Weekly Levity: Texas Comptroller Tells Adult Clubs to Pay the Patron Tax Texas Comptroller Susan Combs is strong arming the state’s adult entertainment clubs, ordering them to pay millions of dollars she says they owe under a $5 per patron “pole tax” still under a court challenge.“Any claim that ongoing litigation is a basis for nonpayment of the Sexually Oriented Business Fee is not valid,” says a letter, dated April 11, 2014, from the comptroller’s tax division. It was sent 200 clubs in Texas.The fee, which attorneys claim is an unfair tax, has been the subject of legal battles since 2007, and was instituted as a way to fund programs for sexual assault victims and health care. The ACE National state chapter, the Texas Entertainment Association, filed a lawsuit challenging the constitutionality of the fee, arguing that erotic dancing is a form of expression protected by the First Amendment. But in 2011, the Texas Supreme Court ruled the fee did not violate free speech. A new challenge, still under consideration by the 3rd Court of Appeals, argues that the “pole tax” is unconstitutional because the fees are not used appropriately.In the April 11 letter, Combs’ office said the continuing legal battle doesn’t mean the clubs can avoid paying all the fees they owe since the law took effect six years ago.
“I think it’s good. I think it’s been a long time coming,” said Lawrence Collins, a lobbyist for the Texas Association Against Sexual Assault, an organization that supports the tax.
Yet some say that if the clubs have to pay all that is owed, most, could go out of business. Some of the clubs started to pay when the law was enacted in 2008, but only a fraction of the expected $44 million was collected. So far, a little more than $14 million has been paid.
“We’d like to have a chance to work through this before we comment on it,” said Gary Calfee, TEA lobbyist. “It is in the Texas Court of Appeals. We’re waiting on a decision.”
“They don’t like to be seen or heard,” state Rep. Harold Dutton, D-Houston, said of the club owners. “And I think that is what caused them to get in the ditch on this thing.”
So far, Dutton is the only lawmaker defending the clubs. In an April 23 letter to Combs, he asked the comptroller why her office decided last month to send out letters while the clubs’ latest court challenge is awaiting a decision from the 3rd Court of Appeals.
“I did send her a letter, asking her what has changed,” said Dutton, who opposes the fee. He said that if sexual assault programs need money, “the Legislature ought to step up to the plate and do that.”
Instead, what often happens, he said, is that lawmakers create fees against things they don’t like, like strip clubs. “Where does it end once you start down that road?” he said.
A spokesman for the comptroller’s office, R.J. DeSilva, indicated in an emailed response that there was nothing remarkable about the timing of the collection notice.
“Our agency regularly sends notices or updates to taxpayers on various taxes and fees,” he wrote. “This particular notice was to remind business owners that the Sexually Oriented Business Fee is still in effect while litigation continues.”
In 2012, the U.S. Supreme Court declined to hear the strip clubs’ challenge after the Texas Supreme Court determined that the fee does not violate the First Amendment.
Now, the clubs are arguing that the state “fee” is really an occupation tax that should be directed to public schools under the Texas Constitution. They contend that the fee violates the state Constitution, which requires that one-fourth of occupation taxes go to public schools, because none of the money goes to schools.
The clubs’ attorneys are also asking the court to consider free speech provisions in the Texas Constitution, which they claim are broader than that of the First Amendment.
The state maintains that the fee is not an occupation tax, though, and it rejects arguments that it encroaches on free speech.
This isn’t the first lengthy legal tangle involving strip clubs in Texas.
The city of Houston passed a local version of the state pole tax. However, the enforcement of that tax – which covers more than just nude entertainment – is on hold until the state statute winds its way through the courts, said Donna Edmundson, an assistant city attorney in Houston.
And one major 16-year battle with strip clubs in Houston just ended last year. It stemmed from a 1997 set of city rules that, among other things, outlawed lap dances and required dancers to wear ID tags. Houston’s gentlemen’s clubs fought the stricter regulations, and in 2013, the city of Houston devised a compromise.
According to the agreement signed last year, the “Sweet 16” group of clubs that fought the new rules were allowed to opt out of the prohibition in exchange for working with law enforcement to combat human trafficking and raise awareness of the issue. The clubs now donate annually and meet with city officials once per month to work together.
“There’s a greater good,” Edmundson said. “We can do something novel and off the chart to go after human trafficking, which we found much more offensive than a lap dance.”
About $800,000 has been raised so far, she said. That money helped HPD hire a lieutenant, a sergeant, six officers and two analysts.
Legislative Highlights:
 The FL legislature adjourned May 2nd. FL House Bill 989 PASSED: Please be advised that effective July 1, 2014 every adult entertainment clubs in the state of Florida must comply with mandated age-verification. Age verification will now be required for both employees AND independent contractors in your establishment.
This is what we know:
1. Age verification in the form of a state or federal PHOTO ID is required.
2. A photocopy of this ID must be kept on file and on premise, accompanied by an age verification form.
Both items must be open for inspection without notice for local and/or state law enforcement.
3. Age verification documents must be kept on file for each individual three years POST employment or work agreement.
4. The documents must be filed BEFORE the independent contractor or employee works their first shift.
5. Ignorance of the new law, unknowingly hiring a minor or a accepting a phony ID ‘because it looks real’ cannot be used as a defense
6. The penalties for failure to comply are tough
This is what we don’t know:
1. What will be used for the age verification form. We gave the legislature our COAST emergency contact sheet. The state is unlikely to develop one (although this may change). We may be able to use this form, which is the same one ACE National clubs use for Homeland Security Investigations/COAST.
2. If you have an immigrant working in your club -what will be considered acceptable as a “federal” or “state” ID? The legislation makes no allowances for ‘foreign documentation’.
This is what you AVOIDED:
1. Hours of Operation
2. Distance Requirements
3. Asset Forfeiture
4. Paying an annual Fee to fund rape Crisis Centers
#4 is thanks to people who had the courage to stand up and say clubs not responsible for rape or sexual battery. (They would have said you weren’t responsible for trafficking either -but unfortunately, we were presented with a few examples of minors working in clubs all over the state -and we cannot defend or condone that.) However, we did state that our legitimate club operators fully support the legislation and thank the Legislature for their work in helping us to continue to save lives and educate the state about this important topic.
Please click here for a detailed version.
IMPORTANT! Dates moved up one week for
2014 Gentlemen’s Club EXPO!
-Mandalay Bay offers free hotel night
to all EXPO attendees
The dates for the 2014 Gentlemen’s Club EXPO at Mandalay Bay in Las Vegas have been moved ahead one week earlier to August 17-20. ED Publications has made this change to accommodate Mandalay Bay which, at the last minute, had the opportunity to put the largest show of the year for them into their venue which will require all of their tradeshow space and hotel rooms.
As a “Thank You” to ED for making the date change, Mandalay Bay is offering all EXPO attendees one free hotel room night during the new EXPO week, and Mandalay Bay will also host the EXPO Opening Night Party at the new Light Nightclub at the hotel with a one-hour open bar.
“For over a decade Mandalay Bay has welcomed the Gentlemen’s Club EXPO and treated our attendees with the respect due professional businessmen and businesswomen, while a number of other top Vegas casino-hotels will not even bid for our show because of the industry we are in,” says ED Publisher Don Waitt. “The date change is a bit of an inconvenience, but it’s a chance for us to support a world-class venue that has always supported us.”
Aside from the date change, all of the slated EXPO 2014 events, including the Training Seminars, Tradeshow, evening parties and Awards Show -hosted by top comedian Ralphie May at the House of Blues -will all take place as previously announced. The entire EXPO 2014 Agenda, including new dates, can be viewed at www.EDPublications.com <http://www.EDPublications.com>
The free hotel room night is available to attendees who book their room before May 31 and book for three or more nights, based on availability; call Mandalay Bay room reservations at (877) 632-9001.
Rick’s Cabaret Gets Dancer Wage Case Sent To Arbitration
 A Florida federal judge on nixed a proposed class action last month accusing Rick’s Cabaret International Inc. of failing to pay dancers proper minimum and overtime wages, granting the strip club owner’s bid to compel arbitration despite a plaintiff’s objection that arbitration would be too costly.
U.S. District Judge Ursula Ungaro ruled that the lawsuit should be dismissed and that Jaszmann Espinosa should pursue her claims in arbitration, though Espinosa claimed that the financial burden associated with arbitration would likely be prohibitively heavy.
Espinosa cited three sets of American Arbitration Association Rules to come up with cost estimates but failed to address provisions that allow parties to defer or reduce administrative fees, Judge Ungaro’s order said, adding that ignoring that language made the plaintiff’s cost argument “premature.”
Espinosa also failed to furnish information about her own financial state, according to the order.
“She does not provide any information about her own personal resources, assets or income to support this contention. Plaintiff’s argument is thus purely speculative and is insufficient to avoid enforcement of the arbitration agreement,” Judge Ungaro wrote.
Espinosa and fellow plaintiff Stephanie Alverio filed the suit against Houston-based Rick’s and CEO Eric Langdon in December. They filed an amended complaint in February, adding RCI Management Services Inc. and president Ed Anakar and alleging violations of federal and state wage laws.
Publicly traded Rick’s Cabaret owns and operates around 41 clubs in 10 U.S. states directly or through subsidiaries, the amended complaint said, going on to say that the clubs misclassify their dancers as independent contractors rather than employees.
Alverio, who worked at Philadelphia’s “Club Onyx” from 2010 to 2012, has agreed to drop her claims and pursue them in a different forum, Thursday’s order said. Espinosa, who worked at Tootsie’s Cabaret in Miami, signed an independent contractor agreement with the club in October 2009 that included an “arbitration addendum” which provided that any employment disputes would be hashed out through binding arbitration, according to Rick’s Cabaret’s March 14 motion to dismiss and compel arbitration. Alverio signed an arbitration agreement in 2010, the defendants said.
Parks Chesin & Walbert PC’s Harlan Miller said Thursday that sending Espinosa’s case to arbitration wouldn’t stop her from seeking to bring class claims.
“We will be pursuing this as a class action in arbitration and there’s no reason why it shouldn’t proceed that way,” Miller said. He added that arbitration might translate to a quicker resolution and estimated that the class at issue would cover some 500 to 1,000 individuals.
Meister Seelig & Fein LLP’s Jeffrey Kimmel, however, said that Espinosa would be precluded from proceeding on a class basis.
“The law in this area is now pretty settled and the courts are enforcing arbitration agreements,” said Kimmel.
The defendants are represented by Jeffrey Kimmel and Racquel Weintraub of Meister Seelig & Fein LLP and by Aaron Resnick of the Law Offices of Aaron Resnick PA.
The plaintiffs are represented by Dana Gallup of Gallup Law and by Harlan Miller of Parks Chesin & Walbert PC.
The case is Espinosa et al v. Rick’s Cabaret International Inc. et al., case number 1:13-cv-24565, in the U.S. District Court for the Southern District of Florida.
FYI for our ACE National ADVISORY ATTORNEYS:
Settling Wage/Hour Claims: Weighing Settlement Options, Negotiating Damages, and Ensuring Court Approval
*** An encore presentation featuring live Q&A ***
A 90-minute CLE webinar with interactive Q&A
Tuesday, June 10, 2014
1:00pm-2:30pm EDT, 10:00am-11:30am PDT
Early Registration Discount Deadline, Friday, May 16, 2014
This CLE webinar will provide guidance to employment litigators for evaluating whether, when and how to settle a wage and hour class or collective action. The panel will discuss how damages should be calculated and tactics for increasing the likelihood of obtaining court approval of the settlement award.
Description
Settlement amounts in wage and hour cases filed under the Fair Labor Standards Act and state law have been astounding over the past few years. The 2013 median wage and hour claim settlement was the highest observed since 2008, due to an increased proportion of settlements over $5 million in 2013 compared to prior years.
Employment counsel can arm themselves with our panel’s experienced approaches to settling wage and hour claims to minimize the time and expense of litigation. Our panel will outline proactively planning for these and other key issues: whether settlement is appropriate, when to begin settlement discussions, and how to best structure the settlement to meet client’s best interests.
Listen as our authoritative panel of employment litigators discusses best practices for weighing a settlement decision, determining how damages should be calculated, and ensuring court approval of the settlement award.
Outline
Evaluating when to consider settlement
Assessing risk of exposure and calculating potential damages
Obtaining enforceable settlement agreements
Court-supervised settlements
DOL-supervised settlements
Benefits
The panel will review these and other key questions:
What are the factors for employment counsel to determine whether settlement discussions are appropriate and the best options for settlement?
What are best practices for calculating damages?
What are the key considerations for counsel when structuring a settlement to meet clients’ best interests and obtain court approval?
This is an encore presentation with live Q&A.
Faculty
Alexander J. Passantino, Senior Counsel
Seyfarth Shaw, Washington, D.C.
Mr. Passantino is the D.C. office leader for the firm’s Wage and Hour Litigation Practice Group and is the former Acting Administrator of the U.S. Department of Labor’s Wage and Hour Division. He focuses his practice on all aspects of wage and hour law, including advising employers on federal and state wage and hour compliance issues, auditing payroll and employee classification practices, representing employers before the DOL, and defending class and collective action litigation.
Charles H. Wilson, Member
Cozen O’Connor, Houston
Mr. Wilson is board certified in Labor and Employment Law by the Texas Board of Legal Specialization. He represents employers in complex litigation and trials arising from claims of wage and hour violations, employee raiding, race discrimination, racial profiling, retaliation (including whistle blowing), harassment, and disability discrimination. He has also represented employers in numerous administrative actions before the EEOC and state agencies.
Angelina Spencer
President
Empowerment Enterprises, Ltd.
601 Penn. Ave., NW Suite 900, South
Washington, DC 20004
Office: 202-220-3019
Direct: 239-248-1016
Fax: 202-639-8238
Email: aspencer@empowermentpr.com
Website: www.empowermentpr.com
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