Prominent LA restaurants battle price-fixing lawsuit

A group of Los Angeles restaurant operators are battling price-fixing charges after instituting a 3-percent surcharge to help cover employee healthcare costs.

The lawsuit was filed on behalf of plaintiff Margaret Imhoff in Los Angeles County Superior Court, but the attorney is seeking class-action status. Named defendants include the owners of some of the area's hottest restaurants, including Animal, AOC, The Hungry Cat, Lucques, Melisse, Rustic Canyon, Son of a Gun and Trois Mec, along with potential others.

While the restaurants have yet to respond to the charges, labor attorneys say the lawsuit spotlights potential risks associated with policy changes that impact menu pricing.

The lesson, says Jordan Bernstein, attorney with Michelman & Robinson LLP in L.A.: “Independent restaurants need to stay independent. Make decisions based on your own accord, your own judgment of the market and your own assessment of your business.”

At issue in the lawsuit is whether the group of restaurant operators colluded in establishing a 3-percent surcharge to address the cost of providing healthcare.

According to the complaint, the restaurants violated state antitrust laws when, in mid 2014, Josh Loeb, an owner of Rustic Canyon in Santa Monica, emailed a group of “like-minded” restaurant operators to plan a course of action for implementing a 3-percent surcharge.

The complaint also cites the restaurant’s newsletter, still posted on its website, which explains the surcharge to consumers as a means to help cover the cost of providing healthcare coverage.

“We’ve recently sat down with other like-minded local chefs and restaurant owners like Suzanne Goin, Carolyn Stein and David Lentz, Jon Shook and Vinny Dotolo, and Josiah Citrin to come up with a plan to offer coverage and have decided to implement a 3-percent employee benefit surcharge added to all of our checks beginning Sept. 1 to pay the October 1 premium,” the newsletter says.

The lawsuit contends that Melisse owner Josiah Citrin and others “acknowledged the conspiracy,” according to the filing.

Citrin, for example, is quoted as commenting on the surcharge, saying, “We decided it would be a good thing to do it as a group…usually when lots of people do things, it’s easier to make change.”

The restaurateurs publicly describe the 3-percent “mark up” as a surcharge that benefits employees, the filing states. Attorneys for Imhoff see that justification as “legally irrelevant and simply a smokescreen,” according to the filing.

The complaint also contends that employees are hurt by the surcharge because patrons reduce their tips, though it offers no evidence.  “Put differently, defendants’ employees are largely paying for their own healthcare through lower tips,” the lawsuit says.

Daniel Sterrett, attorney for Imhoff, says it was the collective agreement between the restaurateurs that indicates a conspiracy.

“If one restaurant, by itself, decides to raise rates, that’s perfectly legal,” he says. “There are restaurants that we know about that have done that, but we don’t have evidence they were involved in the collective agreement.”

Melisse and Rustic Canyon, through a press spokesman, declined to comment on the case. The spokesman for the group that owns Lucques, AOC and Hungry Cat also declined comment. The group that includes Son of a Gun and Trois Mec did not respond to requests for a comment.

Bernstein, who is not involved in the case, says it illustrates what could be seen as a fine line between the professional sharing of insights and strategies and collusion.

A key point, however, is whether there is any agreement between two or more parties about the raising, lowering or stabilization of prices.

Restaurant operators can best protect themselves simply by making their own decisions, even if that decision is similar to something a competitor has done in the same market. “If you follow suit, it’s not collusion,” Bernstein says. “There has to be an agreement.”

When in doubt, consult an attorney, Bernstein adds. Restaurant operators may also want to consider insurance that could help protect them from the cost of such lawsuits, which, despite any amount of due diligence, can be filed even though they may have no merit.

Contact Lisa Jennings at [email protected]
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