Hamilton County Ohio et al v. Hotels.com, L.P. et al

Filing 56

MEMORANDUM OPINION granting in part and denying in part Motion to dismiss (Related Doc # 31 ); denying Motion to certify questions to Ohio Supreme Court (Related Doc # 36 ); granting motion to strike 48 . Judge David A. Katz on 7/29/11.(G,C)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
WESTERN DIVISION

HAMILTON COUNTY, OHIO, et al.,
Plaintiff,

Case No. 3:11 CV 15

-vsMEMORANDUM OPINION
HOTELS.COM, L.P., et al.,
Defendant.
KATZ, J.
This matter is before the Court on Defendants’ motion to dismiss (Doc. No. 31); Plaintiffs’
motion to certify various questions to the Ohio Supreme Court (Doc. No. 36); and Defendants’
motion to strike (Doc. No. 48). Each motion has been fully briefed. This Court has jurisdiction
pursuant to 28 U.S.C. § 1332.
I. BACKGROUND
Plaintiffs in this case are Ohio counties, Hamilton, Cuyahoga and Erie, while the Defendants
are companies which operate internet travel sites offering, in particular, hotel/motel rooms sold to
the general public. Plaintiffs allege that among other things, Defendants collected transient
occupancy on rooms sold, but failed to remit same to the Plaintiffs; that such taxes are to be
separately stated on the invoice given to the consumer, but Defendants failed to do so.
According to Plaintiffs, Defendants contract with hotels for rooms at “negotiated
discounted” rates, then “mark up their inventory of rooms and then sell the rooms on the hotels’
behalf to members of the public,.... In doing so, Defendants are acting as de facto agents for the
hotels.”
It is further alleged that Defendants charged and collected taxes from occupants based on
the “marked up room rates”, but only remitted to Plaintiffs the tax amounts based on the lower

negotiated room rates. Plaintiffs allege that Defendants utilized various methods to disguise, collect
and fail to remit appropriate transient occupancy taxes due Plaintiffs.
In various opinions issued by this Court, on very similar issues involving Ohio
municipalities and city ordinances and Ohio state statutes, this Court dismissed claims alleging,
among other things, that the internet sellers of hotel rooms there involved were not “vendors” as
defined by the relevant ordinances and statutes, and, therefore, those ordinances did not impose a
direct obligation on Defendants. See City of Findlay v. Hotels.com L.P., 441 F.Supp. 2d 855 (N.D.
Ohio 2006); City of Findlay v. Hotels.Com, et al., 561 F.Supp. 2d917 (N.D. Ohio 2008).
While Plaintiffs in the case at bar are counties, the County Codes of Regulations and
relevant state statutes involved herein raise the same or similar issues as was before the Court in
prior cases noted above. Therefore, there appears no significant reason to regurgitate the same
discussion as in those previous cases. In those cases, as in this matter, the Defendants motion to
dismiss is directed at the entire complaint, but in the alternative seeks an extension of this Court’s
prior ruling to apply to County Regulations as contrasted to City Ordinances. As an alternative to
total dismissal of the Complaint, Defendants urge this Court to dismiss Count I (violations of
Uniform Transient Occupancy Tax Ordinances Ohio Rev. Code § 5739.02, et seq. and the Code of
Regulations for Hamilton, Erie and Cuyahoga Counties); Count VI (Breach of Contract);
Improperly labeled Count VII); and Count VII (Declaratory Judgment).
II STANDARD OF REVIEW
Fed.R.Civ.P. 12(b)(6) provides for dismissal of a lawsuit for “failure to state a claim upon
which relief can be granted.” Courts must accept as true all of the factual allegations contained in
the complaint when ruling on a motion to dismiss. Erickson v. Pardus, 551 U.S. 89, 94 (2007);
Thurman v. Pfizer, Inc., 484 F.3d 855, 859 (6th Cir.2007). To survive a motion to dismiss under

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Rule 12(b)(6), “even though a complaint need not contain ‘detailed’ factual allegations, its ‘factual
allegations must be enough to raise a right to relief above the speculative level on the assumption
that all the allegations in the complaint are true.’ ” Ass’n of Cleveland Fire Fighters v. City of
Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir.2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007)).
Conclusory allegations or legal conclusions masquerading as factual allegations will not
suffice. Twombly, 550 U.S. at 555 (stating that the complaint must contain something more than “a
formulaic recitation of the elements of a cause of action”). A complaint must state sufficient facts
to, when accepted as true, state a claim “that is plausible on its face.” Ashcroft v. Iqbal, 129 S.Ct.
1937, 1949 (2009) (explaining that the plausibility standard “asks for more than a sheer possibility
that a defendant has acted unlawfully” and requires the complaint to allow the court to draw the
reasonable inference that the defendant is liable for the alleged misconduct).
III. DISCUSSION
The City of Findlay’s transient guest tax ordinance before the Court in 2006 stated:
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 vendor until paid to the [City Auditor]. . . .
Findlay Ord. § 195.06. (Emphasis added). Under that ordinance a “vendor” must be one “who is
the owner or operator of [a] hotel. . . .” Findlay Ord. § 195.03(d). The ordinances of the other
Plaintiffs in the 2008 case contained similar language and this Court held “that the definition of
‘vendor’ was too narrow to reach the web-based defendants because they do not own or operate the
hotels.” City of Findlay v. Hotels.com 561 F.Supp.2d at 921. However, in both cases it was held
that the Plaintiffs had a viable legal theory to “pursue money collected by the Defendants as taxes

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but not remitted to the Plaintiffs.” See City of Findlay v. Hotels.com. 441 F.Supp.2d at 858-61 and
City of Findlay v. Hotels.com, 561 F.Supp.2d at 921.
In reviewing the applicable County Regulations before the Court in this case, it is clear that
only “vendors” are required to collect and then remit occupancy taxes, and, as under city ordinance
previously considered by this Court, the Defendants are not “vendors” since they are neither
“owners” nor “operators” of the hotels. Clearly, the Defendants do not furnish lodging to hotel
guests, a prerequisite to be classified as a “vendor” under the regulations. Likewise, the Defendants
are not subject to the regulations as agents or employees of the owner or operator of the hotel “who
perform the functions of the vendor on his behalf.” Thus, they do not fall within the ambit of either
the Hamilton County Regulations (2G) or the Cuyahoga County Regulations “definitions”.
Having reviewed the Regulations of Erie County, and the definitions promulgated
thereunder, the Court concludes that the Defendants are neither hotel operators not proprietors. (See
various Erie County Regulations sections including attached to Complaint as Exhibit 3). Neither
are they “managing agents” since they do not perform any of the functions of an operator or
proprietor of a hotel.
As in the prior cases decided by this Court, noted above, the Court concludes that the
Defendants are not “vendors” under any regulations or statutes applicable in this case, just as they
were neither “sellers” nor “agents” under the City ordinances previously considered by the Court.
Therefore, Counts I, VI and VII of Plaintiffs’ complaint will be dismissed. As in the prior case, the
Court concludes that the remaining Counts of the Complaint have viability and Defendants’ motion
to dismiss as to those counts is denied.
IV. MOTION TO CERTIFY

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The motion to certify filed by Plaintiffs asks this Court to certify to the Ohio Supreme Court
seven (7) questions. The Court concurs with Defendants that such certification requires both that
this Court be unable to answer the state law questions without guidance from the Ohio Supreme
Court, and that the answers to those questions would be determinative of the case before this Court,
or at lease a part thereof. As to the first requirement, this Court has issued multiple opinions
dealing with or at the edges of the majority of questions requested to be certified. And if not
addressed previously by this Court, cases decided by federal courts in this and other circuits have
decided similar issues, which give significant guidance to this Court. This Court fails to see the
relevancy of several questions propounded by Plaintiffs, but primarily agrees with Defendants due
to this Court’s ability to decide the answers ( many of which have been previously addressed) to
those questions. Additionally, several questions contain misstatements or are misleading in relation
to the regulations and/or statutes involved.
V. MOTION TO STRIKE
In this motion (Doc. No. 48) Defendant, Expedia, Inc. (“Expedia”) asks the Court to strike
Exhibits 2 - 4 of Plaintiffs Erie County and Cuyahoga County’s Notice of Supplemental Authority
filed May 25, 2011 (Doc. No. 44), and any portion of that Notice which references those exhibits.
Further, Expedia requests that the Court bar Plaintiffs from referring to those Exhibits during the
remainder of this litigation and to compel Plaintiff’s counsel to disclose every person and/or entity
to whom they have provided any of said exhibits. Expedia contends in its memorandum in support
of its motion to strike that Exhibits 2 - 4 to the Notice of Supplemental Authority are privileged and
subject to work product protection.
In the first instance this Court notes that the Notice of Supplemental Authority (“Notice”)
was filed on the Court’s publicly-available docket in spite of the fact that one of Plaintiffs’ counsel,

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according to Defense counsel, had been advised approximately fifteen (15) days in advance of the
filing of that Notice that Expedia “continues to assert that these documents are subject to the
attorney-client privilege and the work product doctrine.” This Court agrees with Defense counsel
and will not go into great detail since the memorandum in support of the motion clearly outlines the
history of this matter and the case law upon which the position of Expedia rests. Suffice to say that
Expedia’s involuntary production of the Memoranda was in compliance with a Georgia state court’s
order; as such, it was not a voluntary disclosure which resulted in a waiver of the privilege. The
Georgia court relied upon the “crime-fraud” exception with which this Court has previously
disagreed and rejected.
After filing with the Georgia court pursuant to its order and to a protective order prohibiting
further dissemination to others, the privileged documents were produced to Plaintiff’s counsel in
that case. In early May of this year a representative in the Florida General Assembly somehow
obtained copies of the subject documents and circulated them among other General Assembly
members and to the media. Clearly, that was inappropriate and did not in any way waive the
privilege or the protection of the protective order. How the Georgia court denied a motion for civil
contempt and to enforce the protective order is beyond this Court’s ken and we will not comment
further thereon. The Court merely finds that the memoranda in question are privileged and
protected by the work product doctrine and that Plaintiffs’ disclosure thereof was improper. It is
also protected in this Court’s opinion by the attorney-client privilege. This position was recently
upheld by an Illinois state court judge who denied a motion to compel production of the same
document, and did so upholding the privilege claims of Expedia. See City of Chicago v.
Hotels.com, N0. 05-L05103, Order (Cook County Sir. Ct. May 5, 2010).

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Clearly, the involuntary and unauthorized public dissemination of a privileged document or
documents filed with a court pursuant to a court order does not constitute a waiver of the privilege.
Rather, any such disclosure must be voluntary or at the very least be in such circumstances that
dissemination thereof is reasonably foreseeable by the party making such disclosure. Such is not
the case here.
As previously noted above, the crime-fraud exception simply does not apply to this case and
nothing has been articulated by Plaintiffs which would convince this Court that it does. As
previously stated, the report of the special master in the Georgia case has been rejected as viable
legal precedent by a number of courts, including this Court.
For the foregoing reasons, the motion to strike is granted. Exhibits 2 - 4 and any portion of
Plaintiffs’ Notice of Supplemental Authority referencing those Exhibits are ordered stricken;
Plaintiffs are barred from using or referring to the memoranda in any way in this litigation without
prior authority of this Court; and Plaintiffs’ counsel are directed to disclose every person and/or
entity to whom copies of said memoranda have been provided.
IT IS SO ORDERED.
s/ David A. Katz
DAVID A. KATZ
U. S. DISTRICT JUDGE

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