United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge.
Fourteen Illinois municipalities, on behalf of a putative class of 276 municipalities, have sued a number of online travel companies for unpaid taxes. The plaintiffs allege that the defendants failed to remit taxes owed under their municipal hotel tax ordinances. Defendants removed the case to federal court on the basis of the Class Action Fairness Act, 28 U.S.C. §§ 1332(d) & 1453. Plaintiffs have now moved to certify the class under Federal Rule of Civil Procedure 23(b)(1) & (b)(3). For the reasons stated below, the Court denies the motion without prejudice.
The named plaintiffs are fourteen municipalities in Illinois. Each has imposed a tax on the rental of hotel rooms within its borders. Plaintiffs group these hotel tax ordinances into four categories, which the plaintiffs offer as possible subclasses: ordinances that impose a tax upon (1) the use and privilege of a hotel room; (2) the rental of hotel accommodations; (3) persons engaged in the business of renting hotel rooms; and (4) consideration received for renting a hotel room.
The defendants are online travel companies. Defendants contract with individual hotels and pay wholesale rates for rooms at those hotels; defendants then rent the rooms directly to the public for a higher retail price. The price defendants charge customers includes the wholesale rate, a facilitation fee, and an amount labeled "Taxes & Services, " which consists of an estimate of the hotel tax due and other service costs. After these customers complete their stays at the hotels, the hotels bill defendants for the wholesale rate and a tax based on the wholesale rate. Defendants then pay the hotels.
Plaintiffs claim that their hotel tax ordinances apply to the retail rate charged to customers, not just the wholesale rate. They allege, therefore, that the defendants have failed to remit taxes owed under the hotel tax ordinances.
In September 2013, defendants moved to dismiss seven of the ten claims in plaintiffs' complaint for failure to state a claim. The Court granted defendants' motion. Plaintiffs filed this motion for class certification on October 3, 2014.
A party seeking class certification must "affirmatively demonstrate  compliance" with the requirements of Federal Rule of Civil Procedure 23. Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551 (2011). Rule 23(a) requires the party seeking certification to demonstrate that the class is so numerous that joinder of all members is impracticable (numerosity); there are questions of law or fact common to the proposed class (commonality); the class representatives' claims are typical of the claims of the class (typicality); and the representative will fairly and adequately represent the interests of the class (adequacy). The party must also establish that the proposed class falls within at least one of the three categories in Rule 23(b).
In this case, plaintiffs seek certification under both Rule 23(b)(1)(A) and Rule 23(b)(3). Rule 23(b)(1)(A) permits class certification if separate actions by or against individual class members would create a risk of "varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class." Rule 23(b)(3) permits class certification if "questions of law or fact common to class members predominate over any questions affecting only individual members" (predominance) and "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy" (superiority).
For the reasons stated below, the Court concludes that Rule 23(b)(1)(A) and Rule 23(b)(3) are not satisfied. Because these issues are dispositive, the Court need not address defendants' typicality and adequacy arguments. To provide guidance for the remainder of this litigation, however, the Court will briefly address commonality before discussing Rule 23(b)(1)(A) and 23(b)(3).
As discussed above, Rule 23(a)(2) requires the party seeking certification to demonstrate that there are questions of law or fact common to the proposed class. To establish commonality, plaintiffs must demonstrate that the class members' claims depend upon a common contention that is capable of classwide resolution, "which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." Wal-Mart, 131 S.Ct. at 2551. In this inquiry, "even a single common question will do." Id. at 2556 (internal alterations and quotation marks omitted). Relying on the Supreme Court's decision in Wal-Mart, the Seventh Circuit has explained that plaintiffs must show "that they share some question of law or fact that can be answered all at once and that the single answer to that question will resolve a central issue in all class members' claims." Jamie S. v. Milwaukee Pub. Schs., 668 F.3d 481, 497 (7th Cir. 2012). Superficial common questions, such as "whether each class member suffered a violation of the same provision of law'-are not enough." Id. (quoting Wal-Mart, 131 S.Ct. at 2551). "Rather, [c]ommonality requires the plaintiffs to demonstrate that the class members have suffered the same injury.'" Id. (quoting Wal-Mart, 131 S.Ct. at 2551).
Plaintiffs contend that commonality is satisfied because "the defendants have engaged in standardized conduct toward members of the proposed class." Pls.' Mot. for Class Certification at 7. Specifically, each of the defendants has failed to "remit [t]axes on its markup or fees to any [p]laintiff or [c]lass member, regardless of ordinance language." Id. at 8-9. Because defendants' business practices were uniform, plaintiffs reason that "[t]he evidence presented will be common, not individualized." Id.
Defendants argue that "the varied language of the different ordinances"-even within the proposed subclasses-precludes resolving an issue that is central to plaintiffs' claims in "one stroke." Defs.' Resp. in Opp'n to Pls.' Mot. for Class Certification at 8-9. They contend, therefore, that plaintiffs have failed to "identify a common, controlling thread that makes such a liability determination applicable to all of the ordinances" and that they should not be ...