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HomeMy WebLinkAboutO-2008-3092 CLP electing to be included in class action lawsuit for collection of Hotel-Motel taxes from Online Travel Companies 16 askins & askins P.C. ATTORNEYS and COUNSELORS Knox W. Askins Clark T. Askins July 3, 2008 Hon. Mayor & City Council City of La Porte City Hall La Porte, Texas Mr. Ron Bottoms City Manager City of La Porte City Hall La Porte, Texas Mr. John Joerns Assistant City Manager City of La Porte City Hall La Porte, Texas Mr. Michael Dolby Director of Finance City of La Porte City Hall La Porte, Texas Re: City of San Antonio, Texas, Et AI, Plaintiff vs Hotels.Com, L.P., Et AI, Defendants; a Class Action Lawsuit in the United States District Court, Western District of Texas, San Antonio Division, in the Nature of a Class Action Lawsuit for the Collection of Hotel Motel Taxes. Dear Gentlemen and Ms. Malone: Each of you will find enclosed with your letter, copy of a letter which was dated June 25, 2008, from Diamond McCarthy LLP, attorneys of Dallas, Texas, which explains the nature of this litigation; an Order on Class Certification which was entered by the Court on May 27, 2008; and a formal notice to the City of La Porte and the other 174 class member cities, entitled "Class Action Notice", which gives a summary of the proceedings, and the elections which the City of La Porte must make. I have carefully reviewed this material, and it is my recommendation that the City of La Porte exercise Option C, "The Right to Be Included In or Excluded From the Class", subparagraph 1, "Your City Mav Do Nothinq and Remain a Member of the Class". 702 W. Fairmont Parkway, P.O. Box 1218, La Porte, TX 77572-1218 281.471.1887 phone . 281.471.2047 fax . knoxaskins@comcast.net . ctaskins@swbell.net City of San Antonio July 3, 2008 page 2 In my opinion, the City has everything to gain, and nothing to lose, by participating in the class action litigation. As pointed out in the notice, the city of La Porte will have no obligation to pay any of the costs or attorneys fees involved in the litigation at this time. As in a personal injury lawsuit, if the class prevails, the Court will award attorneys fees and non taxable costs, as authorized by law, which will come out of the damages awarded. On the other hand, if the cities do not prevail in the lawsuit, the class action attorneys will have to pay these costs. I have prepared and enclosed a form of ordinance for consideration by City Council, electing the recommended Option. If City staff wishes to make a different recommendation, please advise me, and I will prepare an appropriate ordinance for consideration by City Council. Please call me if you have any questions. y~;;zL Knox W. Askins City Attorney City of La Porte KWA: sw Enclosures cc: Ms. Martha A. Gillett City Secretary City of La Porte City Hall La Porte, Texas ORDINANCE NO. 2008~jOq~ AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LA PORTE, ELECTING TO BE INCLUDED IN A CLASS ACTION LAWSUIT PENDING IN UNITED STATES DISTRICT COURT, WESTERN DISTRICT OF TEXAS, SAN ANTONIO DIVISION, FOR THE COLLECTION OF HOTEL-MOTEL TAXES FROM ONLINE TRAVEL COMPANIES, FINDING COMPLIANCE WITH THE OPEN MEETINGS LAW, AND PROVIDING AN EFFECTIVE DATE HEREOF. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LA PORTE: Section 1. The City of La Porte has received a "Class Action Notice" dated June 30, 2008, in connection with a suit styled City of San Antonio, Texas, et al, Plaintiff v. Hotels.com, L.P., et al, Defendants, Case No. SA06CA0381 OG, pending in the united states District Court, Western District of Texas, San Antonio Division. After due consideration of the options presented to the City of La Porte in the "Class Action Notice", the City Council of the City of La Porte exercises its right to be included in the class of 175 Texas cities constituting the class, and remaining a member of the class. Sec tion 2. The City Council officially finds, determines, recites, and declares that a sufficient written notice of the date, hour, place and subject of this meeting of the City Council was posted at a place convenient to the public at the City Hall of the City for the time required by law preceding this meeting, as required by the Open Meetings Law, Chapter 551, Texas Government Code; and that this meeting has been open to the public as required by law at all times during which this ordinance and the subject matter thereof has been discussed, considered and formally acted upon. The City Council further ratifies, approves and confirms such written notice and the contents and posting thereof. Section 3. This Ordinance shall be effective from and after its passage and approval, and it is so ordered. PASSED AND APPROVED, this I~day of July, 2008. ~~.OF .LJ;\ PORTE ~X~ Alton E. Porter, Mayor By: ATTEST: ~0tlh1/( \Jf-{UA~~ 7l p.f{ /lU Ma tha A. Gillett I City Secretary APPROVED: ~W Knox W. Askins City Attorney 2 ... -. - - - T DIAMOND McCARTHY LLP Attorneys & Counselors Renaissance Tower 11201 Elm Street, 34th Floor I Dollos, TX 75270 I Phone: 214.389.5300 I Fox: 214.389.5399 June 25, 2008 Mr. KnoxW. Askins City Attorney P.O. Box 1218 La Porte, TX 77572-1218 Re: City of San Antonio, Texas, on Behalf of Itself and All Other Similarly Situated Texas Cities v. Hotels.com, et a!., Case No. SA06CA0381 OG Dear Mr. Askins: On May 27,2008, the Federal District Court for the Western District of Texas certified a class of 175 Texas cities (including your City) in a suit for damages against certain online travel companies ("OTCs") - like Hotels.com, Travelocity, Expedia, Priceline.com, Orbitz, and others. The suit, originally filed May 8, 2006, alleges that the OTCs collect the hotel occupancy tax from customers at the retail price they charge the customer for the room, but remit the tax based on the wholesale price they paid the hotel for the room, keeping the difference. By way of example, an OTC sells a room to a customer for $200.00 and charges a 15% bed tax or $30.00. It remits the tax based on the $150.00 wholesale price it pays the hotel for the room - or $22.50 ($150 x 15%), keeping the difference - or $7.50. A two-day class certification hearing was held on May 16 and May 17,2007. This letter is an informal notice of the certification order, a copy of which is enclosed, along with the 32-page detailed OpInIOn. One of the most significant findings of the Court is on page 4 where the Court writes: "It is undisputed that Defendants have paid bed taxes to the hotels on the wholesale price of . the rooms, but they have never paid taxes on the retail price that the consumer pays when he books a room through a web-based company." That finding is important because it is contrary to the ordinances of the cities in the class (including your ordinance). Weare in the process of calculating damages for each city in the class. As lead counsel for the Plaintiffs, we will mail a formal notice to you and the other class members shortly. Please let me know if you have any questions. With kind regards, )~Lv~ Steven D. Wolens Jur~ 2 7 LUlJO SDW!cs Enclosures Diamond McCarthy LLP Austin 16504 Bridgepoint Porkwoy I Suite 400 I Austin, TX 78730 I Phone: 512.617.5200 I Fax: 512.617.5299 Houston I Two Houston Center I 909 Fannin, Suite 1500 I Houston, TX 7701 0 I Phone: 713.333.5100 I Fox: 713333.5199 New York /620 Eighth Avenue, 39th Floor / New York, NY 10018 I Phone: 212.430.5400 I Fax: 212.430.5499 www.diamondmccarthy.com -~----'---'----_._~--~---~_.- UNITED STAT~S DISTRICT C()URT WESTERN DISTRICT OF tEXAs SAN ANTONIO DIVISION FILED Def~ndants ) ) ) ) ) ) ) ) ) Qt..ERK, u.s, \IIJE$TERN Dl BY~ CITY OF SAN ANTONIO Plaintiff v; CIVIL NO. SA..06..:CA-38i..OG HOTELS~COM,etal Order on Class Certification PendingbefotetheCourt isPlain1iWs Motion for Cla.ss Certincatit)n CDkt. # 45). Defendants filed a response (Dkt. # 55, 56) and Plaintiff filed a reply (Dkt#59). Plaintiff arl1ended its corn plaint (Dkl:. # 74) and then supplemented itsmotionCDkt. #88). TheCourt detetminedthattUscovety on class certification issues was hecessaty, and. th.e parties ehgagedill rathetemeljS't've':pre-certificatiohdisQ0very. At the end of the discovery period, Plaintiff filed a briefin support oflts supplemental motion (Dkt. # 152) and Defendal1tsfiIed their opposition to Pla.intiff's supplementalmotlon for class certification (Dkt. # 163, 164). Pla.intiff then filed its second supplementalbriefin support of class certification(Dkt. # 190). 011 May 16~ 17, 2007, the Gourt held an evidentiary hearihg on the motion for class certification. The Court heardevideJ:1ceand legal arguments from all parties and, in the interest ofjudicia.l economy; allowed certain evidence to be presented by submission. After the hearing, Plaintlfffile:dits post-heating brief ili support of its supplemental motion for class certification ([>&1.. #217,218) and Defendants filed their post~heatii1g briefin opposition thereto (D1.1.. # 22(}). The parties' experts, whotesrifiedat the class certification hearing, were also permitted to supplement their reports. Their supplemental and rebuttal reports were filed along with the exhlblts,an~deposi:tion tesHm.ol1.ythatwere',offeredbysubmission. A;~f heanng,tlIeargtitiIel'ifs..ofeoufisel.'andfhe'evldencepresentetlh'Y.submtssioficafidat the he.ating,and ,after reviewing the parties' briefs' and the applical)le laVlT> the Court fihds'thcjl PlailitIffs:motlbn forclasscertinca:tionshouldbe GR.l\.l"fr'Eb for the reasons stated intne Cburt'smemoratidllmand opinion, flIed Under seal ctHitem.potaneously l1efe\\lftll. TheCpurt will unseal the Me.m.orandum and Opinion on Class Cettifica:tiG>l1.on June 12, flO(}S unlessapartytequ.estsaheadtrg and shows good CauSe whythe.bpMOl1 sltoulclremain sealcQ.... 'I'hernovitrg panysnall. s.UOI11it . a brief'with sufficient authoritY. sUppbrtirigJneif position pnbrto .t1ll1e 12~2008. Tne-class frieIllbersafe entitled to natice arid an opportunity to opt out bfthe class. 'Therefare, 'tl1e,Caurtfurther ORDER.S that fhepartiescanferandrepartback fa the C.ourt,within fel:i(lO)€f4ys ftam'tll.e date beloW, With their recommeridatiol1 on the substantive language to be in,Ql.1Jd~d:inthe;'notice and parameters .on how and when the class m'Cmbersro.~y elect to opt Qut of the class. The notice shall comply with the requitements setforthin Fed,R.Clv.F. 23(cD(2)tB). Plaii1ti.:ff1ia$statedtl1~fa secuiitydeposit to caver the costs of hoticewill hofpe necessaty. Withinnventy (20) days from the date below, the parties sll.aIlconterandsubmit a propQsedscheduling for the remainder of these proceedings. If the parties . call11bt reacl1'an agreement; each side may submit their own proposed scheduling.order and the Court will COhsidertheparties' suggestions and ehtetan appropriate ardet. SIGNEp.this .;{? day of May, 2008. I~<R' ~. ORLANDO L qAJ~J+~ UNITED STA TESDISTRICT JUDGE J line 30, 2008 UNITED STATES DISTRlCT COURT WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION CITY OF SAN ANTONIO, TEXAS, et a1., Defendants. s s s ~ s ~ s ~ ~ CASENO. SA06CA0381 OG Plaintiff, ~ . .Jl. .., Oo!j ~ . 1/~_v v. HOTELS.COM, L.P.; et a1., CLASS ACTION NOTICE PLEASE READ TillS NOTICE CAREFULLY - YOUR LEGAL RIGHTS l\1A Y BE AFFECTED BY A LAWSUIT NOW PENDING IN TillS COURT TO: The City Attorney for (or other duly authorized representative of) the Cities of Abilene, Addison, Alice,. Alvin, Amarillo, Angleton, Aransas Pass, Argyle, Austin, Azle, Balch Springs, Baytown, Beaumont, Bedford, Bellville, Benbrook, Big Spring, Boeme, Borger, Brenham, Bridge City, Bridgeport, Bryan, Burkburnett, Burleson, Canyon, Carrollton, Castroville, Cedar Hill, Cedar Park, Clebume, Cleveland, Coleman, College Station, Colleyville, Colombus, Commerce, Couroe, Coppell, Copperas Cove, Corpus Christi, Corsicana, Dallas, Decatur, Deer Park, Denton, Desoto, Dickinson, Duncanville, Eagle Pass, Edinburg, El Paso, Euless, Fairview, fanners Branch, Flatonia, Flower Mound,' Forest Hill, Forney, Fort Stockton, Fort Worth, Fredricksburg, Friona, Frisco, Gainesville, Garland, Georgetown, Gonzales, Granbury, Grand Prairie, Grapevine, Greenville, Groves, Haltom City, Harker Heights, Haslet, Hedwig Village, Henrietta, Hidalgo, Hillsboro, Houston, Humble, Hurst, Ingleside, Irving, Jersey Village, Junction, Kaufman, Kerrville, Kilgore; Killeen, La Feria, La Marque, La Porte, Lacy-Lakeview, Lake Dallas, Lake Jackson, Lancaster, Laredo, League City, Lewisville, Lockhart, Longview, Lorena, Lubbock, Mansfield, Marble Falls, Marshall, McAllen, McKinney, Mesquite, Mexia, Midland, Mission, Mount Pleasant, Muleshoe, Nacogdoches, Nassau Bay, New Braunfels, North Richland Hills, Odessa, Palestine, Pasadena, Pearland, Pharr, Port Aransas, Port Arthur, Red Oak, Richardson, River Oaks, Rockport, Rockwall, Rosenberg, Round Rock, Rowlett, Saginaw, San Angelo, San Antonio, San Marcos, Sanger, Santa Fe, Schertz, Seabrook, Sealy, Seguin, Selma, Shenandoah, Shennan, Sonora, South Houston, Stafford, Stephenville, Sugar Land, Temple, Terrell, Texarkana, Texas City, Tomball, Tyler, Universal City, Victoria, Vidor, Waco, Watauga, Weatherford, Webster, Weimer, Westlake, Wharton, White Settlement, Whitney, Wichita Falls, Winnsboro, Wolfforth, and Wylie, Texas. . Pursuant to Rule 23( c) ofthe Federal Rules of Civil Procedure, this is to advise you that there is now pending in the United States District Court for the Western District of Texas, San Antonio Division (the "Court") a class action brought by the City of San Antonio, Texas (the "Plaintiff') on behalf of 175 different cities within the State of Texas (the "Class" or the "Texas Cities"). Your City has been identified as one of these 175 class members. CLASS ACTION NOTICE - Page I 140808v I This notice explains: A. The Nature and History ofthe Lawsuit. B. The Class Certificatlon Proceedings and Class Certification Order. C. The Right to be Included in, or Excluded from, the Class. D. Additional Information. A. The Nature And History Of The Lawsuit. This lawsuit was filed by the City of San Antonio on May 8,2006, on behalf of itself and other allegedly similarly situated cities throughout the State of Texas. The defendants are online travel companies ("OTCs" or "Defendants") or their affiliates and include the following: Hotels.com, L.P.; Hotels.com GP, LLC; Hotwire, Inc.; Trip Network, Inc. (d/b/a CheapTickets); Expedia, Inc;; Internetwork Publishing Corp. (d/b/a Lodging.co:m); Lowestfare.com, Incorporated; Orbitz; Inc.; Orbitz, LLC; priceline.com, mcorporated; Site59.com, LLC; Travelocity.com Inc.; Travelocity.com LP; Travelweb LLC; and Travelnow.com, Inc. Members of the public, either through the internet or by phone, can use the OTCs' services to make hotel reservations. The Plaintiff alleges that, under the OTCs' merchant model, the OTCs enter into a contract with the hotel to obtain an inventory of rooms at negotiated wholesale rates, determine the mark up, set the retail rate that the consumer will pay, and sell the room to the consumer. It is undisputed that the OTCs have paid ''tax recovery charges" to the hotels on the wholesale price of the rooms, but have never paid taxes on the retail price that the consumer pays when he books a room through the OTCs; As a result, the Plaintiff alleges that a certain amount of hotel occupancy or "bed" taxes are being lost on every hotel room in each of the Texas Cities that is booked and paid for through the OTCs. The Plaintiff claims that the OICs should pay hotel occupancy taxes ou the difference between the retail price of the hotel rooms, which the occupants pay, and the wholesale price that the OTCs pay the hotels. . The OTCs contend that the hotel occupancy tax ordinances do not impose a tax on them or the amounts they charge a customer and retain for their services. Each City in the Class imposes a "hotel occupancy tax" or "bed tax" on consumers who stay in a hotel room in that City. Each City has enacted a hotel occupancy tax ordinance mandating that every person "owning, operating, managing, or controlling" a hotel shall collect the tax and remit the tax to the City. In this Lawsuit, the Plaintiff has asserted claims on behalf of itself and each ofthe Texas Cities for violation of their respective hotel tax ordinances. The Plaintiff) on behalf of the Class, claims that the OICs "control" the hotels and, therefore, (a) the OICs have a duty to collect bed taxes from the consumers, and (b) regardless of their duty to do so, the OTCs are, in fact, collecting the bed tax. The Plaintiff also brings, on behalf of itself and each of the Texas Cities, a common law claim for conversion, alleging that the OTCs must submit to each Texas City any taxes that they have collected. The Plaintiff seeks to recover . damages for the amount of taxes that it alleges that it and each of the other Texas Cities have been underpaid in the past and further seeks an order from the Court that would prohibit the OICs from allegedly underpaying bed taxes in the future. The Plaintiff also seeks, on behalf of itself and the Texas Cities, attorneys' fees, costs, penalties, and/or interest. CLASS ACTION NOTICE - Page 2 140808v I The OTCs deny that they have any duty to collect or pay bed taxes to the Texas Cities under the ordinance applicable to each Texas City and, accordingly, deny that they have underpaid any.bed taxes. More specifically, the OTCs assert that they do not "control" hotels or hotel operations; therefore, they are not required by law to collect or remit hotel occupancy taxes. They also assert that only the amounts charged and paid "to hotels" are taxable. The OTCs also contend that the amounts. charged for their services are not taxable. The OTCs further claim that they cannot be taxed by cities with which they do not have a substantial nexus because it would violate their constitutional rights. R The Class Certification Proceedings And Class Certification Order. In preparation for the class certification hearing, the parties engaged in extensive discovery including more then 20 oral depositions as well as the exchange of a substantial vo lume of documents and electronic discovery. On May 16 and 17, 2007, the Court held an evidentiary hearing on the Plaintiffs motion for class certification. The Court heard evidence and legal arguments from all parties. On May 27,2008, the Court entered an Order on Class Certification and issued a Memorandum and Opinion on Class Certification (the "Class Certification Order") in which the Court granted the Plaintiffs motion for class certification and certified the following class. "T exas cities whose ordinances contain language that requires every person owning, operating, managing, or controlling any hotel to collect and remit hotel occupancy taxes and whose ordinances .do not contain administrative prerequisites to filing a lawsuit for the failure to collect or remit hotel occupancy taxes." The Plaintiff has identified by name 175 Texas Cities that fit within this class definition, and Your City is one of these 175 Texas Cities and, therefore, is part of the Class. Pursuant to the Class Certification Order, the City of San Antonio has been designated to serve as the representative for the Texas Cities (the "Class Representative"). The Court has further designated Steven D. Wolens and Gary Cruciani with the law firm of Diamond McCarthy to serve as lead attorneys for the Texas Cities ("Lead Class Counsel"). In addition, the law firm of Baron & Budd will serve as co-counsel, and Frank Herrera will serve as local counsel. (All the above attorneys are collectively referred to as the "Class Counsel"). C. The Right To Be Included In Or Excluded From The Class. Your City has a right to be included in or excluded from the Class. Either choice will have consequences, which Your City should understand before making a decision. 1. Your City May Do Nothing And Remain A Member Of The Class. If Your City wants to remain a member of the Class, it should DO NOTHING at this time. If Your City ~emains in the Class, it will be bound by any judgment entered in this case, whether favorable or unfavorable to it. By remaining in the Class, Your City will have no obligation to pay any of the costs or attorneys' fees involved inthis Lawsuit at this time. If the Class prevails in this Lawsuit, the Court may award attorneys' fees and nontaxable costs that are authorized by law. If Defendants prevail in this Lawsuit, all costs and attorneys' fees incurred by Plaintiffs and the Class will bepaid exclusively by Class Counsel. CLASS ACTION NOTICE - Page 3 140808vl 2. You Mav Remain A Member Of The Class And Be Represented By Your Own Counsel. If Your City wants to remain a member of the Class, but does not want to be represented by Class Counsel, Your City may enter an appearance through its own attorney or request the Court to allow it to intervene (that is, to participate in the case as an individual plaintiff) through its own attorney. IfYoUT City wants to appear or intervene, your attorney must file the appropriate documents with the Court on or before August 14, 2008 and must send copies of those documents to each of the counsel listed in paragraph 3 below. 3. Your City Mav Request Exclusion From The Class. If Your City wants to be excluded from the Class, it must send a written request for exclusion, in the form of a letter signed by a duly authorized representative of Your City and sent by certified mail, to both of the following individuals by Amrust 14,2008 Steven D. Wolens Diamond McCarthy 1201 Elm Street Suite 3400 Dallas, Texas 75270 Lead Attorney for the Class of Texas Cities Ricardo Cedillo Davis, Cedillo & Mendoza, Inc. McCombs Plaza Suite 500 755 East Mulberry A venue San Antonio, Texas 78212 Attorney for Defendants Online Travel Companies By making the decision to exclude itself from the Class, Your City will not share in any favorable judgment obtained on behalf of the Class, nor will it be bound by any adverse judgment entered against the Class. D. Additional Information. If Your City desires additional infonnation about this Notice, about the Class Certification Order, or about this Lawsuit, you should contact Lead Class Counsel as set forth below. Steven D. Wolens Diamond McCarthy 1201 Elm Street Suite 3400 Dallas, Texas 75270 (214) 389-5347 swolens@diamondmccarthy.com CLASS ACTION NOTICE - Page 4 140808vl This Notice does not fully describe the claims and defenses ofthe parties in this litigation or the status of the Lawsuit. The pleadings and court papers filed in this Lawsuit are available for inspection and copying at any time during regular office hours in the Office of the Clerk of the United States District Court for the Western District of Texas, San Antonio Division, which is located at 655 E. Durango Blvd., San Antonio; Texas 78206-1106. Certain pleadings and court papers in this lawsuit have been filed under seal and may not be examined or copied without first obtaining an order from the Court. . In order to inspect the pleadings and court papers, you must appear in person or through an authorized representative such as an attorney. PLEASE DO NOT CALL OR WRITE THE COURT OR THE DISTRICT COURT'S OFFICE FOR. INFORMATION. . ( ~ oj Dated: <...J U VI. -e.. /1-) J.. b CLASS ACTION NOTICE - Page 5 140808vl {~~tC UNITED STATES DISTRICT JUDGE askins & askins p.c. RECEIVED JUL 1 8 2008 ATIORNEYS and COUNSELORS Knox W. Askins Clark T. Askins C~..\' :;.-;CK.:...AR':'S Of=~=~'::! July 16, 2008 Wolens Diamond M arthy LLP Renaiss ce Tower m Street, 34th Floor s, TX 75270 Re: City of San Antonio, Texas, on Behalf of Itself and All Other Similarly situated Texas Cities v. Hotels.com, et al. Case No. SA06CA0381 OG Dear Mr. Wolens: In reference to your letter to our office dated June 25, 2008, I enclose herewith certified copy of ordinance passed by the City of La Porte City Council on July 14, 2008, expressing the intention of the city of La Porte to be included in the class of 175 cities, in the subject litigation. Our office explained to the City Council that electing to remain in the class carries no risk to the City of La Porte, based on the fact that the City of La Porte would not be liable for any costs or fees, should the litigation be unsuccessful. Thank you, and should you have any questions, please do not hesitate to give me a call. Yours very truly, ~~ Clark T. Askins Assistant City Attorney City of La Porte CTA: sw Enclo~re cc: vfi<?n. City Mayor & City Council of La Porte Mr. Ron Bottoms City Manager City of La Porte 702 W. Fairmont Parkway, P.O. Box 1218, La Porte, TX 77572-1218 281.471.1887 phone . 281.471.2047 fax . knoxaskins@comcast.net . ctaskins@swbell.net