Louisville/Jefferson County Metro v. Hotels.Com

• Decision Date: 22 December 2009
• Docket Number: No. 08-6302.,No. 08-6303.,08-6302.,08-6303.
• Citation: 590 F.3d 381
• Parties: LOUISVILLE/JEFFERSON COUNTY METRO GOVERNMENT and Lexington-Fayette Urban County Government, Plaintiffs-Appellants, v. HOTELS.COM, L.P. et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

590 F.3d 381

LOUISVILLE/JEFFERSON COUNTY METRO GOVERNMENT and Lexington-Fayette Urban County Government, Plaintiffs-Appellants, v. HOTELS.COM, L.P. et al., Defendants-Appellees.

No. 08-6302.

No. 08-6303.

United States Court of Appeals, Sixth Circuit.

Argued: October 14, 2009.

Decided and Filed: December 22, 2009.

ARGUED:

Anthony G. Raluy, Foley, Bryant, Holloway & Raluy, Louisville, Kentucky, for Appellants. Darrel J. Hieber, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California, for Appellees.

ON BRIEF:

Anthony G. Raluy, Irvin Daniel Foley, Foley, Bryant, Holloway & Raluy, Louisville, Kentucky, Michael J. O'Connell, Jefferson County Attorney's Office, Louisville, Kentucky, Rochelle E. Boland, Leslye M. Bowman, Lexington-Fayette Urban County Government

Department of Law, Lexington, Kentucky, for Appellants. Darrel J. Hieber, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California, Karen L. Valihura, Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, William Jay Hunter, Jr., Timothy J. Eifler, David S. Sullivan, Stoll Keenon Ogden, Louisville, Kentucky, Marcus G. Mungioli, Brian S. Stagner, Kelly Hart & Hallman LLP, Forth Worth, Texas, for Appellees.

Before: GILMAN and GIBBONS, Circuit Judges; ANDERSON, District Judge.^*

OPINION

RONALD LEE GILMAN, Circuit Judge.

Hotels.com, L.P. and various other online travel companies (OTCs) engage in a business practice whereby they agree to pay lodging establishments a contractually agreed room rate if the OTCs find customers to rent the available rooms. Customers pay to rent the rooms at a higher "retail" rate charged by the OTCs, which then remit the original negotiated price to the lodging establishments along with any taxes applicable to the negotiated "wholesale" price.

Asserting that the OTCs are violating local tax ordinances by failing to pay a transient room tax on the difference between the two rates, the Louisville/Jefferson County Metro Government (LJCMG) and the Lexington-Fayette Urban County Government (LFUCG) sued the OTCs in federal court. The district court granted the OTCs' motion to dismiss, reasoning that because the OTCs lack ownership and physical control over the rooms rented, they do not constitute "like or similar accommodations businesses" within the purview of the ordinances in question. As a result of this decision, the counties are not collecting transient room taxes on the difference between the two rates. For the reasons set forth below, we AFFIRM the judgment of the district court.

I. BACKGROUND

A. Factual background

The Kentucky Enabling Acts authorize counties to impose a transient room tax on "the rent for every occupancy of a suite, room, or rooms, charged by all persons, companies, corporations, or other like or similar persons, groups or organizations doing business as motor courts, motels, hotels, inns or like or similar accommodations businesses." Ky.Rev.Stat. Ann. § 91A.390(1). Money collected from the tax is used to establish convention and tourist commissions "for the purpose of promoting convention and tourist activity." Ky.Rev.Stat. Ann. § 91A.350(1). Pursuant to this authority, the two counties in question enacted ordinances imposing a transient room tax and adopted the language of the Enabling Acts to describe the category of businesses to be taxed. See Louisville/Jefferson County, Ky., Code of Ordinances § 121.01(A); Lexington-Fayette Urban County, Ky., Charter of Code of Code of Ordinances § 2-172(a).

According to the counties' allegations, the OTCs contract with hotels for rooms at a discounted "wholesale" price. The OTCs then offer the rooms for rent at a "retail" price that is higher than the negotiated wholesale rate and purport to include "tax recovery charges and fees." When a customer books a room using an OTC, the company remits to the appropriate hotel both the negotiated wholesale price and the taxes due on that lesser amount. The counties contend that this arrangement deprives them of the taxes owed on the difference between the retail price and the wholesale price.

B. Procedural background

In September 2006, LJCMG sued the OTCs in federal district court for the alleged violation of its transient room tax ordinance, seeking declaratory relief and damages. Jurisdiction was based on diversity of citizenship under 28 U.S.C. § 1332(a). LFUCG filed an intervenor complaint approximately one-and-a-half years later, asserting the same cause of action and seeking similar relief.

The OTCs twice moved to dismiss the claim brought against them. They first filed a motion to dismiss LJCMG's complaint prior to the addition of LFUCG to the lawsuit, asserting that they were not "motor courts, motels, hotels, inns or like or similar accommodations businesses" for the purposes of LJCMG's ordinance, and that LJCMG's proposed construction of the ordinance converted the enactment into an impermissible excise tax under the Kentucky Constitution. In denying the motion, the district court reasoned that LJCMG's allegation that the OTCs leased rooms at a marked-up retail price was sufficient at the pleading stage to qualify the companies as "like or similar accommodations businesses" under the ordinance. Shortly thereafter, the OTCs filed a motion for reconsideration and, while this motion was pending, LFUCG filed its intervenor complaint.

The district court granted the OTCs' second motion and reversed its earlier holding. It determined that the OTCs are not "like or similar" to "motor courts, motels, hotels, or inns" because they "have neither ownership, nor physical control, of the rooms they offer for rent." Because the OTCs did not exist at the time the ordinances were written, the court remarked that the Kentucky Enabling Acts "have simply failed to keep up with the times." The court therefore concluded that the OTCs were not subject to the ordinances and that the counties' claims should be dismissed. This timely appeal followed.

II. ANALYSIS

A. Standard of review

A motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure seeks to have the complaint dismissed based upon the plaintiff's failure to state a claim upon which relief can be granted. The court must "accept all the ... factual allegations as true and construe the complaint in the light most favorable to the Plaintiff[]." Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir.2009) (citation and internal quotation marks omitted). Our review of a district court's grant of a motion to dismiss is de novo. Id. at 465-66.

B. Overview

The counties' primary contention is that the OTCs constitute "like or similar accommodations businesses" under the ordinances. In addition, LJCMG argues that the district court lacked a proper basis to grant the OTCs' motion for reconsideration and that the court impermissibly made factual findings in ruling on the motion. We will address each issue in turn.

C. "Like or similar accommodations businesses"

To determine whether the OTCs fall under the purview of the ordinances, we begin by analyzing the statutory language. We must conduct this analysis utilizing Kentucky law because jurisdiction in this case is based on diversity of citizenship. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Essentially, we are obliged to decide the case as we believe the Kentucky Supreme Court would do. See Stalbosky v. Belew, 205 F.3d 890, 893 (6th Cir.2000) (applying Kentucky's negligent-hiring law in a diversity-of-citizenship case). We will therefore interpret the ordinances using the framework developed by the Kentucky courts.

Under that framework, "[t]he essence of statutory construction is to ascertain and give effect to the intent of the legislature." Hale v. Combs, 30 S.W.3d 146, 151 (Ky.2000). To determine legislative intent, courts should analyze the statutory language and "[r]esort must be had first to the words, which are decisive if they are clear." Stephenson v. Woodward, 182 S.W.3d 162, 170 (Ky.2005) (alteration in original) (internal quotation marks omitted) (quoting Gateway Constr. Co. v. Wallbaum, 356 S.W.2d 247, 249 (Ky.1962)). "[S]tatutes must be given a literal interpretation unless they are ambiguous and if the words are not ambiguous, no statutory construction is required." Commonwealth v. Plowman, 86 S.W.3d 47, 49 (Ky.2002).

1. Plain meaning

Our initial consideration, therefore, is to determine whether the words of the ordinances reveal the legislature's intent to include the OTCs in the category of "like or similar accommodations businesses." The counties make three arguments as to why the plain meaning of the ordinances discloses such an intent. They first contend that, to avoid rendering the phrase "like or similar accommodations businesses" meaningless, it cannot be limited to brick-and-mortar establishments and must include companies such as the OTCs that have only an online presence. But the phrase still has meaning even if it is construed to exclude online businesses. Bed and breakfasts, hostels, and rooming houses, for example, are not motor courts, motels, hotels, or inns, yet they presumably would fall into the "like or similar accommodations businesses" category.

Second, the counties argue that the phrase "like or similar" indicates a legislative intent to broaden the category. That observation is surely correct, but it provides little guidance as to how broadly to construe the category and whether the OTCs should be included.

Finally, the counties emphasize the statutory language directing that the tax be levied on "the rent for every occupancy" of a room charged by accommodations businesses, and they contend that the full retail price constitutes the rent paid to occupy a room. The counties' focus on the amount paid by the ultimate customer is not conclusive, however, because the tax is not assessed on the occupant of a room, but rather on the entities doing business as hotels and the like. Accordingly, none of the counties'...