Village of Bedford Park et al v. Expedia WA et al

Filing 61

MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 3/13/2014: For the reasons stated in the accompanying opinion, the Court grants defendants' motion to dismiss [docket no. 33]. Counts 3, 4, 5, 6, 7, 8, and 10 are dismissed for failure to state a claim. (mk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

VILLAGE OF BEDFORD PARK, et al.,
Plaintiffs,
vs.
EXPEDIA, INC. (WA), et al.,
Defendants.

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No. 13 C 5633

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
The Village of Bedford Park and several Illinois municipalities sued Expedia, Inc.
and several other Internet travel companies in state court on behalf of a class.
Defendants removed the case to federal court on the basis of the Class Action Fairness
Act, 28 U.S.C. §§ 1332(d) & 1453. Plaintiffs’ claims arise from defendants' rental of
hotel rooms through their Internet portals directly to consumers, for which plaintiffs claim
defendants should have remitted taxes to the municipalities. Defendants have now
moved to dismiss seven of the ten claims in plaintiffs' complaint for failure to state a
claim. For the reasons stated below, the Court grants defendants' motion.
Background
The Court draws the following facts from the allegations in plaintiffs' complaint,
accepting the allegations as true for purposes of considering defendants' motion to
dismiss. See Serino v. Hensley, 735 F.3d 588, 590 (7th Cir. 2013).
The named plaintiffs are fourteen municipalities located in Cook, DuPage, and

Winnebago counties in northern Illinois. Plaintiffs arrange the defendants into four
groups, each corresponding to an online travel business: Expedia, Orbitz, Priceline,
and Travelocity. Plaintiffs also include among the defendants unnamed individuals who
are "legally responsible in some manner" for the injuries they allege. Compl. ¶ 33.
Each of the plaintiff municipalities imposes an occupancy tax on the rental of
hotel rooms within its borders. Defendants contract with individual hotels and pay
wholesale rates for rooms at those hotels; defendants then rent the rooms directly to the
public for a higher retail price. (They also have agreements among themselves for the
common marketing, distribution, and sale of lodging in Illinois.) The price defendants
charge customers includes the wholesale rate, a facilitation fee, and an amount labeled
"Taxes & Services," consisting of an estimate of the amount of occupancy tax due and
other service costs. When online customers rent rooms from the defendants, they see
three line items on their receipts: "Wholesale Rate," "Taxes & Services," and "Total."
After these customers complete their stays at the hotels, the hotels bill defendants for
the wholesale rate and occupancy tax—which is based on the wholesale rate—on the
customer's room. Defendants then pay the hotels. This type of arrangement accounts
for the majority of defendants' online bookings.
However, when defendants remit taxes on the room rentals to the plaintiff
municipalities, they do so based on the wholesale rates they paid to the hotels, not the
retail rates they charged their customers. And in some scenarios, defendants do not
pay any occupancy taxes at all, such as when a customer prepays a defendant for a
room but never occupies it. In that situation, the defendant keeps the wholesale rate
amount and the taxes, never remitting anything to the municipality. Further, plaintiffs

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allege, defendants have not properly filed regular tax returns, and they do not publicly
disclose what portion of the "service fees" they charge customers are apportioned to
taxes.
Plaintiffs assert ten claims in their complaint. Count 1 is for a declaratory
judgment on whether defendants have a duty to collect the taxes in question and remit
them to plaintiffs. Count 2 is for defendants' alleged violation of the municipalities' tax
ordinances. Counts 3 through 5 are for conversion, civil conspiracy, and unjust
enrichment, respectively; Count 6 is for imposition of a constructive trust on the tax
monies due; and Count 7 is for breach of fiduciary duty. In Count 8, plaintiffs ask for an
accounting of the amounts defendants have collected from renting hotel rooms to
consumers in plaintiffs' municipalities. Finally, Counts 9 and 10 are claims for damages
based on the tax monies owed and for punitive damages. Defendants have moved to
dismiss Counts 3, 4, 5, 6, 7, 8, and 10.
Discussion
When considering a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), the Court accepts the facts stated in the complaint as true. Chasensky v.
Walker, 740 F.3d 1088, 1091 (7th Cir. 2014). The Court also draws reasonable
inferences in favor of the plaintiff. Craig v. Rich Twp. High Sch. Dist. 227, 736 F.3d
1110, 1115 (7th Cir. 2013). To survive the motion, the complaint "must include 'factual
content' sufficient to allow the court 'to draw the reasonable inference that the defendant
is liable for the misconduct alleged.'" Charleston v. Bd. of Trs. of Univ. of Ill. at Chi.,
741 F.3d 769, 772 (7th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
Defendants chiefly argue that the seven claims at issue are not available to

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plaintiffs under Illinois law because plaintiffs are simultaneously suing for back taxes
under plaintiffs' various tax ordinances (Claim 2 in the complaint). Specifically, they
contend that the tax ordinances in question are the sole available vehicle for plaintiffs’
claims, because the right to collect hotel occupancy taxes is a creation of the
ordinances in question. Therefore, defendants argue, plaintiffs are "left only with the
statutory remedy and may not recover on alternate grounds." Defs.' Mem. at 3 (citing
Kosicki v. S.A. Healy Co., 380 Ill. 298, 302, 44 N.E.2d 27, 29 (1942) ("Where a statute
creates a new right or imposes a new duty or liability, unknown to the common law, and
at the same time gives a remedy for its enforcement, the remedy so prescribed is
exclusive."); Rosewell v. John H. Nalback Eng'g Co., 294 Ill. App. 3d 958, 961,
691 N.E.2d 775, 776 (1997) (calling this rule "well-settled")).
Plaintiffs do not argue that the rule is otherwise, nor do they dispute that their
ordinances create the right and provide means of enforcement for it. They instead
contend that "[t]he statutory remedies are not exclusive," citing a Cook County Circuit
Court decision and language from four of the fourteen ordinances stating that the towns
are not barred from seeking other remedies for failure to pay tax. Pls.' Resp. at 3 (citing
Pls.' Ex. 19 (City of Chicago v. Hotels.com, No. 2005 L 051003, slip op. (Ill. Cir. Ct. June
21, 2013))). However, it is unclear whether the Hotels.com case considered or
addressed this particular argument. There, the court characterized the defendants'
argument as "the City is precluded from pursuing its common law claims of conversion,
constructive trust and accounting because [the tax ordinance] specifies that the City can
enforce its right to collect" the tax by filing an action. Id. at 9. The court said that
"Defendants spit in the face of intellectual honesty by so boldly taking fragments of an

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ordinance out of context," noting that the ordinance stated it was not intended to prevent
the city from seeking "any remedy" to enforce payment of the tax.1 Id. The court
therefore permitted the defendants' common law claims to proceed. Plaintiffs say four
of the ordinances at issue here have language similar to the referenced language in the
Chicago ordinance.2 Assuming the Cook County court was addressing the exclusivity
argument, its reasoning is not responsive to the idea that state law separately precludes
common law claims when made alongside tax ordinance claims. The court did not
acknowledge Kosicki and other Illinois cases, which say that such ordinances provide
the exclusive remedy. Admittedly, those cases do not address the situation in which the
ordinance itself states that the municipality’s remedy is not limited to specific remedies.
But Illinois law is fairly clear that a statute creating a right and providing for its
enforcement is the only vehicle available to plaintiffs for their claims.
This point provides the answer for plaintiffs' second argument, that they may
assert their common law claims in the alternative. This argument presupposes that the
claim is actually available under the law to the party asserting it. Plaintiffs cite to a case
citing Federal Rule of Civil Procedure 8 for this contention; that rule permits parties to
assert claims "regardless of consistency." Fed. R. Civ. P. 8(d)(3). This misses the
1

Defendants state in a footnote that the Hotels.com court later removed this "spit in the
face" language in a final version of its decision.
2
See Oakbrook Terrace Code Title 1, § 10.99 (“In addition to the penalties provided
herein, the city shall have available to it all remedies in law or in equity[.]”); Rockford
Code Part I, § 1-9 (g) (“The imposition of a penalty does not prevent injunctive relief or
civil or quasijudicial enforcement.”); Warrenville Code § 9-4-11 (B) (“[I]n addition to any
monetary penalties or fines . . . , the city shall have the right to pursue any other legally
available remedies . . . injunctive relief or other legal or equitable remedies, all of which
remedies shall be cumulative and not exclusive.”); Willowbrook Code § 11-3-7 (“Nothing
in this section shall be construed as limiting any additional or further remedies that the
village may have relating to the enforcement of this chapter, or the collection of the
amount of any tax due hereunder.”).
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point. Defendants do not argue that plaintiffs cannot plead in the alternative. Rather,
they contend that the alternative claims are unavailable as a matter of law. As noted
above, this is, in fact, the law in Illinois.
Plaintiffs also contend that defendants are attempting “whipsaw” the plaintiffs,
because they are arguing the ordinance remedies are plaintiffs' exclusive remedy but
will later say that plaintiffs cannot prevail under the ordinances. Pls.' Resp. at 4. Yet
this predicted future argument, if it comes to pass, would not amount to whipsawing;
rather, it would go to the merits of plaintiffs' tax ordinance claim. Thus there is no
reason now to try to anticipate later rulings. Plaintiffs also cite a Georgia Supreme
Court case to support their argument, contending that that court "acknowledged the
propriety of pleading statutory and common law claims as well as legal and equitable
relief." Pls.' Resp. at 4. The case does not appear to say or "acknowledge" this; in fact,
the court did not use the words "common law" or "plead." It also concluded that the
plaintiff in the case did "not in fact have an adequate remedy at law." Expedia, Inc. v.
City of Columbus, 285 Ga. 684, 691, 681 S.E.2d 122, 129 (2009). In fact, it appears the
plaintiff there asserted only claims for a "declaratory judgment, injunctive relief, and
“other equitable remedies.'" Id. at 686. Plaintiffs' other statements about the case are
relevant to a merits discussion, but not to this motion.
Conclusion
For the foregoing reasons, the Court grants defendants' motion to dismiss
[docket no. 33]. Counts 3, 4, 5, 6, 7, 8, and 10 are dismissed for failure to state a claim.

MATTHEW F. KENNELLY
United States District Judge

Date: March 13, 2014

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