Opinion
CIVIL ACTION FILE No. 4:05-CV-00249-SCJ
2021-08-19
CITY OF ROME, GEORGIA, et al., Plaintiffs, v. HOTELS.COM, L.P. et al., Defendants.
Bryan Anthony Vroon, Law Offices of Bryan A. Vroon, LLC, David William Davenport, Robert Claiborne Lamar, Lamar Archer & Cofrin, LLP, John W. Crongeyer, Crongeyer Law Firm, P.C., Kevin A. Ross, The Law Practice of Kevin Ross, LLC, Atlanta, GA, David G. Archer, Archer & Lovell, P.C., Cartersville, GA, Jesse Anderson Davis, Robert Maddox Brinson, Brinson Askew Berry Siegler Richardson & Davis, LLP, Rome, GA, John T. Murray, Murray & Murray, Sandusky, OH, Walter James Gordon, The Gordon Law Firm Attorneys at Law, LLC, Hartwell, GA, for Plaintiffs City of Rome, Georgia, Hart County, City of Cartersville, Georgia. Jesse Anderson Davis, Robert Maddox Brinson, Brinson Askew Berry Siegler Richardson & Davis, LLP, Rome, GA, John T. Murray, Murray & Murray, Sandusky, OH, Kevin A. Ross, The Law Practice of Kevin Ross, LLC, Robert Claiborne Lamar, Lamar Archer & Cofrin, LLP, Atlanta, GA, for Plaintiffs Fulton County, City of Hartwell, City of Rockmart, City of Cedartown, City of Dalton. Deborah S. Sloan, Pro Hac Vice, James P. Karen, Jones Day, Dallas, TX, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Edward Kendrick Smith, Sean Patrick Costello, Jones Day, Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Lucas W. Andrews, Watson Spence LLP, Atlanta, GA, for Defendants L. P. Hotels. Com, Hotwire, Inc., Expedia, Inc. Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Elizabeth B. Herrington, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Jeffrey A. Rossman, Pro Hac Vice, Joshua G. Herman, Pro Hac Vice, Lazar P. Raynal, Pro Hac Vice, Paul E. Chronis, Purvi G. Patel, McDermott Will & Emery, Chicago, IL, for Defendants Trip Network, Inc., Internetwork Publishing Corp. Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Elizabeth B. Herrington, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Jeffrey A. Rossman, Pro Hac Vice, Joshua G. Herman, Pro Hac Vice, Lazar P. Raynal, Pro Hac Vice, Paul E. Chronis, Purvi G. Patel, McDermott Will & Emery, Chicago, IL, Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Atlanta, GA, for Defendant Orbitz. LLC. Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Atlanta, GA, Celso M. Gonzalez-Falla, Pro Hac Vice, Skadden Arps Slate Meagher & Flom LLP, Houston, TX, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Michael A. Barlow, Ralph K. Herndon, Sr., Pro Hac Vice, Skadden, Arps, Slate, Meagher & Flom, LLP, Wilmington, DE, Keith Steven Anderson, Bradley Arant Boult Cummings, LLP, Birmingham, AL, for Defendant Priceline.Com, Inc. David F. McDowell, Morrison & Foerster, Los Angeles, CA, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Marcus G. Mungioli, Pro Hac Vice, Kelly Hart & Hallman, LP, Fort Worth, TX, for Defendants Site 59.com, LLC, Travelocity.com, LP. Celso M. Gonzalez-Falla, Pro Hac Vice, Skadden Arps Slate Meagher & Flom LLP, Houston, TX, Karen L. Valihura, Michael A. Barlow, Ralph K. Herndon, Sr., Pro Hac Vice, Skadden Arps Slate Meagher & Flom, LLP, Wilmington, DE, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, for Defendant Travelweb, LLC. David J. Stagman, Katten Muchin Rosenman, LLP, Chicago, IL, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, for Defendant Onetravel, Inc. Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Atlanta, GA, for Defendants Egencia LLC, Travelscape LLC. Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Atlanta, GA, Keith Steven Anderson, Bradley Arant Boult Cummings, LLP, Birmingham, AL, for Defendants Rocket Travel Inc., Agoda International USA LLC.
Bryan Anthony Vroon, Law Offices of Bryan A. Vroon, LLC, David William Davenport, Robert Claiborne Lamar, Lamar Archer & Cofrin, LLP, John W. Crongeyer, Crongeyer Law Firm, P.C., Kevin A. Ross, The Law Practice of Kevin Ross, LLC, Atlanta, GA, David G. Archer, Archer & Lovell, P.C., Cartersville, GA, Jesse Anderson Davis, Robert Maddox Brinson, Brinson Askew Berry Siegler Richardson & Davis, LLP, Rome, GA, John T. Murray, Murray & Murray, Sandusky, OH, Walter James Gordon, The Gordon Law Firm Attorneys at Law, LLC, Hartwell, GA, for Plaintiffs City of Rome, Georgia, Hart County, City of Cartersville, Georgia.
Jesse Anderson Davis, Robert Maddox Brinson, Brinson Askew Berry Siegler Richardson & Davis, LLP, Rome, GA, John T. Murray, Murray & Murray, Sandusky, OH, Kevin A. Ross, The Law Practice of Kevin Ross, LLC, Robert Claiborne Lamar, Lamar Archer & Cofrin, LLP, Atlanta, GA, for Plaintiffs Fulton County, City of Hartwell, City of Rockmart, City of Cedartown, City of Dalton.
Deborah S. Sloan, Pro Hac Vice, James P. Karen, Jones Day, Dallas, TX, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Edward Kendrick Smith, Sean Patrick Costello, Jones Day, Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Lucas W. Andrews, Watson Spence LLP, Atlanta, GA, for Defendants L. P. Hotels. Com, Hotwire, Inc., Expedia, Inc.
Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Elizabeth B. Herrington, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Jeffrey A. Rossman, Pro Hac Vice, Joshua G. Herman, Pro Hac Vice, Lazar P. Raynal, Pro Hac Vice, Paul E. Chronis, Purvi G. Patel, McDermott Will & Emery, Chicago, IL, for Defendants Trip Network, Inc., Internetwork Publishing Corp.
Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Elizabeth B. Herrington, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Jeffrey A. Rossman, Pro Hac Vice, Joshua G. Herman, Pro Hac Vice, Lazar P. Raynal, Pro Hac Vice, Paul E. Chronis, Purvi G. Patel, McDermott Will & Emery, Chicago, IL, Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Atlanta, GA, for Defendant Orbitz. LLC.
Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Atlanta, GA, Celso M. Gonzalez-Falla, Pro Hac Vice, Skadden Arps Slate Meagher & Flom LLP, Houston, TX, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Michael A. Barlow, Ralph K. Herndon, Sr., Pro Hac Vice, Skadden, Arps, Slate, Meagher & Flom, LLP, Wilmington, DE, Keith Steven Anderson, Bradley Arant Boult Cummings, LLP, Birmingham, AL, for Defendant Priceline.Com, Inc.
David F. McDowell, Morrison & Foerster, Los Angeles, CA, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, Marcus G. Mungioli, Pro Hac Vice, Kelly Hart & Hallman, LP, Fort Worth, TX, for Defendants Site 59.com, LLC, Travelocity.com, LP.
Celso M. Gonzalez-Falla, Pro Hac Vice, Skadden Arps Slate Meagher & Flom LLP, Houston, TX, Karen L. Valihura, Michael A. Barlow, Ralph K. Herndon, Sr., Pro Hac Vice, Skadden Arps Slate Meagher & Flom, LLP, Wilmington, DE, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, for Defendant Travelweb, LLC.
David J. Stagman, Katten Muchin Rosenman, LLP, Chicago, IL, Edward Hine, Jr., Law Offices of Edward Hine, Jr., Rome, GA, for Defendant Onetravel, Inc.
Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Atlanta, GA, for Defendants Egencia LLC, Travelscape LLC.
Alan Frank Pryor, David Baird Carpenter, Clark R. Calhoun, Alston & Bird, LLP, Atlanta, GA, Keith Steven Anderson, Bradley Arant Boult Cummings, LLP, Birmingham, AL, for Defendants Rocket Travel Inc., Agoda International USA LLC.
ORDER
STEVE C. JONES, UNITED STATES DISTRICT JUDGE
This matter appears before the Court on Defendants’ Emergency Motion to Modify Consent Orders (Doc. No. [792]). Plaintiffs responded in opposition (Doc. No. [798]), and Defendants replied (Doc. No. [800]). The Court heard arguments on this matter during a hearing that took place on August 2, 2021. Doc. No. [801]. The Court rules as follows.
All citations are to the electronic docket unless otherwise noted, and all page numbers are those imprinted by the Court's docketing software.
I. BACKGROUND
This case concerns the collection and remittance of local hotel occupancy taxes under O.C.G.A. § 48-13-50 et seq. (the "Enabling Statutes"). Plaintiffs are certain municipalities in Georgia, and Defendants are certain online travel companies ("OTCs") that "offer a full range of services to help travelers design and plan vacations, locate hotels and attractions, compare the offerings of multiple travel suppliers, and make online hotel, airline, and car rental reservations." Doc. No. [696], 3–4, 31–32. These OTCs provide hotel rooms to consumers under a "merchant model," which the Court earlier described as a business model through which
In this Order, the Court will broadly refer to the collective taxes contemplated in the Enabling Statutes as "hotel occupancy taxes." The Court recognizes that the Enabling Statutes do not apply solely to hotels, but the Court uses this phrase in the interest of brevity and because the Parties have used it in the same fashion.
OTCs contract with hotels to obtain hotel rooms at a discounted rate (the "wholesale rate") and sell the hotel rooms to consumers at a marked up, retail rate (the "retail rate"). At the time of the room sale, the OTCs charge the customer's credit card a single amount consisting of (a) the retail rate, a combination of (i) the wholesale rate, and (ii) the "mark-up" or "margin" added onto the wholesale rate; and (b) an additional amount which the OTCs characterize as "taxes and service fees."
When a traveler places a pre-paid reservation through an OTC, except for incidental fees incurred during the stay, the traveler does not pay the hotel directly at checkout. Instead, the OTC charges the traveler's credit card at the time the hotel accepts the reservation, and the hotel receives its compensation by invoicing the OTC for the wholesale rate, the taxes due, and any hotel-imposed fees. After the customer completes his or her stay at the hotel, the hotel remits the hotel occupancy excise tax ("hotel occupancy tax") to the appropriate taxing authorities. [Prior to this litigation], OTCs [did] not directly remit any hotel occupancy taxes to Plaintiffs, the governing authorities.
Id. at 6–9 (internal citations and footnotes omitted).
Defendants state that this description is not completely accurate, but they allow that the description suffices for purposes of their Motion. See Doc. No. [792-1], 3 n.2.
At all times relevant to this lawsuit, the Enabling Statutes have governed the remittance and collection of local hotel occupancy taxes. See Doc. No. [792-1], 2, 4. Before this lawsuit, OTCs calculated the taxes due by applying the applicable local hotel occupancy tax rate to the hotel's discounted room rental rate, or the "Net Rate" (i.e., not to the "Total Price," or the total amount paid by a customer, including the OTC's facilitation services fees). Id. at 4 & n.3. After calculating taxes owed based on the Net Rate, an OTC would pay the tax to the hotel, which would in turn remit the tax payment to the proper Georgia locality. Id. at 4. Thus, the hotels, and not the OTCs, paid hotel occupancy taxes to the local taxing jurisdictions, and the hotels were remitting the taxes based on the Net Rate. Id.
On November 18, 2005, the initial Plaintiffs in this lawsuit filed this action, contending that the OTCs’ merchant model—and the OTCs’ payment of taxes on only the Net Rate instead of the Total Price—resulted in insufficient tax payments being remitted to the local taxing jurisdictions. Doc. No. [1]. While this case was pending, the Georgia Supreme Court issued a series of opinions concerning how the OTCs were to remit local hotel occupancy taxes pursuant to the Enabling Statutes. See Doc. No. [792-1], 4–5 (citing Expedia, Inc. v. City of Columbus, 285 Ga. 684, 681 S.E.2d 122 (2009), Hotels.Com, L.P. v. City of Columbus, 286 Ga. 130, 686 S.E.2d 91 (2009), and City of Atlanta v. Hotels.com, 289 Ga. 323, 710 S.E.2d 766 (2011) (collectively, the "Georgia Supreme Court Decisions")). The Georgia Supreme Court Decisions generally held that local hotel occupancy taxes were due not on the Net Price but instead on the Total Price of OTC transactions, and that the OTCs—not the hotels with whom the OTCs contracted—were responsible for remitting such tax payments to the local taxing jurisdictions if the OTCs were collecting customers’ payments on behalf of the hotels. See id. And in the City of Atlanta case, the Georgia Supreme Court determined that the OTCs were not "innkeepers" as the term was defined in the Enabling Statutes. City of Atlanta, 289 Ga. at 328, 710 S.E.2d at 770–71.
After the Georgia Supreme Court Decisions were issued, Plaintiffs and Defendants entered into a Class Partial Settlement Agreement in this case. Doc. No. [584]. This Settlement Agreement resulted in the creation of an "Incremental Tax Fund" to which the OTCs would, on a monthly basis, remit the "Incremental Tax." Doc. No. [792-1], 6–7. Under the Settlement Agreement, Defendants also agreed to provide Plaintiffs’ counsel with documentation related to payment of the Incremental Tax. Id. at 7. Further, the Settlement Agreement provided for the appointment of Third Party Claims Administrators (the "Administrators") to oversee the Incremental Tax Fund, which includes collecting the Incremental Taxes and remitting them to the local taxing jurisdictions. Id. The Court entered several consent orders to effectuate the Incremental Tax Fund, as well as other commitments and obligations contemplated in the Settlement Agreement (the "Consent Orders"). Id. at 7–8; Doc. Nos. [705]; [720]; [724]; [790]. Through these Consent Orders, the Court appointed Randy Bowen, CPA and J. Anderson Davis to serve as Administrators. Doc. Nos. [724]; [790]. The latter Consent Order provided for Mr. Davis, who has served and is currently serving as counsel for Plaintiffs in this matter, to receive 12.5% of Incremental Tax payments received for his services as an Administrator. Doc. No. [790], 4–5. Meanwhile, in light of the Georgia Supreme Court Decisions, this Court determined in its order on Defendants’ cross-motion for summary judgment that OTCs were not "innkeepers" under the language of the Enabling Statutes in effect at that time. Doc. No. [696], 43–65. The Court further found that while the OTCs were to remit certain taxes going forward, the Enabling Statutes did not provide Plaintiffs an avenue to pursue back taxes. Id. at 63–65.
The "Incremental Tax" is the difference between the hotel occupancy taxes calculated on the Net Rate and the hotel occupancy taxes calculated on the Total Price. See Doc. No. [682-1], 11.
The Parties variously refer to these individuals as "Class Administrators," "Claims Administrators," and "Administrators." See Doc. Nos. [792-1], 7, 11, 13; [798], 3.
Pursuant to the Consent Orders, Defendants have been remitting taxes owed and completing other obligations by: (1) filing monthly reports and remitting Incremental Taxes to the Administrators; and (2) transmitting hotel occupancy taxes collected on the Net Rate directly to the hotels, which have then remitted those taxes to the local taxing jurisdictions. See Doc. No. [792-1], 6–7, 11.
As both Defendants and Plaintiffs state, entities that timely file and remit taxes under the Enabling Statutes are entitled to deduct a 3% administrative fee. Doc. Nos. [792-1], 8 n.5; [798], 3 n.5. Plaintiffs note that, in the Settlement Agreement, Defendants agreed to "forever waive" as to Incremental Taxes any right to the administrative fee deduction provided under O.C.G.A. § 48-13-52. Doc. No. [798], 3 n.5, 20–22.
Since the Court approved the Settlement Agreement, issued the Consent Orders, and otherwise implemented the Incremental Tax Fund, the Parties have operated within the framework established by the Consent Orders: Defendants have remitted Incremental Taxes owed and provided documentation to the Administrators; the Administrators have overseen these remittances and paid the Incremental Taxes, minus the Administrators’ administrative fees, to Plaintiffs; and localities have received taxes due to them. See Doc. No. [792-1], 9–10.
In April of 2021, however, the Georgia General Assembly amended the Enabling Statutes in a way that Defendants contend "affect[s] the operation of the Incremental Tax Fund, the Class Partial Settlement Agreement, and the Consent Orders." Doc. No. [792-1], 10 (citing Ga. Laws 2021, Act 21, HB 317 §§ 1–6). Under these amendments, the term "innkeeper" now includes "marketplace innkeeper[s]," or persons that "facilitat[e] the furnishing for value to the public any rooms, lodgings, or accommodations on behalf of another person." Ga. Laws 2021, Act 21, HB 317 § 1 (amending O.C.G.A. § 48-13-50.2 ). The amendments also add a provision stating that "[a] marketplace innkeeper shall constitute the innkeeper with respect to the transactions ... that it facilitates on behalf of another person"; in other words, the amendments treat marketplace innkeepers—rather than hotels—as the liable party for taxes on such transactions. Id. § 3 (creating O.C.G.A. § 48-13-50.4 ). And this part of the Enabling Statutes was amended while the following statutory language remained in place: "Each innkeeper ... shall transmit returns and remit taxes due to any applicable governing authority imposing a tax under this article ...." O.C.G.A. § 48-13-53.2(a) (emphases added). Thus, under the amended Enabling Statutes, for transactions that marketplace innkeepers facilitate, marketplace innkeepers shall transmit returns and remit taxes due to the locality imposing a hotel occupancy tax. See O.C.G.A. §§ 48-13-50.4, 53.2(a). Also, the amendments now allow the local taxing jurisdictions to directly "levy and collect" taxes on accommodations facilitated or furnished by market innkeepers. Id. § 4 (amending O.C.G.A. § 48-13-51 ). The amendments to the Enabling Statutes are effective as of July 1, 2021. See Doc. No. [792-1], 1, 10; Ga. Laws 2021, Act 21, HB 317 § 5.
Defendants contend that they are "marketplace innkeepers" (see Doc. Nos. [792-1], 12–13; [800], 2), which Plaintiffs appear not to contest.
This amendment also adds language stating that O.C.G.A. § 48-13-50.4 "shall not be construed to require a duplication in the payment of any tax." Ga. Laws 2021, Act 21, HB 317 § 1 (creating O.C.G.A. § 48-13-50.4(e) ).
Additionally, a provision of the amended Enabling Statutes states that marketplace innkeepers " shall remit all taxes in the manners provided in this article," and it further states that such taxes will be "received by the taxing authority ." O.C.G.A. § 48-13-50.4(b) (emphases added).
The amendments to the Enabling Statutes appear to have had downstream effects, as certain localities have recently amended their ordinances to provide that OTCs shall remit directly to the locality all local hotel occupancy taxes that the OTCs have collected. See Doc. Nos. [792-1], 12–13; [800], 7 n.2. For example, the City of Rome, which is a Plaintiff in this case, recently amended its hotel occupancy tax ordinances. Id.; Doc. No. [803-2]. In particular, the amendments added the term "marketplace facilitator," which is defined as
a person who contracts with the operator of a hotel, in exchange for any form of consideration, to make available or facilitate a rental that is taxable under [the ordinance] on behalf of such operator by directly or through any agreement or arrangement with another person:
(a) Providing a service that makes available or facilitates such rental in any manner, including, but not limited to ... taking orders or reservations for, providing the physical or electronic infrastructure that brings purchasers and operators together for, or otherwise similarly assisting the operator in making such rental, or transmitting or otherwise similarly communicating the offer and acceptance between the operator and the renter for, or otherwise similarly assisting the operator for such rental, but excluding merely processing the payments for such rental; and
(b) Collecting, charging, processing, or otherwise facilitating payment for such rental on behalf of the operator.
Doc. No. [803-2], 3. Another amendment to the City of Rome's ordinances makes marketplace facilitators that facilitate the renting of a guestroom responsible for collecting, reporting, and remitting hotel occupancy taxes "in the same manner as an operator." Id. at 5; see also id. at 4 (defining "operator" in part as "any person operating a hotel in the [City of Rome]"). The amendments also state that operators—and, in effect, marketplace facilitators—shall file taxes with the city clerk. See id. at 6. These amendments do not affect existing ordinances that give the City of Rome's clerk auditing authority to bring legal actions to collect past-due occupancy taxes. Doc. No. [803-1], 5–6.
Defendants contend that they are "marketplace facilitators" under the City of Rome's revised ordinance (see Doc. Nos. [792-1], 12; [800], 7 n.2), which Plaintiffs appear not to contest.
On July 1, 2021, Defendants moved under Federal Rule of Civil Procedure 60(b) for the Court to modify the Consent Orders. Doc. No. [792]. Broadly, Defendants contend that the recent amendments to the Enabling Statutes—in particular, the amendment redefining "innkeeper" to now include OTCs—impose obligations on them that directly conflict with their obligations under the Consent Orders. Doc. No. [792-1], 2, 11. The Court reviews the Parties’ arguments in greater depth below, but broadly: Defendants request the Court to end their obligations under the Consent Orders and allow them to remit tax payments solely pursuant to the amended Enabling Statutes. See id. at 2. Plaintiffs oppose Defendants’ Motion, arguing that the Consent Orders and amendments to the Enabling Statutes do not conflict in a manner that eliminates the need for the Incremental Tax Fund and other obligations contemplated in the Consent Orders. See Doc. No. [798]. In reply, Defendants reiterate their earlier points and reject Plaintiffs’ interpretations of the amended provisions in the Enabling Statutes. Doc. No. [800].
This matter is now ripe for review, and the Court rules as follows. II. LEGAL STANDARD
Federal Rule of Civil Procedure 60(b) permits district courts to modify or terminate consent decrees or court orders: (i) that have been "satisfied, released or discharged"; (ii) when "applying [them] prospectively is no longer equitable"; and/or (iii) for "any other reason that justifies relief." Fed. R. Civ. P. 60(b)(5), (6) ; Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367, 378–79, 112 S.Ct. 748, 116 L.Ed.2d 867 (1992). In Rufo, the Supreme Court created a flexible, "changed circumstances" legal standard for modifying consent decrees or orders arising out of "institutional reform" litigation, or cases involving the structural reform of public institutions. See Rufo, 502 U.S. at 378–79, 112 S.Ct. 748. Under this standard, Rule 60(b) allows a court to modify or vacate a consent order if the moving party shows that a significant change in factual conditions or in law renders continued enforcement of the order inequitable or detrimental to the public interest. United States v. S. Fla. Water Mgmt. Dist., No. 88-1886-CIV, 2011 WL 1099865, at *4 (S.D. Fla. Mar. 22, 2011).
Courts have debated whether to apply the "changed circumstances" standard in litigation not involving institutional reform, or whether to apply an earlier, more stringent standard requiring a showing of "grievous wrong" as first articulated in United States v. Swift & Co., 286 U.S. 106, 52 S.Ct. 460, 76 L.Ed. 999 (1932). See In re Consol. Non-Filing Ins. Fee Litig., No. 294-CV-699-UWC, 2010 WL 1250873, at *2 (M.D. Ala. Mar. 24, 2010) (discussing the debate and noting that some courts have found that the "changed circumstances" and "grievous wrong" standards "are two poles along a spectrum of possible standards and that courts must identify the proper standard on this continuum by considering and balancing all of the relevant equitable factors in each particular case").
The Parties do not directly discuss the conflict noted above, but whereas Defendants contend that the Rufo changed circumstances standard applies, Plaintiffs argue that Defendants must show "exceptional circumstances" to obtain the requested relief. Compare Doc. No. [792-1], 14–15 with Doc. No. [798], 5. After reviewing and duly considering the filings and relevant authority, the Court finds that applying the Rufo changed circumstances standard is appropriate in this case because the present dispute concerns tax collections, which both relates to the operation of a public institution and is a matter of public interest. See Rufo, 502 U.S. at 380–81, 112 S.Ct. 748.
Accordingly, Defendants bear the burden to show that a significant change of law or factual circumstances requires modification of the Consent Orders. See Horne v. Flores, 557 U.S. 433, 447, 129 S.Ct. 2579, 174 L.Ed.2d 406 (2009) ; Rufo, 502 U.S. at 384, 112 S.Ct. 748. If Defendants carry this burden, the Court abuses its discretion if it refuses to modify the Consent Orders in light of the shown changes. Horne, 557 U.S. at 447, 129 S.Ct. 2579. If Defendants meet their burden of establishing a change in fact or in law warranting modification of the Consent Orders, the Court should determine whether Defendants’ proposed modifications are suitably tailored to the changed circumstance. Rufo, 502 U.S. at 391, 112 S.Ct. 748. In applying this two-part standard, the Court must consider the effect of the proposed modifications on the underlying purposes of the Consent Orders. See id. at 381, 112 S.Ct. 748 n.6 ; United States v. City of Montgomery, Ala., 948 F. Supp. 1553, 1568 (M.D. Ala. 1996).
III. DISCUSSION
Defendants argue that the amendments to the Enabling Statutes require Defendants "to remit all of the taxes due on lodging transactions directly to the localities," which conflicts with the Consent Orders that require Defendants to remit the Incremental Taxes to the Administrators. Doc. No. [792-1], 11–14. In essence, Defendants argue that if they were to follow both the amended Enabling Statutes and the Consent Orders, they would be double paying the Incremental Taxes. See id. Because of the alleged conflict between the Consent Orders and amended Enabling Statutes, Defendants ask the Court to modify the Consent Orders such that they would no longer have to report or remit tax payments to the Administrators. See id. at 15–18. Defendants also argue that modifying the Consent Orders ultimately helps the local taxing jurisdictions because the fees that the Administrators presently charge far exceed the 3% administrative fee to which Defendants would be entitled under the Enabling Statutes. Id. at 13–14.
Defendants further argue that the newly revised City of Rome ordinances track the amended Enabling Statutes in that they also require Defendants to collect and remit to the City of Rome all hotel occupancy taxes. See Doc. No. [792-1], 12–13.
Specifically, Defendants ask the Court to enter an order that: (1) "terminates the prospective relief contained in the Consent Orders, including but not limited to any ongoing obligations with respect to the Incremental Tax Fund as of June 30, 2021"; (2) "directs the Class Administrator to close out and distribute to Plaintiffs and Class Members any remaining amounts in the Incremental Tax Fund (following the filing and payment of taxes for the period ending June 30, 2021)"; (3) provides that, "as of July 1, 2021, Defendants will have no further obligations under either the Consent Orders or the Class Partial Settlement Agreement (except to file the required documentation and pay taxes due for the period ending June 30, 2021)"; and (4) dismisses the case with prejudice. Doc. No. [792-1], 17–18.
In response, Plaintiffs contend that Defendants’ arguments fail because remitting taxes to the Administrators is, under agency law principles, already a payment to the localities, which means that Defendants satisfy the amended Enabling Statutes by remitting taxes to the Administrators, who serve as agents of the local taxing jurisdictions. Doc. No. [798], 3, 6–7, 9–10. Plaintiffs also argue that maintaining the Consent Orders benefits the localities because they ensure continued payment of the Incremental Taxes, waive the 3% administrative fee on Incremental Tax payments by the OTCs, and relieve the burden of accounting for these taxes by placing administrative responsibilities with the Administrators. See id. at 3–5, 16–22. Further, Plaintiffs contend that the amendments to the Enabling Statutes are not self-effectuating, and that the localities that have not yet passed ordinances coextensive with the amended Enabling Statutes would still need to receive Incremental Tax payments through the Administrators. See id. at 6 n.11. Plaintiffs present other arguments regarding (1) the fact that the tax remittance and collection has for years worked well under the system laid out in the Consent Orders and (2) that the amendments to the Enabling Statutes create no conflict with the Consent Orders and have not changed the Enabling Statutes in a manner that changes any legal duties. See id. at 7–10, 16–20.
Throughout their response filing, Plaintiffs also accuse Defendants of a history of questionable practices and conduct concerning how they calculated taxes owed prior to this litigation and the Consent Orders, and they contend that "at least some of the OTC Defendants continue to employ [such] tax-concealing practices." See Doc. No. [798], 4 & n.7, 10–16, 19–20, 22.
In reply, Defendants reject Plaintiffs’ agency law argument and assert that the conflict between the Consent Orders and amended Enabling Statutes creates a risk that Defendants will violate either a statute or court order if they comply with one and not the other. See Doc. No. [800], 5–6. Defendants also contend that Plaintiffs’ interpretations of the amended Enabling Statutes are incorrect. Id. at 6–8. For example, whereas Plaintiffs argue that the amendments do not change how some localities’ ordinances operate with respect to collecting Incremental Taxes, Defendants cite an amended Enabling Statute which provides that the "provisions of this Code section shall control over the provisions of any local ordinance or resolution to the contrary ... enacted pursuant to this article and in effect prior to July 1, 2021," and that any such ordinance "shall be administered in conformity with" the Enabling Statutes. See id. at 6; O.C.G.A. § 48-13-51(a)(1)(A)(iii). Defendants also argue that Plaintiffs ignore how changes to the term "innkeeper" in the Enabling Statutes alter Defendants’ legal tax collection obligations. Id. at 6–7. And in response to Plaintiffs’ arguments that the localities would lose tax revenue if Defendants deduct the 3% administrative fee pursuant to O.C.G.A. § 48-13-52, Defendants argue that localities will yield less money overall if the 12.5% Administrators’ fees—along with accountants’ fees—continue to be charged. Id. at 9–10, 12. Finally, Defendants reject Plaintiffs’ efficiency-based arguments, arguing that continuing a bifurcated tax-payment system does not benefit any party involved, and that the localities have shown via other tax-collection mechanisms that they are able to create auditing systems to account for the taxes. Id. at 12–16; see also Aug. 2, 2021 Hr'g Tr. 23:19–24:2 (arguing the localities will already "have their traditional tax administration" in place because they already collect Net Rate Taxes).
After duly considering the Parties’ arguments, the Court finds as follows:
A. Defendants Have Shown That Changed Circumstances Warrant Relief Under Rule 60(b)
Defendants have shown that the amendments to the Enabling Statutes constitute a change in law sufficient to warrant the relief they request under Rule 60(b). Prior to this litigation, there were genuine legal disputes as to whether: (1) the OTCs owed hotel occupancy taxes on only the Net Rate or the Total Price; and (2) hotels or OTCs were to remit hotel occupancy taxes to the localities when OTCs facilitated guestroom or hotel bookings. The Georgia Supreme Court Decisions settled those questions by ruling that: (1) OTCs owed hotel occupancy taxes on the Total Price; and (2) the OTCs were to pay those taxes to the localities. By providing for the Incremental Tax Fund, the Consent Orders created a mechanism for the remittance of Incremental Taxes from the OTCs to the localities, with the Administrators appointed to serve as middle parties to review and otherwise facilitate the tax remittances. In short, the underlying purpose of the Court's Consent Orders was to provide a mechanism that ensured that the OTCs remitted Incremental Taxes in a manner consistent with the Georgia Supreme Court Decisions.
Now, however, the Georgia General Assembly has amended the Enabling Statutes in a manner that directs Defendants to pay all hotel occupancy taxes—including Incremental Taxes—directly to the localities. The amended Enabling Statutes create a change in law for Rule 60(b) purposes because the prior version of the Enabling Statutes did not explicitly provide that OTCs were to (1) collect hotel occupancy taxes for transactions they facilitated and (2) remit those taxes directly to localities. The amended Enabling Statutes now provide for that. Of course, this Court entered the Consent Orders in part to create an Incremental Tax remittance mechanism that was consistent with the Georgia Supreme Court Decisions, which had interpreted the earlier version of the Enabling Statutes. Because the recent legislative amendments changed the very statutes that the Georgia Supreme Court Decisions had construed, the amendments changed the law on which the Consent Orders were based. Thus, the amendments result in a change of relevant law.
Further, the change in law creates a significant change of circumstances that warrants Rule 60(b) relief. Whereas the Consent Orders direct Defendants to remit Incremental Taxes to the Administrators, the Court finds that the amendments to the Enabling Statutes direct Defendants to remit all hotel occupancy taxes—including Incremental Taxes—directly to the localities. This change in legislation creates a conflict between the directives of the Consent Orders and the language of the Enabling Statutes, which would force Defendants either to (1) double pay the Incremental Tax or (2) pay the Incremental Tax to only the Administrators or the localities and thereby violate either a court order or a governing statute. The Court finds that this conflict creates a change in circumstances that makes it inequitable to continue enforcing the Consent Orders. See Lynch v. Sessions, 942 F. Supp. 1419, 1425 (M.D. Ala. 1996) (stating that a court may relieve a party from the obligations of a court order "when it is no longer equitable that the [order] should have prospective application").
Furthermore, the Court is not persuaded by Plaintiffs’ arguments that the amendments to the Enabling Statutes have created no conflict with the Consent Orders. The amended Enabling Statutes are clear that Defendants "shall" now collect hotel occupancy taxes, including the Incremental Taxes, from customers and then remit those taxes to the localities. Even local ordinances—including those of the City of Rome, a Plaintiff in this case—have been amended to require marketplace facilitators such as Defendants to remit to the localities hotel occupancy taxes generated from the renting of guestrooms. The Court finds that the amended Enabling Statutes are clear: Defendants, as OTCs, marketplace innkeepers, and marketplace facilitators, "shall" pay hotel occupancy taxes to the localities. As to Plaintiffs’ agency-law arguments, the Court believes that if the Georgia General Assembly had wanted third-party agents of municipalities to collect the Incremental Taxes, it could have so specified in the amendments to the Enabling Statutes. After all, it has specified in many other statutes when and how agents of a municipality may act on the municipality's behalf. See, e.g., O.C.G.A. §§ 48-5-359(b) (authorizing an "agent of the municipality" to purchase property for the municipality), 12-6-24 (authorizing the "designated agent" of a municipality to act on its behalf regarding certain timber harvesting operations), 40-6-27 (authorizing "any county, municipality ... or agent thereof" to install certain pavement markers).
In their brief, Plaintiffs quote O.C.G.A. § 48-13-51(a)(1)(B)(ii) and emphasize language stating that the " innkeeper ... shall remit the tax to the governing authority." Doc. No. [798], 9. If Plaintiffs are attempting to show that the innkeepers, and not OTCs, are the entities obligated to remit hotel occupancy taxes directly to the localities, then Plaintiffs’ position fails because the amended Enabling Statutes treat "marketplace innkeepers" (i.e., Defendants) as innkeepers. O.C.G.A. §§ 48-13-50.2(2.1), 50.4(a).
B. Defendants’ Proposed Modifications Are Suitably Tailored to the Changed Circumstances
Defendants ask the Court to enter an order that: (1) terminates the prospective relief contained in the Consent Orders, including but not limited to any ongoing obligations with respect to the Incremental Tax Fund; (2) directs the Administrators to close out and distribute to Plaintiffs and Class Members any remaining amounts in the Incremental Tax Fund; (3) provides that Defendants will have no further obligations under the Consent Orders or the Settlement Agreement; and (4) dismisses the case with prejudice. Doc. No. [792-1], 17–18. For the reasons below, the Court finds that the requested relief is suitably tailored to the present changes in law and circumstances.
As discussed above, the Court finds that the amendments to the Enabling Statutes create a conflict with the directives of the Consent Orders because each requires Defendants to remit Incremental Taxes to different entities. Also, the Court finds that in this case, the recently amended Enabling Statutes should take precedence over and supersede conflicting provisions of the Consent Orders because the matters at issue involve the operation of state tax-collecting and law. And given that a central component of the Consent Orders was the creation and implementation of the Incremental Tax Fund—which is a mechanism that now runs counter to the governing Enabling Statutes—the Court finds that the requested relief is suitably tailored to the changes in law and circumstances.
In a decision granting a Rule 60(b) motion and ending an injunction that had been in place for decades, the Middle District of Alabama stated that "[a]ll litigation must come to an end" and indicated that a court should heed when such a court order is no longer necessary because "[o]ur nation's concept of federalism does not contemplate a perpetual role of a federal court as overseer of state functions." Lynch, 942 F. Supp. at 1427. Here, the Court is especially cognizant of the fact that its Consent Orders have for years directed the remittance of certain state taxes. The passage of new state law concerning those very state taxes in a manner that creates significant tension with the Consent Orders certainly implicates the federalism concerns the Middle District of Alabama noted in its Lynch decision.
As part of this analysis, the Court must also consider what effect Defendants’ proposed modifications would have on the purpose of the Consent Orders. Rufo, 502 U.S. at 381 n.6, 112 S.Ct. 748. The Court may more freely adopt Defendants’ proposed modifications if they further the goals of the Consent Orders; but if the proposed modifications would frustrate the purpose of the Consent Orders, the Court should proceed with extreme caution in considering the proposed changes. Id. at 381 n.6, 388, 112 S.Ct. 748.
The Court entered the Consent Orders to provide a mechanism that would allow Defendants to remit hotel occupancy taxes in a manner consistent with the Georgia Supreme Court Decisions and, more particularly, the Enabling Statutes. In effect, the purpose of the Consent Orders was to ensure that the hotel occupancy taxes, including the Incremental Taxes, were properly accounted for and paid to local taxing jurisdictions. The amendments to the Enabling Statutes now specify that Defendants are to pay all hotel occupancy taxes that they collect as marketplace facilitators directly to the local taxing jurisdictions. In other words, the Enabling Statutes now specifically provide for how Defendants are to remit the Incremental Taxes to the local taxing jurisdictions—the underlying purpose of the Consent Orders. Moreover, the amendments to the Enabling Statutes provide for achieving the underlying purpose of the Consent Orders in a manner that—mechanically, at least—conflicts with the Consent Orders. Under these circumstances, the Court finds that Defendants’ requested relief of terminating the Consent Orders, dissolving the Incremental Tax Fund, and declaring that Defendants have no further obligation under the Consent Orders and Settlement Agreement is suitably tailored to the purposes of the Consent Orders because the amended Enabling Statutes now accomplish the same goals as the Consent Orders: To provide for the remittance of all hotel occupancy taxes from Defendants to the localities.
Plaintiffs present various arguments in an attempt to preserve the Consent Orders and Incremental Tax Fund. For example, Plaintiffs argue that the localities value how well the Administrators have overseen the Incremental Tax Fund and facilitated the remittance of Incremental Taxes. See Doc. No. [798], 17–20. While the Court has no reason to doubt that the Administrators have done an excellent job administering the Incremental Tax Fund, this factor does not alter the impact that the amendments to the Enabling Statutes have on Defendants’ obligations. Furthermore, as Defendants have noted on several occasions, it is not as though the localities will be at a loss as to how they can collect the Incremental Taxes and audit OTCs as needed. Localities collect and audit numerous taxes, including property taxes, sales taxes, and even hotel occupancy taxes. See, e.g., Rome, Ga., Code §§ 8-1 (ad valorem taxes), 3-331–350 (alcohol excise taxes), 8.195–8-225 (motel-hotel excise taxes). The fact that the Incremental Tax Fund has been an appreciated service in the past does not necessarily mean that the localities will be placed in an untenable or even inconvenient position going forward if Defendants remit all hotel occupancy taxes directly to the localities. And not only does the Court find Plaintiffs’ equity-based arguments unpersuasive, the Court finds Defendants’ equity-based arguments compelling: Given the impact of the amended Enabling Statutes, it is no longer equitable to force Defendants to remit hotel occupancy taxes in a bifurcated fashion. Doc. No. [800], 12–14.
Plaintiffs, who imply throughout their briefing that Defendants have long engaged in untoward behavior when it comes to remitting hotel occupancy taxes, urge the Court not to implement the "honor system" for which Defendants advocate. First, to the extent Defendants advocate for any "system," it is a tax-collecting system that is not only obliged by the amended Enabling Statutes but also is not remarkably dissimilar to other tax-collecting systems that localities already administer. And localities have a way to maintain the "honor" component of such systems: auditing. Also, the Court agrees with Defendants’ responses to Plaintiffs’ characterizations of Defendants’ past actions: There were genuine legal disputes about the remittance of hotel occupancy taxes, those disputes were resolved by the Georgia Supreme Court and this Court, and the Parties have complied with their obligations under the clarifying authority.
Additionally, Plaintiffs’ counsel—who currently receives a monthly 12.5% administrative fee for performing his role as an Administrator—argues that the localities will lose 3% of their Incremental Tax revenues if the Court dissolves the Incremental Tax Fund and permits Defendants to remit taxes directly to the localities and deduct the statutory 3% administrative fee allowed to timely hotel occupancy taxpayers under O.C.G.A. § 48-13-52. But of course, if the Court dissolves the Incremental Tax Fund, the Administrators’ fees in excess of 12.5% will no longer be taken out of the Incremental Taxes that are ultimately remitted to the localities. In short, if the Court were to preserve the Consent Orders and Incremental Tax Fund, localities would continue to see at least a 12.5% administrative fee deduction from their net Incremental Taxes; but if the Court were to terminate the Consent Orders and Incremental Tax Fund and permit Defendants to remit Incremental Taxes directly to the localities, the localities would see only a 3% administrative fee deduction. In other words, the localities would see a net 9.5% gain if the Court were to terminate the Consent Orders and Incremental Tax Fund. From an equitable standpoint, the Court struggles to see how Plaintiffs’ counsel's argument benefits Plaintiffs. And while Plaintiffs’ counsel attempts to diminish this point by arguing that the Administrators’ services to the localities more than justify their administrative fees (Doc. No. [798], 21–22), the Court finds that its reasoning above as to the localities’ ability to collect and account for the Incremental Taxes holds equal sway here.
As noted above, Defendants earlier agreed to forever waive their right to claim this 3% administrative fee. See Doc. No. [798], 20–21. The Court finds that it need not determine with finality here whether Defendants may claim this deduction now that the Enabling Statutes have been substantially amended.
Accordingly, the Court finds that Defendants’ proposed relief is suitably tailored to the changed law and circumstances, and Plaintiffs’ arguments do not move this Court to find otherwise. Thus, the Court finds that Defendants’ Motion to Modify Consent Orders (Doc. No. [792]) is due to be granted.
IV. CONCLUSION
Thus, the Court GRANTS Defendants’ Emergency Motion to Modify Consent Orders (Doc. No. [792]). Subject to this Court's August 9, 2021 order (Doc. No. [804]) and the Incremental Tax remittance contemplated therein, the Court ORDERS as follows:
1. The prospective relief contained in the Consent Orders, including but not limited to any ongoing obligations with respect to the Incremental Tax Fund as of August 1, 2021, is TERMINATED;
2. The Administrators are DIRECTED to close out and distribute to Plaintiffs and Class Members any remaining amounts in the Incremental Tax Fund (following the filing and payment of taxes for the period ending July 31, 2021) and, once completed, to DISSOLVE the Incremental Tax Fund;
3. As of August 1, 2021, Defendants ARE DECLARED to have no further obligations under either the Consent Orders or the Class Partial Settlement Agreement (except to file the required documentation and pay taxes due for the period ending July 31, 2021); and
4. This case is DISMISSED with prejudice.
IT IS SO ORDERED this 19th day of August, 2021.