City of Findlay v. Hotels.Com, L.P., No. 3:05 CV 7443.

• Decision Date: 26 July 2006
• Docket Number: No. 3:05 CV 7443.
• Citation: 441 F.Supp.2d 855
• Parties: CITY OF FINDLAY, Plaintiff, v. HOTELS.COM, L.P., et al., Defendant.
• Court: U.S. District Court — Northern District of Ohio

441 F.Supp.2d 855

CITY OF FINDLAY, Plaintiff, v. HOTELS.COM, L.P., et al., Defendant.

No. 3:05 CV 7443.

United States District Court, N.D. Ohio, Western Division.

July 26, 2006.

COPYRIGHT MATERIAL OMITTED

Alicia Wolph Roshong, Fostoria, OH, George L. Kentris, Kentris, Brown, Powell & Balega, Findlay, OH, John T. Murray, Murray & Murray, Sandusky, OH, for Plaintiff.

Michael R. Gladman, Todd S. Swatsler, Jones Day, Columbus, OH, John A. Biek, Elizabeth Herrington, Paul E. Chronis, McDermott Will & Emery, Chicago, IL, Tammy Geiger Lavalette, Steven R. Smith, Connelly, Jackson & Collier, Toledo, OH, Darrel J. Hieber, Skadden, Arps, Slate, Meagher & Flom, Los Angeles, CA, Karen L. Valihura, Michael A. Barlow, Skadden, Arps, Slate, Meagher & Flom, Wilmington, DE, John Pernick, Bingham, McCutchen, San Francisco, CA, for Defendants.

MEMORANDUM OPINION

KATZ, District Judge.

This is a putative class action brought against a number of online travel companies by the City of Findlay, Ohio, ("the City"), alleging that Defendants underpaid taxes on hotel lodging. (Doc. No. 1-2, Ex. A). The case is before the Court on Defendants' Motion to Dismiss the City's entire complaint under Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief can be granted. (Doc. No. 39-1). Also before the Court is Plaintiff's Motion to Strike Defendants' Memorandum Addressing Plaintiffs Supplemental Authority. (Doc. No. 59-1). That motion is denied. As Defendants point out, this Court has indeed permitted such responses in the past. In any event, the Court herein decides the matters before it without reference to the cited authority, so the point is moot. For the reasons set forth below, the Court grants in part and denies in part Defendants' Motion to Dismiss.

I. BACKGROUND

In its complaint, the City raises five causes of action and requests the Court to certify its claims as a class action on behalf of "all Ohio cities, counties, and townships who have enacted uniform transient taxes and/or an excise tax on lodging by a hotel." (Doc. No. 1-2, Ex. A, ¶ 30). The City claims each Defendant's failure to remit guest occupancy taxes: (I) Violates the City's transient guest tax ordinance and similar ordinances enacted by the Class; (II) Violates the Ohio Consumer Sales Practices Act ("OCSPA"); (III) Constitutes conversion of funds that belong to the City and the Class; (IV) Warrants imposition of a constructive trust; and (V) Warrants a declaration that Defendants violated the OCSPA. Id. ¶¶ 35-53.

The City brings its claims based on these factual allegations:

Defendants contract with hotels for rooms at negotiated discounted room rates. The hotels indicate what the total tax obligation is on rooms sold in the area where the hotel is located—bed taxes and sales taxes. Defendants then mark up their inventory of rooms and sell the rooms to the general public, who actually occupy the rooms. Defendants charge and collect taxes from occupants based on the marked up room rates, but only remit to Plaintiff Class members the tax amounts based on the lower, negotiated room rates. Each Defendant then retains the difference.

Id. ¶ 25. The City alleges Defendants charge their customers an itemized "taxes and services" fee based on the marked-up price, therefore leading the public to believe that "Defendants remit the correct amount of sales tax and bed tax to the appropriate taxing authorities." Id. ¶ 28.

II. ARGUMENTS AND ANALYSIS

In deciding a Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6), the function of the Court is to test the legal sufficiency of the complaint. In scrutinizing the complaint, the Court is required to accept the allegations stated in the complaint as true, Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984), while viewing the complaint in a light most favorable to the plaintiff, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir.1976). The Court is without authority to dismiss a complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); See generally 2 James Wm. Moore et al., Moore's Federal Practice § 12.34[1] (3d ed.2006).

A. Claim that Defendants Failed to Remit Transient Guest Taxes:

The City complains that "Defendants have failed to collect and remit to Plaintiff and the Class the [taxes] due and owing to them pursuant to Chapter 195 of the Codified Ordinances of the City of Findlay and similar ordinances." (Doc. No. 1-2, Ex. A, ¶ 37).

Defendants argue "[t]he City's factual allegations fail to establish that [Defendants] are `vendors' subject to the Findlay occupancy tax's collection and remittance obligations, and that failure requires dismissal of the Complaint in its entirety." (Doc. No. 39-1, p. 3). The City's ordinance states: "`Vendor' means the person who is the owner or operator of the hotel and who furnishes the lodging." Findlay, Ohio, Codified Ordinances § 195.03(d), available at http://www.conwaygreene.com/Findlay (click "Start Here"; in pop-up window, click on folder icon next to "Findlay, Ohio"; the cited section appears in "Part One—Administrative Code") (hereinafter "Findlay Ord."). Defendants assert they cannot be "vendors" because they are neither owners nor operators of hotels and because they do not furnish lodging to transient guests. (Doc. No. 39-1, pp. 4-6).

In response, the City argues the purpose and intent of its transient guest tax would be frustrated if Defendants are not considered vendors. (Doc. No. 44, pp. 3-6, 10, 22). The purpose of the tax, it argues, is to generate revenue by levying a three percent excise tax on the amount paid by transient guests for lodging—not three percent of the discounted room rate. Id. at 6.

1. Defendants Are Not "Vendors" Under the City's Ordinance:

The Court concludes the City's transient guest tax ordinance, enacted in 1979 and never amended, does not impose a direct tax obligation on Defendants. The ordinance states:

The transient guest tax . . . shall be paid by the transient guest to the vendor, and each vendor shall collect from the transient guest the full and exact amount of the tax payable on each taxable lodging. The tax required to be collected under this chapter shall be deemed to be held in trust by the vendor until paid to the [City Auditor] .. .

Findlay Ord. § 195.06. (emphasis added). Under this ordinance, a "vendor" must be one "who is the owner or operator of [a] hotel ...." Findlay Ord. § 195.03(d). The City's complaint does not allege that Defendants are either owners or operators of any hotels, but instead alleges that "Defendants, each of them, are on-line sellers, and/or on-line resellers of hotel rooms to the general public." (Doc. 1-2, Ex. A, ¶ 22). The plain definition of "vendor" in the City's ordinance is too narrow to reach Defendants, who are not alleged to own or operate any hotels.

Because the Court finds a necessary and unambiguous clause defining "vendor" excludes Defendants, there is no reason to construe the language of the City's ordinance in light of its purpose and intent. See, e.g., Hudson v. Reno, 130 F.3d 1193, 1199 (6th Cir.1997) ("[I]f the words of the statute are unambiguous, the judicial inquiry is at an end, and the plain meaning of the text must be enforced . .") (citing United States v. Ron Pair Enters., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)). The first necessary clause defining "vendor"—"owner or operator of [a] hotel"—is sufficiently clear and unambiguous. Because this clause is unambiguous and the City alleges no facts to show Defendants meet this requirement, there is no need to consider whether "vendor's" second necessary clause—"furnishes the lodging"—is ambiguous.

The City argues additional reasons why Defendants should be considered "vendors." It relies on a clause in the definition section of its ordinance: "For the purposes of this chapter, the following definitions shall apply unless the context clearly indicates or requires a different meaning." Findlay Ord. § 195.03 (emphasis added); (Doc. No. 44, p. 12). Upon this base, the City builds its argument: "In view of the Ohio Revised Code's definition of vendor and the common law determinations regarding who is or is not a vendor, the City's ordinance is broad enough to include [Defendants'] activities . . . ." (Doc. No. 44, p. 12). For three reasons, the Court cannot conclude that the definition of "vendor" in the City's ordinance requires this application or interpretation.

First, case law rejects the idea that the exception clause in the City's definition section warrants altering the meaning of a specifically-defined term in light of common law determinations. See Crane Plastics, Inc. v. City of Columbus, No. 90AP-956, 1991 WL 10922, at *5, 1991 Ohio App. LEXIS 404, at *11 (Jan. 31, 1991). In Crane, a city's tax ordinance contained an exception clause essentially identical the City's. Id. The primary issue on appeal was whether the tax statute required references to common law principles in order to construe the meaning of terms at the heart of the dispute. Id. 1991 WL 10922, at *5, 1991 Ohio App. LEXIS 404, at *8-9. The Court answered in the negative, holding that the terms already had "specific definitions as set forth in the [city's] tax ... code." Id. 1991 WL 10922, at *5, 1991 Ohio App. LEXIS 404, at *11. The court also reasoned, "[h]ad it been intended that traditional common law concepts . . . be utilized in defining the [terms] for tax purposes . . . such a definition could have easily been made a part of the city tax code." Id. Similarly, here, "vendor" has a "specific definition" already set forth in the City's ordinance. There is no need now to broaden its meaning through the strained approach urged by the...