Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—S.D. N.Y.: Red Lobster customer unable to claw back gratuity, beverage costs, (Jul 14, 2014)

By Linda O’Brien, J.D., LL.M.

In a proposed class action against a restaurant operator for allegedly engaging in deceptive business practices by charging an automatic non-discretionary gratuity and presenting menus that offered beverages whose prices were not indicated, a consumer who purchased meals and paid the gratuity at the operator’s restaurants failed to state claims under New York’s General Business Law, the federal district court in New York City has decided. Thus, the complaint was dismissed with prejudice (Dimond v. Darden Restaurants, Inc., July 9, 2014, Failla, K.).

Darden Restaurants operate several restaurants, including Red Lobster. The menus at many of the restaurants provided that an 18 percent gratuity will be added to all guest checks and offered beverages whose prices were not listed on the menu. Ted Dimond was a customer at several of Darden’s restaurants. Dimond filed suit against Darden, alleging that the imposition of the automatic gratuity and offering of beverages on menus where the prices were not indicated were violations of New York’s General Business Law (GBL). Dimond asserted that automatic gratuity charge did not fall within the additional service exception and the failure to disclose beverage prices was misleading to customers in violation of local consumer protection regulations. These violations of local regulations resulted in violations of the GBL. The defendant moved for dismissal.

Gratuity charge. The court found that Diamond failed to state a claim under deceptive business practices under the GBL. To establish a violation of the GBL, a plaintiff must prove that the challenged act was consumer-oriented, misleading in a material way, and the plaintiff suffered injury as a result of the deceptive act. The plaintiff’s claims were clearly predicated on violations of local regulations for which there was no private right of action, according to the court. Since state and federal case law have held that claims under the GBL could not predicated on violations of local regulations, the plaintiff was required to prove the elements of an unfair trade practice, including actual injury.

Dimond alleged that the automatic addition of a fixed gratuity was misleading since the charge was not voluntary. In this case, there was no materially misleading act or statement as the terms and conditions were completely and conspicuously indicated on the menu and each patron was informed as to the cost of dining prior to placing an order. Moreover, the plaintiff failed to allege a cognizable injury that was separate from the alleged deception, the court noted.

Beverage prices. Additionally, Dimond lacked standing to sue over the undisclosed beverage prices, according to the court. Although he claimed to have purchased a beverage at one of the defendants’ restaurant, Dimond failed to allege any injury incurred as a result of the failure to disclose certain beverage prices. He also did not state that he would not have purchased the beverage if the price had been listed on the menu. Furthermore, Dimond failed to allege any materially misleading practice in the defendants’ decision not to list certain beverage prices or show that he could not reasonably obtain the unlisted beverage prices. Finally, the plaintiff’s request for leave to amend the complaint was denied as futile.

The case is No. 13 Civ. 5244.

Attorneys: Evan Spencer for Ted Dimond. Gerald Leonard Maatman, Jr. (Seyfarth Shaw LLP) for Darden Restaurants, Inc., GMRI, Inc., Red Lobster, and Darden Concepts, Inc.

Companies: Darden Restaurants, Inc.; GMRI, Inc.; Red Lobster; Darden Concepts, Inc.

Cases: StateUnfairTradePractices NewYorkNews