City of San Antonio v. Hotels.Com, L.P., 5-06-CV-381-OLG

• Decision Date: 17 April 2017
• Docket Number: 5-06-CV-381-OLG
• Parties: CITY OF SAN ANTONIO, TEXAS, ON BEHALF OF ITSELF AND ALL OTHER SIMILARLY SITUATED TEXAS MUNICIPALITIES; Plaintiffs, v. HOTELS.COM, L.P., HOTWIRE, INC., TRIP NETWORK, INC., EXPEDIA, INC., INTERNETWORK PUBLISHING CORP, ORBITZ, LLC, PRICELINE.COM., INC., SITE59.COM, LLC, TRAVELOCITY.COM, LP, TRAVELWEB, LLC, TRAVELNOW.COM, INC., Defendants.
• Court: U.S. District Court — Western District of Texas

CITY OF SAN ANTONIO, TEXAS, ON BEHALF
OF ITSELF AND ALL OTHER SIMILARLY SITUATED TEXAS MUNICIPALITIES; Plaintiffs,
v.
HOTELS.COM, L.P., HOTWIRE, INC.,
TRIP NETWORK, INC., EXPEDIA,
INC., INTERNETWORK PUBLISHING CORP, ORBITZ, LLC,
PRICELINE.COM., INC., SITE59.COM,
LLC, TRAVELOCITY.COM, LP, TRAVELWEB, LLC,
TRAVELNOW.COM, INC., Defendants.

5-06-CV-381-OLG

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION

April 17, 2017

REPORT AND RECOMMENDATION

To the Honorable Chief United States District Orlando Garcia:

This Report and Recommendation concerns the Application for an Award of Attorneys' Fees, Costs, and Reimbursement of Expenses and Memorandum in Support ("Fee Application") [#1241] filed by Plaintiff City of San Antonio, Texas on behalf of itself and other similarly situated Texas Cities (collectively, "Plaintiffs"). Plaintiffs' suit arises under Section 351.004(a) of the Texas Tax Code, and the Court has diversity jurisdiction over this case. See 28 U.S.C. § 1332.¹ The undersigned has authority to enter this Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B) [#1319].

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After carefully considering the parties' submissions on attorneys' fees including the Fee Application and the supplement thereto [#1242], the Response [#1308], the Reply [#1315], all supporting exhibits including but not limited to the several conflicting expert opinions, and the parties' Stipulation [#1240], the undersigned recommends that the District Court GRANT IN PART Plaintiffs' Fee Application [#1241]. The District Court should award Plaintiffs attorneys' fees in the amount of $25,014,476.25—an enhancement of 2.5 times the base lodestar—to be borne jointly and severally by Defendants. The District Court should also award counsel for Plaintiffs ("Class Counsel") $1,750,858.57 in non-taxable expenses to be borne equally by each Plaintiff.² Because the enhanced lodestar represents a reasonable award of attorneys' fees, the District Court should deny Class Counsel's request to recover further enhancement of the lodestar from the common fund. Finally, the District Court should deny Plaintiffs' request for contingent appellate fees without prejudice to a renewed request provided Plaintiffs are successful on appeal.

I. Background

A. City of San Antonio initiated this class action against sixteen different web-based hotel booking companies for failing to remit hotel-occupancy taxes.

Over a decade ago, on May 8, 2006, Plaintiff the City of San Antonio, on behalf of itself and all other similarly situated Texas municipalities, instituted this class action against Defendants, sixteen different online-travel-booking companies (collectively, "Defendants" or "OTCs"), for collection of hotel-occupancy taxes pursuant to Chapter 351 of the Texas Tax Code and similar Texas municipal tax codes. San Antonio alleged that Defendants were statutorily obligated to pay hotel occupancy taxes on the difference between the retail price of the hotel

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rooms, which consumers pay, and the wholesale price Defendants pay the hotels for the contractual right to book the rooms. San Antonio also brought a common law claim for conversion, alleging that Defendants failed to submit any taxes that they have collected. San Antonio sought a declaration that Defendants have a duty to assess, collect, remit, and report hotel occupancy taxes on the total retail price paid to the Defendants by the consumer and an award of monetary damages for all occupancy taxes due and owing [#1].

B. Defendants vigorously challenged San Antonio's claims.

From the inception, Defendants vigorously fought the claims brought by San Antonio by filing a motion to dismiss, which challenged that applicability of the Texas Tax Code and the municipal tax ordinances and whether San Antonio properly pled a claim for conversion. The District Court denied Defendants' motion in its entirety [#166], as well as Defendants' motion for reconsideration [#230].

Defendants next heavily challenged San Antonio's motion for class certification³, requiring San Antonio to undertake an extensive amount of pre-certification discovery concerning Defendants' business practices and the issues of damages.⁴ Beginning on May 16, 2007, the District Court held a two-day evidentiary hearing on San Antonio's motion for class certification. In addition to thoroughly briefing the issues prior to the hearing,⁵ both parties submitted post-

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hearing briefs in support of their positions.⁶

On May 27, 2008, the District Court granted San Antonio's motion for class certification in its entirety, certifying a class of 175 Texas cities that fit the following definition:

Texas cities whose ordinances contain language that requires every person owning, operating, managing, or controlling any hotel to collect and remit hotel occupancy taxes and whose ordinances do not contain administrative prerequisites to filing a lawsuit for the failure to collect or remit hotel occupancy taxes.

(See [#248] at 7) (emphasis in original). Only two Texas cities, Houston and Watauga, chose to opt out of the class action. Thus, the certified class included a total of 173 Cities, including San Antonio.

Less than a month after the District Court certified the case as a class action, Defendants filed a petition for permission to appeal the order. The Fifth Circuit summarily denied Defendants' request. See Order Denying Petition for Leave to Appeal under Fed. R. Civ. P. 23(f), City of San Antonio v. Hotels.Com LP, et al, No. 08-00021 (5th Cir. Jul. 3, 2008).

C. The parties engaged in extensive discovery as well as numerous discovery disputes.

From January 2007 and continuing through September 24, 2009, the parties deposed eighty-four different witnesses in sixteen different cities and undertook a significant amount of written discovery, which involved the production of 587,851 pages of documents and fifteen gigabytes of electronic data. (See Cruciani Decl. ¶¶ 32-45). Due to Defendants' aggressive discovery positions, Plaintiffs were forced to file sixteen different discovery-related motions. (Id.); (see also Ex. 3 to Cruciani Decl.) (detailing the various discovery motions filed with the Court and the Court's rulings). In addition to commonplace discovery disputes, Defendants filed

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numerous motions to seal and even attempted to restrict the public's access to the class certification hearing and the trial itself. (See Cruciani Decl. ¶¶ 46-49) (citing to the various applicable docket entries). The parties' numerous discovery disputes, including Defendants' aggressive (and at times unfounded) claims of confidentiality⁷, required significant court intervention. Id. (detailing the various orders entered by the District Court on motions to seal and motions to protect confidential commercial information).

D. Class Counsel obtained extraordinary results for the class in the form of a substantial monetary award and declaratory relief after a lengthy trial.

At the conclusion of discovery, both parties filed lengthy cross-motions for summary judgment. Ultimately, the District Court granted Plaintiffs' Motion for Partial Summary Judgment as to Defendants' affirmative defenses and denied the remainder of both motions [#853].

The case proceeded to trial on October 5, 2009 against eleven of the OTC Defendants.⁸ In the course of the almost month-long trial, thirty-eight different witnesses testified and the Court admitted 152 different exhibits. (See [#1096] at 1-2.) On October 30, 2009, the jury returned a unanimous verdict, finding that all eleven Defendants have been or are currently "controlling hotels" under the Cities' hotel occupancy tax ordinances, a necessary prerequisite for imposing a duty under the Cities' hotel occupancy tax ordinances. The jury awarded Plaintiffs a total of $20,579,486 in damages, representing sums that "Defendants should have paid as hotel occupancy taxes on the amounts they charged for hotel transactions pursuant to the Cities' ordinances." (See

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[#1002] at 1-3.) The jury, however, found that none of the Defendants converted tax monies belonging to the Cities. (See [Id.] at 2-3.)

Based upon the verdict, the parties submitted extensive proposed findings of fact and conclusion of law on the remaining issues and claims, as well as objections to their opponents' proposed findings and supplemental briefs and advisories. (See [#1022, #1024, #1037, #1039, #1083, #1085].) On July 1, 2011, the District Court entered Findings of Fact and Conclusions of law, finding that Defendants violated the hotel occupancy ordinances by failing to assess, collect, and remit hotel occupancy taxes on the retail price of the room, the amount Defendants charged consumers. (See [#1096] ¶¶ 232-38.) The Court granted Plaintiffs' request for declaratory relief, holding that Defendants have a duty to remit to each of the Cities the correct amount of hotel occupancy taxes on every hotel transaction. (See [Id.] ¶¶ 281-283.) And, in light of the declaratory relief award, the Court warned Defendants that "[d]amages will continue to accrue with each online transaction through the date that judgment is entered and beyond unless Defendants immediately begin calculating, collecting and remitting tax on the total retail amount charged to the consumer." ([Id.] ¶ 265.) (emphasis in original). Accordingly, the District Court ordered Defendants to immediately adjust their business practices to ensure that all taxes due and owing on post-judgment transactions were paid in accordance with the applicable ordinances and the Court's award of declaratory relief. Finally, the Court ordered the parties to meet and confer to calculate unpaid taxes through the present date. (See [Id.] ¶ 268.)

E. The parties spent years filing post-trial motions and calculating unpaid taxes owed before the Court entered its Final Judgment.

After the District Court entered its Findings of Fact and Conclusions of Law, both sides filed various post-trial motions...