-: SJC 13039.
Khris Hovagimian v. Concert Blue Hill LLC, and others.
-: Great, good morning, council.
-: Morning.
Chief Justice: Let's start with Attorney Holtzman.
-: Morning, Chief Justice Budd,
may it please the court.
My name is Paul Holtman.
I represent the plaintiff appellants.
This case involves the automatic liability of an employer
which chooses to impose a mandatory service charge
on a banquet invoice
and fails to remit the proceeds to its service employees.
This conduct squarely violates the tips act,
under which,
as Justice Gants wrote in the Difiore case,
employers are quote "barred from pocketing service charges."
The fact that the legislature intended precisely
that this uncomplicated strict liability has been
consistently recognized by the appeals court
and this court.
As Justice Milkey.
-: Mr. Holtman, could I ask you, Mr. Holtman
about the safe harbor?
Provision?
-: Yes, your honor.
-: So if you look at 152AD,
clearly when you're talking about a service charge
talks about remitting it to the waitstaff
if it's in a bill, invoice, or otherwise in a charge.
But then you have another paragraph where you get
to the safe Harbor provision.
Why do you say that
the statute requires the safe Harbor language
to appear in the charge, invoice, or bill?
-: Your honor, we actually take no position on the question
of where the safe Harbor language would appear,
nor does the court need to reach that issue
because the safe Harbor clause has no relevance
when one of the three per se service charges
is designated on the invoice.
-: No, but that's my question.
That's my, that's my question.
I understand I'm looking at it right now.
I understand that subsection D says
if there's a service charge
in a bill, invoice, or charge,
that there's strict liability.
I understand that argument and I appreciate it.
But then you have another paragraph
and that paragraph doesn't limit the safe Harbor provision
to the bill, charge, or invoice.
-: Correct Your Honor, but-
-: Give me the statutory interpretation that says,
Safe Harbor has no application
if it's not in the bill, invoice, or charge.
-: That's not our position, Your Honor.
Our position is that
the Safe Harbor has no application
because the statute says the Safe Harbor has to be language
which is instead of a service charge.
In fact, it says the designation required
by the statute says, "it's to inform the patron,"
quoting, that the house or administrative fee,
quote, "does not represent a tip or service charge."
So needless to say, it would make no sense where
the fee itself is explicitly designated by the club
as a service charge, to have the Safe Harbor provision
have any meaning or relevance to it.
So it would be illogical to conclude
that the employer could modify
or void the per se, or automatic liability
of the label, "service charge," which they chose,
by adding Safe Harbor language.
More importantly, or equally important,
the safe Harbor provision relates to charges
denominated administrative or house charges.
No such charges appear-
-: I understand that argument.
And that, and that may very well be right.
But the appellees and the appeals court
at some point are saying, "look, it's clear
in the initial contract, that that's what was going on."
And if you even look at the final invoice in the divisions
of the 10%, it's clear that's what's going on
and that this is good enough for Safe Harbor.
I think that ultimately
if you dig down, that's their position.
-: I understand that your honor
but that there's a drastic difference
between the contract and the invoice.
The invoice makes no reference
to an administrative charge or a house charge
nor does the banquet invoice, which breaks any connection
between the contract and the invoices.
Importantly, the very clause
in the contract that the defendants rely
on starts with the following language.
It says that all charges are subject
to change and will be confirmed
within 30 days prior to the scheduled event.
Now, what are those confirmed
or actual charges that are identified prior to the event?
The only such charges are gratuities and service charges.
There was no reference to an administrative charge
no reference to an overhead charge.
So the banquet event order form modifies the contract
specifies the actual charges,
and for the first time, places dollar signs in front of them
and identifies the dollars that the patron is
committing to pay.
These record facts, refute the contention
of the decision below that the invoices do not
impose new fees, but are mere summaries
of some of the fees listed in the contract.
To the contrary,
the invoices imposed the actual confirmed fees.
And the contract itself anticipates
that the actual fees will not be charged
or calculated until the end of the event.
The reason that happens is of course
that these charges are calculated
as a percentage of food and beverage purchases.
No purchases have been made until the event is concluded,
therefore there are no dollars
against which to apply those percentages.
So the only charges which are imposed are
those that are imposed in the invoices.
The contract is a pre event document
of the sort that Norelle confirmed.
-: Isn't that silly though?
I mean, I understand you may be right
that the statute has this sort of strict liability
on invoices,
but that clearly wasn't the intention here.
There were, the employees got 10% and the club got 10%.
There's-
the appeals court clearly is right on
on a reality check that this was in.
Are there any appellate cases
in which the employees actually got a separate tip
provision where you applied this strict liability rule?
Because here they actually did get paid tips.
-: You're correct, Your honor, they got paid a 10% gratuity.
The 10% service charge, however, was not paid to them.
-: Okay. But I want you to first answer the question.
Are there any of these other appellate cases
are there any appellate cases where employees
actually did get tips as opposed
to where there was a fight over who gets the.
-: So not an appellate case,
but we have cited to you a bank's decision,
you may have noticed
from Judge Faye who dismisses this argument.
-: I'm not.
No appellate cases.
-: The relevant appellate decisions here are Cooney
and Bednark, which speak to the question of whether a
an accident, or a mistake,
or a drifting off course by the employer can save them.
And what they say is
that the legislature chose a particular approach,
an uncomplicated approach.
As Cooney says, where the employer decides
for whatever reason,
to use one of these three automatic liability charts
and recognize, this might catch-
-: That's your argument, right?
That that's really your best argument.
That if you screw up, the employee gets the benefit here.
Even if it was clearly not the intention to
give the employee this money.
Isn't that your argument?
-: Because Cooney says
that the intention of the employer is wholly
irrelevant.
As is-
-: Well, it's not just the employer.
It's everybody's intention here.
The, I mean, the employees understood the rule probably.
The, the patrons understood the rule.
The club understood the rule.
But still, somebody screwed up
and used the word service charge at the end, right?
-: Right, Your Honor, in fact, Cooney is.
This is an A Force Uri Case compared
to Cooney because to Cooney all those things were true.
The patrons were told, if they asked,
"well who's the charge for?"
"Oh we're not giving this to the staff,
we're keeping it."
So the patrons knew it was not a gratuity.
Likewise, the staff, according to Cooney,
understood they were not getting it.
The appeals court said doesn't matter
because this is a strict liability.
And who controls the designation?
The statute talks about the designation.
-: Are you, are you overreading Cooney?
Was, was that really true?
That every, I mean, I understand when somebody pays a bill
and it says service charge, you think you're giving it
to the people servicing you.
And it's unfair to, to sort of for the, you know
the owner to take the money.
But this is different.
I just.
Did Cooney actually have, was Cooney,
the facts of Cooney stated expressly,
that everyone thought this was
going directly to them?
Including the patrons?
They understood that the patrons understood
what they were getting into?
Where in Cooney does it say that?
-: Yes, Your Honor, in fact.
Cooney, Cooney facts include
that the employers were
not able to evade the liability there,
even where they were telling patrons explicitly
that the service charge on the invoice was not a gratuity.
And I can point you to the, the language in Cooney
-: I've got Cooney in front of me.
Where does it say that?
Oh, don't worry about it.
We'll we'll we can read it ourselves.
-: So both, both the patrons were told it was not
a service charge.
And the employees, Cooney says,
understood that they were not going to get it.
Nonetheless, what the Cooney court says,
the legislature didn't want factual disputes,
individual inquiries as to particular charges,
the understanding of particular patrons,
or the intent of the employers.
Instead they chose this quote, "uncomplicated approach"
of setting out three terms, which trigger per se
liability if you designate them on the invoice.
-: So in a sentence, Mr. Holtzman,
your position is, in one sentence,
that if in the invoice,
the employer uses the word surcharge,
that it's strict liability,
and that that surcharge goes to the waitstaff.
Is that right?
-: Your honor, I believe you meant service charge, perhaps,
you said surcharge.
-: Service charge.
Yes.
Service charge.
-: Because the statute defines.
Lowy: That's your position, right?
-: Service charge appears designated on the invoice
by the employer, that the proceeds are required to go
to the employees.
Full stop, according to Cooney and DiFiore.
-: So, as far as the Bednark case.
Holtzman: I'm sorry?
-: The Bednark case, B E D N A R K,
and that analysis about what, you know
a reasonable customer would think that the term means.
That, in your position only applies when the term
does not say gratuity, tip, or service charge.
-: That's correct.
And that's strictly out of the statute, Your Honor.
The statute defines two categories,
the first of which are these per se categories.
-: The challenge with that goes back to justice
Kafker's point, which is everybody can understand
that the service charge isn't going to go to the waitstaff
but the service charge still goes to the waitstaff
if the word service charge is used.
-: Well, that we believe is the fundamental error
by the decision below.
They've applied a reasonable understanding
or reasonable expectation standard, which is inapplicable
to the first half of the definition of service charge.
Category one is any fee designated
as a service charge, tip, or gratuity.
That's what Bednark refers to
as the automatic liability service charges.
Then the definition continues,
or, separate clause,
a fee designated as something other than one of those three
which is nonetheless a fee that a patron,
quote,
"would reasonably expect to be given to service employees."
That reasonable expectation standard has
no applicability just from the structure of the statute
let alone Cooney, Bednark, DiFiore, and Meshna.
When you have an automatic,
when the employer has selected one
of the three automatic clauses.
Tip, gratuity, or service charge.
If you have a tip and a gratuity,
obviously both of those have to go to the employee.
The same with gratuity and a service charge.
They're interchangeable terms under the statute.
-: Mr. Holtzman, is the sentence you're relying on Cooney,
the following,
"Northeastern never intended to, nor did it
remit the proceeds from the service charge
to the Chartwell's employees."
Is that the sentence you're relying on?
Cause that's different from what we've got,
where we have a negotiated understanding by,
you know, where we,
and it's.
I mean, just cause you don't intend to,
if you keep it secret, you know, that's a whole
different story.
Is there something else in Cooney that you're relying on?
-: There is, Your Honor, there's the language where
the Cooney employer, Northeastern, informed patrons
that the service charge was not going to the staff.
Which would be akin to
what they're arguing here with a contract provision.
And the decision was regardless of that,
and regardless of the intent,
there are two issues which are both deemed irrelevant
by the Cooney court.
The intent of the employer, which you just mentioned,
but also the understanding
of the patrons who were specifically informed,
this is not a gratuity.
The court said, nonetheless, you have,
whether intentionally or otherwise,
doesn't matter,
used one of the three
designated automatic liability clauses,
liability attaches per se automatically.
That's the structure selected by the statute.
Cooney said, the employer there,
like the club here,
is asking for you
to write something else into the statute.
Say, well not,
innocent employers shouldn't have to pay those over.
And Cooney said, we're not entitled to add language
where the legislature chose not to.
The legislature drew a line,
a bright line rule, no question about it,
and the court said, we are not in a position to modify that.
Even if it captures from time to time
innocent or haphazard labeling by an employer,
the line is a bright line rule.
It's an uncomplicated mandate
that the tip act has been uniformly
recognized to have by this court and the appeals court
up until this decision simply put the use
of the per se liability language,
tip, gratuity, or service charge,
controls over any language in any pre event documents.
It makes the intent of the employer
and the understanding of the patrons irrelevant.
And it negates any reference elsewhere
to safe Harbor language,
since such language is effective only where
employers denominate a fee as something other than
a tip, gratuity, or service charge.
And here are the only invoice charges.
The only charges imposed
were a gratuity and a service charge.
As a result, we submit
that the decision below should be reversed
as inconsistent with the plain language of the statute
and the long settled precedent,
and the matter be remanded
to the superior court for entry of an order
allowing plaintiff's motion for judgment on the pleadings.
-: Thank you very much.
Attorney King.
-: Thank you, Your Honor.
May it please the court,
Paul King on behalf of the appellees.
The plain language of the tips act
and the relevant case law tell us
that the question before this court
cannot be answered without considering the full
context of the transaction at issue.
In DiFiore,
this court made an important observation about the tips act.
It expressly invites courts to rewrite and fit
the statutes definitions based on the transaction
that we're looking at.
Also in DiFiori,
this court confirmed that the legislative intent of the act,
the very purpose for which it exists,
is to cover the funds
that the patron intends the waitstaff to receive.
Here, it's the event contract that gives us
both the full context
as well as the controlling intent of the patrons.
There is no basis in the statute for eliminating
or removing the event contract from this equation.
The event contract define the terms for the transaction
including the agreed upon percentages in terms of
the 10% portion that was going to be kept by the club
as an overhead charge
and a 10% tip or gratuity
that was going to the waitstaff employees as a tip.
In this context, there is no question
about what that charge could be.
There in this context,
that charge,
regardless of how it's mentioned subsequent,
cannot be a service charge
as that phrase is used within the act.
-: Mr. King, if I could interrupt you for a moment
so let's take your position in that 158,
152A, subsection D is not dispositive
when they say bill, invoice, or charge.
And you look at the entire transaction.
The Amicus brief,
the Mass Employment Lawyers Association brief,
says that if you then apply this reasonable belief standard
every time a service charge is added to the bill,
you're going to need a trial
to be able to resolve the credibility issues,
just to determine whether or not
the staff gets the service charge.
And you know who that's going to annoy
to the detriment of,
the waitstaff who can't afford to litigate
against the deep pockets.
King: Sure, Your Honor.
-: Why isn't the Amicus brief right?
-: Well, I disagree with the Amicus brief's point,
and the reason I do that is
because as your honors have pointed out,
there are no cases interpreting this statute
where a detailed contract
that explains a disputed charge exists.
And I would disagree that
in every circumstance we would need a trial
because in some circumstances like this one
there could be a contract and that contract is controlling.
And in Massachusetts, we give effect to contract provisions.
We enforced them regularly,
and they're conclusive as to the signers intent.
So I would disagree that that problem would be created
by an interpretation that agrees with the appellees
in this case,
because this case is very unique, Your Honor.
So I believe that the Amicus is,
is creating an issue that would not come up
when an employer or an invoicing entity is able
at the beginning of an action to show
much like we did in this case
that look, here's the contract.
This wasn't just, you know, a tip left on a
a piece of paper at the end of a meal.
This was different.
-: But you know, so many waitstaff staff
they live paycheck to paycheck.
And even when it's not a pandemic
a lot of them are struggling.
And all the employer needs to do is
put the right language in the invoice.
And isn't that why it's a strict liability statute?
-: Well, I think strict liability, and this is a phrase
that my brother has relied on.
I think strict liability does not mean we don't look
at the context and I would point your honors
to some important parts in the statute.
As DiFiore spent considerable time recognizing,
the opening clause to the definition section
specifically says,
"unless a different meaning is required by the context
or is specifically prescribed,
the following words have the following meanings."
Here, both of those triggers are present
required by the context.
Clearly the contract is the context,
but more so,
the contract specifically prescribes
what the charges in the transaction were.
So strict liability cannot be something that can
remove language from the statute.
And I think another point on that point, Your Honor
is the introductory clause to the Safe Harbor language,
"nothing in this section,"
the entire section,
"shall prohibit an employer from imposing on a patron
any house or administrative fee in addition to
or instead of a service charge."
And I would draw your honor's attention to the
use of the phrase in addition to,
or instead of a service charge,
that does not appear in the opening part
of the definition for service charge.
In that spot, the legislature specifically said,
a service charge
is something that's assessed in lieu of a tip or gratuity.
And in DiFiori, we said that that is all one definition.
We said that those are not separate.
-: May I interrupt you for a minute.
Just to clarify.
When I look at the language of this, though, it,
the invoice says tips.
The way it's categorized,
the categorization of it is charges, taxes,
and then service charges and gratuities together.
So it's one thing.
Do you give meaning to the way the language is structured
or the grammar of the invoice?
-: Yes, Your Honor,
I think that's an excellent point.
And I do think that those distinctions are
critical when pulling this case outside of Cooney.
Cooney and the magic words
there were very different from the invoices here
even forgetting the event contract.
Here, as your honor has pointed out,
on the second, the first invoice that follows the contract,
the term used is service charges and gratuities.
That tells you they're separate.
They're not the same thing.
There would be no reason
for having the phrase service charge,
and the symbol and, if they meant gratuities.
And then I think if we look at the last invoice
this becomes even more apparent.
They're separated out into three separate categories
under the heading of service and tax charges.
So again, we do not have the phrase service charge
in isolation, and again, we have a contract or excuse me
an invoice that spells out distinct charges.
Therefore one cannot be the same as the other.
They're distinct.
And that's consistent with the event contract.
And I think a critical point, I think critical point.
-: But they're linked.
They're still linked together, in the way it's structured.
-: Yes.
That's-
-: And there's no language in here
about an administrative service fee, or an
or other it's just a general service fee.
So what is, what are we to make of that?
-: I think that's where the legislature instructed the
court to look at the context, which is the contract.
I think we cannot remove that.
I think doing that reads out a number of
provisions from the, the language of the statute.
And an important point on that, I want,
I would like to draw the court's attention to
the Safe Harbor language.
As Your Honors have pointed out,
the section that imposes the liability,
the section that my brother relies on for strict
liability specifically says,
"if an employer or person submits a bill, invoice,
or a charge..."
Those are distinct definitions, excuse me
distinct terms that are undefined in the statute.
If, as the appellant suggests we're supposed to only look
the statute requires us to only look at the invoice
the legislature signal that we're not only limited
to an invoice because they include a very fro,
a very broad phrase, charge.
-: But I thought, I think you lose if we have to go there
because the statute is incredibly protective
of an employee's tips.
If you start messing around with terms like service,
which we think goes to them,
and gratuities, you lose.
The only way you win is if it's absolutely
clear that there's a division here,
isn't that right?
Because again, this is not a employer friendly statute.
It's the opposite.
If there's an error made and it's not clear,
tie goes to the employee and you lose.
Right?
-: Yes, Your Honor.
I think an excellent point here is that all
of the cases dealing with this statute talk
about situations where there's a possibility for confusion.
The cases mention that a safe Harbor provision was
specifically included to dispel the possibility
that a patron may not know whether a certain charge
could be something that would go to the waitstaff.
And importantly, Bednark and Cooney.
Our position is consistent with both of those cases.
In Cooney, excuse me, in Bednark, there was a contract.
-: Do Cooney for a second, cause Mr. Holtzman,
and I can't find the sentence he's relying on
but it's probably there
but he's saying it was clear to everybody in Cooney,
including the tip staff that they weren't going to get this.
I don't know if that's true or not
but I'm assuming he's correct.
So there, confusion again went to the employee,
Justice Lang writing for the appeals court says again,
strict liability if you screw up.
So how do you get around Cooney?
-: Yes, Your Honor.
Well, first of all, I think Cooney has some great principles
that support our interpretation, but more importantly
Cooney was looking at an invoice that dealt
with only one phrase, a service charge.
There was no contract.
I don't believe that there was a tip charged on top of,
or in addition to, whatever that disputed fee would be.
So the court setting Cooney, look, this is the situation
that the statute is concerned with.
A situation where you have
the exact words that the statute uses,
service charge,
unaccompanied by anything else.
And in one quick point I would make on Cooney.
-: In Cooney it is accompanied by one other thing
which is the employees are in the higher category.
They're getting paid more because they have divisions
between employees who can get tips
and employees who can't, right.
So there is some, there is some understanding in Cooney.
-: Yes.
Kafker: Right.
-: And I, and, and an important point on Cooney,
and this is the part where the court is discussing
what phrases or what terms
could be something that would lead
a patron to reasonably think it goes to the waitstaff.
And they say, tip and gratuity are synonymous.
Common understanding is
that those are for waitstaff employees.
In the next sentence,
they say, quote,
"in context, so is the term service charge."
And Bednark also says, dealing with the administrative fee,
unexplained in a contract, it specifically says
depending on the context and absent further explanation
a house fee could easily be understood as a tip or gratuity.
Those factors are not present in our case.
There is no question.
And the context is exactly what
the event contract says it is.
So our position is consistent with all the cases.
I would like to point out the appellants
and the dissent take issue with where
and when the club communicated the Safe Harbor language
to its employees.
But the statute is not concerned with those questions.
The case law makes clear that the statute is
concerned only with whether the employer makes
the designation or written description.
And indeed, in Bednark the court said, use of the phrase
designation being separate from a written description
signals, it can be verbal.
And so to suggest that to be effective
a Safe Harbor communication needs to accompany some document
in a transaction, I think is adding material limitations
that the statute simply does not impose.
It requires only that the communication be made.
And I think that is even stronger in this case where
we have a contract explaining it.
There is no room for confusion.
The Amicus brief supplies some cases
as support for its position,
but in those cases the numbers changed.
They were not the same throughout.
And I would acknowledge that.
-: Can I push you one second, Mr. King, cause say I,
I think that again, all ties go to the employees,
all confusion goes to the employees.
You have a pretty clear contract here
but you did make one error.
Why do you still win with that error given?
Cause there is an error here, right?
You know, it's not right.
They goofed up at the end a little bit.
-: Yeah. There's, there's certainly inconsistent labeling.
And for that point I would urge the court to look
at the Masiello decision out of the superior court.
I recognize it's not binding, but in that case
there was inconsistent labeling.
But the courts, excuse me,
the court focused still on the fact that
the employer made the necessary designation
that dispelled the confusion.
So I certainly understand and, and acknowledge
that there is inconsistent labeling here, but I
think it's important to point out the statute says
that's not the end of the question.
The statute says, what does that labeling mean
in the context of
the transaction you're looking at?
And I think there can't be
-: Doesn't it make more sense though,
to look at the final thing,
which is the invoice as opposed to
saying, Oh, I wonder what this.
Why not just look at what the invoice says?
It says what it says, why should we have to go back
to the contract when this is the final word?
-: Sure. And that's a fair question, Your Honor.
I think you have to go back
to the contract and not stop at the invoice
because nothing in the statute says to stop at the invoice.
I think it pretty clearly says in
in multiple spots that I've pointed out, it says
look beyond whatever a label might be
because that label may not tell the whole story.
And we have cases that recognize that.
I mean, Bednark specifically saying,
without further explanation.
I would suggest that Bednark,
in Bednark, the court was saying
if that house fee had a designation
in writing somewhere, or verbally,
that clearly said what it was,
I would suggest that that would be a different outcome
in that case.
-: Tell me if I'm wrong.
Bednark doesn't use the term service charge.
-: Yes, that is, that is fair, Your Honor.
It's, it's a different term.
And I think our situation is, is also different.
We don't use in isolation, the term service charge.
It's, it's just not the same as Cooney.
And I it's an important distinction
because it is consistent with what the contract laid out.
There would have been no,
no reason to split out separate charges.
The 10% was the tip,
and the 10% of the charge was for the house.
And that is exactly what remained the same.
And so if there are not any further questions
from the court, I thank you for your time.
I would ask that the court affirm the judgment
of the superior court below.
Thank you.
Budd: Thank you so much.