Summary
holding that Delaware Consumer Fraud Act does not have extraterritorial effect
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C.A. No. 05C-02-195 WCC.
Submitted: June 23, 2006.
Decided: October 31, 2006.
On Defendant priceline.com Incorporated's Motion to Dismiss the First Amended Class Action Complaint. GRANTED in part, DENIED in part.
Karen L. Valihura; Skadden, Arps, Slate, Meagher Flom LLP; One Rodney Square; P.O. Box 636; Wilmington, Delaware. Attorney for Defendant.
Seth D. Rigrodsky; Rigrodsky Long; 919 North Market Street, Suite 980; Wilmington, Delaware 19801. Attorney for Plaintiffs.
MEMORANDUM OPINION
Introduction
Before this Court is priceline.com Incorporated's ("priceline" or "Defendant") Motion to Dismiss the First Amended Class Action Complaint (the "Motion") filed by Jeanne Marshall, Steve Tafoya, Bruce Deaton and Craig Knight, on behalf of themselves and others similarly situated (collectively, the "Plaintiffs"). Upon review of the record and briefs filed in this matter, this Court hereby grants the Motion in part and denies the Motion in part.
Facts
Priceline and each of the Plaintiffs entered into separate contracts when each Plaintiff reserved a hotel room through either priceline.com or lowestfare.com (the "Contract"). Both websites are operated by priceline, which is an online travel service that uses the internet to assist individuals reserving hotel rooms in various cities. This dispute is over the "Taxes and Service Fees" listed in the Contract and charged by priceline for each hotel room booked by the Plaintiffs.
While each plaintiff had a separate contract with priceline, it appears each contract was the same except for the name of the plaintiff and the hotel reserved. As such, for clarity purposes, the Court will reference the collection of contracts as one contract within this opinion.
The Plaintiffs allege priceline violated the Delaware Consumer Fraud Act ("DCFA") by deceiving the Plaintiffs through charging unnecessary taxes and service fees, which were not specifically disclosed to the consumer. With respect to the taxes consumers paid, Plaintiffs allege priceline did not remit portions of the payments to a taxing authority, but merely pocketed the additional money as profit. With respect to the service fees, Plaintiffs allege priceline used arbitrary numbers to set the service fee, which had no relation to the cost of the hotel and were not an actual "service cost" as priceline indicated on its website. As a result, Plaintiffs assert the Defendant 1) violated the DCFA; 2) breached the contract terms and 3) breached the implied good faith and fair dealing covenant.
Conversely, priceline states it disclosed the amount of taxes and fees charged to a consumer prior to acceptance, and therefore it did not violate the DCFA nor breach the Contract. Priceline further argues the DCFA only regulates activity within Delaware, and no action of alleged misrepresentation took place within the State. Since none of the Plaintiffs are residents of Delaware, and since priceline's primary place of business and headquarters are both within Connecticut, priceline argues there are insufficient ties to allow the DCFA to apply. Accordingly, priceline has filed a Motion to Dismiss, which the Court addresses below.
Standard of Review
A motion to dismiss must be decided solely upon the allegations set forth in the complaint. In determining the merits of a motion to dismiss pursuant to Rule 12(b)(6), the court must accept all allegations within the complaint as true. If a plaintiff may recover under any reasonably conceivable set of circumstances, a motion to dismiss must be denied. Only if the plaintiff could prevail under no set of facts inferred from the pleadings may the court dismiss the complaint for lack of merit, as a matter of law or fact.
See Growbow v. Perot, 539 A.2d 180, 187 (Del. 1988).
State Use of Certain-Teed Products Corp. v. United Pacific Ins. Co., 389 A.2d 777, 778 (Del.Super.Ct. 1983).
Kofron v. Amoco Chems. Corp., 441 A.2d 226, 227 (Del. 1982).
Diamond State Tel. Co. v. Univ. of Del., 269 A.2d 52, 58 (Del.Super.Ct. 1970).
Discussion
I. Delaware Consumer Fraud Act ClaimTo uphold a claim under the DCFA, the Plaintiffs must first demonstrate standing in accordance with the statute by establishing the requirements under the DCFA are met. This includes requiring the Plaintiffs to show that some conduct took place in Delaware or that the incorporation of the Defendant in Delaware is sufficient grounds for the DCFA to apply.
The purpose of the DCFA is to ". . . protect consumers and legitimate business enterprises from unfair or deceptive merchandising practices in the conduct of any trade or commerce in part or wholly within this State. . . ." (emphasis added). Further, Section 2522 states "[s]uch action shall be brought in a court of competent jurisdiction in the county in which the alleged unlawful practice has been, is, or is about to be performed." The statute itself indicates there was no intent of the legislature to create any extraterritorial effects. As such, the courts have consistently ruled that the DCFA is only applicable if the fraudulent conduct occurs within Delaware.
6 Del. C. § 2512 states as follows:
The purpose of this subchapter shall be to protect consumers and legitimate business enterprises from unfair or deceptive merchandising practices in the conduct of any trade or commerce in part or wholly within this State. It is the intent of the General Assembly that such practices be swiftly stopped and that this subchapter shall be liberally construed and applied to promote its underlying purposes and polices.
(a) Whenever it appears to the Attorney General that a person has engaged in, is engaging in or is about to engage in any practice declared by this subchapter to be unlawful, the Attorney General may institute an action in accordance with § 2517(c)(2) of Title 29 in order to enjoin such practices or any acts being done in furtherance thereof. The complaint shall state the nature of the conduct constituting a violation of this subchapter and the relief sought thereunder. Such action shall be brought in a court of competent jurisdiction in the county in which the alleged unlawful practice has been, is, or about to be performed.
6 Del. C. § 2522(a); see also Goodrich v. E.F. Hutton Group, Inc., 542 A.2d 1200, 1202-3 (Del. 1988 ("Relief, therefore, can be granted under the Act only as to those unlawful practices occurring or performed partly or wholly within Delaware.").
See Benning v. Wit Capital, 2001 WL 38781, at *2 (Del.Super.Ct.) (The defendant was registered to do business within Delaware, but the plaintiff failed to establish the fraud took place within the State and the plaintiffs were not Delaware residents. As a result, the court determined the fraud claim was not appropriately brought before the Delaware Superior Court pursuant to the DCFA.); Lony v. E.I. du Pont de Nemours Co., 821 F.Supp. 956, 959 (D.Del. 1993) (The Court made it clear that non-resident consumers are protected under the DCFA. The Court further explained the requirement of a "sufficient connection" was still a factor in determining standing under the DCFA, and the deceiving act originated in Delaware.); Goodrich v. E.F. Hutton Group, Inc., 542 A.2d 1200, 1203 (Del.Ch. 1988); see also, Singer v. Magnavox Co., 380 A.2d 969, 981 (Del. 1977) (The Delaware Securities Act was not applicable to an alleged fraud which occurred outside the state, and which no parts of the sale actually occurred in Delaware and the contract was not created in Delaware, despite the company being incorporated in the state. Specifically, the court stated ". . . the Delaware corporation is bound by the Act, if it is otherwise applicable. But it is not bound simply because the company is incorporated here." Further, a corporate merger vote conducted in Delaware did not create "sufficient connection with the alleged fraud to permit plaintiffs to invoke the Act. That is simply too fragile a basis on which to establish subject matter jurisdiction over an alleged fraud in Pennsylvania or over a contract made in New York."); Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106, 117 (Del. 2006), ("The statutory claim fails, however, because it requires that the unfair practice occur `in part or wholly within this State.' The Amended Complaint does not allege that any of the conduct at issue took place in Delaware.").
Here, the Amended Complaint before this Court indicates the four named Plaintiffs are all non-citizens of Delaware, and it does not assert the alleged fraudulent acts by the Defendant against these four Plaintiffs occurred in Delaware. The Amended Complaint merely speculates that the remaining "class" must include thousands of Delaware residents, and thus fraudulent transactions must have occurred within the State, but these Delaware residents are unidentified and the fraudulent acts alleged to have been committed are not specified.
Pursuant to Super. Ct. Civ. R. 9(b), any fraud claim asserted must be done so with particularity, including claims filed pursuant to the DCFA. See Crowhorn v. Nationwide Mut. Ins. Co., 2002 WL 1767529, at *9 (Del.Super.Ct.). The Amended Complaint does not assert that any specific act between the named Plaintiffs and the Defendant took place in Delaware, nor does it assert that any of the named Plaintiffs are Delaware residents. The Amended Complaint only states that the ". . . conduct at issue herein was carried out by a Delaware corporation, and occurred, at least in part, in the state of Delaware." Am. Compl. ¶¶ 10, 15, 36. It further generally states the alleged unfair practices at least partially took place within the State because priceline uses the internet to assist in making reservations, that these reservations include hotels located in the state of Delaware, and that internet users within Delaware have used priceline to reserve hotel rooms. Am. Compl. ¶ 36. In fact, the only assertion with respect to specific contact with Delaware is that priceline is incorporated within the state. This fact does not place the fraudulent act on Delaware soil.
Further, the Court finds it unrealistic for citizens of Ohio and Utah to reasonably expect they would be protected by Delaware law when the allegedly unfair or deceptive activity never occurred within this State. Equally important, it would offend Ohio and Utah's public policy if this Court allowed a corporation with its principle place of business in Connecticut to draft a contract which insulates itself from the consumer fraud acts of the states its consumers reside, since both Ohio and Utah have their own consumer fraud acts to provide protection to their citizens.
The Ohio Consumer Sales Practice Act (OCSPA) states, in relevant part: "(A) No supplier shall commit an unfair or deceptive act or practice in connection with a consumer transaction." R.C. § 1345.02. Further, the OCSPA "is only applicable if the offending conduct took place within the territorial borders of the state of Ohio." Chestnut v. Progressive Casualty Ins. Co., 820 N.E.2d 751 (Ohio App 2006) (citations omitted).
The Utah Consumer Sales Practices Act (UCSPA) "generally prohibits deceptive or unconscionable acts or practices by supplier in connection with consumer transaction." Utah Code Ann. § 13-11-1.
Millett v. Truelink, Inc., 2006 WL 2583100, at *4 (D. Del.) ("By maintaining its principle [sic] place of business in California and inserting a Delaware choice-of-law provision, defendant has attempted to insulate itself from liability against all statutory consumer fraud claims, except perhaps those brought by Delaware residents. Such a result is against Kansas public policy.") (citations omitted).
Thus, while incorporation may be enough to allow Delaware law to apply to a dispute, it is not enough to allow the DCFA to apply to fraudulent transactions which did not occur in Delaware. Since the Court has determined the Amended Complaint does not sufficiently assert a fraud which occurred within Delaware, and for the reasons set forth above, Count I is dismissed.
See Millett, 2006 WL 2583100; Wal-Mart Stores, Inc., 901 A.2d 106; Singer, 380 A.2d 969; Lony, 821 F.Supp. 956.
Because of this ruling, the Court need not discuss the omissions or misrepresentations alleged by the Plaintiffs which formed the basis of the DCFA claim.
II. Breach of Contract Claim
Delaware law indicates that a breach of contract claim requires a plaintiff to show the following:
(i) the existence of the contract;
(ii) a breach of an obligation imposed by that contract; and
(iii) resultant damages to the plaintiff. In this case, the existence of a contract has not been questioned, however, the remaining two requirements for breach are disputed. The Plaintiffs allege priceline breached two obligations imposed by the Contract: 1) priceline was to only charge the Plaintiffs for "relevant taxes" and 2) priceline was to only include within the service fee it charged to the Plaintiffs the "cost incurred" by priceline in reserving the hotel. Specifically, the Amended Complaint asserts the following:
43. Defendant represented that it charged, and Plaintiffs and the Class paid, the same hotel taxes that hotel and travel agents paid, i.e., a rate applied to the retail price of the room. Defendant actually only paid taxes on the wholesale room rate to the various taxing authorities. Unbeknownst to Plaintiffs and the Class, the difference in the tax rate paid at the wholesale and retail room prices became part of Defendant's "Service Fee" and was pocketed by Defendant.
. . . .
46. Defendant has breached its contractual obligations to Plaintiffs and the Class by collecting taxes in amounts in excess of that remitted to the appropriate taxing authorities, and by collecting fees that did not correspond to costs incurred by Defendant, as Defendant represented.
Albert v. Alex. Brown Mgmt. Servs, Inc., 2005 WL 213607 (Del.Ch.), citing VLIW Tech., L.L.C. v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).
The Court acknowledges there is some dispute as to what documents actually set forth the contractual obligations of the parties, but that dispute is not central to deciding the issues presented to the Court.
Am. Compl. ¶ 42.
Am. Compl. ¶ 46.
As previously stated, a motion to dismiss will be denied when, accepting the allegations in the complaint as true, a plaintiff may recover under a reasonably conceived set of circumstances. While it is difficult to separate the two arguments made by the Plaintiffs, the Court finds that there is only one viable claim that may have any merit that justifies the continuation of this litigation. That claim specifically relates to the manner the Defendant allegedly handled the charging of relevant taxes.
Mentis v. Del. Am. Life Ins. Co., 2000 WL 973299, at *4 (Del.Super.Ct.). (The Court denied a motion to dismiss for a breach of contract claim since there were sufficient facts to sustain a claim. Specifically, the Court noted the representations made to the plaintiff may be relevant to determine the terms of the contract, and the Court determined addressing the issue on a motion to dismiss was not appropriate.); Eismann Corp. v. Gen. Motors Corp., 2000 WL 140781, at *17 (Del.Super.Ct.) (A motion to dismiss a claim of breach of contract was denied despite the lack of detail in the complaint. Whether a breach occurred had to be "fleshed out in the discovery process.").
A. Taxes
While denied by the Defendant, it appears Plaintiffs are alleging that priceline is paying to the taxing authorities an amount of taxes based upon the "wholesale" price of the hotel room ( i.e. the price priceline paid the hotel for the rights to sell that room), but that priceline is then charging its customers for taxes based on the "retail" price of the hotel room ( i.e. the price the customer buys it from priceline). The Amended Complaint then asserts this increased assessment is simply pocketed by the Defendant and hidden in a "service fee." Since the Court must accept at this juncture the allegations of the Plaintiffs' Amended Complaint as true, if established, this practice would potentially be a basis for the jury to find a violation of the Contract between the Plaintiffs and the Defendant.
Of course, the foundation of the Plaintiffs' argument is also premised on priceline having no obligation to collect tax on the higher price the customer paid for the room. For instance, if priceline had an obligation to collect and pay taxes based upon what the customer paid (the "retail" price), and they collected that tax from the customer but did not pay it to the taxing authority, that is an issue between the Defendant and the various government agencies which are entitled to that additional tax. However, under these facts, the Plaintiffs have not been defrauded or misled, and the Contract terms have not been breached. Similarly, if priceline incorrectly charged the Plaintiffs a tax assessment based upon the "wholesale" price of the room, the Plaintiffs again have no claim, and in fact may have received a benefit that they were not entitled.
So to make it clear, the only theory the Court is allowing the litigation to proceed with is that related to the practice of collecting from the Plaintiffs a tax allegedly based upon the higher price (the "retail" price) of the room for which priceline had no obligation to pay the taxing authority, and merely kept the difference. B. Service Fees
The Court appreciates that the Defendant argues that the facts do not support this theory, but at this juncture the Court cannot dismiss the Amended Complaint simply because counsel argues that the facts are different than that asserted in the Amended Complaint. Such an argument will have to wait for the completion of some discovery and the filing of a motion for summary judgment.
On the other hand, to the extent the Plaintiffs are making an independent claim relating to "service fees" based upon the Contract language that such fees are intended to cover the costs to the Defendant for processing the room reservation, and that the fee charged had no rational relationship to the costs incurred by the Defendant, the Court finds that claim frivolous, and even accepting the facts asserted by the Plaintiffs, to be without merit. The Court has no intention of imposing itself into the business judgment of the Defendant as to what is an appropriate fee, nor can it find any contractual obligation by the Defendant to limit the service fee to a particular amount. In other words, the Court finds nothing in the Contract to limit what priceline may charge as a fee to process the transaction, as long as that fee is disclosed to the Plaintiffs prior to the acceptance of the contract, as it was here. The value of the service provided by priceline is determined by the marketplace, and it is in that arena, not the Court, where the reasonableness of that pricing will be determined. If the fee is too high, the market will direct the consumer to another venue to obtain the service. But, to argue that there is some contractual language that controls and limits priceline's pricing for "servicing" the transaction is a fiction created by the Plaintiffs. They accepted the fee and obtained the bargain, and now the Plaintiffs have no legal basis to complain since the amount was disclosed to them. If they were unhappy with the charge imposed by the Defendant, they were free to walk away and not accept the room. This Court refuses to be drawn into an argument as to what is a reasonable fee or what is meant by the word "cost," since the Court finds the Contract allowed the Defendant to impose whatever fee it believed could be sustained by the market. As a result, the motion to dismiss the breach of contract claim with respect to the amount priceline charged the Plaintiffs for tax is denied. But, the breach of contract claim related solely to the amount of service fees priceline charged, is hereby dismissed.
In an attempt at clarity, the Court carefully notes that, should the Plaintiffs determine priceline included a "padded" amount of tax within the amount titled "taxes and service fees," that claim remains a valid breach of contract claim because Plaintiffs are alleging priceline simply placed the difference between the wholesale room tax and the retail room tax under the category of "service fees" in the Contract. However, to the extent the Plaintiffs simply assert priceline charged the Plaintiffs an arbitrary amount for the service fee, that claim is hereby dismissed.
III. Breach of the Implied Covenant of Good Faith and Fair Dealing
The final count within the Amended Complaint is for a breach of the implied covenant of good faith and fair dealing. An implied duty of good faith and fair dealing is interwoven into every contract. This means each party is to act reasonably in fulfilling the intent within the agreement. The covenant of good faith and fair dealing was created to ensure the spirit of an agreement is protected against "underhanded tactics to deny the other side the fruits of the parties' bargain." In so doing, the court is to "extrapolate the spirit of the agreement through the express terms and determine the terms that the parties would have bargained for to govern the dispute had they foreseen the circumstances under which their dispute arose."
Kelly v. McKesson HBOC, Inc., 2002 WL 88939 (Del.Super.Ct.), citing ( Chamison v. Healthtrust, Inc., 735 A.2d 912, 920 (Del.Ch. 1999).
Id. at *10.
Id.
Here, the Court finds that the rationale used in the previous sections relating to the breach of contract are equally applicable to this claim. If the jury believed the contractual terms were not sufficient to clearly justify finding a breach of the contract had occurred, it still may find the alleged actions of the Defendant regarding the mis-charging of taxes was a breach of the implied covenant of good faith and fair dealing. It would be reasonable for the Plaintiffs to believe, as part of the good faith bargaining, that they were being charged taxes that would flow to the appropriate governmental agency, and that the taxes would not be inflated to the benefit of the Defendant. If the allegations asserted by the Plaintiffs are proven, the Court believes a jury could reasonably find a violation of this count as it relates to the taxing issue.
However, again the Court believes that this ruling should be limited to the issue of taxation. For the same reasons set forth previously, the rationale to support the good faith and fair dealing claim relating to the taxing issue does not apply to the service fee/costs arguments made by the Plaintiffs. The Court finds that the Defendant was free to impose whatever service fee they believed to be appropriate and would be supported by the marketplace. And, as long as that fee was disclosed to the consumer, it would terminate any breach of good faith and fair dealing claim that would subsequently be asserted by the Plaintiffs. Again, the Plaintiffs were free to walk away from the offer made by the Defendant if they believed the service fee was unreasonable. They did not and cannot now, in hindsight or in order to simply facilitate litigation, create an inference that they have been the victim of bad faith by the Defendant. The Plaintiffs were aware of the terms of the bargain and that priceline would charge a fee to facilitate the finding of the room they desired. As long as priceline disclosed that fee, a good faith bargain was created. As such, the service fee allegations are without merit in the contractual context, and continue to be so in the covenant arena.
The Motion is, therefore, denied with respect to Count III as it relates to the amount charged for taxes, and the Motion is granted with respect to Count III as it relates solely to the service fees.
Again, should the Plaintiffs determine priceline included a "padded" amount of tax within the amount titled "taxes and service fees," that claim remains a valid cause of action for breach of the implied covenant of good faith and fair dealing. However, to the extent the Plaintiffs simply assert priceline charged an arbitrary amount for the service fee, that claim is hereby dismissed.
IV. Class Action Certification
Lastly, the Plaintiffs are seeking to certify a class. At this juncture, the certification is denied without prejudice to pursue this issue again as the litigation progresses. It is likely that the rulings set forth in this opinion will affect the litigation as it currently stands, and the Plaintiffs may choose to seek a more favorable venue to litigate their claims. As such, the Court will not assess if certification of a class is appropriate at this point, but if the Plaintiffs decide to continue with the litigation in this jurisdiction, they may seek certification by filing a motion in accordance with Rule 23 outlining all the requirements of class certification, for which priceline will then have an opportunity to respond.
Conclusion
For the foregoing reasons, the Defendant's Motion to Dismiss is hereby GRANTED in part and DENIED in part.
IT IS SO ORDERED.