Fairview Heights council was 'deceived' about class action, alderman says

Ann Knef Sep. 7, 2007, 7:00am

A pair of Fairview Heights hotels

If she knew then what she knows now, Fairview Heights Alderman Bonnie Crossley would have "definitely" rejected the city's role as lead plaintiff in a class action lawsuit against online travel agencies.

Nearly two years since Fairview Heights filed suit against companies such as Orbitz, Priceline.com and Expedia, Crossley said she believes the council was initially "deceived" about the case.

In the class action, filed Oct. 5, 2005, in St. Clair County and later removed to federal court, Fairview Heights seeks to represent 50 Illinois cities in a claim that online travel agents have cheated on room taxes.

"I don't believe we were presented the full facts," Crossley said.

While numerous cases with similar allegations are evaporating across the country with outright dismissals as well as voluntary dismissals, in the Southern District of Illinois, U.S. Magistrate Judge Donald Wilkerson has taken under advisement plaintiff's motions to quash the depositions of a dozen Fairview Heights' officials and citizens. As of Sept. 6 Wilkerson had not yet ruled.

In a phone interview Thursday, Crossley said she recalls a city council meeting sometime in the summer of 2005 at which time attorney Kevin Hoerner, law partner of city attorney Al Paulson, asked council members in executive session if they would like to get involved in a suit to recover a percentage of tax revenue that belonged to the city.

"It was a no brainer," Crossley said.

"In no way did we know the lawsuit was a class action suit," she said. "It was never, never, never mentioned. We were not told."

Although no formal vote was taken, Crossley said council members reacted positively to the notion of recovering a fair share of revenue the city was entitled to from the sale of hotel rooms.

But they did not agree to a class action, Crossley said.

"And we're leading the charge," she said.

Crossley said class action suits are "notorious" for making attorneys "lucrative settlements."

"Very few parties reap benefits," she said.

Echoing Crossley's concerns, Alderman Gil Klein said council members were told the lawsuit would only involve local hotels when the subject was first presented to the city council in executive session.

"We were led to believe we weren't collecting tax (from local hotels)," Klein said. "Class action was never even mentioned."

It wasn't until the first meeting after the municipal election in April of this year that council members were told the lawsuit was a class action suit, Klein said.

He said that at the May 1 city council meeting city attorney Al Paulson "brought in a high powered class action attorney to explain to us that it was a class action."

Klein said he walked out of the May 1 executive session meeting, which had become "feisty," over his objection to the class action lawsuit.

He said when "class action" was first mentioned, "I was just shaking my head back and forth."

A businessman for 48 years, Klein said he's turned down several opportunities to be a plaintiff in class action lawsuits through the years. He operates Gil Klein Appliances in Fairview Heights.

"Class actions are an attorney's paradise," he said. "They're the only ones who come out."

Klein said that three days before he was scheduled to be deposed in the city's suit against Orbitz and other online travel agencies "our attorney got it blocked."

"To be honest with you I don't think our attorneys want aldermen to take depositions," Klein said.

He said he "could care less about other cities. I'm only concerned about our city."

According to court records, when Fairview Heights Mayor Gail Mitchell provided a deposition in the case on March 9 Hoerner asked for a protective order to keep it under seal so it would not harm Mitchell's chances for re-election.

Mitchell was re-elected to a fourth term on April 17, in what turned out to be a controversial election.

After the polls closed that evening Mitchell, at first count, lost the election by approximately 11 votes. It was not until late in the evening that absentee ballots and early voting ballots were counted at the St. Clair County Courthouse. That tipped the election in favor of Mitchell by four votes over opponent Vic Canty. A recount held the following month upheld the tally.

Mitchell's deposition was not opened to the public before the election.

Hoerner acknowledged in his argument for secrecy that the deposition would embarrass Mitchell and influence the election.

According to his deposition, Mitchell swore he knew nothing about the class action suit that Hoerner filed for the city.

Alderman Pat Baeske said the city council has not been kept informed about the lawsuit, nor has there ever been a formal vote taken on the city's involvement in the lawsuit. "You don't vote in executive session," she said.

"My thought is that the mayor gave the authority," Baeske said.

Baeske said the reason Mitchell's deposition was kept under seal was because the (city) attorney "didn't want him to lose the election."

Mitchell on Thursday said that he did not authorize the filing of the class action lawsuit.

Hoerner was contacted for comment, but had not responded to an inquiry by Thursday afternoon.

Baeske said she went through records to determine if a vote of any kind had been taken but could find no record.

"In class actions the only ones who benefit are the attorneys," she said.

Other defendants in the Fairview Heights suit include Hotels.com, Hotwire, Cheap Tickets, Travelnow.com, Travelocity.com, Travelweb, LowestFare.com and Site 59.com. They are accused of charging consumers taxes based on retail room rates, while only paying taxes on wholesale room rates--then pocketing the difference.

The suit claims the defendants are charging and collecting taxes from consumers that are not being remitted to the appropriate municipal class members. They also claim in addition to the rental price of the hotel rooms, the occupants are required to pay a transient occupancy tax.

According to court documents, seven similar class action suits have been dismissed outright, including suits brought by the City of Philadelphia, Orange County, Fla., City of Atlanta, Leon County, Fla., Nassau County, N.Y., Pitt County, N.C. and City of Jacksonville, Fla. The dismissals have occurred from mid-year in 2006 until as recently as last month.

In other developments, a magistrate in Orange, Texas, on Wednesday recommended that a similar suit filed in the Eastern District of Texas be dismissed.

"...[T]he determination of this issue turns on the reading of the City of Orange's Ordinance which specifically imposes a tax on the amount of consideration paid to the hotel or motel," wrote U.S. Magistrate Judge Keith F. Giblin in his order recommending dismissal of City of Orange, Texas v. Hotels.com, et. al.

"The Court concludes that the Orange City Ordinance is not ambiguous and that it clearly imposed a tax on consideration paid to a motel or hotel. Accordingly, the Court finds that the Plaintiff has not alleged sufficient facts to state a claim upon which relief may be granted on its alleged causes of action..."

Also, suits in Miami-Dade County, Fla., Marshall County, Ind. and Bellingham, Wash. have been voluntarily dismissed.

And, three more cases in Los Angeles, San Diego and Rome, Ga. have been stayed.

At least two dozen other suits are pending in state and federal courts across the country.

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