Northern District Of California Rejects Claim Of Bi-Coastal Conspiracy To Eliminate Restaurant Tipping
On January 7, 2019, Judge Jeffrey S. White of the Northern District of California ruled on a motion to dismiss allegations that certain high-end restaurant groups in New York and California had conspired to terminate the practice of tipping in restaurants, in violation of Section 1 of the Sherman Act and various state laws. Judge White held that plaintiff’s claims were too speculative to sustain an inference that defendants could — or had any reason to — conspire, and dismissed all claims. Brown v. 140 NM LLC et al., No. 4:17-cv-05782 (N.D. Cal. Jan. 7, 2019).
Plaintiff, a restaurant patron who resides in Minnesota, brought this suit against several celebrity restaurateurs and noted restaurant groups, alleging that they engaged in a bi-coastal conspiracy to fix prices in the restaurant industry by eliminating tipping. Defendants operate restaurants in either California or New York, but no defendant simultaneously operated establishments in both states during the relevant time period. Defendants acknowledged that they had independently abolished tipping in their restaurants: some replaced discretionary tipping with fixed service fees, while others adjusted menu prices to reflect the cost of service. Defendants challenged plaintiff’s claims on the grounds that he lacked standing to pursue them, the Court lacked jurisdiction to rule on the claims involving the New York defendants, and that plaintiff had not alleged facts sufficient to support an economically plausible conspiracy.
At the onset, the Court evaluated plaintiff’s Article III standing. To sustain a claim for damages, an antitrust plaintiff must show that it has been injured by a defendant’s conduct. Here, plaintiff admitted that he had dined at only four of the restaurants alleged to have participated in the conspiracy. However, at one of these restaurants, a defendant raised menu prices to reflect its no-tips policy. As a result, plaintiff paid five dollars more for a fried-chicken sandwich than he would have absent the policy. The Court found that this was sufficient to establish standing in an action for monetary damages.
Next, the court assessed whether it had personal jurisdiction over the New York defendants. Plaintiff made several arguments in response to defendants’ argument that the Court lacked jurisdiction. First, plaintiff argued that the Court should apply the “conspiracy jurisdiction” theory, in which co-conspirators are subject to jurisdiction in a forum by virtue of engaging in a conspiracy affecting that forum. Second, plaintiff claimed that the Court had general jurisdiction because defendant restaurateurs visited California on other business. Third, plaintiff asserted that the Court had specific jurisdiction because defendants had attended trade group conferences in California in which tipping policies were discussed, and had themselves made public comments in support of the movement to eliminate tipping at those conferences and elsewhere. The Court declined to adopt the conspiracy jurisdiction theory, and it rejected plaintiff’s two other arguments as too tenuous to establish general or specific jurisdiction. Based on its jurisdiction holdings, the Court dismissed plaintiff’s claims against all but the California defendants.
Finally, the Court turned to the issue of whether plaintiff sufficiently stated a claim against the California defendants under the Supreme Court’s Twombly standard. Because plaintiff made only circumstantial allegations of a conspiracy, he was required to show “plus factors” suggesting that coordinated conduct amongst defendants was more likely than unilateral action. Plaintiff again made the allegation that certain defendants attended and presented at industry conferences in which no-tip policies were discussed and that others publicly advocated for the termination of tipping. The Court, noting that mere participation in trade associations is not indicative of unlawful agreements, was unpersuaded.
The Court acknowledged that a simultaneous and unprecedented business change on the part of multiple competitors could be a “plus factor” suggesting the existence of a conspiracy. However, it questioned plaintiff’s assertion that restaurants at opposite ends of the country would have any incentive to conspire given that they do not compete with each other in any meaningful way. Because of this apparent lack of economic incentive to conspire, Judge White dismissed plaintiff’s claim that the California defendants conspired with the New York defendants.
The Court similarly dismissed the claim that the California defendants conspired amongst themselves to fix prices. Here, plaintiff argued that the California defendants agreed to both raises menu price and charge compulsory service fees. Regarding the first point, the Court found that plaintiff made no allegations at all to support his theory that the California defendants discussed menu prices. Regarding the second, it found that plaintiff made no allegation that he would have tipped less than the 20 percent service fee, and thus, he suffered no injury as a result of the policy change.
Having found no proper antitrust claim, the Court dismissed plaintiff’s remaining state law claims. The Court did, however, grant plaintiff an opening to refile and amended complaint. We will follow whether plaintiff continues to pursue his claims under a different theory. At present, under the standard enunciated by Judge White, industry-wide changes in standard practices, without more, are unlikely to support a Section 1 conspiracy claim.