Judge Rules Disney Did Not Violate Living Wage Laws Alleged in Cast Member Class-Action Lawsuit

    Orange County Superior Court Judge William D. Claster has ruled in favor of The Walt Disney Company and Sodexo in a class-action lawsuit where Cast Members working at the resort alleged that Disney violated Anaheim Living Wage Laws as required by “Measure L”.

    Disney did not dispute that they failed to pay many of their Cast Members the Living Wage Required by Measure L. Instead, they argued that they were not covered by Measure L because they did not receive a “City Subsidy” from the City of Anaheim as alleged.

    In short, Judge Claster ruled that Disney did not violate Living Wage Laws because they did not receive a “City Subsidy” and were not required to make any minimum wage payments under “Measure L”.

    The City of Anaheim issued the following statement:

    Here is the ruling from Judge Claster.

    1. Disney Defendants’ Motion for Summary Judgment (ROA 199)

    2. Sodexo Defendants’ Motion and Joinder in Disney Defendants’ Motion for Summary Judgment (ROA 233)

    3. Status Conference

    Defendants The Walt Disney Company (“TWDC”) and Walt Disney Parks and Resorts U.S., Inc. (“Disney Parks,” collectively the “Disney Defendants”) move for summary judgment on the complaint of Plaintiffs Kathleen Grace, Regina Delgado, Alicia Grijalva, and Javier Terrazas, who represent a certified class.  Defendants Sodexo, Inc. and Sodexomagic, LLC (collectively “Sodexo”) join in the motion.  For the reasons set forth below, the Disney Defendants’ motion is GRANTED.
    In addition, the clerk is ORDERED to unseal and publicly file certain documents noted at the conclusion of this ruling.
    The parties’ requests for judicial notice are GRANTED as written, with the exception of Exhibit 45 to the Yan Declaration, the “Ruth Memorandum.”  The Disney Defendants’ objection to this document is SUSTAINED.  The Court will take judicial notice of the Ruth Memorandum’s existence, but it will not take notice of the truth of any matters asserted therein.
    I.            Introduction
    In the November 2018 general election, Anaheim voters enacted Measure L, the City’s Living Wage Ordinance (“LWO”, see Anaheim Mun. Code § 6.99.010 et seq.)  It is undisputed, for purposes of this motion, that the Disney Defendants and their contractor Sodexo have not paid the wage required by the LWO.  The central question is whether the defendants are covered by the LWO at all. 
    Only “Employers” as defined in the LWO are subject to its requirements.  An “Employer” is “any business in the hospitality industry which benefits from a City Subsidy and directly or indirectly . . . employs . . . 25 or more employees.”  (Id., § 6.99.060.)  It is undisputed for purposes of this motion that the Disney Defendants and Sodexo operate “businesses” in the “hospitality industry,” as those terms are defined.  (Id., §§ 6.99.010, 6.99.100.) 
    The parties’ dispute turns on whether the defendants “benefit[] from a City Subsidy.”  A business “benefits from a City Subsidy” if it either “receives a City Subsidy directly” or is a “contractor or subcontractor . . . with respect to a [business] who receives a City Subsidy.”  (Id, § 6.99.040.)  For purposes of this motion, it is undisputed that Sodexo is a contractor of the Disney Defendants, such that if the Disney Defendants “receive[] a City Subsidy directly” and thus benefit from a City Subsidy, Sodexo also benefits from a City Subsidy.  Sodexo is not alleged to have received a City Subsidy itself.
    Finally, a “City Subsidy” is “any agreement with the city [i.e., Anaheim] pursuant to which a person other than the city has a right to receive a rebate of transient occupancy tax, sales tax, entertainment tax, property tax or other taxes, presently or in the future, matured or unmatured.”  (Id., § 6.99.030.) 
    The case therefore boils down to whether any “agreement” between the Disney Defendants and the City gives the Disney Defendants the “right to receive a rebate of transient occupancy tax, sales tax, entertainment tax, property tax or other taxes, presently or in the future, matured or unmatured.”
    II.          Meaning of “Rebate”
    The parties first dispute the meaning of “rebate.”  The Disney Defendants argue a rebate is properly understood as a refund.  That is, a rebate of taxes (and thus a City Subsidy) occurs only if a taxpayer pays money to the government, and the government subsequently repays that money to the taxpayer.  (See Tax refund, Black’s Law Dictionary (11th ed. 2019) [“Money that a taxpayer overpaid and is thus returned by the taxing authority. — Also termed tax rebate.”].)
    Plaintiffs, on the other hand, advocate for a much broader definition of rebate.  They note that California statutes often use “rebate” to mean “abatement,” or even more generally to mean a price discount used to encourage the purchase of preferred products.  (See, e.g., Health & Saf. Code § 44258.4(c)(4)(A)(i) [providing for “point-of-sale rebates” to encourage purchase of zero-emission vehicles].) 
    The Court believes Plaintiffs have the better construction.  A “rebate . . . of taxes,” as that phrase is used in the definition of “City Subsidy,” refers not only to a refund of taxes already paid, but also to an abatement of taxes yet to be paid, an exemption from taxes, etc.
    III.       Existence of City Subsidy
    The Disney Defendants receive a City Subsidy if they have a right to a rebate of taxes—a refund, abatement, discount on taxes, etc.—under an agreement with the City.  If they receive a City Subsidy, they and Sodexo are subject to the LWO.
    A.           Relevant Agreements
    There are three agreements that Plaintiffs contend create a City Subsidy: the Finance Agreement (Disney RJN, Ex. A), the Credit Enhancement Agreement (Disney RJN, Ex. B), and the Reimbursement Agreement (Yan Decl., Ex. 46).  The parties dispute some of the details of how these agreements work, but the broad strokes are undisputed.
    All three agreements are part of a 1996 bond issuance used to fund the construction of improvements in Anaheim.  These included (1) improvements to the Anaheim Resort district, (2) improvements to the Anaheim Convention Center, and (3) improvements to the Disneyland Resort, in particular the construction of California Adventure, Downtown Disney, and the Mickey & Friends parking structure.
    The bonds were issued by the Anaheim Public Finance Authority, which is responsible for making debt service payments.  Pursuant to the Finance Agreement, the Authority, which owns the Anaheim Convention Center, agreed to lease the Convention Center to the City.  The City’s monthly rent payment is an amount equal to the sum of (1) certain taxes paid by the Disney Defendants and (2) transient occupancy tax (“TOT”) paid by non-Disney hotels.  The City remits this money to the Authority each month, and the Authority uses this money to make debt service payments to the bond trustee.  (The Authority later assigned its rents to the bond trustee, removing itself from the process entirely.  (Yan Decl., Ex. 29.)  That is, the City now pays rent to the bond trustee directly, and the bond trustee applies that money to service the Authority’s debt.)
    Because it’s possible for the taxes collected by the City in a month to be less than the debt service payment owed by the Authority, TWDC—the corporate parent of Disney Parks—entered into the Credit Enhancement Agreement, along with the bond trustee, a bond insurer, and their affiliates.  In the event of a monthly shortfall, the bond insurer is responsible for covering the money owed to the bond trustee.  If the bond insurer makes such a payment, the Credit Enhancement Agreement requires TWDC to reimburse the bond insurer.  If TWDC has to pay the bond insurer, the Credit Enhancement Agreement requires the bond trustee to reimburse TWDC using the excess when rents paid by the City are greater than debt service payments owed.
    The Reimbursement Agreement, to which both Disney Parks and TWDC are party, operates similarly.  It provides that if Disney Parks or TWDC are required to make specified contractual payments, they will be reimbursed by the bond trustee from excess rents.
    B.           Finance Agreement
    Plaintiffs contend the Finance Agreement creates a City Subsidy in two separate ways.
    1.            Private Benefit Conferred on Disney
    Plaintiffs argue the Finance Agreement confers a “massive” private benefit from public funds on the Disney Defendants.  The Disney Defendants, for their part, do not disagree that they received a benefit from the bond issuance and the Finance Agreement.  But as the Court observed at the demurrer stage, whether the Disney Defendants received a “public subsidy” in a general sense is a different question from whether they received or have a right to receive a City Subsidy as defined, i.e., a rebate of taxes (in the form of a refund, abatement, exemption, etc.).
    Plaintiffs go into considerable detail about how the Disney Defendants used their share of the proceeds from the bond issuance, how that use inured to the Disney Defendants’ private benefit, and how the Disney Defendants’ taxes are used to service the bond debt.  But they identify no evidence suggesting that the Finance Agreement causes the Disney Defendants to pay less in taxes (whether by post-payment refund, pre-payment exemption, etc.) than they would owe if no Finance Agreement were in place. 
    To the contrary, the Finance Agreement has the apparent effect of giving the Disney Defendants a 100% abatement on debt service payments, not taxes.  Had the Disney Defendants raised construction funds privately, they would have had to make both tax payments and debt service payments.  The bond issuance here was structured so that they received a portion of the proceeds of the bond issuance, but only have to make tax payments in return.  Their taxes go into the City’s general fund, and money from the general fund ultimately services the debt (after a series of transactions).  This is a significant benefit to the Disney Defendants, but again, there is no evidence that the Finance Agreement somehow lessens their tax obligation.  Therefore, the public benefit conferred on the Disney Defendants by the Finance Agreement does not create a City Subsidy.
    2.            TOT Exemption
    Separately, Plaintiffs contend that the lease for the Mickey & Friends parking structure—Exhibit P to the Finance Agreement—exempts the Disney Defendants from paying TOT owed on parking revenues.  As the City’s PMK explained at deposition, while parking revenues are not generally subject to TOT, TOT is levied if “use of the parking is considered part of the [hotel] room.”  (Schoenfeld Decl. Ex. A, at 25:16-17.) 
    It is undisputed that the Disney Defendants do not pay TOT on parking revenues from Mickey & Friends.  The parties dispute whether TOT is actually owed: the Disney Defendants contend Mickey & Friends is used for general public parking and thus not subject to TOT in the first place (ROA 344, Exh. 35 § (c)7), while Plaintiffs contend it is at least partially used for parking by guests of Disney-owned hotels, meaning TOT is owed on hotel guest-related revenues. 
    This dispute is immaterial to the question of whether the lease, and thus the Finance Agreement, create a City Subsidy.   Assuming the Disney Defendants are getting a TOT rebate, a City Subsidy only exists if the rebate is created by “agreement with the City”—here, by the lease.  Both parties point to § 6.2 of the lease, which provides that Disney Parks “shall be responsible for all costs of operating [Mickey & Friends], including without limitation all maintenance, repair and capital costs, property taxes, utility costs, personnel and labor costs involved in the operations of [Mickey & Friends].”
    Plaintiffs argue the specific reference to property taxes and the accompanying omission of TOT means the lease exempts Disney Parks from paying TOT.  The Disney Defendants argue Plaintiffs’ reading ignores the “including without limitation” language, which implies the list is non-exhaustive—the failure to mention TOT isn’t an exclusion of TOT.
    The Court agrees with the Disney Defendants’ construction.  Plaintiffs read “without limitation” out of the contract, converting an open-ended list of examples into a closed universe of costs.  Because the lease doesn’t exempt the Disney Defendants from paying TOT, a TOT rebate (if any exists) is not created by “agreement with the City” as required for a City Subsidy.
    C.            Credit Enhancement and Reimbursement Agreements
    The Credit Enhancement Agreement and the Reimbursement Agreement give the Disney Defendants the right to reimbursement from the bond trustee in the event the Disney Defendants are required to make payments specified in each agreement.  The Disney Defendants argue these transactions are contractual in nature: the payments required of the Disney Defendants arise from contractual obligations, not from taxes.  Because the right to reimbursement arises only when the Disney Defendants are required by contract to make payments, the reimbursement is contractual in nature as well, rather than a refund of taxes.
    At the demurrer stage, the Court observed it was possible that the City might keep the Disney Defendants’ tax payments in a segregated or set-aside account and pay the Disney-attributable share of its rent from that account.  As a result, it was possible the reimbursement owed under these agreements would be paid using identifiable Disney tax monies.  This meant the Disney Defendants would get a refund of identifiable tax monies, and thus arguably a “tax refund,” even if the payment was contractual in nature.
    The summary judgment record forecloses this possibility.  Plaintiffs now admit that all tax revenue, including Disney-related tax revenue, goes into the City’s general fund.  (Response to UMF 7.)  At that point, it is commingled with other revenue and ceases to be identifiable as “Disney taxes.” Not surprisingly, Plaintiffs are unable to demonstrate how they would be able to trace/connect a particular Disney tax payment to a future shortfall repayment.
    This point is illustrated by an analogy offered by Defendants in their reply.  Suppose an Anaheim bank loans money to the City.  The bank also pays taxes to the City, which go into the City’s general fund.  The City repays the bank loan over time using general fund money.  Because the bank’s tax payments go into the general fund, and because the general fund is used to repay the loan, the bank is in some sense getting its own tax money back.  But no one would describe this as a “tax refund.”  The same is true here.
    IV.         Conclusion
    The Court is confronted with a narrow question: whether any of the agreements identified by the parties gives the Disney Defendants a right to a rebate of their taxes.  Whether the City of Anaheim “subsidized” the Disney Defendants in a colloquial sense is not at issue.  For the reasons set forth above, the Disney Defendants do not receive a “City Subsidy” as defined.  Therefore, the Disney Defendants and Sodexo are not covered by the LWO, and summary judgment shall be entered in their favor.
    In connection with their opposition papers, Plaintiffs submitted numerous documents conditionally under seal per CRC 2.551.  By stipulation, the Disney Defendants had until October 15, 2021 to file a motion to seal the documents permanently.  No such motion was filed.  The clerk is therefore ordered to unseal and publicly file the following documents: ROAs 327, 329, 334, 335, 339, 341, 343, 346, 347, 348, 349, and 350.
    Judge Claster ruling

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