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Hardy v. Tournament Players Club at Southwind, Inc.

Supreme Court of Tennessee, Jackson

March 8, 2017

KIM HARDY
v.
TOURNAMENT PLAYERS CLUB AT SOUTHWIND, INC., D/B/A "TPC SOUTHWIND, " ET AL.

          Session May 25, 2016 [1]

         Appeal by Permission from the Court of Appeals Circuit Court for Shelby County No. CT00120114 Donna M. Fields, Judge

         We granted this interlocutory appeal to address whether an employee may assert a private right of action against her employer under Tennessee Code Annotated section 50-2-107, referred to as the Tennessee Tip Statute, for the employer's failure to properly pay tips, gratuities, and service charges. The trial court granted the defendant employers' motion to dismiss the plaintiff employee's claim pursuant to section 50-2-107 for failure to state a claim, on the ground that there was no private right of action under the statute. In a divided opinion, the Court of Appeals reversed, based in part on a 1998 Court of Appeals decision recognizing a private cause of action under the Tip Statute. On appeal, we find that the 1998 Court of Appeals decision is inconsistent in part with subsequent Tennessee Supreme Court jurisprudence on implying a private right of action under a statute. For this reason, we decline to apply the doctrine of legislative inaction to presume that the legislature knew of the 1998 Court of Appeals' holding, recognizing a private right of action under the statute, and acquiesced in it. We hold instead that the employee has no private right of action under section 50-2-107 and overrule the 1998 Court of Appeals decision to the extent that it is inconsistent with our holding herein. Accordingly, we reverse the judgment of the Court of Appeals and affirm the trial court's judgment granting the motion to dismiss the employee's cause of action under section 50-2-107 for failure to state a claim.

         Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals Reversed; Judgment of Circuit Court Affirmed; Case Remanded

          Todd P. Photopulos and Diana M. Comes, Memphis, Tennessee, for the appellants, Tournament Players Club at Southwind, Inc., PGA Tour Golf Course Properties, Inc., and PGA Tour, Inc.

          Bruce S. Kramer, Amy E. Strickland, and Patrick H. Morris, Memphis, Tennessee, for the appellee, Kim Hardy.

          Holly Kirby, J., delivered the opinion of the court, in which Jeffrey S. Bivins, C.J., and Cornelia A. Clark, Sharon G. Lee, and Roger A. Page, JJ., joined.

          OPINION

          HOLLY KIRBY, JUSTICE

         Factual and Procedural Background

         This is an interlocutory appeal from the trial court's grant of a motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12.02(6) of the Tennessee Rules of Civil Procedure.[2] In reviewing a dismissal for failure to state a claim, the appellate court must take the allegations in the complaint as true. First Cmty. Bank, N.A. v. First Tenn. Bank, N.A., 489 S.W.3d 369, 382 (Tenn. 2015), cert. denied sub nom. Fitch Ratings, Inc. v. First Cmty. Bank, N.A., 136 S.Ct. 2511 (U.S. June 27, 2016). Accordingly, our recitation of the facts is taken from the complaint filed in this case and, for purposes of this appeal, we accept them as true.

         Defendant Tournament Players Club at Southwind, Inc. ("TPC Southwind"), hired plaintiff Kim Hardy as a food server/bartender on November 14, 2004. She eventually became a Service Captain/Lead Server. TPC Southwind is a private club with dining and banquet facilities.

         TPC Southwind customarily adds a mandatory service charge to every bill at its bars and restaurants. In addition, TPC Southwind patrons may also pay separate gratuities, or "add-on tips, " to the servers and bartenders who serve them. TPC Southwind placed all of the mandatory service charges in a pool. It disbursed a portion of the service charges to Ms. Hardy and other food-serving employees in their paychecks, along with their hourly wages. The add-on tips were not disbursed immediately; they were also included in the employees' paychecks.

         According to Ms. Hardy, instead of paying the service charges and add-on tips to the employees who rendered the services that gave rise to them, as required under Tennessee Code Annotated section 50-2-107 (the "Tip Statute"), [3] TPC Southwind distributed a portion of the monies to "non-tipped" employees, that is, employees who did not render the services that gave rise to the service charges and add-on tips. These non-tipped employees included kitchen staff who did not serve the patrons, and they even included salaried management. In this way, Ms. Hardy alleged, she and the other food-serving employees did not receive their full portion of the service charge/add-on tip pool.

         On March 18, 2014, Ms. Hardy filed this lawsuit against Defendants TPC Southwind, PGA Tour, Inc., and PGA Tour Golf Course Properties, Inc. (collectively, "Defendants"). Ms. Hardy filed it as a putative class action on behalf of past and present employees of the Defendants whose employment income was derived from gratuities, tips, or service charges. In the lawsuit, Ms. Hardy alleged that the Defendants' failure to pay her and other similarly situated employees all of the tips, gratuities, and/or service charges they earned, and the practice of paying a portion of them to non-tipped employees, violated the Tip Statute. Ms. Hardy also asserted breach of contract, conversion, fraud and negligent misrepresentation in procuring employment in violation of the Tip Statute, aiding and abetting, and civil conspiracy. Ms. Hardy sought class-action certification and compensatory and punitive damages on behalf of Ms. Hardy and other similarly situated persons.

         In April 2014, the Defendants filed a motion to dismiss for failure to state a claim. Among other things, the Defendants argued that Tennessee Code Annotated section 50-2-101, another statute in the so-called "Tennessee Wage Regulation Act, " does not afford a private remedy. They pointed to a 2013 amendment to section 50-2-101 that omitted prior language that referred to a private right of action arising out of section 50-2-101.[4]The Defendants contended that the 2013 amendment to section 50-2-101 was retroactive, so Ms. Hardy had no private right of action under section 50-2-107 in the instant case.

         In response, Ms. Hardy argued first that the 2013 amendment to section 50-2-101 applied only to that section and not to section 50-2-107, so it would not affect her lawsuit. Second, Ms. Hardy cited a 1998 Court of Appeals opinion, Owens v. University Club of Memphis, which found that a private right of action exists under section 50-2-107, the Tip Statute. No. 02A01-9705-CV-00103, 1998 WL 719516, at *11 (Tenn. Ct. App. Oct. 15, 1998).[5]

         In October 2014, the trial court issued an order holding that a private right of action does not exist under section 50-1-107 and dismissing Ms. Hardy's claims under the Tip Statute. Citing Brown v. Tenn. Title Loans, Inc., 328 S.W.3d 850, 855 (Tenn. 2010), the trial court noted that section 50-2-107 does not contain express language granting a private right of action, and it held that Ms. Hardy had not carried her burden to show legislative intent to imply a private right of action. In the spirit of judicial economy, the trial court refrained from addressing the arguments regarding the plaintiffs remaining claims and granted Ms. Hardy's request for permission to seek an interlocutory appeal pursuant to Rule 9 of the Tennessee Rules of Appellate Procedure.

         The Court of Appeals granted Ms. Hardy's Rule 9 application for permission to appeal. The issue presented was "whether Tennessee Code Annotated § 50-2-107 provides a private right of action notwithstanding the 2013 amendment to § 50-2-101 providing for enforcement of that section by the Department of Labor and Workforce Development." Hardy v. Tournament Players Club at Southwind, Inc., No. W2014-02286-COA-R9-CV, 2015 WL 4042490, at *2 (Tenn. Ct. App. July 2, 2015), perm. app. granted (Dec. 9, 2015).

         In a divided opinion, the Court of Appeals found an implied private right of action. Id. at *14-16. Citing the 1998 Owens opinion, the majority observed: "This Court's holding in Owens has not been overruled; the General Assembly did not amend section 107 when it amended section 101 in 2013; and the General Assembly amended section 107 in 2012 and did not legislatively overrule our holding in Owens." Id. at *6. On this basis, the Court of Appeals reversed the trial court's grant of the motion to dismiss the claims under section 50-2-107. Id. at *16.

         Judge Brandon Gibson filed a dissent, stating: "I do not believe this Court's decision in Owens can be reconciled with the Tennessee Supreme Court's analysis in Brown v. Tennessee. Title Loans, Inc., especially considering the lack of any discussion of legislative intent in Owens." Id. (Gibson, J., dissenting). In line with the trial court, the dissent urged that the proper outcome was to "adopt the reasoning utilized by the Tennessee Supreme Court in Brown and determine that Tennessee Code Annotated section 50-2-107 does not provide a private cause of action." Id. The dissent noted that the only remedy provided in the statute was a criminal penalty, and it asserted that the court's role was to enforce that remedy, not to create a new one. Id. We granted the Defendants' application for permission to appeal to this Court.

         Issues on Appeal and Standard of Review

         The issue certified for interlocutory appeal is:

[W]hether Tennessee Code Annotated § 50-2-107 provides a private right of action notwithstanding the 2013 amendment to § 50-2-101 providing for enforcement of that section by the Department of Labor and Workforce Development.

         In addition, the Defendants raise two issues as embraced[6] within the certified issue:

1. Whether the majority opinion of the Court of Appeals erred in relying on the standard contained within Owens v. University Club of Memphis, No. 02A01-9705-CV-00103, 1998 WL 719516 (Tenn. Ct. App. Oct. 15, 1998), an unpublished opinion, to find a private right of action under Tenn. Code Ann. § 50-2-107?
2. Whether, under the correct standard contained within Premium Fin. Corp. v. Crump Ins. Servs., 978 S.W.2d 91 (Tenn. 1998), and Brown v. Tenn. Title Loans, Inc., 328 S.W.3d 850 (Tenn. 2010), a private right of action exists under Tenn. Code Ann. § 50-2-107?

         As we indicated above, this interlocutory appeal arises from the trial court's grant of the Defendants' motion to dismiss the complaint for failure to state a claim. Filed pursuant to Rule 12.02(6) of the Tennessee Rules of Civil Procedure, this motion tests the legal sufficiency of the plaintiff's complaint. See Mortg. Elec. Registration Sys., Inc. v. Ditto, 488 S.W.3d 265, 275 (Tenn. 2015) (citing Harman v. Univ. of Tenn., 353 S.W.3d 734, 736 (Tenn. 2011)).

         Determining whether a statute creates a private right of action requires statutory construction. We review the lower courts' interpretation of statutes de novo, with no presumption of correctness. See Am. Heritage Apartments, Inc. v. Hamilton Cnty. Water & Wastewater Treatment Auth., 494 S.W.3d 31, 40 (Tenn. 2016) (citing Hayes v. Gibson Cnty., 288 S.W.3d 334, 337 (Tenn. 2009)); see also Brown, 328 S.W.3d at 855 (citing Tenn. R. App. P. 13(d); Stein v. Davidson Hotel Co., 945 S.W.2d 714, 716 (Tenn. 1997)).

         Analysis

         "A private right of action is the right of an individual to bring suit to remedy or prevent an injury that results from another party's actual or threatened violation of a legal requirement."[7] Wisniewski v. Rodale, Inc., 510 F.3d 294, 296 (3d Cir. 2007). Some statutes provide a private remedy by their express terms; others define legal duties and "are silent about whether an individual may bring suit to enforce them." Id. at 297.

         Tennessee's Tip Statute, Tennessee Code Annotated section 50-2-107, outlines how businesses like TPC Southwind are to handle payments from customers such as service charges, tips, and gratuities. It details the employer's duty to pay them to or distribute them among the employees who served the customer. Tenn. Code Ann. § 50-2-107(a). Violation of the Tip Statute is deemed a Class C misdemeanor and each failure to pay an employee constitutes a separate offense. Tenn. Code Ann. § 50-2-107(b).

         Ms. Hardy seeks to assert a private right of action against the Defendants based on the Tip Statute. It is undisputed that the Tip Statute does not expressly grant employees such as Ms. Hardy the right to file a lawsuit against an employer to enforce its provisions.[8] The question becomes, then, whether Ms. Hardy and the other putative class members have an implied private right of action under the Tip Statute.[9]

         This Court addressed the implication of a private right of action in Premium Fin. Corp. of Am. v. Crump Ins. Servs. Of Memphis, Inc., 978 S.W.2d 91, 93 (Tenn. 1998). In Premium Finance, the plaintiff premium finance company filed suit against the defendant insurance companies for damages resulting from the defendants' failure to return unearned premiums to the plaintiff after cancellation of underlying insurance contracts. Id. at 92. The plaintiff sought to assert a private cause of action against the insurers under a provision of the Premium Finance Company Act, Tennessee Code Annotated section 56-37-111. Id.

         At the outset of its analysis, the Court in Premium Finance cautioned: "Where a right of action is dependent upon the provisions of a statute, our courts are not privileged to create such a right under the guise of liberal interpretation of the statute. Only the legislature has authority to create legal rights and interests." Id. at 93 (citing Hogan v. McDaniel, 319 S.W.2d 221, 223 (Tenn. 1958)). Premium Finance noted that the plaintiff bears the burden of establishing the existence of a private right of action. Id. (citing Ergon, Inc. v. Amoco Oil Co., 966 F.Supp. 577, 585 (W.D. Tenn. 1997)). Where the statute does not expressly grant a private right of action, the Court directed courts to examine the statutory language to ascertain whether the legislature intended to create an implied right of action. Id. "To do this, " Premium Finance held, "we consider whether the person asserting the cause of action is within the protection of the statute and is an intended beneficiary." Id. (citing Carter v. Redmond, 218 S.W. 217, 218 (1920); Chattanooga Ry. & Light Co. v. Bettis, 202 S.W. 70, 71 (1918)). It advised courts to look at the structure of the statute at issue and its legislative history. Id.

         After examining the Premium Finance Company Act, the Court in Premium Finance found no private cause of action under section 56-37-111. Id. at 94. It added: "Where an act as a whole provides for governmental enforcement of its provisions, we will not casually engraft means of enforcement of one of those provisions unless such legislative intent is manifestly clear. We do not find such clear intention in the statute under review." Id.

         The question of when a court may imply a private right of action under a statute was considered further in Brown v. Tennessee Title Loans, Inc. In Brown, the complaint alleged that the plaintiffs and putative class members were charged a prohibited "redemption premium fee" in violation of the Tennessee Title Pledge Act (TTPA). Brown v. Tenn. Title Loans, Inc., 328 S.W.3d 850, 853 (Tenn. 2010) (citing Tenn. Code Ann. § 45-15-111(a) (2000)). The TTPA did not expressly provide for a private cause of action to enforce its terms, so the Court considered whether the plaintiffs had an implied private right of action under the Act against title pledge lenders who allegedly charged the prohibited fees. Brown, 328 S.W.3d at 854. The Court framed the issue as "whether the legislature otherwise indicated an intention to imply such a right in the statute." Id. at 855 (citing Premium Fin. Corp., 978 S.W.2d at 93; Reed v. Alamo Rent-A-Car, Inc., 4 S.W.3d 677, 689 (Tenn. Ct. App. 1999)).

         To ascertain whether the legislature intended to imply a private cause of action, Brown stated, "[W]e look to the statutory structure and legislative history." Id. (citing Premium Fin. Corp., 978 S.W.2d at 93; Reed, 4 S.W.3d at 689). Brown then outlined several factors for courts to use to discern legislative intent:

Appropriate factors to consider include (1) whether the party bringing the cause of action is an intended beneficiary within the protection of the statute, (2) whether there is any indication of legislative intent, express or implied, to create or deny the private right of action, and (3) whether implying such a remedy is consistent with the underlying purposes of the legislation.

Id. at 855-56 (citing Ergon, 966 F.Supp. at 583-84; Buckner v. Carlton, 623 S.W.2d 102, 105 (Tenn. Ct. App. 1981), superseded by statute on other grounds, Act of May 24, 1984, ch. 972, 1984 Tenn. Pub. Acts 1026, as recognized in Lucas v. State, 141 S.W.3d 121, 129, 137 (Tenn. Ct. App. 2004)). Brown emphasized, "The burden ultimately falls on the plaintiff to establish that a private right of action exists under the statute." Brown, 328 ...


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