City of Charleston, Sc v. Hotels.Com, Lp

• Decision Date: 23 April 2007
• Docket Number: C.A. No. 2:06-cv-1646-PMD.,C.A. No. 2:06-cv-2087-PMD.
• Citation: 487 F.Supp.2d 676
• Court: U.S. District Court — District of South Carolina
• 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.

487 F.Supp.2d 676

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.

April 23, 2007.

Walter Ronald Bonds, Attorneys for Medical Help, Charleston, SC, for Plaintiff.

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, Benjamin Jonathan Fox, David Frank McDowell, Jr., James Oliva, Morrison and Foerster, Los Angeles, CA, Karen L. Valihura, Michael A. Barlow, Skadden Arps Slate Meagher and Flom, Wilmington, DE, for Defendants.

ORDER

DUFFY, District Judge.

This matter is before the court on Plaintiffs City of Charleston and Town of Mount Pleasant's ("Charleston" and "Mt. Pleasant" respectively; collectively, "Plaintiffs")Motions to Amend their Complaints to include a count based on the South Carolina Unfair Trade Practices Act, S.C.Code Ann. § 39-5-10, et seq.

FACTUAL BACKGROUND

The facts, as alleged by Plaintiffs' proposed 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 borders.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 "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.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 accommodation 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 mark up the prices on their inventory of rooms and sell the rooms at a higher price to consumers who occupy the rooms.Defendants charge and collect the accommodations taxes from occupants at the time of the sale based on the marked-up room rates, but then remit the lower tax amounts to Plaintiffs.Defendants keep the difference between the amount charged to the public and the amount remitted to the Plaintiffs.Plaintiffs assert that this practice violates Plaintiffs' Municipal Accommodations Fee Ordinances and constitutes an unfair or deceptive trade practice.

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, 2006, also in Charleston County Court of Common Pleas.These Complaints originally asserted causes of action for (1) violations of the Municipal Accommodations Fee Ordinance, (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, 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, 2007 to amend their pleadings.Accordingly, on January 22, 2007, Plaintiffs filed Motions to Amend their Complaints, seeking to add a fifth cause of action to their Complaints based on Defendants' alleged violation of the South Carolina Unfair Trade Practices Act ("SCUTPA"), S.C.Code Ann. § 39-5-10, et seq.Plaintiffs attached to their Motions the proposed Amended Complaints.Defendants have filed a Response opposing the Motions to Amend, to which Plaintiffs have replied.

STANDARD OF REVIEW

Rule 15(a) of the Federal Rules of Civil Procedure requires that leave to amend a pleading "be freely given when justice so requires," and the Supreme Court has held that "this mandate is to be heeded."Foman v. Davis,371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222(1962).The Fourth Circuit instructs that "[i]f the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits."Pittston Co. v. United States,199 F.3d 694, 705(4th Cir.1999).While this court is given discretion to deny a motion to amend, "that discretion is limited by the interpretation given Rule 15(a) in Foman`and by the general policy embodied in the Federal Rules favoring resolution of cases on their merits.'"Island Creek Coal Co. v. Lake Shore, Inc.,832 F.2d 274, 279(4th Cir.1987)(citation omitted).Upholding the letter and the spirit of this rule, "leave to amend a pleading should be denied only whenthe amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile."Edwards v. City of Goldsboro,178 F.3d 231, 242(4th Cir.1999)(quotingJohnson v. Oroweat Foods Co.,785 F.2d 503, 509(4th Cir.1986))(emphasis in original).A delay in bringing a proposed amendment is insufficient reason to deny leave to amend.Id.

ANALYSIS

In this case, because Plaintiffs filed their Motions to Amend their Complaints within the time prescribed by the scheduling order, Defendants cannot claim that the Motions are untimely.Instead, Defendants argue that Plaintiffs' Motion should be denied because the proposed amendments are futile and would cause prejudice to Defendants.

(1) Futility

For a motion to amend to be denied for futility, the amendment must be "clearly insufficient or frivolous on its face."Oroweat Foods Co.,785 F.2d at 510-511;see alsoRambus, Inc. v. Infineon Tech., AG,304 F.Supp.2d 812, 819(E.D.Va.2004)("Courts generally favor the `resolution of cases on their merits' ... [t]hus the substantive merits of a proposed claim [or defense] are typically best left for later resolution, e.g., motions to dismiss or for summary judgment, ..., or for resolution at trial.")(quotingDavis v. Piper Aircraft Corp.,615 F.2d 606, 613(4th Cir.1980));see alsoRobinson v. GEO Licensing Co., L.L.C.,173 F.Supp.2d 419, 423(D.Md.2001).Accordingly, the court considers whether a cause of action for SCUTPA as asserted in the proposed Amended Complaints is clearly insufficient or frivolous on its face.

The SCUTPA broadly prohibits any "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce."S.C.Code Ann. § 39-5-20.To bring a claim under SCUTPA, a plaintiff¹ must allege (1) that the defendant engaged in an unfair or deceptive act in the conduct of trade or commerce, (2) that the plaintiff suffered actual, ascertainable damages as a result of the defendant's unfair or deceptive act, and (3) that the unfair or deceptive act had an adverse impact on the public interest.SeeS.C.Code Ann. § 39-5-140;Havird Oil Co., Inc. v. Marathon Oil Co., Inc.,149 F.3d 283, 291(4th Cir.1998);Daisy Outdoor Advertising Co., Inc. v. Abbott,322 S.C. 489, 473 S.E.2d 47, 49(1996).

Defendants assert that Plaintiffs' proposed SCUTPA causes of action are insufficient on their faces because (A)they fail to allege trade practices which are unfair or deceptive and (B) the regulatory exception of SCUTPA bars this cause of action.

A.Do the Amended Complaints Allege Unfair or Deception Practices?

Defendants assert that their alleged failure to pay local taxes is neither "unfair" nor "deceptive."(Defs. Oppositionat 6.)As such, Defendants argue that Plaintiffs have not alleged facts supporting the first element of a SCUTPA cause of action.The court notes, however, that the Amended Complaints do not only allege that Defendants failed to pay the relevant local tax; rather, they allege that Defendants collected the tax from consumers and then wrongfully kept a portion of the tax collected.(Amended Complaint¶ 22, 27.)In other words, the alleged deceptive and unfair business practice is Defendant's practice of collecting from consumers a higher tax than Defendants intended to remit, thereby wrongfully denying the municipalities of their tax revenues.The court finds that this allegation is sufficiently unfair and deceptive to satisfy the liberal pleading requirements of Rule 15(a).²

B.Do the Facts as Alleged in the Amended Complaint Necessarily Implicate the Regulatory Exception of SCUTPA?

Section 39-5-40(a) of the Code provides that SCUTPA does not apply to "[a]ction or transactions permitted under laws administered by any regulatory body or officer acting under statutory authority of this State or the United States or actions or transactions permitted by any other South Carolina State law."Defendants argue that this regulatory exemption to SCUTPA bars this lawsuit.In support of this assertion, Defendants cite InMed Diagnostic Services, L.L.C. v. MedQuest Assoc. In.,358 S.C. 270, 594 S.E.2d 552(2004), which held that an UTPA claim based on allegedly deceptive information provided to the Department of Health and Environmental Control("DHEC") was unsustainable under the regulatory exemption because "[w]hether or not [defendant] followed [DHEC's] procedures correctly is uniquely within the competency of DHEC."Id. at 556.Applying this exception to the casesub judice,Defendants assert that whether they are subject to...