Oregon Uses Labor Law to Tackle Child Trafficking

PORTLAND, Ore. (CN) – The lawyer for a strip club accused of hiring two underage girls – aged 13 and 15 – said in closing arguments that the girls were lying, even though the club manager and the girls’ pimps are in prison. But this sadly classic argument wasn’t made in a criminal court: the state labor commissioner has taken a novel approach to address a child sex-trafficking case by using civil employment laws.

The story leading to the labor commissioner’s case is horrendous. Both girls were runaways and had pimps who made deals with the manager of the Stars Cabaret Beaverton, for the 15-year-old to dance nude at the club and the 13-year-old to have sex in the “featured entertainers room.”

The younger girl said some men told her to say her age over and over while they had sex. She said other men would choke her or push her face into the dirty floor.

Steven Toth, the former manager of Stars Cabaret Beaverton, is serving 15 years in prison after pleading guilty to employing a minor as a stripper and having her perform sex acts for customers.

Both of the pimps are in prison: Victor Moreno-Hernandez is serving 30 years and 10 months after a jury convicted him of rape, sexual abuse, compelling a minor into prostitution and giving methamphetamine to a minor, while Anthony Curry is serving a life sentence on seven counts of using a child in a display of sexually explicit conduct.

But the club’s three owners did not face any charges in the case, and their money keeps flowing in.

Randy Kaiser, Todd Mitchell and Jeff Struhar are selling the Beaverton club to international strip chain Spearmint Rhino. The property – valued at more than $1 million according to city records – has sat empty since this past July, and the various corporations set up by the three owners also control three other strip clubs in Oregon.

“It’s definitely business as usual for the owners,” said Joel Shapiro, the girls’ lawyer.

Kevin Barton, the Washington County district attorney who prosecuted the cases against Toth and Moreno-Hernandez, said the decision not to charge anyone higher up in the corporations that own the club came down to a lack of evidence.

“Every single lead was followed as far as it could be followed,” Barton said. “If there was evidence, that would have been followed to its conclusion and presented to a grand jury.”

And that’s why the details of this devastating case played out in front of an administrative law judge at the offices of the Oregon Bureau of Labor and Industries rather than before a jury and judge in a criminal courtroom.

In an unusual legal maneuver, Oregon Labor Commissioner Brad Avakian decided to do what he could to get justice for the two girls: He filed a complaint with the Oregon’s Bureau of Labor and Industries, accusing the club owners of employment discrimination and demanding $4 million in damages for each girl.

“I didn’t believe the owners of Stars should be getting off scot-free after creating an environment that allowed this to happen,” Avakian said in an interview.

Courthouse News spoke with dozens of state labor offices and officials at the federal Equal Employment Opportunity Commission. None had ever heard of state labor laws being used to combat child sex trafficking.

“This is a pioneering case, that’s for sure,” Shapiro said. “We are just at the beginning of the forefront on figuring out how to legally address sex trafficking. There have been criminal charges against individual sex traffickers but trying to connect the corporate entities to criminal cases has been less successful.”

And the Oregon case signified a second unusual legal approach to child sex trafficking: treating the girls involved as victims of a crime, rather than as criminals.

“The fact that the Bureau of Labor and Industries understands that this was not prostitution, this was sex trafficking,” Shapiro said. “That these were girls that were being exploited and that’s something that’s novel in legal cases.”

On Jan. 1, the first state law in the nation barring minors from being charged with prostitution went into effect. Under SB 1322, minors in California will get supervision and counseling services rather than a criminal charge.

Frehoo Inc., one of the corporate entities that controls Stars, filed for bankruptcy on Halloween, just 10 days before proceedings in the Oregon labor case were set to begin. But bankruptcy didn’t stop the case from being heard and won’t protect the owners from liability.

Shapiro said Frehoo was just a pass-through entity that had no assets. He called the bankruptcy “a strategic attempt to get a stay” in the cases against Frehoo, and said recovering damages from the other corporate entities that control the clubs – and from the personal assets of the three owners – was possible.

And he said the labor case is a sign the legal system is getting better at handling sex-trafficking cases.

“If this case had come up 10 years ago, I don’t know that anybody would have said this was sex trafficking,” Shapiro said. “To have a prosecutor look at a case and say, ‘These are not the criminals, these are victims.’ Because I don’t think the level of vulnerability and exploitation involved and how this kind of situation occurs was well understood.”

Exploitation, honest mistakes or ‘embellished’ claims?

Stars Cabaret hired two underage girls within two years. Jen Gaddis, lawyer for the Bureau of Labor and Industries, said that meant the girls should been seen as exploited employees.

Gaddis said club manager Steven Toth hired the younger girl in 2012.

“She thought she was hired as a dancer,” Gaddis told Administrative Law Judge Kari Furnanz during the proceeding. “But he wanted her to perform sex acts.”

Gaddis said Toth had sex with the 13-year-old girl himself and let customers pay to have sex with her, splitting the profits with Moreno-Hernandez.

Toth would send the girl text messages describing which sex acts she was expected to perform, Gaddis said. And she couldn’t always refuse. But the problems didn’t end with him, Gaddis said.

“Business was business,” Gaddis told the judge. “And in this case, business was Stars’ business. As long as managers like Toth made money, the owners looked the other way. The managers were given the authority to do whatever they wanted and the owners never made sure policies were enforced.”

This past July, club co-owner Randy Kaiser said in an email that the club’s internal investigation showed that underage prostitution “could not and did not happen.”

“The club continues to deny prostitution activity at the premises in spite of a former manager’s plea agreement resulting in his conviction for such,” Kaiser wrote. Kaiser responded to a request for comment on this story by inviting the reporter – a woman – into the men’s restroom.

Vehement denials aside, the club hired a second underage girl even after it initiated mandated protections in the wake of Toth’s prosecution like using a verification machine to scan dancers’ identification and having two people check the IDs of new dancers.

In 2014, Stars Beaverton Manager Jon Herkenrath hired a 15-year-old girl to dance at the fully nude club.

At her audition, Hirkenrath asked the girl if she was a minor, according to testimony. She said no. He then told her to get changed for her audition.

But the girl told the judge that no one asked to see her ID until after she was hired, at which time she showed them the shoddy fake ID Curry had given her. She danced at Stars five times before a bartender saw a Facebook post the girl’s mother had sent out pleading for information on her missing child, according to testimony.

The bartender told a manager about the Facebook post, Gaddis said, but added the club still let the girl dance after that.

Courtney Angeli, lawyer for Stars’ parent company, dismissed the girls’ story as a financially motivated fabrication. Angeli told the judge the girls were “embellishing” their claims in order to pocket $4 million each in damages sought by the labor commissioner.

The younger girl was recently “desperate and homeless,” Angeli told the judge.

“Anyone in that sort of situation would have the motivation to assist herself, regardless of the factual status of her claims,” Angeli said in her closing arguments.

Angeli said what happened was a criminal act on the part of a rogue manager, not a case of sexual harassment on the job.

“Toth engaged [the younger girl] to be a prostitute,” Angeli told the judge. “No one ever authorized Toth to set up such an arrangement.”

She added, “We’re looking at the situation of a 13-year-old girl allegedly being stuffed in a back room for prostitution and the profits being split between a pimp and a manager. That’s not employment. It’s illegal.”

And Angeli said the hiring of the 15-year-old girl was an honest mistake.

“She came to club at behest of the 50-year-old sex offender she lived with, with fake ID she bought,” Angeli told the judge. “Numerous employees said she looked like she was 21, blended right in and seemed to be a seasoned dancer. She worked as a prostitute in a criminal arrangement. She has a financial incentive to embellish.”

The two girls, now 17 and 18, sat silently through those arguments.

Samantha Vardaman, senior policy director for child sex trafficking advocacy group Shared Hope International, said the courtroom scene illustrated an area of law that desperately needs an update.

“How can it be that we are talking about the victims in a case in a way that questions their very victimization?” Vardaman asked. “We should be ashamed that we haven’t developed more victim-friendly court proceedings for cases involving the sexual traumatization of a child.”

Gaddis pointed out that it was Commissioner Avakian, not the two girls, who had brought the labor claims and determined the amount of damages.

“Neither of [the two girls] have the ability to draft formal charges in this case or to intervene,” Gaddis told the judge. “The administration prosecution unit filed these charges. And the administration prosecution unit asked for $4 million each. That’s because the charges are so severe. These girls will be dealing with this forever.”

Gaddis said the club’s owners share responsibility for what happened. The club should pay for what happened because it provided a venue for pedophiles to get what they want and made money from it, she said.

“Sex offenders go where they know they will have access to children. [The younger girl] said her customers were regulars. If you are a pedophile and you want to have sex with a live child and you know a certain business will protect you while you have sex in a back room, you go to that business and you have sex with a live child.”

Vardaman said laws must criminally address venues where child sex trafficking happens.

“Everybody accepts that a trafficker is liable but what about the buyer?” Vardaman said. “And one step further: what about the businesses that facilitate sex trafficking?”

Barton, the Washington County prosecutor, said he would want to take a second look if new evidence from the civil suit or the labor case pointed to criminal wrongdoing by the owners.

“Any new evidence that is developed through those or other entities – if it’s appropriate, we will look at reopening the case,” Barton said. “But we haven’t heard anything like that yet.”

Judge Furnanz said she will issue her decision by Feb. 20.