Fifth Circuit Vacates $84 Million Class Action Award Against Online Travel Companies
The U.S. Court of Appeals for the Fifth Circuit has vacated an $84 million class action award won by 173 Texas cities who sued numerous online travel…
November 30, 2017 at 02:43 PM
6 minute read
The U.S. Court of Appeals for the Fifth Circuit has vacated an $84 million class action award won by 173 Texas cities who sued numerous online travel companies including Hotels.com, Expedia and Orbitz, for failure to pay hotel occupancy taxes.
The City of San Antonio originally filed the class action suit San Antonio v. Hotels.com in the Western District of Texas federal court in 2006 against numerous online travel companies (OTCs) for violations of the Texas tax code, municipal ordinances and for conversion. Two years later, the federal court certified a class of 175 Texas cities whose ordinances require any person controlling a hotel to remit hotel occupancies.
After the class certification, two cities, one of them Houston, opted out of the class, according to the opinion. Houston decided to pursue its case in a Texas state court to recover unpaid occupancy taxes.
The remaining 173 cities sought damages for unpaid or underpaid hotel occupancy taxes and a declaration that an OTC is required to collect and remit hotel occupancy taxes based on the amount it collects for discounted room rates and service fees.
In 2009, a federal jury heard testimony from 38 witnesses and 150 exhibits to determine whether the OTCs controlled the hotels and were therefore subject to the hotel occupancy tax ordinances. The jury determined that the OTCs did control the hotels, according to the opinion.
After the jury's decision, the federal trial court judge had to address a pure question of law: whether the retail rate paid by the traveler, or the lesser discounted rate the OTC pays the hotel, is included in the tax base. Two years after the jury's verdict, the trial court ruled that tax applied the retail rate paid by the traveler, rather than the discounted rate paid by the OTC. And in 2014 the trial court issued an $84 million judgment against the defendant OTCs.
The OTCs appealed that decision to the Fifth Circuit, arguing that they do not “control” hotels within the meaning of the tax ordinances and that the tax applied to the discounted room rate the OTC pays the hotel, rather than the retail rate paid by the traveler.
Meanwhile, a Texas state court judge rejected Houston's claim to collect unpaid hotel occupancy taxes in a summary judgment ruling. Houston's 14th Court of Appeals later affirmed that ruling, holding that the tax only applied to the “discounted-room-rate amounts paid to the hotels.”
In its decision, The Fifth Circuit agreed that the occupation tax only applied to the discounted rate paid by the OTC.
“Cities concede OTCs have been collecting taxes on the discounted room rate paid to the hotel, and the hotels have been remitting them,” wrote Senior Judge Rhesa Barksdale in the decision vacating the $84 million award and rendering judgment for the OTCs. “Because the only monetary amounts at issue in this class action are those not included in the scope of the hotel occupancy tax base, as limited by our above holding, OTCs are not liable.”
The U.S. Court of Appeals for the Fifth Circuit has vacated an $84 million class action award won by 173 Texas cities who sued numerous online travel companies including Hotels.com, Expedia and Orbitz, for failure to pay hotel occupancy taxes.
The City of San Antonio originally filed the class action suit San Antonio v. Hotels.com in the Western District of Texas federal court in 2006 against numerous online travel companies (OTCs) for violations of the Texas tax code, municipal ordinances and for conversion. Two years later, the federal court certified a class of 175 Texas cities whose ordinances require any person controlling a hotel to remit hotel occupancies.
After the class certification, two cities, one of them Houston, opted out of the class, according to the opinion. Houston decided to pursue its case in a Texas state court to recover unpaid occupancy taxes.
The remaining 173 cities sought damages for unpaid or underpaid hotel occupancy taxes and a declaration that an OTC is required to collect and remit hotel occupancy taxes based on the amount it collects for discounted room rates and service fees.
In 2009, a federal jury heard testimony from 38 witnesses and 150 exhibits to determine whether the OTCs controlled the hotels and were therefore subject to the hotel occupancy tax ordinances. The jury determined that the OTCs did control the hotels, according to the opinion.
After the jury's decision, the federal trial court judge had to address a pure question of law: whether the retail rate paid by the traveler, or the lesser discounted rate the OTC pays the hotel, is included in the tax base. Two years after the jury's verdict, the trial court ruled that tax applied the retail rate paid by the traveler, rather than the discounted rate paid by the OTC. And in 2014 the trial court issued an $84 million judgment against the defendant OTCs.
The OTCs appealed that decision to the Fifth Circuit, arguing that they do not “control” hotels within the meaning of the tax ordinances and that the tax applied to the discounted room rate the OTC pays the hotel, rather than the retail rate paid by the traveler.
Meanwhile, a Texas state court judge rejected Houston's claim to collect unpaid hotel occupancy taxes in a summary judgment ruling. Houston's 14th Court of Appeals later affirmed that ruling, holding that the tax only applied to the “discounted-room-rate amounts paid to the hotels.”
In its decision, The Fifth Circuit agreed that the occupation tax only applied to the discounted rate paid by the OTC.
“Cities concede OTCs have been collecting taxes on the discounted room rate paid to the hotel, and the hotels have been remitting them,” wrote Senior Judge Rhesa Barksdale in the decision vacating the $84 million award and rendering judgment for the OTCs. “Because the only monetary amounts at issue in this class action are those not included in the scope of the hotel occupancy tax base, as limited by our above holding, OTCs are not liable.”
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllOvertime Rewind: Texas Court Ruling Unravels FLSA Salary Level Increases
4 minute readDivided 5th Circuit Shoots Down Nasdaq Diversity Rules
Uvalde Shooting 'Fresh in Everyone's Mind:' Lone Dissenting Judge Disagrees with School's Disciplinary Decision Over Pellet Gun
Amazon, SpaceX Press Constitutional Challenges to NLRB at 5th Circuit
Trending Stories
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250