Can a restaurant’s automatic gratuity policy support a federal class action? In Fox v. The Ritz-Carlton Hotel Co., LLC, 977 F.3d 1039 (11th Cir. 2020), the Eleventh Circuit said yes — reversing a dismissal and holding that a diner who was charged an undisclosed mandatory tip at three restaurants had standing to represent customers of all 49 Ritz-Carlton restaurants in Florida. Below is a case brief in the format Cox Law, PLLC uses for case law updates.
Facts: The Automatic Gratuity at Three Ritz-Carlton Restaurants
Michael Fox, a New York resident, ate at three restaurants on the Ritz-Carlton Key Biscayne property over two days in April 2017. At Key Pantry, an 18% automatic gratuity was added with no notice on the menu. At Cantina Beach, the menu described the gratuity as “suggested” in small type, but it was charged as mandatory. At Lightkeepers, the menu said the gratuity was “suggested” and could be raised, lowered, or removed, yet the bill added a mandatory 18% gratuity and included it in the sales-tax base.
Fox alleged this was Ritz-Carlton’s uniform automatic gratuity practice at its 49 Florida restaurants across ten hotels for four years, affecting hundreds of thousands of customers.
Fox filed a putative class action in the Southern District of Florida under the Class Action Fairness Act (CAFA). He pleaded (1) a per se violation of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) for failing to give the automatic gratuity notice required by Fla. Stat. § 509.214 (notice on the menu and on the face of the bill) and Miami-Dade County Code § 8A-110.1(3) (conspicuous notice in English, Spanish, and Creole); (2) a traditional FDUTPA claim for deceiving customers about their ability to modify the tip and soliciting an additional gratuity on top of it; (3) a claim for improperly charging sales tax on mandatory gratuities under Fla. Admin. Code r. 12A-1.0115; and (4)–(5) declaratory and injunctive relief.
The district court dismissed for lack of subject-matter jurisdiction on three grounds: Fox lacked standing to represent customers of restaurants he never visited; the complaint did not plausibly allege CAFA’s $5 million amount in controversy; and the tax claim was barred because Fox had not exhausted Florida’s administrative refund process. The Eleventh Circuit affirmed in part, reversed in part, and remanded.
Issues
First, does a named plaintiff have Article III standing to represent a class of customers injured by the same automatic gratuity practice at restaurants he did not personally patronize?
Second, was the $5 million CAFA amount-in-controversy allegation made in good faith?
Third, must a plaintiff seeking a refund of sales tax collected by a private business exhaust the administrative remedy in Fla. Stat. § 215.26 before suing in federal court?
Holding
Standing — reversed. Class-representative standing requires that the named plaintiff be a member of the class and possess the same interest and suffer the same injury as the class members; it does not require that he suffer the injury at the same place or on the same day. Fox’s economic injury from Ritz-Carlton’s uniform automatic gratuity and sales-tax practice was the same injury the class suffered.
Amount in controversy — reversed. Taking the allegations of 49 restaurants, four years, and hundreds of thousands of customers as true, the $5 million allegation was made in good faith even under the narrowest damages theory.
Exhaustion — affirmed. Section 215.26 is a jurisdictional bar that Florida courts apply regardless of how the refund claim is labeled, and under Erie the federal court must apply it in a diversity case. Dismissal of the tax count stands.
Rationale
On standing, the court separated individual standing from class-representative standing. Fox could not sue individually over a restaurant he never visited, but that is not the test for representing a class. Relying on Mills v. Foremost Insurance Co., 511 F.3d 1300 (11th Cir. 2008), where policyholders hit by different hurricanes could represent each other because the breach was the same, the court held that a uniform corporate practice producing the same economic injury satisfies the “same injury” requirement. Whether Fox is an adequate or typical representative for all 49 locations is a Rule 23 question, not a jurisdictional one.
On the amount in controversy, the court identified three errors. The district court speculated about the correct FDUTPA damages measure (the full automatic gratuity versus the difference from what customers would have voluntarily tipped) without record support; courts may draw common-sense inferences but may not hypothesize facts outside the record. It assumed customers would have tipped 15–25% with nothing in the record supporting that figure, and the complaint suggested Miami’s average was closer to 10.5%. And it confused what is in controversy with what the plaintiff is likely to recover. Even accepting the district court’s own assumptions, the class-wide numbers cleared $5 million.
On exhaustion, the court followed BJ’s Wholesale Club, Inc. v. Bugliaro, 273 So. 3d 1119 (Fla. 3d DCA 2019), which held on nearly identical facts that a FDUTPA claim seeking recovery of over-collected sales tax is a tax-refund claim subject to § 215.26. Applying Woods v. Holy Cross Hospital, 591 F.2d 1164 (5th Cir. 1979), the court reasoned that ignoring the state exhaustion requirement in federal court would invite non-resident plaintiffs to forum-shop around it and produce unequal outcomes between state and federal court.
Practice Point for Florida Restaurants
The automatic gratuity notice rules in § 509.214 and the Miami-Dade ordinance carry real class-action exposure, and a “suggested” label on the menu does not cure a mandatory charge on the bill. If the charge is mandatory, say so on the menu and on the bill, and do not compute sales tax on it unless the rule requires it. Separately, any claim that boils down to a sales-tax refund goes through the Department of Revenue first, in state or federal court.
The full opinion is available from the Eleventh Circuit here. Questions about an automatic gratuity or service-charge policy? Contact Cox Law, PLLC at 813-685-8600.