Online Hotel Reservation Agencies Could Be Liable for Deceptive Fees

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

New York residents who used online hotel reservation agencies to book hotel rooms in New York City stated a claim under the New York unfair trade practices law for the agencies’ charging of allegedly deceptive and unfair fees, according to the federal district court in New York City.

The hotel patrons used hotel reservation websites—including Hotels.com, Expedia, and Priceline—to purchase hotel rooms in New York City.

Invoices provided after purchase allegedly failed to disclose that the agencies pocket a tax differential earned on the markup when they resell rooms online that they acquired at a discount. Tax charges and service fees were allegedly bundled so that patrons did not know the amount of each of the service fees or taxes. Further, patrons were allegedly deceived into believing that the agencies offer the lowest possible rate on hotel rooms.

Coverage of New York Residents

Because the New York law (General Business Law §349—§350-f) does not apply to out-of-state plaintiffs who were not deceived in New York, non-New York residents were dismissed from the action by the court.

The hotel reservation agencies argued that the named plaintiffs could not state claims because the alleged deception did not occur in New York. While the agencies argued that the point of deception was where the patrons accessed the Internet to visit the websites and reserve hotel rooms, the patrons argued that the deception took place in New York, where the hotels were located, because the deceptive acts did not take place until the patrons checked out and received an invoice.

The court ruled that the allegedly deceptive acts took place at the time the reservation was made and therefore the place of deception was the state in which the patron resided and made the reservation. Thus, the New York General Business Law claims brought by non-New York residents were dismissed.

Online Rates, Taxes

The court rejected the assertion that the agencies deceived patrons into believing that it was always cheaper to book through an online travel agency than to book directly with a hotel. Patrons were given complete information by the agencies and were no so unreasonable as to believe the agencies did not profit from the transactions.

However, the court denied a motion to dismiss based on the failure of the agencies to disclose that the amount of tax they collected from patrons was “always” greater than what they were charged by the hotel whose rooms the agency resold. The fact that the agencies “always” pocketed this difference could be material to a patron searching for the lowest possible rates for a hotel.

The decision in Chiste v. Hotels.com L.P. will be reported at CCH State Unfair Trade Practices Law ¶32,165.

Further information about CCH State Unfair Trade Practices Law appears here.

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.