Hotwire Suit Close to Takeoff
The Recorder
By Matthew Hirsch

nternet travel companies such as Expedia have made a fortune pulling in small amounts of cash from lots and lots of consumers. But plaintiff lawyers might get the last laugh by dinging them with lots and lots of small damages in class actions.

Attorneys suing several online hotel brokers believe they're on the brink of a breakthrough in litigation over minor charges on customers' bills. San Francisco firm Gutride Safier expects to get a class certification order any day now in one such case against the company that operates Hotwire, a travel booking Web site.

San Francisco Superior Court Judge Richard Kramer indicated from the bench last month that he would grant certification. His anticipated order has struck some lawyers as a first among many similar class actions across the country. (In a consumer suit against Expedia, a federal judge in Washington state has set a class certification hearing for March.)

Gutride Safier, the lead plaintiff firm before Kramer in Deaton v. Hotwire, 437631, has about a half-dozen other class actions pending against online travel agencies such as Orbitz, Travelocity and Expedia, which is run by the same company that owns Hotwire. Those suits claim the hotel booking sites bill customers for taxes and fees without making clear how those charges were calculated. For instance, they say the sites don't spell out whether they're billing taxes on a full room price or a discounted rate.

"When you buy a ticket from an airline, they tell you exactly what you're paying in taxes and fees. We kind of feel if you can do it with the airlines, why can't you do it here?" said Michael Reese, a partner at Gutride Safier. Partner Seth Safier noted that Hotwire changed its billing practices in May 2005, the cutoff point for that proposed class.

James Karen, a Dallas partner at Jones Day who is lead national counsel for Hotwire, Expedia and other defendant Web sites, said he would not comment on pending litigation, adding, "The comments have to come from the client."

Expedia spokesman David Dennis followed up with a one-line statement. "We are confident in our position, and we will continue to defend ourselves vigorously."

Online travel booking sites hold a big piece of the lucrative hotel business.

At the end of 2006, online bookings accounted for about 40 percent of all hotel reservations, said James Butler Jr., a Los Angeles-based attorney who chairs the global hospitality group at Jeffer, Mangels, Butler & Marmaro but is not involved in the litigation. (Butler noted that industry data doesn't differentiate between reservations made through third-party Web sites, such as Hotwire, and sites operated directly by hotel chains.)

"The stakes could be huge," Butler said. "We're talking about billions of dollars of bookings."

In addition to the consumer complaints, there's another group of suits going after the same companies, but alleging an alternative theory that the online hotel brokers have been ripping off not consumers but local taxing authorities.

Some lawyers involved in those cases say the two groups of suits cannot succeed in tandem. In other words, good news for the consumer plaintiffs would spell trouble for the municipal government plaintiffs, and vice-versa.

RED FLAGS

Plaintiff lawyers started sniffing around the online travel business almost three years ago around the time the Los Angeles Times and other major publications started reporting on a growing controversy in the hospitality industry.

What caught their attention was an announcement from InterContinental Hotels Group, a major player in the business that represents some 3,500 hotels.

IHG announced in April 2004 that, going forward, it would only do business with online travel companies that do not engage in "confusing and potentially unclear marketing practices" and that do "clearly present taxes and fees to consumers."

The question is, who are they improperly diverting funds from, [consumers or local governments]? It's a little bit difficult to think they could be guilty of both.'

- Los Angeles deputy city attorney
James Colbert

An IHG press release and the news that followed raised red flags in the plaintiff bar, said Reese, the Gutride Safier partner.

"When they started talking about hidden, hefty fees and consumers being misled, that certainly started our investigation," he said.

Lawyers for local taxing authorities across the country must have seen the same warning signs.

About two dozen class actions have been filed by local governments over the last two years, according to Steven Wolens, a Dallas partner at Baron & Budd who claims he filed the first.

Wolens is counting on more "copycat suits," too. "I foresee state cases coming, and perhaps cases filed for countries," he said.

If that wave of litigation fails to emerge, it might be because after more than two years, many of the governments' suits have been tossed out before they could be argued on the merits.

Paul Chronis, a Chicago partner at McDermott, Will & Emery who serves as defense counsel for Orbitz, Cheaptickets.com and Lodging.com, said online travel companies have recently gotten several cases dismissed on grounds such as not having exhausted other remedies.

Cases that have been dismissed, voluntarily or involuntarily, include those filed by the cities of Atlanta; Philadelphia; Bellingham, Wash.; and Miami-Dade County and Orange County, Fla., Chronis said.

Compared with the cases filed by municipal taxing authorities, Chronis said "very few" consumer cases have been filed, perhaps indicating that few consumers think the online tax and fee scheme presents a basis for litigation.

"Orbitz is pleased that only a small handful of customers have chosen to pursue these meritless claims," he said.

Safier, the lead plaintiff's attorney in Hotwire, countered that "consumers are furious" with online hotel brokers. Including grievances registered with regulatory agencies, consumer groups and online companies themselves, Safier claims "thousands and thousands" of complaints have been lodged.

"The reason there are only thousands of complaints, and not hundreds of thousands of complaints, is because it's a hidden practice," he said.

CONFLICTING THEORIES?

The consumer class actions and suits filed by local taxing authorities target the same practice, but their complaints don't completely overlap.

For one thing, the municipal cases are only focused on taxes, not fees.

"Our case is much broader than theirs," Safier said. "[Only] a small component of our case is going after the same money as theirs."

Even so, lawyers for the taxing authorities appear skeptical that both can be successful.

Baron & Budd's Wolens, who represents the city of Los Angeles among other clients, said online hotel brokers are collecting "the correct amount of money from the consumer. It's just they're putting it in their own pocket. They're not remitting it to the appropriate government agencies."

"The question is, who are they improperly diverting funds from, [consumers or local governments]?" added Los Angeles Deputy City Attorney James Colbert III. "It's a little bit difficult to think they could be guilty of both."

If the consumers win their cases, that won't necessarily close the door on the government plaintiffs' suits, Colbert added. But victories for consumers might provide ammunition for the online companies as they defend themselves against the taxing authorities.

"Presumably [if the online companies lose], they would move heaven and earth to prevent that kind of an inconsistent result."

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