Chiste v. Hotels.Com L.P.

• Decision Date: 15 November 2010
• Docket Number: Nos. 08 Civ. 10676 (CM),Nos. 10 Civ. 07522 (CM),Nos. 08 Civ. 10744 (CM),Nos. 08 Civ. 10746 (CM),s. 08 Civ. 10676 (CM),s. 08 Civ. 10744 (CM),s. 08 Civ. 10746 (CM),s. 10 Civ. 07522 (CM)
• Citation: Chiste v. Hotels.Com L.P., 756 F.Supp.2d 382 (S.D. N.Y. 2010)
• Parties: Matthew R. CHISTE, Jason Sidener, and Cecily Lamattina, on behalf of themselves and all others similarly situated, Plaintiffs,v.HOTELS.COM L.P., and Expedia, Inc. (WA), Defendants.James Schultz, on behalf of himself and all others similarly situated, Plaintiff,v.Travelocity.com, LP, Travelocity.com. Inc., Site59.com, LLC, Sabre Holdings Corp., Defendants.Matthew Chiste, Donald Schroud, and Marc Gutman, on behalf of themselves and all others similarly situated, Plaintiffs,v.Priceline.com, Inc., Defendant.Heather Peluso, on behalf of herself and all others similarly situated, Plaintiff,v.Orbitz.com, Orbitz LLC, Orbitz Worldwide, Inc., Orbitz Worldwide Development, LLC, Orbitz Worldwide International, LLC, Orbitz Worldwide, LLC, Travelport L.P., The Blackstone Group L.P., Cendant Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

756 F.Supp.2d 382

Matthew R. CHISTE, Jason Sidener, and Cecily Lamattina, on behalf of themselves and all others similarly situated, Plaintiffs,

v.HOTELS.COM L.P., and Expedia, Inc. (WA), Defendants.James Schultz, on behalf of himself and all others similarly situated, Plaintiff,

v.Travelocity.com, LP, Travelocity.com. Inc., Site59.com, LLC, Sabre Holdings Corp., Defendants.Matthew Chiste, Donald Schroud, and Marc Gutman, on behalf of themselves and all others similarly situated, Plaintiffs,

v.Priceline.com, Inc., Defendant.Heather Peluso, on behalf of herself and all others similarly situated, Plaintiff,

v.Orbitz.com, Orbitz LLC, Orbitz Worldwide, Inc., Orbitz Worldwide Development, LLC, Orbitz Worldwide International, LLC, Orbitz Worldwide, LLC, Travelport L.P., The Blackstone Group L.P., Cendant Corporation, Defendants.

Nos. 08 Civ. 10676 (CM), 08 Civ. 10744 (CM), 08 Civ. 10746 (CM), 10 Civ. 07522 (CM).

United States District Court, S.D. New York.

Nov. 15, 2010.

Roger Juan Maldonado, Steven Neil Blivess, Balber, Pickard, Battistoni, Maldonado, & Van Der Tuin, New York, NY, Michael Y. Saunders, Law Offices of Michael Y. Saunders, Houston, TX, for Plaintiffs.Arthur J. Margulies, Robert W. Gaffey, Jones Day, Michael E. Norton, Norton & Associates LLC, Kenneth Alan Plevan, Skadden, Arps, Slate, Meagher & Flom LLP, Mark M. Altschul, Altschul & Altschul, Robert A. Weiner, McDermott, Will & Emery, LLP, New York, NY, Brian S. Stagner, David H. Garza, Scott R. Wiehle, Kelly, Hart & Hallman, LLP, Forth Worth, TX, Karen L. Valihura, Randolph K. Herndon, Skadden, Arps, Slate, Meagher & Flom, LLP, Wilmington, DE, Elizabeth B. Herrington, Mark J. Altshul, McDermott, Will & Emery, LLP, Chicago, IL, for Defendants.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

McMAHON, District Judge.

PlaintiffsMatthew Chiste, Jason Sidener, and Cecily Lamattina, as named plaintiffs acting on behalf of a class of similarly situated persons, commenced a purported class-action suit against DefendantsHotels.com L.P.(“Hotels.com”) and Expedia, Inc.(WA)(“Expedia”), to recover damages and obtain injunctive relief for deceptive and misleading business practices, breach of contract, conversion, and breach of fiduciary duty.¹

In a virtually identical class-action complaint, plaintiffsMatthew Chiste, Donald Schroud, and Marc Gutman allege false and misleading business practices by Priceline.com, Inc.(“Priceline”) based, in part, on Priceline overcharging consumers for hotel-occupancy and sales taxes when they use Priceline's website to make hotel reservations.²

PlaintiffJames Schultz filed a class-action complaint against Travelocity.com, LP(“Travelocity”), Travelocity.com, Inc., Site59.com, LLC, and Sabre Holdings Corp. alleging similar misconduct.

Heather Peluso recently filed a purported class-action suit against Orbitz.com (“Orbitz”), Orbitz LLC, Orbitz Worldwide, Inc., Orbitz Worldwide Development, LLC, Orbitz Worldwide International, LLC, Orbitz Worldwide, LLC, Travelport L.P., The Blackstone Group L.P., and Cendant Corporation alleging similar wrongdoing.

Presently before the Court are Hotels.com's, Priceline's, and Expedia's motions to dismiss all claims asserted by plaintiffs Chiste, Sidener, Lamattina, Schroud, and Gutman.Travelocity filed a motion to dismiss or, in the alternative, to transfer Schultz's suit based on a forum-selection clause in the User Agreement between Travelocity and plaintiff Schultz.

For the reasons discussed below, Travelocity's motion to transfer the suit against it to the Northern District of Texas is granted.

Hotels.com's, Priceline's, and Expedia's motions to dismiss are granted except for plaintiff Lamattina's claims under New York General Business Law § 349(her first cause of action) against Hotels.com, and Schroud's breach-of-fiduciary-duty claim (his fifth cause of action) against the Priceline defendants.Unless Schroud can think of a good reason why I should not transfer this peculiar claim to his home forum of Illinois, I intend to do so.

Peluso's complaint was filed but recently, and the Court stayed it pending a decision on these motions.She has fourteen days to file a brief of no more than ten pages explaining why the Court should not dispose of her complaint in the same manner as it has disposed of the cases against the other defendants.³The Orbitz Defendants have the same period—fourteen days—to move for dismissal of Peluso's unjust-enrichment claim (count seven), a claim that she alone asserts.

BACKGROUND

Defendants are online travel companies that offer consumers the opportunity to make reservations at hotels worldwide at a discounted rate.Plaintiffs are consumers who used Defendants' websites to purchase a night or multiple nights' stay in a New York City hotel room.

Plaintiffs allege that Defendants operate their business using what is known as the “merchant model.”(Compl. ¶¶ 23, 25.⁴)Under the merchant model, Defendants contract with hotels to obtain an inventory of rooms at a discounted rate (the “Wholesale Rate”).( Id.¶ 23.)Defendants then charge a mark-up and offer the rooms to consumers at a higher “Retail Rate.”( Id.)In this model, the Defendants are the merchants of record, and, as such, collect payment from consumers directly at the time the reservation is made, determine the cancellation policy, determine the mark-up or profit they will earn on each hotel night purchased by a consumer, and control if and how a consumer can lengthen or shorten their stay at the hotel.( Id.)Consumers pay for their hotel reservation online via Defendants' websites.Once payment is made, the transaction is complete.

Priceline also operates under a “pseudo-auction model” entitled “Name Your Own Price”(“NYOP”).(Priceline Compl.¶ 22.)Under the NYOP model, a consumer selects her travel dates, a geographic location where she would like her hotel to be situated ( i.e., Midtown East, Upper West Side, etc.), and the quality of the hotel ( i.e., one, two, three stars, etc.).( Id.)The consumer also submits a “bid price”—the amount the consumer would like to pay for each night she stays at the hotel.( Id.)Priceline then searches for hotels with availability that meet the consumer's criteria.If the bid price is accepted, the consumer is advised of the taxes and service fees that will be charged along with the bid price.( Id.)The Priceline Plaintiffs allege that Priceline will not accept a bid price that is lower than a combination of (1) the cost of the room if reserved directly from the hotel and (2) the mark-up Priceline charges consumers.( Id.)

When a reservation is complete, consumers receive an invoice.(Compl. Ex. A.)The invoice lists the total room rate as well as the taxes and fees charged.( Id.)The crux of Plaintiffs' allegations stem from what is not disclosed on this invoice.

First, the Plaintiffs complain that the Defendants do not disclose on the invoice (or on their websites) that they are charging a mark-up for each hotel night purchased and the exact amount of the mark-up.( Id.¶ 6.)Plaintiffs allege that this mark-up is an undisclosed fee and that Defendants' failure to disclose it is misleading.( Id.¶¶ 6, 35.)

Second, Plaintiffs allege that Defendants are charging consumers a higher tax based on the Retail Rate consumers pay Defendants rather than the Wholesale Rate Defendants pay the hotels.( Id.¶ 5.)Instead of remitting the full amount of taxes collected to the hotels, Defendants keep the difference between the tax collected and the amount remitted to the tax authorities (the “Tax Delta”) as a profit or fee without disclosing it.( Id.¶ 35.)Plaintiffs allege that the Tax Delta and the mark-up are improper unearned profits that the Defendants should not be permitted to retain.( Id.¶ 6.)

Third, Plaintiffs allege that the invoice is deceptive and misleading because Defendants bundle the taxes charged with the service fees in one entry, instead of providing an itemized breakdown of both charges.( Id.¶ 35.)What's more, Plaintiffs allege that the service fee is calculated as a percentage of the Retail Price but the Retail Price includes Defendants' mark-up.( Id.)Thus, Plaintiffs allege that Defendants are charging “consumers a ‘fee’ calculated on a fee.' ”( Id.)

In all four cases, the named Plaintiffs assert six identical causes of action.

Count one alleges deceptive business practices under New York General Business Law(“G.B.L.”)§ 349, because Defendants(1) charge consumers a higher tax and keep the Tax Delta as a profit without disclosing it; (2) retain a mark-up on the Wholesale Rate without disclosing the amount of the mark-up; (3) bundle the taxes with the service fees so that consumers do not know the amount of the service fee or taxes, and (4) deceive consumers into believing that Defendants offer the lowest possible rate on hotel rooms.( Id.¶ 56.)

Count two seeks a declaratory judgment and injunctive relief based on Defendants alleged violation of G.B.L. § 349.

Count three seeks declaratory and injunctive relief under the Declaratory Judgment Act, 28 U.S.C. § 2201, for various common-law breaches.

Count four is a cause of action for conversion, alleging that Defendants improperly retained the Tax Delta and the mark-up on the Wholesale Rate.( Id.¶ 70.)

Count five alleges that Defendants breached some fiduciary duty to consumers.Plaintiffs assert that Defendants portray themselves as travel agents and therefore owe consumers a fiduciary duty which was violated when they failed to disclose, among other things, the mark-up and the service fees.( Id.¶ 77.)

Finally, count six alleges a breach-of-contract claim that relies on the User Agreement all consumers are bound by when using Defendants' websites.

Peluso asserts a seventh cause of action against the Orbitz Defendants for unjust enrichment.She alleges that the Orbitz Defendants fraudulently retained the excess taxes and...