Morana v. Park Hotels & Resorts Inc.

Background

Michael Morana brought a proposed class action for himself and other tipped service workers in New York against Park Hotels & Resorts, Inc.; Hilton Worldwide Holdings, Inc.; HLT NY Waldorf LLC; Hilton Domestic Operating Company Inc.; and Waldorf=Astoria Management LLC. Morana alleged that the defendants added mandatory “gratuity and administrative charge” surcharges to banquet-service bills, paid banquet servers only part of those charges, and kept the rest or used it to pay non-service workers. He asserted claims under New York Labor Law § 196-d, for unjust enrichment, and for inaccurate wage statements and pay notices.

The court had previously dismissed an earlier complaint because Morana had not established federal jurisdiction under the Class Action Fairness Act, which generally requires at least 100 proposed class members. The defendants moved to dismiss the Second Amended Complaint under Federal Rule of Civil Procedure 12(b)(1), which permits dismissal for lack of subject-matter jurisdiction, or alternatively to require arbitration. They also moved for sanctions under Rule 11.

Jurisdiction and Proposed Class

The court held that workers at the Saratoga Hilton and Hilton Albany could not be counted as proposed class members. The defendants submitted evidence that those hotels were operated by independent franchisees and that the defendants did not control their daily operations, personnel, or banquet-service policies. Morana did not plead specific facts showing that the defendants formally or functionally controlled those workers, so he did not plausibly allege that the defendants were their joint employers. The court also rejected including those workers in the unjust-enrichment claim because Morana did not plausibly allege that the defendants benefited from policies at hotels they did not own or operate.

The court likewise excluded Hilton Midtown workers. Evidence indicated that Morana’s direct employers there were Hotels Statler Company, Inc. and Hotels Statler Employer LLC, which were owned directly or indirectly by Hilton Worldwide Holdings and Hilton Domestic. The court held that ownership alone did not make those entities joint employers. Morana had not alleged facts showing formal or functional control, or that the entities operated as one integrated employer.

The court separately concluded that Morana had pleaded facts sufficient to assert claims only against Park, Hilton Domestic, and Waldorf=Astoria Management, the entities identified as his employers at the Waldorf Astoria. It dismissed his claims against Hilton Worldwide Holdings and HLT NY Waldorf because he had not alleged an employment relationship with them, control over his work, or facts supporting a single integrated enterprise. The court then found that Morana had not plausibly alleged that Park, Hilton Domestic, and Waldorf=Astoria Management employed at least 34 additional banquet servers beyond the 66 eligible Waldorf Astoria workers. He therefore had not established the 100-member threshold required for Class Action Fairness Act jurisdiction.

Leave to Amend

The court denied leave to amend. Morana had not identified additional facts that would cure the jurisdictional deficiencies, and he had declined the court’s offer of jurisdictional discovery. The court also concluded that amendment would be futile because the banquet-services agreement incorporated into the complaint expressly separated the gratuity portion from the administrative-charge portion and stated that the administrative charge was not a gratuity and belonged to the hotel. In the court’s view, no reasonable customer would read that agreement as promising that the entire combined charge would be distributed as gratuities.

Rule 11 Sanctions

The defendants sought sanctions based on Morana’s allegations concerning the franchise hotels, his failure to include information requested by the court, the alleged lack of factual or legal support for his claims, and his continued naming of Hilton Worldwide Holdings and HLT NY Waldorf. The court denied sanctions. It found that the franchise allegations appeared to involve an isolated factual error rather than objectively unreasonable conduct; that the omission from the amended complaint concerned information omitted rather than a sanctionable false statement; that Morana’s position about the banquet agreement was meritless but not frivolous or absolutely baseless; and that continuing to name the two defendants did not rise to the level of objective unreasonableness.

Disposition

The court granted the defendants’ motion to dismiss under Rule 12(b)(1), denied leave to amend, and denied the defendants’ motion for sanctions. The clerk was directed to terminate the motions and close the case. This was a jurisdictional disposition rather than a decision resolving whether the defendants violated New York labor law.