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The Village of Rosemont, Illinois v. Priceline.Com Inc; Travelweb LLC; Travelocity.Com Lp; Site59.Com

October 14, 2011


The opinion of the court was delivered by: Judge Ronald A. Guzman


The Village of Rosemont filed this action against defendants Priceline.Com Inc., Travelweb, LLC, LP, LLC, Expedia, Inc.,, LP and Hotwire, Inc. alleging that they failed to pay the full amount of hotel tax due to the Village of Rosemont. Before the Court are plaintiff and defendants' cross-motions for summary judgment. For the reasons provided in this Memorandum Opinion and Order, the Court grants plaintiff's motion for summary judgment and denies defendants' motion for summary judgment.


The Village of Rosemont imposes a tax upon the "privilege of renting a hotel or motel room within the Village of Rosemont" at a rate of "7% of the room rental rate," but not on "taxes or other non-room rental charges added to the hotel bill" ("Hotel Tax"). Rosemont Ordinance ("Ordinance") § 10-23(a). Although the tax is paid for by the "rentor," defined as the customer who "seeks the privilege of occupying the hotel or motel room," it is the duty of "the owner of every hotel or motel to secure the tax from the rentor . . . and to pay over to the Village Collector the tax." §§ 10-23(b)-(c). "Owner" is defined under the Ordinance as any person (a) having "an ownership interest in [a hotel]," (b) "conducting the operation of a hotel" or (c) "receiving the consideration for the rental of such hotel or motel room." § 10-22.

Defendants are online travel companies ("OTCs") that book hotel rooms and make other travel arrangements for customers over the internet. (Defs.' LR 56.1 Stmt. ¶ 18.) Under the business model at issue here, called "the merchant model," OTCs enter into contracts with individual hotels wherein the parties agree on a wholesale price ("Net Rate") for the hotel rooms and the OTCs acquire the right to display, offer and facilitate reservations of the rooms to the public at a higher retail price ("Room Rental Rate"). (Id. ¶¶ 28-29.) While the Net Rate is negotiated between the hotels and the OTCs, the OTCs generally have broad discretion in establishing and changing the Room Rental Rate they charge to customers. (Pl.'s LR 56.1 Stmt. ¶¶ 5, 19, 23, 40, 59, 64-65, 73, 81, 87, 96.)

When a customer purchases a hotel reservation through an OTC, he is charged a single amount comprised of: (1) the "Room Rental Rate," which includes (a) the Net Rate and (b) an amount "retained by [the OTC] for travel-related services it provided to the traveler (sometimes referred to as the 'facilitation fee');" and (2) "Taxes & Services," which consists of (a) an estimated amount to cover the state and local occupancy taxes on the Net Rate and (b) additional amounts retained by the OTC as compensation for its travel services. (Defs.' LR 56.1 Stmt. ¶ 35.) Although the OTCs state on their websites that the Room Rental Rate is a combination of the Net Rate and their facilitation fee, they do not disclose the dollar amount of either. (Defs.' Resp. Pl.'s LR 56.1 Stmt. ¶ 14.) Therefore, at the end of the OTC transaction, the customer sees only three line items: "Room Rental Rate," "Taxes & Services" and "Total." (Defs.' LR 56.1 Stmt. ¶ 36.)

When a customer reserves a room with an OTC, the OTC verifies with the hotel that the room is available, charges the customer's credit card and issues a room confirmation to the customer. (Id. ¶¶ 32, 34, 42.) Thus, the customer does not pay the hotel for the room or taxes, but only for incidentals and other non-room related services he purchases at the hotel. (Id.) After the customer has completed his stay, the hotel sends an invoice to the OTC for the Net Rate and the Hotel Tax based on the Net Rate. (Id. ¶ 29.) Upon receipt, the OTC pays this amount to the hotel, and the hotel remits the taxes to Rosemont. (Id.) No tax is paid on the difference between the amount charged to the customer and the Net Rate. (Id.) The OTC retains whatever it has collected over the amount remitted to the hotel. (Id. ¶ 35.)


Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The movant bears the burden of showing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). If the movant meets this burden, the non-movant cannot rest on conclusory pleadings but "must present sufficient evidence to show the existence of each element of its case on which it will bear the burden at trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86 (1986). In considering the motion, the court must view all evidence in the light most favorable to the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

The main issues in this case are whether defendants are "owners" and their services are part of the "room rental rate," as those terms are used in the Ordinance. The Court will address each of these issues in turn, and then discuss defendants' affirmative defenses.

I. "Owner" as Defined Under the Ordinance

Plaintiff argues that defendants fall within the definition of "owner" set forth in the Ordinance. An "owner" is any person (a) "having an ownership interest in [a hotel]," (b) "conducting the operation of a hotel" or (c) "receiving the consideration for the rental of such hotel or motel room." § 10-22. There is no dispute that defendants do not have an ownership interest in or conduct the operations of the hotels with which they do business. (Defs.' LR 56.1 Stmt. ¶¶ 22-32, 40, 47-49, 51.) The question is whether they receive "consideration for the rental[s]."

Defendants say they do not because consideration is synonymous with Net Rate, i.e., the amount defendants pay to the hotel, not the total amount defendants charge the customer. (Defs.' Mot. Summ. J. at 11.) Plaintiff disagrees, arguing that consideration is what a customer must pay to obtain access to a room, which is the entire amount defendants charge. (Pl.'s Mot. Summ. J. at 8.) The Court, thus, must determine what the legislature intended "consideration" to mean.

The best indication of legislative intent is the plain and ordinary meaning of the language used. Supreme Laundry Serv., LLC v. Hartford Cas. Ins. Co., 521 F.3d 743, 747 (7th Cir. 2008) (citing Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1215 (Ill. 1992)); see People v. Fort, 869 N.E.2d 950, 953 (Ill. App. Ct. 2007) (stating that a court may refer to dictionaries to determine the plain and ordinary meaning of words). Consideration is defined as "something (such as an act, a forbearance, or a return promise) bargained for and received by a promisor from a promisee." Black's Law Dictionary (9th ed. 2009); see also Miriam-Webster's Online Dictionary, (defining "consideration" as "an act or forbearance or the promise thereof done or given by one party in return for the act or promise of another") (last visited Aug. 18, 2011).

The bargain struck here is the payment of money for access to a hotel room, which occurs between defendants and the customers. When a customer books a reservation, defendants charge his credit card for the room rental rate, which include fees for their services. (Defs.' LR 56.1 Stmt. ¶¶ 32, 34, 42.) The customer does not pay the hotel anything to get the key to an OTC-booked room. (Id. ¶¶ 34, 42.) In fact, no money changes hands between an OTC customer and the hotel unless the customer incurs charges for incidental services like parking, laundry or food. (Id.) Because the customer cannot access his hotel room unless and until he pays the OTC's entire charge, the OTCs are owners who receive "consideration for . . . rental[s]," within the meaning of the Ordinance.

This interpretation is consistent with the collection provision of the Ordinance, which states: "Every [owner] . . . shall secure the tax from the rentor at the time he collects the rental payment for the hotel or motel room." § 10-23(d); see Bonaguro v. Cnty. Officers Electoral Bd., 634 N.E.2d 712, 714 (Ill. 1994) ("[T]he statute should be evaluated as a whole; each provision should be construed in connection with every other section."). This ...

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