Judge: No Retrial in Expedia, Hotwire Hotel Tax Class Action Lawsuit

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Hotels.com LP, Expedia Inc., Hotwire Inc. and eight other online travel companies will not be granted a new trial in a class action lawsuit alleging that the companies did not pay proper hotel occupancy taxes to Texas cities because there were not any serious errors in the previous trial, a Texas federal judge ruled Thursday.

The online travel companies were ordered to pay more than $55 million in back hotel occupancy taxes in April 2013.

“The evidence overwhelmingly shows that the [online travel companies] exercise sole control, pursuant to their agreements with the hotels and as reflected in their business practices,” U.S. District Judge Orlando Garcia said in his Feb. 20 ruling. “Thus, the [companies] are controlling hotels for purposes of assessing, collecting and remitting occupancy tax under the ordinances.”

Judge Garcia said that the “primary goal” of the court is to interpret the intent of the ordinances and determine who is responsible for the occupancy tax.

“If a consumer transacts business with the hotel directly, then the hotel remains in control,” Garcia wrote. “If, however, a consumer transacts with an [online travel company], the hotel has absolutely no control.”

The Texas federal judge concludes that “the evidence overwhelmingly shows that the [online travel companies] exercise sole control, pursuant to their agreements with the hotels and as reflected in their business practices.”

Garcia added that the court applied the law appropriately and that “the jury’s verdict and the Court’s related findings on the control issue should not be set aside.”

The online travel companies argued for a new trial based on errors that were allegedly made during the initial trial. They said that letters from the Texas Comptroller that were admitted as evidence were prejudiced against them and “‘tainted’ the jury.”

However, Garcia says that “the letters were admitted for a very narrow purpose and the jury was instructed accordingly. The limited admission of the letters was based on careful forethought and the Court’s instructions were very specific, leaving no room for doubt or possible misunderstanding about the limited purpose for which the evidence could be considered.”

The travel companies also asked for a new trial because Priceline’s revenue was mentioned during the trial and that also prejudiced the companies, which the judge says is not the case.

“The court specifically instructed the jury that they could not consider such evidence for purposes of determining an amount of punitive damages,” Garcia explains. “The jury’s award of actual damages was based on the [online travel companies] own transactional data showing the exact amount of tax due on each transaction and the jury never reached the issue of punitive damages because it answered the question on conversion in the [online travel companies] favor.”

The judge says that the alleged errors were not substantial enough to warrant a retrial.

Eleven online travel companies were sued in 2006 including Orbitz, Priceline, Travelocity, and Hotels.com saying that they did not pay the full occupancy tax to Texas cities when booking hotel rooms for customers.

The plaintiff is represented by Steven D. Wolens, Gary Cruciani and Michael P. Fritz of McKool Smith PC, Laura J. Baughman and Thomas Sims of Baron & Budd PC and the city’s attorneys, amongst others.

The case is City of San Antonio, Texas v. Hotels.com LP, et al., Case No. 5:06-cv-00381, in the U.S. District Court for the Western District of Texas.