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Grodensky v. Casino

March 11, 2009

HARVEY GRODENSKY, PLAINTIFF AND RESPONDENT,
v.
ARTICHOKE JOE‟S CASINO ET AL., DEFENDANTS AND APPELLANTS.
HARVEY GRODENSKY, PLAINTIFF AND APPELLANT,
v.
ARTICHOKE JOE‟S CASINO ET AL., DEFENDANTS AND RESPONDENTS.



(San Mateo County Super. Ct. No. CIV424170). Trial Judge: Hon. Marie S. Weiner.

The opinion of the court was delivered by: Lambden, J.

CERTIFIED FOR PUBLICATION

Artichoke Joe‟s Casino (Artichoke Joe‟s or the casino) implemented a mandatory tip pooling policy for the dealers. A dealer, Harvey Grodensky, filed a class action and alleged claims for conversion and violating Labor Code sections 351 and 1194. He also claimed in his representative capacity that the casino had violated the Unfair Competition Law (UCL). After a bench trial, the trial court found that a mandatory tip pool was legal. However, it determined the shift managers were agents of the casino and therefore the casino violated Labor Code section 351 by distributing a portion of the tip money to the shift managers. The court also found that this violation of the Labor Code supported Grodensky‟s UCL claim. The court ordered restitution for the amount of tip money given to the shift managers and issued an injunction. It also ruled that Grodensky was entitled to an award of attorney fees under Code of Civil Procedure section 1021.5. Both parties appealed and we, on our own motion, consolidated the appeals.

On appeal, Artichoke Joe‟s asserts that a protective order issued by the trial court was unlawful, that Labor Code section 351 did not provide Grodensky with a private right of action, and that restitution was not a proper remedy. It also challenges the court‟s award of attorney fees to Grodensky and the class. We agree that the lower court did not apply the proper test under Code of Civil Procedure section 1021.5 when determining that Grodensky was entitled to attorney fees and remand for the court to consider whether to award attorney fees using the proper test. We otherwise reject the casino‟s arguments.

In the appeal by Grodensky and the class, they argue that the trial court erred in finding that the mandatory tipping pool did not violate Labor Code section 351 and that the casino did not violate Labor Code section 1194. They also object to the lower court‟s rulings that the floor managers were not agents under Labor Code section 350, subdivision (d), that Grodensky could not bring a claim of conversion, and that Grodensky and the class did not have a UCL claim based on alleged violations of Labor Code sections 221 and 450. We are not persuaded by any of Grodensky and the class‟s arguments.

BACKGROUND

Pre-Trial

The Complaint, Protective Order, and Class Certification

On July 12, 2002, Grodensky, a dealer at the casino, filed a class action lawsuit against the casino and Dennis J. Sammut challenging the implementation of a tip pool, which required the dealers to contribute to a tip pool.*fn1 Sammut‟s father started Artichoke Joe‟s as a family business in 1957. The casino became a corporate operation in approximately 1986; Sammut is one of the three major shareholders and an officer of the corporation.

In his complaint, Grodensky set forth claims of conversion andTrial Judge: Hon. Marie S. Weiner violations of the gratuity statute (Lab. Code, § 351), the minimum hourly wage laws (Lab. Code, § 1194), and the UCL (Bus. & Prof. Code, § 17200 et seq.). With regard to violating Labor Code section 351, Grodensky alleged that the dealers‟ tips were taken, collected, or received by the casino and illegally distributed to its agents.

On May 13, 2003, Grodensky filed a motion for class certification. The following day, the casino sent a memorandum to all card room dealers, which stated in relevant part: "On Tuesday, May 20, 2003, we have scheduled three meetings for all of the card room dealers. These meetings will be held to talk about a lawsuit that has been filed against Artichoke Joe‟s concerning wages and the tip pool. [¶] The lawsuit has been filed as a potential class action involving all past and present card room dealers at Artichoke Joe‟s. That means the lawsuit could impact you as well as other employees at Artichoke Joe‟s. For that reason, we have asked our attorneys to meet with you as a group to talk about the matter. Our attorneys also will be available to meet with you individually . . . . [¶] . . . . Your attendance at any one of these sessions will be on the clock."

The dealers were required to sign an acknowledgement that they had read the foregoing memorandum. The acknowledgement stated: "I have read the memo about the meetings for dealers scheduled for Tuesday, May 20, 2003. I understand Artichoke Joe‟s recommends that I attend, since the issues in question could affect me, but I am not required to attend."

Grodensky filed an application for a protective order, which the court heard on May 19, 2003. The court granted the protective order under the following terms and conditions: "1. The meetings unilaterally scheduled by defendants and defense counsel for May 20th with members of the putative class who are employee dealers shall not go forward and shall be immediately cancelled. [¶] 2. There shall not be any communications regarding this lawsuit or the claims asserted therein between defendants and members of the putative class who are presently employed by any defendant, while determination of the class certification motion is pending, unless otherwise specifically ordered by this court subsequent to the entry of this order. [¶] 3. There shall not be any communications regarding this lawsuit or the claims asserted therein between defendants‟ counsel and any members of the putative class, while determination of the class certification motion is pending, unless otherwise specifically ordered by this court subsequent to the entry of this order. [¶] 4. If defendants or defense counsel believe they have a need to have communication with any class member regarding this lawsuit or the claims asserted therein for purposes of investigation, defendants shall make written application to the court for such communication and receive court approval prior to any such communication. . . ."

On August 4, 2003, the trial court granted in part Grodensky‟s motion to certify a class. Of the 137 known class members, 59 opted out of the class, which included one former employee and 58 current employees. The class consisted of 43 former employees and 35 current employees for a total of 78 current and former dealers. Grodensky did not seek class certification for his UCL claim. Subsequently, the trial court dismissed with prejudice Grodensky‟s claim for conversion.

The Ruling on the Private Right of Action Issue

The parties stipulated that the trial court would adjudicate certain issues after considering the parties‟ briefing and argument. One such issue was whether Grodensky and the class had a private right of action for violating Labor Code section 351 regarding the taking of their tips by the employer for distribution to other employees. In its order filed on December 9, 2003, the court ruled that Grodensky and the class did have a private right of action under Labor Code section 351 against their employer. The casino again raised this issue in its summary judgment motion; the court again found that there was a private right of action.

The Bench Trial

The matter proceeded to a three-staged bench trial. In the first phase, the trial court addressed the claims for violating Labor Code sections 351 and 1194. The second phase concerned Grodensky‟s UCL claim. The final phase concentrated on remedies.

Evidence Presented

The casino is located in San Bruno and has been in business for decades. It operates 24 hours a day, seven days a week. Games played at the casino include poker games such as "Texas Hold "Em." Players do not play against the house, but play against each other. They are charged a fee by the casino to play the available games.

The players give tips directly to the dealer. The players stay at the table with the dealer and, if they keep winning, they repeatedly tip the dealer. Players separately tip board persons, floor managers, shift managers, and chip sellers.

In late 1993, the Internal Revenue Service (IRS) began an investigation into whether the card room employees at the casino were complying with various federal income tax reporting requirements.

According to Joe Willson, the general manager of the casino, the casino began considering the adoption of a tip pool after being contacted by the IRS. On August 22, 1997, the casino received a letter from the regional commissioner of the IRS stating that employees in the casino‟s industry had not been properly reporting their tip income. It proposed a "Tip Rate Determination Agreement" (TRDA) with the casino, which would result in no further tip audits. The letter explained: "To participate in this program, you, the employer, must first establish a set of rates for the various categories of employees at your establishment. Rates must be based upon empirical data and must be verifiable. . . . All rates must be approved by the IRS before we enter into a TRDA agreement." The letter announced that the IRS had set January 1, 1998, as the date for implementing these agreements.

Prior to October 1998, the casino permitted the dealers to do whatever they wanted with their tips; tip sharing with other employees was voluntary and random. The dealers determined whether they wanted to give tips to others and how much those tips would be. In March 1998, the following writing reflected the policy of the casino: "It is Artichoke Joe‟s policy that every employee shall have sole discretion over all tips received by him or her. No employee is required to split tips, pool tips, or share tips with other employees in any other way, and no action may be taken against an employee who chooses to keep all of his or her tips. Any sharing of tips is at the sole discretion of the employee who received such tips . . . ."

The IRS approved a TRDA with the casino on May 6, 1998. The tip rate per hour was set forth in the agreement as follows: $1.00 for the board person, $2.00 for the chip sellers, $2.50 for the day shift cage workers, $3.50 for the swing or night shift cage workers, $9.00 for the poker floor manager, $15.00 for the poker dealers, $15.00 for the day shift manager, and $17.00 for the night shift manager. Willson reported that the IRS required participation by 75 percent of the employees in order to have the agreement enforced. The employees did not sign the TRDA but indicated consent to the terms of the TRDA by signing a "Tipped Employee Participation Agreement."

In June 1998, a competing casino opened in nearby Colma. The competition caused employee defections and a severe decrease in the casino‟s business. Landon Bachman, the card room manager, stated that the dealers began to complain that the established tipping rate was too high because it did not accurately account for the amount of money the dealers voluntarily "tipped-out."

Willson stated that the tip-outs were going mostly to the shift managers and not to the other employees. He reported that all of the employees at this time were suffering low morale and that the employees, especially the dealers, were not making a living. He agreed that the lower morale affected the service they were providing to the customers "[t]o a certain degree . . . ." Willson stated that he believed a tip pool would meet the IRS requirements, improve employee morale, and further customer service. Willson testified that he did not believe it was feasible to have a tip pool that excluded floor and shift managers because he would not have "any guys working there if that happened." Even if sharing tips with the dealers and shift managers was illegal, Willson responded that such a tip pool was best for his employees and his business.

The casino instituted a mandatory tip pool effective October 26, 1998. The casino began to renegotiate the 1998 TRDA to lower the established tip rate. On July 8, 1999, the TRDA was formally amended to include both the tip pool and the corresponding lower established tip rate for dealers. Dealers were to pay a set hourly amount into the tip pool of $3.00 or $5.00 per hour, depending upon their shift, regardless of the amount of tips actually received. No other employees were required to share their tips with any other employees. The required tip pool was then divided among shift managers, floor managers, board persons, and chip sellers. The payments to shift managers and others were pursuant to a point system: shift managers received six points per eight-hour shift, floor managers obtained four points per shift, and others earned one or two points per shift. Each point was worth approximately $15 to $17.

Shift managers collected the dealers‟ contributions to the tip pool. They placed these funds in a non-interest bearing general account of the casino. Melanie Maraffio, the casino‟s controller, stated that the casino never used any of the money from the tip pool for anything other than tip pool checks to the recipients. She declared that the casino staff spent about four to five hours a week implementing the tip pool.

The Trial Court's Rulings and the Parties' Stipulations Labor Code Violations

On June 9, 2005, following the court trial on the first two causes of action for violating Labor Code sections 1194 and 351, Judge Marie Weiner issued her final statement of decision. She found that the casino had not violated the minimum wage laws under Labor Code section 1194.

With regard to the alleged violation of Labor Code section 351, the court noted that there was little or no case law interpreting this statute. The court stated that the parties had stipulated that board persons and chip sellers were not agents under this statute and thus the only issue was whether a floor manager or a shift manager was an agent as defined by the statute. The court observed that it was undisputed that both floor managers and shift managers did not have authority to hire or fire any employee. It was also undisputed that only Bachman, the card room manager, scheduled the dealers‟ shift assignments, approved vacation leave, set starting times, and approved medical leave for dealers. Shift managers and floor managers had no role in the setting of wages, benefits, or work hours of employees. Thus, the court explained that the only issue in dispute was whether floor managers or shift managers supervised, directed, or controlled the acts of the dealers.

The trial court found that the floor manager‟s principal responsibility was to resolve disputes between customers or between the dealer and customer. The casino did publish and disseminate to its employees a manual that identified floor managers as the supervisors of dealers and the shift managers as the supervisors of floor managers, but the court noted this was not dispositive of the issue. The court determined that "[i]n its essence, the duties of the floor manager are to start games, greet customers, see that games run smoothly, change cards for games, prevent cheating, mak[e] rulings on misdeals or disputes, and protect dealers from abuse of patrons (by getting rid of troublemakers)." It therefore concluded that Grodensky and the certified class did not show by a preponderance of the evidence that the floor managers were agents under Labor Code section 350, subdivision (d). It concluded that the casino did not violate Labor Code section 351 by having a mandatory tip pool that required dealers to share their tips with floor managers.

With regard to shift managers, the casino had six shift managers and one of them worked each shift. Shift managers were responsible for ensuring that the floor managers were doing their jobs correctly. The court pointed out that it also heard evidence that, for each shift, the shift managers assigned the floor managers to the sections they were to work and assigned the dealers to particular tables. Additionally, the court assessed evidence that shift managers had the authority to discipline employees by sending them home. When Bachman or Willson were absent from the premises, the shift manager had authority over the entire casino. The court concluded that Grodensky and the certified class proved by a preponderance of the evidence that shift managers were agents under Labor Code section 350, subdivision (d), and thus the casino had violated Labor Code section 351 by requiring the dealers to share their tips with shift managers.

The court rejected Grodensky‟s claim that a mandatory tip pooling policy violated Labor Code section 351. It also found that the IRS treaty did not vitiate the casino‟s obligation to follow California‟s labor laws.

The trial court found that Sammut was not an employer under Labor Code section 350, subdivision (a), and was therefore not personally liable for any violation of Labor Code section 351. The undisputed testimony was that Sammut was involved full-time in the legislative and lobbying efforts of Artichoke Joe‟s corporate parent and that he was not involved in drafting and implementing the policies and procedures of the casino‟s card room. Finally, the court denied the casino‟s motion for decertification of the class. The UCL

On May 5, 2006, the trial court filed its final statement of decision regarding liability for violating the UCL. The court reiterated that it had found that the casino had violated Labor Code section 351 by requiring dealers to share their gratuities with shift managers. The court found that non-compliance with Labor Code section 351 supported the UCL claim, but it rejected the assertion that the mandatory tip pool program also violated Labor Code sections 221 and 450. The court rejected Grodensky‟s arguments that Artichoke Joe‟s engaged in an unfair or deceptive business act or practice. It again found that Sammut was not individually liable for any violation of the UCL. Stipulations

On August 16, 2006, the parties filed their stipulations. They agreed that if the court provided relief under the UCL, such relief would be applicable to the entire existing class of 78 individuals, but to no one else. The total amount of tips transferred pursuant to the mandatory tip pool policy was $4,283,553. Approximately 16.99 percent of this total was transferred to shift managers. The parties agreed that the total amount of money collected from the 78 existing class members and distributed to shift managers was $344,761.93.

The Remedies

On April 16, 2007, the trial court filed its statement of decision on damages, restitution, and other relief. The court awarded the certified class compensatory damages of $344,761.93 plus prejudgment interest against the casino. The court permanently enjoined the casino from having a mandatory tip pool whereby dealers had to share their gratuities with shift managers.

The court concluded that attorney fees were warranted under Code of Civil Procedure section 1021.5, since it found that "[t]he costs of prosecuting this case transcended the personal interest and personal stake of the plaintiff and of each member of the certified class." The court noted that this lawsuit was risky and involved "the dilemma of plaintiff and other class members suing their employer." The court found that a significant public benefit was obtained for all card room dealers as "it freed them from the restrictions of a mandatory tip sharing with shift managers." It also determined that the lawsuit resulted in the enforcement of an important right under the Labor Code affecting the public interest. The court stated that it would award the certified class attorney fees in an amount to be determined.*fn2

Judgment, Entry of Judgment, and the Appeals

The trial court filed its judgment on June 21, 2007. After the court issued its decisions regarding Grodensky‟s first three causes of action, the court noted that the parties stipulated that the damages in the case were $344,761.93. The court ordered the casino to pay this amount plus pre-judgment interest of $137,715.01.

Judgment was entered on July 19, 2007. Notice of entry of judgment was filed on July 19, 2007. Both the casino and Grodensky separately filed timely notices of appeal. This court on its own motion consolidated the appeals.

DISCUSSION

I. The Casino's Appeal

A. Protective Order

After the casino had scheduled meetings for its counsel to discuss Grodensky‟s class action with the dealers, the trial court issued a protective order. The court cancelled the meetings scheduled between the casino‟s counsel and the dealers. It also prohibited any communications regarding the lawsuit between the casino and dealers while determination of the class certification motion was pending. On appeal, Artichoke Joe‟s contends that the lower court abused its discretion in issuing this protective order and asserts this ruling "tainted" the resulting class certification order.

If, as in the present case, a party moves for a protective order, the trial court may impose restrictions on such communications only " "by a showing of direct, immediate and irreparable harm.‟ " (Parris v. Superior Court (2003) 109 Cal.App.4th 285, 299.) "Broad-based assertions that a proposed informational notice is "unfair,‟ contains some inaccurate statements, or is presented in a misleading form are simply insufficient bases for imposition of judicial limitations on protected speech in the form of a prior restraint. Even then, any restrictions " "must be narrowly drawn and cannot be upheld if reasonable alternatives are available having a lesser impact" ‟ on the right to free speech. [Citation.] Finally, "the restraint "must have been accomplished with procedural safeguards that reduce the danger of suppressing constitutionally protected speech." [Citation.]‟ [Citation.]" (Id. at p.308, fn. omitted.)

We, however, do not need to reach the merits of the lower court‟s ruling on the protective order because the casino has failed to establish prejudice. Artichoke Joe‟s challenge to the issuing of a protective order comes after the trial has concluded and a judgment has been entered. Thus Artichoke Joe‟s has the burden of showing that the ruling on the protective order resulted in a miscarriage of justice (County of Los Angeles v. Nobel Ins. Co. (2000) 84 Cal.App.4th 939, 945).

Our state Constitution provides that "[n]o judgment shall be set aside, or new trial granted, in any cause, . . . for any error as to any matter of procedure, unless, after an examination of the entire cause, including the evidence, the court shall be of the opinion that the error complained of has resulted in a miscarriage of justice." (Cal. Const., art. VI, § 13.) We examine " "each individual case to determine whether prejudice actually occurred in light of the entire record.‟ " (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 801-802.) "No form of civil trial error justifies reversal and retrial, with its attendant expense and possible loss of witnesses, where in light of the entire record, there was no actual prejudice to the appealing party." (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580.) Reversal is only required " "where it seems probable‟ that the error "prejudicially affected the verdict.‟ " (Ibid.)

In arguing that a miscarriage of justice has occurred, the casino asserts the following: "[O]ne cannot know the impact of the disputed order until [the judgment] is reversed and Artichoke Joe‟s is accorded its constitutional right to communicate with the putative class. One can assume with reasonable probability that, had the company been allowed to impartially discuss the implications of this proceeding early on with putative class members, even more of them would have declined to join Grodensky‟s lawsuit. As it was, with Artichoke Joe‟s bound by the trial court‟s unconstitutional straightjacket, only 77 of the possible 137 possible class members wanted anything to do with Grodensky‟s case."*fn3 The casino concludes that "the clear indication is that even more putative class members would have opted out, perhaps so many that there would have been no "numerosity‟ to justify a class action in the first place."

The casino‟s conclusory and speculative comments do not establish prejudice. Artichoke Joe‟s has merely surmised that the result could have been different had the trial court not issued the protective order. It has not demonstrated what communications it could have had with the class members that would have resulted in class members opting out. In fact, the record indicates that the most significant factor related to opting out of the class was not what a person was told; rather, the most significant factor was whether the person was currently employed by Artichoke Joe‟s. Thus, of the 59 people opting out, only one was a former employee. Of the 78 class members, 43 were former members and there is no evidence suggesting that these people would have opted out had the court not restricted the casino‟s communications with them during the precertification period. When denying one of the casino‟s motions to decertify the class, the lower court noted that the most common explanation for opting out was that the current employees were not comfortable suing their employer "regardless of the merits of the case." Opting out therefore appeared to be related to the person‟s current employment status, not to what Artichoke Joe‟s did or did not say to the putative class members.

Accordingly, we conclude that Artichoke Joe‟s has failed to demonstrate on this record that the trial court‟s issuing of a protective order, even if erroneous, led to a miscarriage of justice.

B. Private Right of Action Under Labor Code Section 351

The casino contends that the lower court erred in finding that Grodensky and the class had a private right of action under Labor Code section 351. In arriving at its ruling, the trial court considered the language and legislative history of Labor Code section 351 as set forth in Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262 (Henning) and concluded that the Legislature intended to give employees a private right of action to claim their tips from their employers. The trial court cited the reasoning and holdings in People v. Los Angeles Palm, Inc. (1981) 121 Cal.App.3d 25, 35 and Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 141, as underscoring the fact that the Legislature intended the gratuities to be the property of the employee. The trial court concluded, "It would seem logically that a person can bring a civil lawsuit to protect against infringement of his/her own property."

While this case was pending in front of us, this issue was addressed by the Second District in Lu v. Hawaiian Gardens (2009)170 Cal.App.4th 466 (Lu). The Lu court held that Labor Code section 351 (and Labor Code section 45) did not create a private right of action. For the reasons set forth below, we disagree with the Lu court and hold that Labor Code section 351 provides a private right of action for employees to recover their tips unlawfully collected by an employer.

1. Standard of Review

Artichoke Joe‟s argues that the lower court erred in interpreting Labor Code section 351 as providing a private right of action. Whether Grodensky may maintain a private right of action under the statute is a question of law. (Vikco Ins. Services, Inc. v. Ohio Indemnity Co. (1999) 70 Cal.App.4th 55, 67.) We review questions of law de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799.)

"In statutory construction cases, our fundamental task is to ascertain the intent of the lawmakers so as to effectuate the purpose of the statute." (Estate of Griswold (2001) 25 Cal.4th 904, 910.) " "We begin by examining the statutory language, giving the words their usual and ordinary meaning.‟ " (Id. at p. 911.) "If the terms of the statute are unambiguous, we presume the lawmakers meant what they said, and the plain meaning of the language governs." (Ibid.)

" "Additionally, however, we must consider the [statutory language] in the context of the entire statute [citation] and the statutory scheme of which it is a part.‟ " (Phelps v. Stostad (1997) 16 Cal.4th 23, 32.) " " " "When used in a statute [words] must be construed in context, keeping in mind the nature and obvious purpose of the statute where they appear.‟ [Citations.] Moreover, the various parts of a statutory enactment must be harmonized by considering the particular clause or section in the context of the statutory framework as a whole." ‟ " (Ibid.) If the language is clear and a literal construction would not result in absurd consequences that the Legislature did not intend, the plain meaning governs. (Coalition of Concerned Communities, Inc. v. City of Los Angeles (2004) 34 Cal.4th 733, 737.) "[I]f a statute is amenable to two alternative interpretations, the one that leads to the more reasonable result will be followed [citation]." (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735.) When the language is ambiguous, we may consider a variety of extrinsic aids, including the purpose of the statute, legislative history, and public policy. (Coalition of Concerned Communities, Inc., supra, at p. 737.)

2. Creating a Private Right of Action

A statute creates a private right of action only if the enacting body so intended. (Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 305; Crusader Ins. Co. v. Scottsdale Ins. Co. (1997) 54 Cal.App.4th 121, 131.) In Moradi-Shalal, the court determined that the language of the statute it was considering did not create a private right of action and the legislative history did not indicate an intent to create a private right of action. (Moradi-Shalal, supra, at pp. 295, 304.) The court stated: "The fact that neither the Legislative Analyst nor the Legislative Counsel observed that the new act created a private right of action is a strong indication the Legislature never intended to create such a right of action." (Id. at p. 300.)

Subsequent decisions have held that a statute creates a private right of action only if the statutory language or its legislative history affirmatively indicates such an intent. (Vikco Ins. Services, Inc. v. Ohio Indemnity Co., supra, 70 Cal.App.4th at p. 62; Crusader Ins. Co. v. Scottsdale Ins. Co., supra, 54 Cal.App.4th at pp. 132-133, 135-137.) When the Legislature intends to create a private right of action, it will do so "directly" and "in clear, understandable, unmistakable terms." (Vikco, supra, at pp. 62-63.) That intent need not necessarily be expressed explicitly, but if not it must be strongly implied. (Id. at p. 62.) Particularly when regulatory statutes provide a comprehensive scheme for enforcement by an administrative agency, the courts ordinarily conclude that ...


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