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Lawsuit Accuses Popular Santa Monica Restaurants of Price Fixing

Santa Monica Real Estate Company, Roque and Mark

Pacific Park, Santa Monica Pier

Harding Larmore Kutcher & Kozal, LLP  law firm
Harding, Larmore
Kutcher & Kozal, LLP

Convention and Visitors Bureau Santa Monica

By Niki Cervantes
Staff Writer

September 3, 2015 -- Two popular Santa Monica restaurants are named in a new lawsuit alleging they are part of cadre of Los Angeles area restaurants conspiring to illegally engage in price fixing to offset rising health care costs.

Owners of the restaurants Rustic Canyon Food and Wine and Melisse, both in Santa Monica, are named in the complaint, which was filed in Los Angeles Superior Court Tuesday. The suit alleges that the restaurants involved conspired to add a three-percent surcharge to customer bills to help pay for employee health care.

Talk of the surcharge started with an owner or a representative of Rustic Canyon, said attorney Daniel Sterrett, who filed the lawsuit on behalf of a customer upset by the surcharge.

The suit says a secret agreement was then circulated asking competing restaurants to raise their prices by three percent in unison.

“Restaurants with a similar clientele were targeted to make the surcharge appear normal, and deprive customers of the ability to seek alternatives,” the lawsuit alleges.

Sterrett said Josiah Citrin, a chef and co-owner of Melisse, sent out an email to other restaurant owners on the issue. The lawsuit quotes him as stating “We decided it would be a good thing to do it as a group… [u]sually when lots of people do things it's easier to make change.”

According to the suit, other defendants acknowledged entering into the agreement only after they “sat down with other like-minded local chefs and restaurant owners.”

Over time the “cartel” grew to a significant number of the most successful restaurants in Los Angeles, many of them appearing in most highly coveted lists of metropolitan L.A.’s best restaurants, the suit alleges.

The restaurants’ actions violated California’s antitrust laws, the suit contends.

The “intended and actual effect of the conspiracy is to artificially increase the price of Defendants’ restaurant services and reduce competition in the market,” it said.

Maya Maniktala, a representative of Melisse, at 1104 Wilshire Blvd, said there would be no comment.

A representative for Rustic Canyon could not be reached, but the eatery at 1119 Wilshire Blvd. is above board about the surcharge and its use for paying for health care. Its website states that the surcharge garnered $20,659 last year at Rustic Canyon and that health care premiums totaled $21,948.

The restaurant started offering full health care coverage to all staff working 30 or more hours per week in October of 2014 and tried to add enough hours for other employees to qualify for coverage. As a result, it now provides coverage for 130 employees, the website says.

“Where there is a deficit the restaurant has covered that amount,” the site said.

Health care surcharges have been appearing on restaurant bills since the Affordable Care Act went into effect in 2014. Owners of restaurants and small businesses in particular have complained that providing the new health coverage would cut into their bottom lines, if not drive them out of business altogether.

Talk about surcharges has also increased lately, as local restaurant owners deal with the drive to increase the California minimum wage.

In his lawsuit, Sterrett dismissed the talk of needing a surcharge to deal with health care costs, calling the argument “legally irrelevant and simply a smokescreen.” The surcharge ends up hurting both customers and the employees it purports to help, he said.

“In reality, Defendants’ illicit surcharge reduces their employees’ tip pool because patrons predictably reduce their tips when they receive a check with a 3% healthcare surcharge.”

In the end, “employees are largely paying for their own healthcare through lower tips,” the suit states.

Also named in the suit are the owners of Animal, AOC Wine Bar and Restaurant, The Hungry Cat, Lucques, Son of a Gun and Trois Mec.

Adding a surcharge is common in San Francisco, and allowed under municipal law, said Sterrett, who has offices in both San Francisco and Los Angeles.

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