Fairview Heights Mayor Gail Mitchell
EAST ST. LOUIS – Fairview Heights must represent other Illinois cities in a class action against online travel companies because ignorance and neglect have kept the other cities from suing on their own, Fairview Heights argues in federal court.
Richard Burke of St. Louis, representing Fairview Heights at U.S. district court in East St. Louis, chastised other cities in a Jan. 14 reply brief on class action certification.
He marveled that except for Chicago, "Plaintiff is unaware of any other taxing authority in Illinois that has pursued this type of litigation on an individual basis despite the fact that suits of this genera have been pending nationwide for several years."
In reply to a defense argument that a city should enforce its own ordinances, Burke wrote, "…this only underscores the need for a class action, as none of the units of government, with the exception of Plaintiff, have pursued similar actions…"
"Thus, based on their total neglect (or ignorance) of the unpaid taxes at issue herein, a class action is superior, as there is no evidence of any interest on the part of class members to pursue this litigation on their own," Burke wrote.
Fairview Heights seeks to prove that cities can collect room taxes not only from hotel owners but also from travel companies that book the rooms.
Fairview Heights argues that for purposes of room tax ordinances, travel companies actually own the rooms they book.
If the suit succeeds, Orbitz, Expedia, Travelocity and other defendants would have to catch up on years of taxes in every Illinois city that belongs to the class.
At the moment, however, Burke doesn't know which cities belong to the class.
His brief mixed a pitch for class certification with an admission that Fairview Heights doesn't belong to the class it seeks to represent.
Without amending his class certification motion, he simply inserted a new definition into his brief.
The new definition "describes an ascertainable class by objective criteria," he wrote.
"Following notice," he wrote, "more taxing authorities may be identified."
He urged District Judge David Herndon to ignore a distinction that defendants drew between use taxes and occupation taxes.
Defendants argue that Fairview Heights charges a use tax and cannot represent cities that charge occupation taxes.
"We respectfully submit that Plaintiff may adequately represent both 'use' tax and 'occupation' tax class members as part of a cohesive class," Burke wrote.
"In both instances the amount of the tax (as a percentage of the room charge) and the duty to remit it to the taxing authority is the same," he wrote.
"Defendants are liable whether the tax is a use tax or an occupation tax," he wrote.
"The difference between occupation and use taxes is in the source of authority to enact them, not the liability imposed by them," he wrote.
If Herndon believes otherwise, Burke wrote, he should certify a use tax class action.
Next, Burke disputed an argument that travel companies don't owe room taxes because room taxes apply only to owners of hotel rooms.
"Whether or not Defendants had a 'right' to possess, use, or convey a hotel does not dispose of the question of ownership," he wrote.
"These are not real estate taxes but hotel occupancy taxes," he wrote. "There is no fixed definition of 'owner' in common usage."
He wrote that agreements between travel companies and hotels make clear that travel companies control the rooms they book.
"Defendants are not mere conduits for the transmission of renter funds," Burke wrote. "They are the merchants of record receiving these funds."
He also tried to knock down a defense argument that Herndon should reject class action because tax calculations would vary from city to city.
"Every merchant agreement and credit card transaction was performed in the same way," Burke wrote. "Whether the Defendants reimbursed themselves for collection is irrelevant, the tax is owed regardless."
"…[A]ll that is called for is the automated application of a given percentile to the amount collected as the markup on the hotel rate," he wrote.
He finished with three accusations of dishonesty.
"Defendants claim that they do not sell hotel rooms, however their SEC filings all admit that they do," he wrote.
"Defendants claim that they do not maintain inventory, yet their own business documents state that they do.
"Defendants claim that their hotel contracts vary widely, yet every merchant agreement provides for the 'markup' of the 'net rate' and the credit card payment by the customer to Defendants (merchants of record) and not the hotels.
In response to Burke's brief, defense attorney Robert Shultz of Edwardsville moved on Jan. 28 to strike the new class definition.
Shultz argued that defining a class in a reply brief was unfair and prejudicial.
"Defendants do not even have the opportunity to respond to this new (and inappropriate) proposed class," Shultz wrote.
"Plaintiff used a generic and wholly inappropriate class definition in its opening motion, waited to see Defendants' arguments in response to class certification, and then asserted a completely new and different class definition its reply brief," he wrote.
"Plaintiff's motion for class certification should be decided based on the original class definition that Plaintiff asserted and the parties briefed," he wrote.