taxable 16% gratuity charge and applicable sales tax will be added to all food and beverage prices." There is nothing inherently false or misleading about the menu language, or about the use of a mathematical formula in this context. There is no indication that reasonable Ritz-Carlton patrons-- the only group of consumers to whom the statement was targeted--were likely to be deceived. Indeed, there is no allegation that Michaelson himself was deceived, misled, or confused in any manner. His complaints about typeface and the location of the service charge notice are unpersuasive given the lack of any such allegations about either Michaelson himself or the reasonable Ritz-Carlton patron. Because we reject Michaelson's argument that the room service menus constitute false advertising, we also reject his contention that use of the menu language constitutes an "unlawful" business practice under the UCL.
    In sum, Michaelson has offered no cogent argument that the Hotel's room service menus are unfair, unlawful, or fraudulent within the meaning of the UCL. Michaelson appears to be opposed to the idea of a mandatory tip, and he is certainly entitled to that opinion. He might also find it bothersome to calculate 16 percent to determine the cost of the food item and the service charge. Yet none of these facts result in the conclusion that the Hotel does not have the right to apply such charges as and how it wishes, so long as those charges comply with the law and are disclosed in a manner that would not mislead the reasonable patron. Moreover, Michaelson has a clear remedy if he does not like the manner in which the Hotel (or any hotel) calculates and applies room service charges: Do not use room service.
    4. Robinson-Patman Act
    The complaint includes an allegation that "to the extent that defendant ... charges a mandatory 'gratuity' for room service, it does so differentially based upon a percentage of the value of the food and beverages provided to each guest rather than upon the value of the service actually provided, in violation of ... the Robinson-P[a]tman Act, 15 U.S.C. § 13(a)." Because Michaelson does not address this argument in his brief (he filed only an opening brief) it is waived on appeal. "[T]he appellant must present argument and authorities on each point to which error is asserted, or else the issue is waived." (Kurinij v. Hanna & Morton (1997) 55 Cal.App.4th 853, 865.)
    C. Unjust Enrichment and Declaratory Relief
    *7 The complaint alleges the 16 percent service charge constituted unjust enrichment to the hotel, because it was collected in violation of the UCL. Because we find the Hotel did not collect the service charge in violation of the UCL or any other law, this argument is without merit, and the demurrer to this cause of action was properly sustained. Michaelson offers no argument on his cause of action for declaratory relief, and therefore any error as to that cause of action is deemed waived. (Kurinij v. Hanna & Morton, supra, 55 Cal.App.4th at p. 865.)
    D. Leave to Amend
    Michaelson offers several reasons why he should have been granted further leave to amend. First, he claims he could amend the complaint to allege the Hotel's practices might mislead customers into double tipping. This argument, however, was rejected in Searle: "[W]e are not offended by the hotel's practice of treating the service charge as a means of providing reliable compensation to its employees and not as a substitute for the customary tip." (Searle, supra, 102 Cal.App.4th at p. 1336.) Next, he claims he can offer additional facts to support his Robinson-Patman Act argument, yet he has waived that argument by failing to pursue it on appeal.
    Asserting his strongest new fact is that room service prices are already higher than prices for identical items in the restaurant, Michaelson somehow believes this will support his arguments under the UCL. We disagree. The Hotel is entitled to charge any amount it wishes for the same items regardless of where they are served, and a mere difference in menu prices does not establish that disclosed room service charges are unlawful, unfair, or fraudulent.
    Finally, Michaelson argues that demurrers are disfavored in class actions, yet the case he cites refer to demurrers to class allegations themselves, not the substantive claims included in a class action complaint. (See Beckstead v. Superior Court (1971) 21 Cal.App.3rd 780, 782-783.) This argument is therefore without merit. In sum, Michaelson has not demonstrated that further opportunity to amend would cure the glaring defects in his complaint. These defects do not stem from the pleading, but from the lack of merit in the arguments behind it. Thus, the trial court did not abuse its discretion by sustaining the hotel's demurrer without further leave to amend.

    III
    DISPOSITION
    The judgment is affirmed. The Hotel is entitled to its costs on appeal.
  7. #7
    maxtfd Guest
    In the case you posted every patron who uses the service is charged the "gratuity", so I agree, it is not a problem. My question involves the fact that at two tables, next to each other in the same establishment, patrons are charged different prices on an arbitraily decided number. I can order a strip steak and be charged 15% more simply because there are five people at my table instead of four?

    The law excerpt(Cal.code.regs., tit.18, ss 1603(h)(3)(e), "a 15% gratuity[service charge] will be added to parties of 8 or more..." was more the type of thing I was looking for. But here again the statute does not explain why it is legal to charge two prices for the same meal. If it is a service charge due to the business needing extra help to accomadate larger parties call it a service charge and not a gratuity. Does this make my question a little more clear?
  8. #8
    Rhemasman is offline Junior Member
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    Quote Originally Posted by I AM ALWAYS LIABLE View Post
    My response:

    Of course it's legal!

    When you enter a restaurant, and you order, you're entering into a CONTRACT. All because you fail to read the terms and conditions of the contract you're about to enter, doesn't mean it's "illegal". Learn to read before you patronize a restaurant and, if you don't like the terms and conditions, no one is holding a gun to your head to keep you from getting up and walking out.

    IAAL
    I can't agree with the idea. There is no law in the world that can legally say you have to give a waiter/waitress a tip. They get paid by the hour and, yes, they do deserve a tip if the service is worthy, but many times you will find that the service was poor.

    Whether or not you do read the signs on the door or the menu, when you enter, ordering food does not enter you into a contract or any sort...you order food and you pay for the food...bottom line is that it has been allowed and become something most people just go along with.

    Still, it's not a contract. Inform your waiter that you will not pay a gratuity but instead will leave your own tip.

    I tip when I get the service I deserve...if you want 17%, you better shine my shoes as well and wash my car!
  9. #9
    las365 is offline Senior Member
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    Rhemasman - the last post to this thread before yours was seven and a half years ago. The poster you addressed is (rather famously) long gone.

    It can be interesting and entertaining to read old threads, but please notice the dates before posting. Generally it's considered poor etiquette around here to "necropost."
    TheGeekess likes this.

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