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 . . .