Friday, June 05, 2009

Expedia Marked Up “Service Fees,” Held Liable for $184 Million

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a nationwide class action, travel booking website Expedia was liable for $184 million in damages, based on its breach of contract in charging service fees in excess of the actual costs of making hotel reservations, the Washington Superior Court in King County has ruled. Additional proceedings are needed to resolve disputed questions of fact on a separate claim under the Washington Consumer Protection Act.

Expedia breached its “terms of use” for both online and telephone reservations, which provided that “service fee goes to covering costs.” The court cited employee e-mails as evidence that service fees were marked up to increase profits.

Voluntary Payment Defense

As a defense to the breach of contract claims, Expedia contended that the payments at issue were voluntary. Under the voluntary payment doctrine, money voluntarily paid by a party under a claim of right with full knowledge of the facts by the person making the payment cannot be later recovered on the ground that the claim was illegal, or that there was no liability to pay in first place. The court held the doctrine inapplicable because the admitted, undisclosed inclusion of a profit component in the fees did not equate with full knowledge.

The court found that an award of $184,470,451—the full amount of the services fees collected based on the breach of contract—was warranted.

Consumer Protection Law

On the consumer protection claim, the class of consumers challenged Expedia’s bundling of tax and service fees from May 17, 2002 through June 11, 2008 and its failure to disclose the true nature or separate amounts of its fees and taxes. The consumers contended that these practices had the tendency or capacity to mislead and constituted an unfair and deceptive practice under the Washington statute.

Expedia maintained that hotel wholesale rate disclosure would affect its bottom line and that consumers “know” that the service fees include markup and can choose whether the pay the price or not.

The parties’ contentions implicate the “reasonableness” standard applicable under the statute, the court said. The unresolved questions of fact precluded summary judgment on the consumer protection claim.

Unresolved issues of fact also existed as to whether Expedia’s allegedly deceptive practice caused the injury asserted and whether the asserted public interest would outweigh Expedia’s legitimate business concerns.

The May 28 opinion in Expedia Hotel Taxes and Fees Litigation appears at CCH Advertising Law Guide ¶63,421.

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