City of Charleston, S.C. v. Hotels.Com, Lp

• Decision Date: 05 November 2007
• Docket Number: C.A. No. 2:06-cv-2087-PMD.,C.A. No. 2:06-cv-1646-PMD.
• Citation: 520 F.Supp.2d 757
• Parties: CITY OF CHARLESTON, SOUTH CAROLINA, Plaintiff, v. HOTELS.COM, LP, et al., Defendants. Town of Mount Pleasant, South Carolina, Plaintiff, v. Hotels.com, LP, et al., Defendants.
• Court: U.S. District Court — District of South Carolina

520 F.Supp.2d 757

CITY OF CHARLESTON, SOUTH CAROLINA, Plaintiff, v. HOTELS.COM, LP, et al., Defendants.

Town of Mount Pleasant, South Carolina, Plaintiff, v. Hotels.com, LP, et al., Defendants.

C.A. No. 2:06-cv-1646-PMD.

C.A. No. 2:06-cv-2087-PMD.

United States District Court, D. South Carolina, Charleston Division.

November 5, 2007.

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Edward A. Berman, Edward A. Berman Law Office, Chicago, IL. Robert Allen Young, Town of Mount Pleasant, Mt. Pleasant, SC, Walter Ronald Bonds, Attorneys for Medical Help, Charleston, SC, for Plaintiffs.

Bradish Johnson Waring, Thomas S. Tisdale, Jr., Nexsen Pruet Jacobs Pollard and Robinson, Charleston, SC, Deborah S. Sloan, James P. Karen, Jones Day, Dallas, TX, Elizabeth B. Herrington, Paul E. Chronis, Purvi G. Patel, Mcdermott Will and Emery, Chicago, IL, Brian Scott Stagner, Jason Chad Nash, Kelly Hart And Hallman, Fort Worth, TX, Jason Chad Nash, Kelly Hart and Hallman, Fort Worth, TX, Karen L. Valihura Michael A. Barlow, Skadden Arps Slate Meagher and Flom, Wilmington, DE, for Defendants.

ORDER

PATRICK MICHAEL DUFFY, District Judge.

This matter is before the court on Defendants' motion pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss all claims in Plaintiffs City of Charleston and Town of Mount Pleasant's ("Charleston' and "Mt. Pleasant" respectively; collectively, "Plaintiffs") Complaint. For the reasons set forth herein, the Defendants' Motion is denied.

FACTUAL BACKGROUND

The facts, as alleged by Plaintiffs' Amended Complaints, are as follows:

Pursuant to their respective Municipal Accommodations Fee Ordinances, Charleston imposes a tax of 2% and Mt. Pleasant imposes a tax of 1% (the "tax") on the gross proceeds derived from the rental of any accommodations within their municipal boundaries. All persons renting hotel rooms within Charleston or Mt. Pleasant are required to pay the tax in addition to the gross price of the hotel room. The tax is paid by the consumer at the time of the "delivery of the accommodations to which the fee applies" and is collected on behalf of the relevant municipality by the provider of the service of the rental of accommodations. Charleston, S.C. Ordinance 1996-18, § 4; Mt. Pleasant, S.C. Ordinance 96014, § 4. Plaintiffs adopted these taxes in 1996 to help provide property tax relief to their residents.

Defendants are online sellers and/or online resellers of hotel rooms to the general public. Defendants have rented rooms in Charleston and in Mt. Pleasant to consumers and have collected accommodations taxes. Plaintiffs assert, however, that Defendants have not paid the full amount of tax due and owing to Plaintiffs on these transactions. Specifically, Defendants contract with hotels operating within Charleston and Mt. Pleasant for rooms at negotiated discounted room rates. Defendants then market these rooms on their websites, and sell the rooms at a higher marked-up price to consumers who occupy the rooms. Defendants charge and collect the accommodations taxes from online consumers at the time of the sale based on the marked-up room rates, but only remit the taxes based on the lower discount rates to the Plaintiffs. Defendants keep the difference between the amount of tax charged to the consumer and the amount remitted to the Plaintiffs.¹ Plaintiffs assert that this practice violates Plaintiffs' Municipal Accommodations Fee Ordinances and constitutes conversion, calls for an imposition of a constructive trust, and is an unfair or deceptive trade practice in violation of the South Carolina Unfair Trade Practices Act ("SCUTPA"). Plaintiffs also demand a legal accounting of all money Defendants are alleged to have charged consumers as "tax" and retained as profit.

PROCEDURAL BACKGROUND

On April 26, 2006, Charleston filed a Complaint against Defendants in the Charleston County Court of Common Pleas. Mt. Pleasant filed a nearly identical Complaint against Defendants on May 23, also in the Charleston County Court of Common Pleas, These Complaints originally asserted causes of action for (1) violations of the Municipal Accommodations Fee Ordinances, (2) conversion, and sought (3) imposition of constructive trust and (4) a full legal accounting. Defendants removed both cases to federal district court pursuant to 28 U.S.C. § 1332 on the basis of diversity jurisdiction.

On January 11, 2007, based upon the parties' agreement and consent, the court entered Amended Scheduling Orders in both cases. Under these Orders, the parties had until January 23 to amend their pleadings. Accordingly, on January 22, Plaintiffs filed Motions to Amend their Complaints, seeking to add a fifth cause of action to their Complaints based on Defendants' alleged violation of SCUTPA, S.C.Code Ann. § 39-5-10, et seq. (2006). This motion was granted by the court on April 23.

On April 25, 2007, Defendants filed an Unopposed Motion to Consolidate the two cases into a single action, which the court granted on April 26. On June 4, Defendants filed the Motion to Dismiss Plaintiff's First Amended Complaint and Memorandum in Support Thereof. Plaintiffs filed a Memorandum of Law in Opposition to Defendants' motion on July 19. On August 8, Defendants filed a Reply with Supporting Memorandum in Support of Their Motion to Dismiss.

Defendants move for dismissal of the Complaint for failure to state a claim upon which relief may be granted. Fed.R.Civ.P. Rule 12(b)(6).

STANDARD OF REVIEW

A Rule 12(b)(6) motion should be granted only if, after accepting all well-pleaded allegations in the complaint as true, it appears certain that Plaintiff cannot prove any set of facts in support of its claims that entitles it to relief. Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). The complaint should not be dismissed unless it is certain that the plaintiff is not entitled to relief under any legal theory that might plausibly be suggested by the facts alleged. Mylan Labs. Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.1993). Further, "[u]nder the liberal rules of federal pleading, a complaint should survive a motion to dismiss if it sets out facts sufficient for the court to infer that all the required elements of the cause of action are present." Wolman v. Tose, 467 F.2d 29, 33 n. 5 (4th Cir.1972). If, on a motion to dismiss for failure to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56. Fed. R.Civ.P. 12(b).

ANALYSIS

As an initial matter, the court notes that the legal questions presented in this litigation are extremely unsettled. This case is hut one of a great number of similar cases being brought by counties and municipalities across the nation. Most district courts hearing these cases have denied, at least in part, the online travel companies' motions to dismiss.² However, several courts have granted these motions and dismissed the case.³ While some of this variance in the application of the law is no doubt due to the considerable variance in municipal accommodations fee ordinances, state enabling statutes, arid state unfair trade practices laws, much of it is due to a lack of established precedent in these areas.

I. Plaintiffs' Count I: Defendants' Actions Violated Municipal Accommodations Fee Ordinances

Plaintiffs allege that Defendants are subject to City of Charleston Municipal Accommodations Fee Ordinances 1996-18 and 1996-56 and Mt. Pleasant Municipal Accommodations Fee Ordinances 96014 and 96023, respectively. The Ordinances are virtually identical, and use identical language in all sections relevant to this action. The Ordinances were passed for the purpose of passing the cost of much of the capital expenditures necessary to support regional tourism along to the visitors themselves, and relieve local property owners of some of the financial burden for such costs.⁴

The Ordinances provide for the imposition of an accommodations fee on "the gross proceeds derived from the rental of any accommodation."⁵ The tax is imposed upon the consumer of the accommodations, who is responsible for paying the tax "at the time of delivery of the accommodations to which the fee applies." Charleston, S.C. Ordinance 1996-18, § 4; Mt. Pleasant, S.C. Ordinance 96014, § 4. The Ordinances also specify that the tax "shall be collected by the provider of the accommodations." Id. The provider of the accommodation is then responsible for remitting the amount of the tax to the municipality on a monthly basis.

The Ordinances also provide a mechanism for enforcing the tax:

For the purpose of enforcing the provisions of this Ordinance the Director of Business License or other authorized agent of the [City/Town] is empowered to enter upon the premises of any person or entity subject to this Ordinance and to make inspections, and examine and audit books and records. It shall be unlawful for any person or entity to fail or refuse to make available the necessary books and records during normal business hours upon 24 hours written notice. In the event an audit reveals that false information has been filed by the remitter, the cost of the audit shall be added to the correct amount of fees determined to be due. [...] The Director of Business License may make systematic inspections of all accommodations within the City to ensure compliance with this Ordinance.

Charleston, S.C. Ordinance 1996-18, § 8; Mt. Pleasant, S.C. Ordinance 96014, § 7.

These Ordinances were enacted by Plaintiffs pursuant to a south Carolina enabling act. This act gives each South Carolina municipality the power to enact local Ordinances "including the authority to levy and collect taxes ... provided, however, that this shall not extend the effect of the laws of the municipality beyond its corporate boundaries." S.C.Code Ann. § 5-7-30 (2006).

Count I...