City of Goodlettsville, Tn v. Priceline.Com, Inc.

• Decision Date: 31 March 2009
• Docket Number: Case No. 3:08-0561.
• Citation: 605 F.Supp.2d 982
• Parties: The CITY OF GOODLETTSVILLE, TN, and The City of Brentwood, TN, on behalf of themselves and all similarly situated taxing authorities within the State of Tennessee, Plaintiffs, v. PRICELINE.COM, INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Tennessee

605 F.Supp.2d 982

The CITY OF GOODLETTSVILLE, TN, and The City of Brentwood, TN, on behalf of themselves and all similarly situated taxing authorities within the State of Tennessee, Plaintiffs, v. PRICELINE.COM, INC., et al., Defendants.

Case No. 3:08-0561.

United States District Court, M.D. Tennessee, Nashville Division.

March 31, 2009.

COPYRIGHT MATERIAL OMITTED

Christopher Lovell, Jody Krisiloff, Lovell, Stewart & Halebian, LLP, New York, NY, David B. Killalea, Gilbert Randolph, LLP, Washington, DC, James Todd Moore, Thomas Holland McKinnie, Jr., Franklin, TN, Karl P. Barth, Lovell, Mitchell & Barth, LLP, Bellevue, WA, Paul M. Weiss, Freed & Weiss, LLC, Chicago, IL, Richard Burke, Richard J. Burke LLC, St. Louis, MO, for Plaintiffs.

Celso M. Gonzalez-Falla, Jr., Skadden, Arps, Slate, Meagher & Flom, Houston, TX, Darrel J. Hieber, Skadden, Arps, Slate, Meagher & Flom, LLP, Los Angeles, CA, Eileen Burkhalter Smith, James M. Doran, Jr., Eileen Burkhalter Smith, James M. Doran, Jr., Waller, Lansden, Dortch & Davis, Nashville, TN, Karen Lynn Valihura, Michael A. Barlow, Skadden, Arps, Slate, Meagher & Flom, LLP, Wilmington, DE, Brian S. Stagner, Kelly, Hart & Hallman, Fort Worth, TX, Elizabeth Brooke Herrington, Jeffrey A. Rossman, Lazar Pol Raynal, Melissa M. Howard, Stephanie Lynn Poulos, McDermott, Will & Emery, Chicago, IL, for Defendants.

MEMORANDUM

ALETA A. TRAUGER, District Judge.

Pending before the court is the defendants' Motion to Dismiss (Docket No. 49), to which the plaintiff City of Goodlettsville¹ has responded (Docket No. 61), the defendants have replied (Docket No. 95), and the plaintiff has sur-replied (Docket No. 105). For the reasons discussed herein, the defendants' motion will be denied.

BACKGROUND

The plaintiff in this matter is the City of Goodlettsville, a political subdivision of the state of Tennessee.² The defendants, which include Priceline.com, Inc., Travelocity.com, L.P., Expedia, Inc., and Orbitz Worldwide, Inc., as well as certain subsidiaries and corporate siblings of those entities, are all internet travel companies. This case arises from the defendants' alleged failure to remit certain hotel occupancy taxes to the City of Goodlettsville, which brings suit on behalf of both itself and similarly-situated municipalities in the state of Tennessee.

Internet travel companies ("ITCs") offer services to hotels and consumers through two different business models: the "Agency Model" and the "Merchant Model." Under the Agency Model, an ITC functions as a hotel's agent, booking consumers into rooms at a given hotel, charging a service fee to the hotel, and, sometimes, charging a service fee to the consumer as well. The hotel sets the price of the room and is the merchant of record for the transaction, and the consumer pays the hotel directly. Under the Merchant Model, by contrast to the Agent Model, an ITC purchases rooms from a hotel at negotiated wholesale rates and then re-sells those rooms to consumers at higher retail rates. According to the allegations in the Complaint, the Merchant Model has become the dominant business paradigm for ITCs in recent years and is employed by all of the defendants. It is transactions pursuant to the Merchant Model that form the basis of the plaintiff's claims.

The City of Goodlettsville (the "City") is a taxing authority empowered by law to levy and collect taxes. The Goodlettsville City Code provides that a hotel occupancy tax is levied "upon the privilege of occupancy in any hotel of each transient in an amount equal to three percent (3%) of the consideration charged by the operator." Goodlettsville City Code § 5-502. That tax is to be collected from "transients" (guests) and remitted to the City by "all operators who lease, rent or charge for occupancy within a hotel in the City of Goodlettsville." Id. § 5-504. This case is one of many brought in recent years by municipalities around the nation alleging similar claims for non-remittance of hotel occupancy taxes against ITCs such as the defendants. Specifically, the plaintiff here alleges that the defendants do not remit hotel occupancy taxes as required by the Goodlettsville City Code. According to the plaintiff, in the first part of a transaction under the Merchant Model, in which the defendants purchase rooms from hotels, the hotels collect from the defendants and remit to the City the applicable hotel occupancy tax based on the wholesale rate paid by the defendants. However, the plaintiff alleges that, in the second part of Merchant Model transactions, in which the defendants re-sell rooms to consumers, the defendants collect from consumers the applicable hotel occupancy tax based on the retail rate paid by the consumers but do not remit those amounts to the City. Thus, the plaintiff alleges that the tax it receives is based on the lower wholesale rate paid by the defendants, rather than the higher retail rate paid by consumers. The plaintiff asserts that the defendants are obligated to remit taxes based on the retail rate that they charge consumers and, thus, that it is entitled to these amounts, as well as penalties, costs, and interest as a result of the defendants' alleged failure to remit taxes in violation of the Goodlettsville City Code. The plaintiff additionally asserts claims of unjust enrichment and conversion.

ANALYSIS

The defendants have moved to dismiss all of the plaintiffs claims arguing, first, that the plaintiff failed to exhaust its administrative remedies and, second, that the plaintiff failed to state causes of action under the Goodlettsville City Code, for unjust enrichment, and for conversion.

I. Failure to Exhaust Administrative Remedies

The defendants assert that the plaintiff was obligated to exhaust its administrative remedies and failed to do so and, thus, that this court lacks jurisdiction over this case.

The doctrine of exhaustion of administrative remedies exists "to prevent premature interference with agency processes" so that an agency can "(1) function efficiently and have an opportunity to correct its own errors; (2) afford the parties and the courts the benefit of its experience and expertise without the threat of litigious interruption; and (3) compile a record which is adequate for judicial review."³ Thomas v. State Bd. of Equalization, 940 S.W.2d 563, 566 (Tenn.1997) (citing 2 Am. Jur.2d Administrative Law § 505 (1994)). Additionally, "an agency has an interest in discouraging frequent and deliberate flouting of the administrative process." Id.

Under the doctrine, where a statute provides an administrative remedy, a party seeking relief must exhaust the administrative remedy before a court has jurisdiction to act. Tenn. Enamel Mfg. Co. v. Hake, 183 Tenn. 615, 194 S.W.2d 468, 470 (1946) ("The doctrine of exhaustion of administrative remedies requires that where an administrative remedy is provided by statute, relief must be sought by exhausting this remedy before the courts will act.") (citation and quotation omitted); see also Bracey v. Woods, 571 S.W.2d 828, 829 (Tenn.1978). There are, however, three exceptions to the doctrine. First, where a party asserts a challenge to the validity of an ordinance or statute that the administrative agency would apply, exhaustion of administrative remedies is not required. B.F. Nashville, Inc. v. City of Franklin, No. M2003-00180-COA-R3-CV, 2005 WL 127082, at *6, 2005 Tenn.App. LEXIS 32, at *18 (Tenn.Ct.App. Jan. 21, 2005) (citing Poteat v. Bowman, 491 S.W.2d 77, 80 (Tenn.1973)). Second, a party seeking judicial review need not exhaust administrative remedies where the party raises only questions of law rather than questions of fact. Id. (citing Bracey, 571 S.W.2d at 830). Finally, exhaustion is not required where the administrative process would prove futile or useless. Id. at *6, 2005 Tenn.App. LEXIS 32 at *18-19 (citing State v. Yoakum, 201 Tenn. 180, 297 S.W.2d 635, 642 (1956)).

The City of Goodlettsville derives its authority to impose the tax at issue here from a Tennessee state statute providing for a "Tourist Accommodation Tax." Tenn. Code Ann. §§ 7-4-101 to -112 (the "Enabling Act"). The Enabling Act, among other things, authorizes municipalities such as the City to impose hotel occupancy taxes like that at issue here. Id. § 7-4-102(c). The Enabling Act also provides that municipal taxing authorities "shall have, as additional powers, those powers and duties with respect to the collection of taxes provided in title 67 or otherwise provided by law." Id. § 7-4-108. Pursuant to its authority under the Enabling Act, the City has enacted an ordinance levying a hotel occupancy tax in the amount of three percent of the consideration charged to a transient by a hotel operator. Goodlettsville City Code § 5-501 to -510 (the "Tax Ordinance"). The Tax Ordinance, like the Enabling Act, adopts by reference Title 67 of the Tennessee Code, expressly providing that, "[u]pon any claim of illegal assessment and collection, the tax payer shall have the remedy provided in [Title 67]" and that "[t]he recorder shall also have all of those powers and duties as provided in Tennessee Code Annotated, § 67-1-707(b)." Id. § 5-509.

Title 67, in turn, provides a procedure by which a taxing authority may attempt to recover unpaid taxes:

When any person shall fail to file any statement, report or return required to be filed with the commissioner [or taxing authority] by any law levying a public tax, license or fee, after being given written notice of the assessment, the commissioner [or taxing authority] is authorized to determine that liability of such person from whatever source of information may be available to the commissioner [or taxing authority]. An assessment made by the commissioner [or taxing authority] pursuant to this authority shall be binding as if made upon the sworn statement, report or return of the person liable for the payment of any such tax, license or fee. Any such assessment that is lawfully made...