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City of Portland v. Homeaway.Com, Inc.

United States District Court, D. Oregon, Portland Division

March 9, 2017

CITY OF PORTLAND, Plaintiff.
v.
HOMEAWAY.COM, INC. and HOMEAWAY, INC., Defendants.

          OPINION AND ORDER

          MICHAEL W. MOSMAN Chief United States District Judge.

         Plaintiff City of Portland ("the City") sued Defendants HomeAway.com, Inc. and HomeAway, Inc. (collectively "HomeAway") for failure to comply with various provisions of the Portland City Code collectively known as the "Transient Lodgings Tax." After I dismissed its original Complaint [1], the City filed an Amended Complaint [34], which HomeAway now moves to dismiss. For the reasons set forth below, HomeAway's Motion to Dismiss for Failure to State a Claim [37] is GRANTED in part and DENIED in part.

         BACKGROUND

         HomeAway operates an online vacation rental marketplace where people interested in making their homes available for short-term rental may advertise their property. Travelers interested in renting a property can access HomeAway's websites to search for and find available properties. HomeAway puts the traveler in contact with the owner or lessee of the property to sort out the details of the lodging arrangement. HomeAway has property listings located all over the world, including in Portland.

         In 1972, the City enacted a Transient Lodgings Tax Ordinance, Portland City Code ("PCC") § 6.04.010, et seq. ("the Ordinance"), providing in part that "[e]very [hotel] operator renting rooms or space for lodging or sleeping purposes in this City . . . shall collect a tax from the transient" to be remitted to the City. PCC § 6.04.030(A) (2015). The Ordinance applies to hotel "Operators, " defined by the Ordinance as "the person who is proprietor of the hotel in any capacity. Where the operator performs his/her functions through a managing agent of any type or character other than an employee, the managing agent shall also be deemed an operator PCC § 6.04.010(M). The Ordinance authorizes the City to levy fines against Operators that do not comply with the Ordinance. See, e.g., PCC § 6.04.170.

         On January 21, 2015, the Portland City Council passed amendments to the Ordinance that took effect on February 20, 2015.[1] The apparent goal of the City Council in passing the amendments was to extend the Ordinance to cover "Booking Agents." The Ordinance defines "Booking Agent" as "an Operator or any person that provides a means through which a Host may offer a Short-Term Rental for transient lodging occupancy. This service is usually, though not necessarily, provided through an online platform and generally allows a Host to advertise the Short-Term Rental through a website . . . ." PCC § 6.04.010(D). The Ordinance expressly lists "[o]nline travel booking sites" as examples of "Booking Agents." Id.

         After the City Council passed the 2015 amendments to the Ordinance, the City sent HomeAway notices in which the City contended that HomeAway was in violation of various provisions of the Ordinance. Included in these notices was an assessment of $2, 540, 106 in presumptive taxes, penalties, and interest. HomeAway refused to pay the assessment, claiming it was not in violation of the Ordinance because it was not an Operator or Booking Agent and therefore did not fall under the Ordinance's terms. On October 21, 2015, the City filed this lawsuit against HomeAway seeking a declaratory judgment that HomeAway is an Operator or a Booking Agent, a reduction of fines to judgment, a reduction of presumptive taxes to judgment, and an injunction enjoining HomeAway's operations in Portland.

         PROCEDURAL HISTORY

         On May 17, 2016, 1 held oral argument on HomeAway's first Motion to Dismiss [7]. From the bench [28], I GRANTED HomeAway's motion and DENIED the City's request for injunctive relief. I later provided an Opinion and Order [29] clarifying my rulings. In my Opinion and Order, I held that: (1) the City had not sufficiently alleged that HomeAway is an Operator under the Ordinance; (2) the Portland City Charter ("the Charter") does not grant the City authority to impose tax collection obligations on Booking Agents; (3) the City had not sufficiently alleged that HomeAway falls under the City's authority to impose tax collection obligations on Booking Agents under the relevant Oregon state statutes; and (4) the Ordinance does not impose any regulatory duties or responsibilities on HomeAway as a Booking Agent. I dismissed the Complaint but granted leave to amend.

         On July 11, 2016, the City filed its Amended Complaint [34]. HomeAway moves to dismiss the Amended Complaint for failure to state a claim. I held oral argument on the current motion on December 16, 2016.

         LEGAL STANDARD

         When reviewing a motion to dismiss, the court must "accept all factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party." Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). A court need not accept legal conclusions as true because "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id., (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A pleading that offers only "labels and conclusions" or '"naked assertion[s]' devoid of 'further factual enhancement'" will not suffice. Id. (quoting Twombly, 550 U.S. at 555, 557). While a plaintiff does not need to make detailed factual allegations at the pleading stage, the allegations must be sufficiently specific to give the defendant "fair notice" of the claim and the grounds on which it rests. See Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (citing Twombly, 550 U.S. at 555).

         Federal Rule of Civil Procedure 15 provides that a court should freely give leave to amend a complaint "when justice so requires." Fed.R.Civ.P. 15(2). As such, when a court dismisses a complaint for failure to state a claim, "leave to amend should be granted 'unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.'" DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serrv-Wel1 Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). If amendment would be futile, the court need not grant leave to amend. Id.

         DISCUSSION

         HomeAway argues that the Amended Complaint should be dismissed for three principal reasons: (1) the City has failed to allege sufficient facts to show that HomeAway is a Managing Agent, and therefore an Operator, under the Ordinance; (2) the City has failed to allege sufficient facts to show that HomeAway is a Booking Agent under the Ordinance or a Transient Lodging Intermediary under relevant Oregon state statutes; and (3) even if HomeAway is deemed an Operator under the Ordinance, federal law preempts the City's claim seeking to compel HomeAway to provide customer information and display permit numbers when advertising. I will address each argument in turn.

         I. HomeAway as a Managing Agent

         The City's First, Fourth, Sixth, Ninth, and a portion of its Eleventh Claims are all premised on the notion that HomeAway qualifies as an Operator under the Ordinance. The Ordinance defines an Operator as a "person who is [a] proprietor of the hotel in any capacity. Where the operator performs his/her functions through a managing agent of any type or character other than an employee, the managing agent shall also be deemed an operator . . . ." PCC § 6.04.010(M). The City does not allege that HomeAway is a proprietor of hotel properties. Thus, HomeAway can be an Operator only if it qualifies as a Managing Agent.

         A Managing Agent is defined as a "person with general power involving the exercise of judgment and discretion, as opposed to an ordinary agent who acts under the direction and control of the principal." Managing Agent, Black's Law Dictionary (10th ed. 2014). As such, to be a Managing Agent under the Ordinance, a person must exercise judgment and discretion in performing the functions of a hotel proprietor. See id.; PCC § 6.04.010(M).

         A. Judgment and Discretion in Performing the Functions of an Operator

         The parties dispute whether a Managing Agent must perform all the functions of a proprietor or merely a subset of those functions. HomeAway argues that the Ordinance's reference to "his/her" functions, without any additional limiting terms, means that a Managing Agent must perform all of an Operator's functions in order to be considered an Operator. The City suggests that the performance of an Operator's significant functions is sufficient, as long as the entity exercises judgment and discretion in performing those functions.

         I agree with HomeAway. The Ordinance provides no limiting term to "his/her functions, " and the City provides no persuasive reason to read one into the text. See Or. Rev. Stat. § 174.010 (2016); Ramirez v. Haw. T & S Enters., Inc., 39 P.3d 931, 936 (Or. App. 2002). The fact that a Managing Agent can be of any type or character does not limit the functions that a Managing Agent must perform in order to be deemed an Operator. Moreover, a contrary interpretation of the Ordinance's language would lead to a rather strange result. If the Ordinance could be read to require the performance of only some functions, a third party exercising judgment and discretion in performing cleaning services, for example, would qualify as a Managing Agent and, therefore, an Operator. I find such interpretation to be untenable. As such, in order to be a Managing Agent under the Ordinance, an entity must perform all or nearly all the functions of an Operator.

         Even if the Ordinance does not require an entity to perform all an Operator's functions to be a Managing Agent, it certainly requires more than what the City alleges here. Although the City alleges several significant functions that HomeAway does perform, it fails to allege other functions that are fundamental in operating hotel properties. The City fails to allege, for example that HomeAway provides access and services for the rental properties, sets the price charged for occupancy, and accepts or rejects reservation requests. The City alleges some actions that relate to these functions, such as penalizing hosts who do not keep their availability calendars up to date, but not enough to show that HomeAway exercises judgment and discretion in performing those functions. Thus, because the City fails to allege that HomeAway exercises judgment and discretion over several significant proprietary functions, let alone all of them, HomeAway cannot qualify as a Managing Agent under the Ordinance.

         B. Similar Cases Around the Country

         The parties point to several cases that have addressed whether online travel companies ("OTCs") are managing agents under similar transient lodging tax ordinances in other jurisdictions. All of these cases have one common characteristic: they all involve OTCs that purchase hotel rooms at wholesale prices and then resell them at higher retail prices. See, e.g., Pitt Cnty. v. Hotels.com, L.P., 553 F.3d 308, 313 (4th Cir. 2009); City of Goodlettsville v. Priceline.com, Inc., 605 F.Supp.2d 982, 993-97 (M.D. Tenn. 2009). Despite this common fact, the outcomes have been mixed. In some cases, courts have allowed the complaints to move forward, reasoning, in large part, that the OTCs "control" the rooms to an extent that triggers the relevant tax ordinances. See, e.g., City of Goodlettesville, 605 F.Supp.2d at 993-97; City of Charleston v. Hotels.com, 520 F.Supp.2d 757, 768 (D.S.C. 2007); City of San Antonio v. Hotels.com, LP, No. SA-06-CA-381-OG, 2007 WL 1541184, at *2-3 (W.D. Tex. 2007). In other cases, however, courts have dismissed the complaints because the OTCs do not "perform the functions" of hotel operators or participate in the "day to day operation or management of hotels." See, e.g., Columbus v. Hotels.com, L.P., 693 F.3d 642, 649 (6th Cir. 2012); Pitt Cnty., 553 F.3d at 313; City of Findlay v. Hotels.com, 561 F.Supp.2d 917, 921 (N.D. Ohio 2008).

         Here, the task of reconciling these cases is somewhat relieved by the fact that HomeAway is not the same type of OTC as companies like Priceline and Hotels.com. Because the OTCs purchased and then resold hotel rooms directly to patrons, they had a degree of control over the rooms that HomeAway has not been alleged to have. The OTCs, for example, were able to confirm or reject reservations, set pricing, and receive payments directly from patrons. Although the City alleges that patrons make payments directly to HomeAway, there is no dispute that HomeAway does not exercise judgment and discretion in confirming or rejecting reservations, or setting prices for any short-term rentals. Thus, even if cases in which courts allowed the complaints to move forward were for some reason more persuasive, there is an important factual distinction in the case at hand that would warrant a different outcome.

         Because the City fails to allege sufficient facts demonstrating that HomeAway is a Managing Agent, I dismiss the City's First, Fourth, Sixth, Ninth, and a portion of its Eleventh Claims for relief. Furthermore, because it is undisputed that HomeAway does not ...


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