IN RE TRANSIENT OCCUPANCY TAX CASES

Appellant’s Opening Brief on the Merits

Cal.January 27, 2015

PUBLIC—REDACTS MATERIAL FROM SEALED RECORD PURSUANT TO RULE CALIFORNIA RULES OF COURT, RULE8.46(f)(2)(A) No. 8218400 IN THE SUPREME COURT OF CALIFORNIA In Re Coordinated Proceeding Special Title (Rule 3.550(c)) TRANSIENT OCCUPANCY TAX CASES SUPREME COURT FILED CITY OF SAN DIEGO, CALIFORNIA, Appellant, JAN 2 7 2015 v. HOTELS.COM,L-P.,et al., Frank A. McGuire Clerk Respondents. Deputy Appeal from the Los Angeles County Superior Court Hon.Elihu M.Berle, Judge, Case Number: GIC861117 (Judicial Council Coordination Proceedings No. JCCP4472) PETITIONER’S OPENING BRIEF ON THE MERITS CITY OF SAN DIEGO GREINES, MARTIN, STEIN & RICHLAND LLP CITY ATTORNEY’S OFFICE Irving H. Greines, SBN 39649 Daniel F. Bamberg, SBN 60499 Kent L. Richland, SBN 51413 Jon E. Taylor, SBN 155429 *Cynthia E. Tobisman, SBN 197983 1200 Third Avenue, Suite 1100 David E. Hackett, SBN 271151 San Diego, CA 92101 5900 Wilshire Boulevard, 12th Floor Tel: 619-533-5800 / Fax: 619-533-5856 Los Angeles, CA 90036 Tel: 310-859-7811 / Fax: 310-276-5261 KIESEL BOUCHER LARSON LLP William L. Larson, SBN 119951 BARON & BUDD,P.C. Paul R. Kiesel, SBN 119854 Laura J. Baughman, SBN 263944 8648 Wilshire Boulevard Thomas M. Sims, SBN 261474 Beverly Hills, CA 90211 3102 Oak Lawn Ave, Ste 1100 Tel: 213-687-1515 / Fax: 213-622-2144 Dallas, Texas 75219 Tel: 214-521-3605 / Fax: 214-520-1181 McKOOL SMITH HENNIGAN Steven D. Wolens (Admitted Pro Hac Vice) Gary Cruciani (Admitted Pro Hac Vice) 300 Crescent Court, Suite 1500 Dallas, TX 75201 Tel: 214-978-4000 / Fax: 214-978-4044 Attorneys for Petitioner CITY OF SAN DIEGO, CALIFORNIA PUBLIC—REDACTS MATERIAL FROM SEALED RECORD PURSUANT TO RULE CALIFORNIA RULES OF COURT, RULE8.46(f)(2)(A) No. $218400 IN THE SUPREME COURT OF CALIFORNIA In Re Coordinated Proceeding Special Title (Rule 3.550(c)) TRANSIENT OCCUPANCY TAX CASES CITY OF SAN DIEGO, CALIFORNIA, Appellant, V. HOTELS.COM,L.P.,et al., Respondents. Appeal from the Los Angeles County Superior Court Hon. Elihu M.Berle, Judge, Case Number: GIC861117 (Judicial Council Coordination Proceedings No. JCCP4472) PETITIONER’S OPENING BRIEF ON THE MERITS CITY OF SAN DIEGO GREINES, MARTIN, STEIN & RICHLAND LLP CITY ATTORNEY’S OFFICE Irving H. Greines, SBN 39649 Daniel F. Bamberg, SBN 60499 Kent L. Richland, SBN 51413 Jon E. Taylor, SBN 155429 *Cynthia E. Tobisman, SBN 197983 1200 Third Avenue, Suite 1100 David E. Hackett, SBN 271151 San Diego, CA 92101 5900 Wilshire Boulevard, 12th Floor Tel: 619-533-5800 / Fax: 619-533-5856 Los Angeles, CA 90036 Tel: 310-859-7811 / Fax: 310-276-5261 KIESEL BOUCHER LARSON LLP William L. Larson, SBN 119951 BARON & BUDD,P.C. Paul R. Kiesel, SBN 119854 Laura J. Baughman, SBN 263944 8648 Wilshire Boulevard Thomas M. Sims, SBN 261474 Beverly Hills, CA 90211 3102 Oak Lawn Ave, Ste 1100 Tel: 213-687-1515 / Fax: 213-622-2144 Dallas, Texas 75219 Tel: 214-521-3605 / Fax: 214-520-1181 McKOOL SMITH HENNIGAN Steven D. Wolens (Admitted Pro Hac Vice) Gary Cruciani (Admitted Pro Hac Vice) 300 Crescent Court, Suite 1500 Dallas, TX 75201 Tel: 214-978-4000 / Fax: 214-978-4044 Attorneys for Petitioner CITY OF SAN DIEGO, CALIFORNIA TABLE OF CONTENTS INTRODUCTION STATEMENTOF FACTS A. The Important Players. 1. The City. 2. The Online Travel Companies (““OTCs”). 3. The Transients. 4. The Hotels. B. The Governing Ordinance. C. The Hotels And The OTCs Have Primarily Used Two Compensation Models, The “Agency” Model And The “Merchant” Model, The Latter Being The Only One At Issue In This Case. D. The Three Transactional Steps Of The Merchant Model. 1. Transactional step no. 1: The agreements between the hotels and the OTCs. 2. Transactional step no. 2: The process of renting a room through an OTC. 3. Transactional step no. 3: Divvying uptherental revenue, and remitting room tax. THE COORDINATION ORDER AND COORDINATION PROCEEDINGS. PROCEDURAL HISTORY A. The City’s Tax Collector Audits The OTCs And Assesses Millions Of Dollars In Unpaid Room Tax,Penalties And Interest. B. TheLitigation. PAGE 10 13 13 20 20 21 23 23 24 5. ARGUMENT I TABLE OF CONTENTS PAGE Administrative proceedings: The hearing officer determines that in OTC transactions, the tax base for calculating room tax is the full amountofthe rent charged to and paid by the customer, and that the OTCsare agents forthe hotels astoall of the reservation, rent-collection, tax-collection, and customer-service functions. 24 Writ-of-mandate proceedings andtrial court decision: Thetrial court concludes the tax base for calculating room tax is the portion ofthe rental proceedsthe hotels ultimately receive after the OTCstaketheircut. 25 The Court of Appealaffirmsthetrial court’s ruling that room tax is calculated based on the portion of the rental proceedsthat the hotel receives and concludesthat, by reason ofthis ruling, it is not necessary to address whether the OTCsare obligated to collect/remit room taxes. 27 The City’s petition for rehearing and the Court of Appeal’s modification of its opinion in response. 28 San Diego successfully petitions for review. 28 29 THE TAX BASE FOR CALCULATING ROOM TAX MUST BE THE RENTAL PAYMENT THE HOTEL REQUIRES THE CUSTOMERTO BE CHARGED TO OBTAIN OCCUPANCY. THE PORTION OF THE RENTAL PROCEEDS THAT THE HOTEL HAS CONTRACTUALLY AGREED TO ACCEPT AS ITS SHARE OF THOSE RENTAL PROCEEDSIS IRRELEVANT TO THE TAX CALCULATION. 29 A. The Governing Ordinance Imposes Room Tax On The Customer And Bases The Tax On The Rent Charged To And Paid By The Customer To Obtain ThePrivilege Of Occupancy. 29 | il TABLE OF CONTENTS Undisputed Evidence And Uncontested Factual Findings Conclusively Establish That It Is The Hotels That “Charge” Rent In Exchange For The Privilege Of Occupancy—AndThat The Ful] Amount Of That Rent Must Be The Tax Base, Not Some Lesser Amount. 1. Therate-parity agreements establish that it is the hotels that charge rent, as those agreements give the hotels the exclusive powerto fix the minimum rent that must be charged to and paid by the customerif he is to obtain a privilege of occupancy. 2. The agency finding—that the OTCsact as the hotels’ agents when charging and collecting rent— establishes as a matter of law that the hotels themselvesare the entities charging the customers rent, since the acts of an agent are tantamountto the acts of the principal. The Portion Of The Rental Proceeds That The Hotel Receives After Rent Is Paid By the Customer And After The Booking Is Made Cannot Define The Tax Base. The Court Of Appeal Reached The WrongResult: It Incorrectly Read The Terms“Rent Charged” To Mean “Rental Proceeds Received’; It Gave No Effect To The Phrase “For The Privilege Of Occupancy”; It Ignored The Definition Of “Rent”; And It Lost Sight Of The Fundamental Purpose Of The Ordinance. 1. The Court of Appeal misread the terms “rent charged by the Operator” to mean “rental proceeds received by the Operator.” 2. The Court ofAppeal gave noeffect to the terms “for the privilege of Occupancy,” termsthat are essential in interpreting what is meant by the terms “rent charged by the Operator.” 3. The Court of Appeal gave noeffect to the ordinance language defining “rent” asthe “total consideration” “shown on the guest receipt”“without any deduction therefrom.” iil PAGE 31 32 33 35 38 39 41 42 I. UI. TABLE OF CONTENTS 4. The Court of Appeal failed to consider or give effect to the fundamental purpose of the room-tax ordinance; namely, to tax the customeronthe rent he is charged and must pay to gain the privilege of room occupancy. THE OTCS CANNOT ESCAPELIABILITY FOR UNPAID ROOM TAX BY CLAIMING THEY HAVE NO REMITTANCE DUTIES. A. The OTCs Can Be Held Liable Because They Have Directly Agreed To Collect And Remit Room Taxes. B. The OTCsAre Liable Because They Have Contractually Agreed To Assume The Risk OfNon-Payment OfRoom Taxes. C. The OTCs Are Liable Because They Have Contractually Agreed To Indemnify And Hold Harmless The Hotels For Any Failure To Pay Room Tax. D. The OTCs Are Liable Because They Are The Hotels’ Agents And, Thus, Are Obligated Under Civil Code Section 2344 To Surrender All Room Tax They Collect On Behalf Of The Hotels, But Fail To Remit To The City. THE COURT OF APPEAL ERRED IN RULING THAT THE UNPUBLISHED ANAHEIMAND SANTA MONICA OPINIONS WERE BINDING AS LAW OF THIS CASE. A. The Law-Of-The-Case Doctrine Is Inapplicable Here Because There Is No Case OrParty Identity. 1. The case-identity elementis notsatisfied. 2. The party-identity elementis not satisfied. The Law-Of-The-Case Doctrine Is Inapplicable Here Because Coordinated Cases Remain Separate Unless They Are Ordered Merged Or The Parties Are Given Notice That A Decision In One Case Will Be Binding In Others And Are Afforded An Opportunity To Be Heard—None Of Which Happened Here. iv PAGE 44 46 47 50 51 52 54 54 55 55 56 TABLE OF CONTENTS PAGE 1. There was never a merger order entered nor was San Diego ever given notice and an opportunity to be heard in the coordinated cases. 56 2. The federal law upon which California coordination and consolidation law is based offers powerful support for the conclusion that coordination and consolidation alone does not result in an automatic merger. 60 C. Applying The Law-Of-The-Case Doctrine In This Case Would Violate Due Process Guaranteed By The United States And California Constitutions. 61 CONCLUSION 62 CERTIFICATE OF COMPLIANCE 64 TABLE OF AUTHORITIES PAGE CASES Bryan v. Banks (1929) 98 Cal.App. 748 52 California Medical Assn. v. Aetna U.S. Healthcare ofCalifornia, Inc. (2001) 94 Cal.App.4th 151 48 City ofLos Angeles v. Hotels.com, L.P (B255223, app. pending) 22 City ofSan Antonio v. Hotels.com (W.D.Tex., July 1, 2011, Civil No. SA-06- CA-381-OG) 2011 U.S. Dist. LEXIS 72665 46 Columbia Pictures Corp. v. DeToth (1948) 87 Cal.App.2d 620 34 Expedia, Inc. v. City ofColumbus (Ga. 2009) 681 S.E.2d 122 14, 50 Groves v. City ofLos Angeles (1953) 40 Cal.2d 751 34 Handley v. Guasco (1958) 165 Cal.App.2d 703 34 Hess v. Ford Motor Co. (2002) 27 Cal.4th 516 49 Johnson v. Manhattan Ry. Co. (1933) 289 U.S. 479 60 Johnson vy. Superior Court (2000) 80 Cal.App.4th 1050 49 Layton v. West (1969) 271 Cal.App.2d 508 50 McGhan Medical Corp. v. Superior Court (1992)11 Cal.App.4th 804 56 Morohoshiv. Pacific Home (2004) 34 Cal.4th 482 55 Vi TABLE OF AUTHORITIES CASES Parrish v. Greco (1953) 118 Cal.App.2d 556 Phelps v. Stostad (1997) 16 Cal.4th 23 Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225 In re Rosenkrantz (2002) 29 Cal.4th 616 Sanchez v. Superior Court (1988) 203 Cal.App.3d 1391 Scholastic Book Clubs, Inc. v. State Bd. ofEqualization (1989) 207 Cal.App.3d 734 Simmondsv. Credit Suisse Securities (USA) LLC (9th Cir. 2010) 638 F.3d 1072 In re Transient Occupancy Tax Cases (Super. Ct. L.A. County, 2006, No. JCCP 4472) In re Transient Occupancy Tax Cases (2014) 225 Cal.App.4th 56 In re Transient Occupancy Tax Cases (Nov.1, 2012, B230457) [nonpub.opn.] In re Transient Occupancy Tax Cases (Nov. 1, 2012, B236166) [nonpub.opn.] In re Transient Occupancy Tax Cases (B253197, app. pending) Travelers Indemnity Co.v. Gillespie (1990) 50 Cal.3d 82 Van’t Rood v. County ofSanta Clara (2003) 113 Cal.App.4th 549 Vil PAGE 50 45 49 55, 56 57, 58 34 60 21, 28 22 22, 27, 54, 55, 59, 62 22, 27, 54, 55, 59, 62 22, 23 50 35 TABLE OF AUTHORITIES PAGE STATUTES AND RULES California Civil Code Section 1559 50 Section 2344 52, 53 Section 2777 51, 52 California Code of Civil Procedure Section 404 28, 56, 59 Section 1048 57, 60 California Rules of Court Rule 3.350 57, 58 Rule 3.500 57 Rule 3.501 56, 59 Rule 3.506 59 Rule 3.510 59 Rule 3.513 59 Rule 3.514 59 Rule 3.531 59 Rule 3.541 56, 59 Rule 8.46 2 Rule 8.1115 28 STATUTES AND RULES San Diego Municipal Code Section 35.0101 9, 26, 30, 37, 55 Vill TABLE OF AUTHORITIES STATUTES AND RULES Section 35.0102 Section 35.0103 PAGE 9, 10, 30, 32, 37, 38, 42 10, 30, 39, 42 Section 35.0110 10 Section 35.0112 10, 31, 37 Section 35.0116 10, 23 Section 35.0117 23 Section 35.0123 10 United States Code Advisory Com. Note, Fed. Rules App.Proc., rule 3, as amended Apr. 24, 1998, 28 U.S.C. (1998 amend.) 61 Federal Rules of Civil Procedure Rule 28 60 Rule 42 60 OTHER AUTHORITIES Legis. Com. com. (1971) Deering’s Ann. Code Civ. Proc., § 1048 (1971 Supp.) 60 (Oxford Dict. (2014), online at .) 40 Steinman, Law ofthe Case: A Judicial Puzzle in Consolidated and Transferred Cases and in Multidistrict Litigation (1987) 135 U.Pa.L.Rev. 595 61 4 Witkin, Cal. Procedure (3d ed. 1985) 4 Witkin, Cal. Procedure (Sth ed. 2008) Younger & Bradley, Younger on Cal. Motions (2013) ix 58 58, 60 57 INTRODUCTION San Diegois an international tourist destination that welcomes millions of visitors each year. The City’s economy depends on the money these visitors spend. Their tax dollars form a core part of the City’s budget, funding services that both residents and tourists depend upon, including police, fire, paramedic, street maintenance, library, park, and homeless services, to namejust a few. Like most California cities, San Diego has enacted an ordinance imposing a transient occupancytax (“room tax”) on the “rent” that hotel guests are chargedto obtain the privilege of occupying roomsin the City. Becausethese taxes contribute substantially to funding essential municipal services, it is crucial that the City be able to collect all taxes that are owed. Historically, room taxes were generated by bookings madedirectly with hotels or indirectly through travel agents. The tax was always based on the rent the customer was charged and hadto payto obtain the right of occupancy. Thus, if a customer was charged and paid $100 in rent for a room, the tax percentage was applied directly to that $100 rent amount. In recent years, the Internet has entered the picture and expandedthe ways that customers book hotel rooms. Online travel companies (“OTCs”) like Priceline.com, Orbitz.com and Hotels.com have becomea significant source of hotel-room bookings. Aspart of their deals with the hotels, the OTCs have contractually assumed responsibility for collecting the rent due on bookings made throughtheir auspices, and for calculating, collecting and remitting room taxes for paymentto the City.’ The problem is that the OTCsare not remitting the correct amount of room tax. The governing room-tax ordinance requires that the applicable tax percentage be applied to the “rent charged by the [hotel]” for transferring “the privilege of Occupancy”to the customer. “Rent” is defined as “the total consideration charged to a Transient as shown on the guest receipt for the Occupancy of aroom . .. without any deduction therefrom.” Since there is only one “rent” that is being “charged” and paid by the customer for the privilege of occupancy, the ordinance languageitself, as well as logic, dictates that the “rent” on which the tax is based should be the amount charged to and paid by the customer. The OTCs disagree. They have not remitted room tax based on the rent charged to and paid by the customer. Instead, they have remitted tax based on a Jower amount—namely, on the portion ofthe rental proceeds that the hotels receive after the OTCs havetaken their contractually-agreed cut. Thus, when a customeris charged and pays $100 rent for a room, the OTCshave remitted tax based not on this $100 room rate, but rather based 1 By orders dated March 14, 2012 and April 18, 2012, the trial court sealed substantial portions of the underlying administrative record. (7JA, T.21, pp. 1241-1479; 7JA, T.22, pp. 1784-1492.) Consistent with California Rules of Court, rule 8.46(f), the City has: (a) publicly filed a redacted version of its opening brief; and (b) applied for permissionto file an unredacted version of its opening brief underseal. (Cal. Rules of Court, rules 8.46(f)(1), 8.46(f)(2)(A), 8.46(f)(2)(B).) In the unredacted version of its opening brief, the City has markedall disclosures of sealed materials with a dotted underline. (Cal. Rules of Court, rule 8.46(f)(2)(B).) on some lower, never-disclosed “net” amount (say, $80) that the hotels have received from that rental payment. In Section I, we will demonstrate why this practice is wrong. Regardless ofwhether a room is booked directly through a hotel or indirectly through a travel agent or an OTC,the tax on the taxpaying customer should be the same. The tax should be based on thefull amount of rent the customeris charged andis required to pay to gain the privilege of occupancy. Thereis no possible justification for taxing a lesser amount. The hotels own the roomsand dictate the minimum rentthat a customer must pay to obtain the privilege of occupying one of them. Unless a customerpaysthe rent the hotel specifies, he cannot obtain a room. This rent must therefore constitute the tax base. Indeed,if a hotel determines that a customer must pay a room rate of $100, that $100 rental paymentis taxable at $100, no matter how cleverly those seeking to avoid tax might try to packagethe transaction. The terms of the room-tax ordinance dictate this result. They are laser-focused on the taxpaying customer and onthe rent he is charged and must pay to obtain aroom. Whoclosesthe rental transaction on behalf of the hotel, and how the hotel and the OTC might chooseto share the rental proceeds, are entirely beside the point. Rent is rent. What the customer pays for his room is the tax base. That this is so is underscored by the fact that the ordinance commandsthat the taxable event occurs at the moment whenrent is paid by the customer, not later when the rental proceeds are divvied up between the OTC andthe hotel. Thus, if a customer is charged and paysrent in a certain amount to obtain a room, that amount must necessarily constitute the tax base in all booking circumstances. This conclusion is buttressed by the uncontroverted evidence establishing that the hotels “charge” the rent that the customer pays to book aroom. In the hotel-OTC contracts, the hotels—in order to avoid price wars—set the minimum amountofrent that the OTCsare permitted to quote to customers. Underthese “rate parity” clauses, the OTCs cannot quote (let alone charge) room rates that are lower than whatthe hotels themselves quote to customers directly on their own websites. Since the customer cannotobtain a privilege of occupancy by paying a pennyless than the rent the hotels demand, this amountis taxable “rent” under the ordinance. If there were any doubts about whois doing the “charging” of the rent that the customer pays to book a room,those doubtsare put to rest by the administrative hearing officer’s finding that the OTCsactas the hotels’ agents when charging and collecting rent. This key agency finding, which was neither challenged by the OTCsnordisturbed by the lower courts, dictates the result here. As a matter of law, when an agentacts, those acts are the sameas if the principalitself is acting. Thus, the hotels are the ones directly charging the rent that the customers pay to obtain occupancy. Again, there is no possible justification for calculating room tax based on somelesser portion of that rental amount. Commonsense,too, dictates that the amount of rent that the customeris charged and pays to obtain occupancy must define the tax base. Since the customeris the sole taxpayer and since the tax applies to the rent he is charged as consideration for obtaining the privilege of occupancy,it defies logic to conclude that the ordinance would contemplate different tax treatment depending on howthehotels and their booking agents chooseto divvy up the rental proceeds after the fact. The amountofrent the customer paysis identical regardless of whether the transaction is completed with the hotel, with a travel agent or through an online travel agent. The tax result must be the same,too. Forthese reasonsand others to be explained in Section I below, the judgment must be reversed. The Court of Appeal prejudicially erred in holding that the rent charged and paid by customersis not the basis on which room tax must be paid. In reversing, this Court should direct that the full amountofthe rent that is charged to and paid by the customer constitutes the basis on which room tax mustbe calculated. Moreover, the OTCs cannotescape their obligation to remit the proper amount of room tax by contending they are not “Operators” under the ordinance and thus have no collection/remittance obligations. In Section II, we will show that there are multiple independent bases on which the OTCsare liable for remitting room tax, regardless of whether they qualify as an “Operator” underthe ordinance. Finally, in Section III, we will demonstrate why the Court of Appeal erred by holding that its prior unpublished decisions constitute law of the case. The law-of-the-case doctrine cannot apply here, as the coordinated cases were never merged as one and nonotice or opportunity to be heard wasever given to San Diego. A coordination order, standing alone, does not result in a merger of the coordinated cases. * * * kk For many years, the OTCs have shortchanged San Diego by millions of dollars. They will continue to do so unless this Court puts a halt to their wrongful practices. The judgment must be reversed with directions compelling that room taxes must be calculated, collected and remitted based on the rent the customeris charged and must pay to obtain the privilege of occupancy. Nor can this result be undermined by the Court of Appeal’s law-of-the-case determination. STATEMENTOF FACTS Thefacts of this case are essentially undisputed. (Court of Appeal Opinion [Opn.] 6.) A. The ImportantPlayers. 1. The City. San Diego levies a room tax on all customers whorent hotel rooms in the City. (8JA, T.25, p. 1632; 1JA, T.4, pp. 202-204, 212.)” Thesetaxes constitute an importantpart of the City’s tax base; the City relies upon room-tax revenue to fund vital municipal services. The City has sued the OTCs becauseit believes they are not remitting the full amount of room taxes that are due on the room bookings they complete. (1JA, T.2, pp. 18- 19, 23; 1JA, T.4, pp. 199-201; 1JA, T.5, pp. 231-232, 235; 2JA, T.8,pp. 292-293; 2JA, T.9, pp. 345, 355, 362.) 2. The Online Travel Companies (“OTCs”). The OTCsare the defendants and respondents in this action. Pursuant to their contracts with hotels, the OTCs rent hotel rooms to customers by acting as the hotels’ rental agents, connecting customers to the hotels and completing the bookings that customers choose to make through the OTCs’ websites. (1JA, T.4, pp. 198-200.) The OTCsnever * Mostfactualcitationsin this brief refer to the Court of Appeal’s March 27, 2014 slip opinion (“Opn.”), to the Joint Appendix (“JA”) filed in the Court of Appeal, and to the Administrative Record (“AR”) filed in the Court of Appeal. Thecitations refer to the volume number, the JA or the AR,the tab number, and sequential page numbers; for example, “1JA, T.4, pp. 202-204”refers to volume | of the Joint Appendix,tab 4, at pages 202 through 204. purchase rooms;they do not pre-purchase and resell room inventory; they do not buy or obtain any right of room occupancy; and they neverpayrent. Rather, they complete room bookingsand share rental proceeds with the hotels, as per their agreements with the hotels. (See 1JA, T.4, pp. 199-201, 208; 2JA, T.10, p. 424 [OTCs“are not ‘lessees’ or ‘sublessees’ of hotels, (and) do nottake‘title’ to hotel rooms”].) 3. The Transients. The “transients”(also referred to herein as “customers”or “hotel guests”’) are not partiesto this action. They are the people who purchase the right to occupy hotel roomsin the City. 4. The Hotels. The hotels are not parties to this action either. They are, however, important players since they own the hotel rooms and havethe exclusive right to dictate the terms under which those roomsareto be occupied. (2JA, T.10, p. 424; 8JA, T.25, p. 1643; see Opn. 14 [“In merchant transactions, it is the hotel that sets the price for the transient’s occupancy of aroom”]; Opn. 15, fn. 12 [“Each hotel establishes and maintains complete control of its room rates and availability”].) The hotels have entered into agreements with the OTCsdefining their relationships. These agreements contain “rate-parity” provisions establishing a minimum amountofrent that the hotels require the OTCs to charge customers. (See discussion at pp. 13-15, post.) Specifically, the hotels bar the OTCs from quoting room rates that are lower than the room rates quoted on the hotels’ own websites. (/bid.) These provisions ensure 8 that the OTCs do not undercut the rental prices at which the hotels sell their roomsdirectly to the public.* B. The Governing Ordinance. The City’s room-tax ordinance (appearing as San Diego Mun.Code, §§ 35.0101 et seq.)’ provides in relevantpart as follows: * The purpose and intent of the ordinanceis to impose tax on hotel room customers, called “Transients.” (§ 35.0101, subd.(a).) ¢ A “Transient” is any person whoexercisesor is entitled to Occupancy. (§ 35.0102.) * “Occupancy” meansthe use or possession of a hotel room,or the right to use or possess a hotel room. (/bid.) * “Operator” is defined as the owneror proprietor of the hotel, or the hotel’s managing agent. (/bid.) * The tax is imposedas follows: “For the privilege of Occupancy” in any hotel in the City, each customeris subject to and shall pay > See, e.g., 26 AR,T.210, pp. 3427-3428 (Travelocity executive: Rate-parity contracts mean “[y]ou cannotsell a room atthe sell rate for less than the hotel”; “you can’t undercut the hotels on thatfirst line as to thesell rate or the room rate’’); id. at pp. 3427-3430 (rate-parity contracts are commonwith the big hotel chains, and standard as a matter of practice even with independent chains); 4AR, T.7, pp. 14241-14243 (Priceline.com executive: “the hotel doesn’t want you to undercutthe price that they want to make available”); 51AR, T.365, pp. 8144-8148. * All further section references are to the San Diego Municipal Code, unless otherwise noted. a tax equal to a percentage “of the Rent charged by the Operator.” (§ 35.0103.) * “Rent” meansthe “the total consideration charged to a Transient as shownonthe guest receipt for the Occupancy of aroom... without any deduction therefrom.” (§ 35.0102.) * The amountofthe tax is determined and must be collected “at the same timeas the Rentis collected from every Transient.” (§ 35.0112(a).) * If tax is not paid as required, penalties are imposed. (§ 35.0116.)° C. The Hotels And The OTCs Have Primarily Used Two Compensation Models, The “Agency” Model And The “Merchant” Model, The Latter Being The Only One At Issue In This Case. Historically, the hotels and the OTCs have employed a numberof rental and compensation models. (Opn. 15-16.) The most common models are knownasthe “agency” and “merchant” models.° (Opn. 5, 15; 1JA, T.4, ° While the transientis the sole person upon whom the tax is imposed (§ 35.0110, subd. (a)), if the tax is not collected from the transient, then the City mayfile a collection action against the hotel operator or any other “person owing [the] moneyto the City.” (See §§ 35.0110, subd.(b); 35.0123, subd. (a) [“Any person owing moneyto the City underthe provisions of the Article shall be liable to an action brought in the name of The City .. . for the recovery of such amount”].) ° The Court of Appeal’s opinion mentions several other models, and the record reflects at least one more (the “opaque” model), but as the Court of Appeal recognized, the operation of the standard merchant modelis at the heart of this case. (Opn.4 [“At issue here is whatthe parties refer to as the ‘merchant model’ or ‘merchanttransactions.’”].) 10 pp. 199-201.) While this case involves only the merchant model,it is helpful to briefly examine both models. Agency model. Under the agency model, the OTC’s website quotes the rent the customer must pay to book aroom. (Opn. 14-15; 1JA, T.4,p. 199.) The customerpays both the rent and the room tax directly to the hotel at check-in. (Opn. 15; IJA, T.4, p. 199.) After the customer’s stay, the hotel remits a pre-agreed percentage of the rent—e.g., 20%—to the OTC as acommission. (/bid.) Althoughthe hotel ultimately retains less than the full amountofrent that the customer has paid, room tax is calculated based on thefull rent charged to and paid by the customer. What the hotel ultimately receives as its contractually-dictated share of the rental proceeds doesnotenter into the tax calculation. (See 1JA, T.4, p. 199; 2AR,T.4, p. 13812:13-18; 36AR,T.240, pp. 5617:2-5618:2.) Merchant model. Under the merchant model, the OTC’s website quotes the rent that a customer must pay to book a room. (1JA, T.4, p. 199.) Pursuant to the rate parity provisions in the OTC-hotel contracts, that quoted rent can neverbeless thanthe rent the hotel is currently quoting to customers renting roomsdirectly from the hotel(i.e., on the hotel’s own website). (See pp. 13-15, ante; see also 26AR, T.210, pp. 3427-3430; 17AR, T.64, p. 1016.)’ To procure a room, the customer pays the room rate ™ While each OTChasits own separate “merchant model” agreement with the hotel operators, all of the OTCs’ merchant models operate substantially identically, virtually all providing that the hotels set the minimum rent that must be paid by the customer. (See pp. 13-15, ante.) 11 quoted on the OTC’s website, plus an undifferentiated amountreferred to as “taxes and fees.” (E.g., 1JA, T.4, p. 200; Opn. 4, 16; 2JA, T.10, p. 413; 41AR, T.310, pp. 6370-6374.) Once the customer makes this payment, he gains the right to occupy the room. (1JA, T.4, pp. 200, 205,fn. 5.) After collecting the rent and taxes, the OTC remits a pre-arranged portion ofthe rental proceedsto the hotel, plus the taxes collected, while retaining the remainder (plus whatever additional fees the OTC has charged) as the OTC’s compensation. (/d. at pp. 199-201.) Although the agency and merchant models involve the same players and the samerental payment, the OTCsinsist the tax result should be different. They maintain that although taxes under the agency modelare calculated based on the rent charged to and paid by the customerto obtain an occupancyprivilege, the merchant modelresults in a lower tax base, one calculated based on the portion of the customer’s room rate that the hotels receiveas their share of the rental proceeds.® ® The Court of Appeal compared the agency-model and merchant-model transactions by using hypothetical examples involving a $100 customer- facing room rate and a 15% room-tax rate. (Opn. 15-16.) Under the agency model, room tax is paid on the $100 rent the customer pays for occupancy. (/bid.) But under the merchant model, room tax is instead paid only on the $80 the hotel retains after the OTC has taken its cut. (Opn. 16.) Thus, even though the customer pays the same $100 room rate and the hotel retains the same $80 amount under both models, the City receives $15 in room tax under the agency model, but only $12 under the merchant model. (Opn. 15-16.) 12 D. The Three Transactional Steps Of The Merchant Model. The merchant modelinvolves three transactional steps. Only the secondofthose transaction steps involves the customeractually paying rent in exchange for the privilege of occupancy. 1. Transactionalstep no. 1: The agreements between the hotels and the OTCs. Thefirst transactional step occurs when the hotels and OTCsenter into the master agreements that define their working relationships. While the precise terms ofthese contracts are not the same,virtually all ofthem have similar features. They provide that: (1) the hotels set the minimum rent that must be charged by the OTCs andpaid by the customerin orderto obtain the privilege of occupancy, (2) the OTCsact on behalfofthe hotels in the room-rental transactions, including by collecting rent from customers, (3) the OTCscollect the room taxes due on these bookings, and (4) the rental revenue received by the OTCswill be divvied up between the OTCsandthe hotels in accordance with a pre-arranged formulastated in the hotel-OTC agreements. The common agreementtermsare as follows: a. Rate-parity provisions establishing the minimum room rate that the OTCs must charge their customers. As owners, the hotels have the right to dictate the amountofrent that a customer will be charged to let a room. The hotels exercise this right by setting the minimum rentin the rate-parity provisions that appear in almost all of the hotel-OTC contracts.” While the wording can vary from contract ° The record includes 63 standard merchant-model contracts between the hotels and the OTCs. Fifty-nine of those contracts (i.e., 93.6% of them) 13 to contract, these provisionsall dictate in substance that an OTC cannot sell any room for rent that is less than what the hotel quotes to its customers directly. 10 contain rate-parity terms. (See, e.g., J6AR, T.57, pp. 904-905; 16AR,T.58, p. 937; 16AR, T.60, pp. 963, 961-962; 17AR, T.62, pp. 988, 982, 985-986; 17AR, T.64, pp. 1015-1016; 17AR, T.65, p. 1025; 17AR, T.66, pp. 1040- 1041; 17AR, T.67, pp. 1049, 1097-1098; 17 AR, T.68, pp. 1117-1118; I7AR, T.70, p. 1145; 17AR, T.71, pp. 1162, 1164-1165; 17AR, T.72, p. 1182; 17AR, T.74, pp. 1015-1016; 18AR, T.79, pp. 1286, 1303; 18AR, T.83, p. 1343; 18AR, T.85, pp. 1371-1372; 18AR, T.86, p. 1382; 18AR, T.87, pp. 1394, 1419; 18AR, T.88, pp. 1429-1430; 19AR, T.92, pp. 1517, 1519; 19AR, T.93, pp. 1542-1543; 19AR, T.94, pp. 1560, 1568; 19AR, T.95, pp. 1577, 1603; 19AR, T.96, p. 1622; 19AR, T.97, at p. 1661; 19AR, T.98, p. 1678; 19AR, T.99, p. 1690; 19AR, T.100, pp. 1698, 1700, 1702; 1I9AR, T.101, pp. 1708, 1710; 20AR, T.102, pp. 1735, 1738; 20AR, T.103, p. 1764; 20AR, T.105, p. 1784; 20AR, T.106, p. 1794; 20AR, T.106,p. 1812; 20AR, T.107, pp. 1822, 1825; 20AR, T.108, pp. 1838, 1835, 1837, 1845; 38AR, T.264, pp. 12053, 12056; 39AR, T.284, p. 12241; 40AR, T.289, p. 6193; 40AR, T.292, p. 6260; 40AR, T.293, pp. 6273, 6277, 6284; 40AR, T.294, pp. 6289, 6292; 40AR, T.295, pp. 6298, 6301; 41AR,T.312, p. 6469; 41AR, T.313, p. 6476; 41AR, T.314, p. 6487; 41AR, T.315,pp. 6496, 6499; 41AR, T.316, pp. 6506, 6509; 41AR, T.317, p. 6520; 41AR, T.319, pp. 6549-6550; 41AR, T.320, p. 6556; 41AR, T.321, pp. 6569, 6573; 42AR, T.322, p. 6577; 42AR, T.323, p. 6586; 42AR, T.325, p. 6609; 42AR, T.326, p. 6620; 42AR, T.327, pp. 6632, 6636; 42AR, T.328, pp. 6646, 6650; 43AR, T.349, p. 6916.) Only four contracts do not contain rate-parity terms; and these contracts nonetheless do not preventthe hotels from undercutting whatever rates the OTCs quote to customers (thus effectively driving the price of the room to whateverthe hotelis charging customersdirectly). (See 16AR, T.52, pp. 862-868; 16AR, T.55, pp. 894- 899; 17AR, T.69, pp. 1139-1140, 1130; 18AR, T.80, pp. 1321-1322.) © OTCs’ Answer ToPetition For Review 16 (hotel-OTC agreementsset a “floor” below which OTCs cannot quote room rates to customers); Expedia, Inc. v. City ofColumbus (Ga. 2009) 681 S.E.2d 122, 124, fn. 1 (“In mostofits contracts with hotels, however,there is ‘rate parity’ language whichprohibits Expedia from charging a room ratethatis less than the rate the hotel would charge the consumerdirectly for occupancy of 14 An exampleof a rate-parity provision appears in the contract between Marriott, Expedia and Hotels.com: In determining the “Booking Price quoted on behalf of the Participating Hotel to the guest,” Expedia and Hotels.com shall ensure “the Booking Price offered by [the OTCs] is” the “lowest Published Rate”—thatis, the lowest rate “made available through the . . . [hotel] call center . . . or any website operated by [the hotel].” (16AR,T.60, pp. 963 [§8], 960 [§2b, “Best Available Rate”}, 961 [§20, “Published Rates”].)! the room’); 24AR, T.202, pp. 2723-2724 (“it is common amongthe national hotel chains to have a provision whichsaysthat Priceline cannot offer a room on its web site for less than the amountthat Hilton in this case makesavailable on its web site”); 2AR, T.4, p. 13791; 3AR,T.5,pp. 13865-13867 (if hotel charges customers $100 in hotel-direct transactions, Travelocity will not quote a room rate under $100); 34AR, T.248, pp. 5280- 5282 (testimony describing rate-parity agreements); 51AR, T.365,pp. 8144-8148 (hotel executive: rate-parity contracts ensure “customers’ access to the samesell rate, no matter what channelthey actually goto, whetherthrougha travel agent, through another OTC as Travelocityis here, or on our branded website direct . . . they get the sameprice available for all of those, so that it’s more of a level playing field in the channel”); see, e.g., 26AR, T.210, pp. 3427-3428 (Travelocity executive: rate-parity agreements provide that “you cannotsell a room atthe sell rate for less than the hotel”); id. at pp. 3427-3430 (Travelocity executive: rate-parity contracts are common with the big hotel chains, and standard as a matter of practice even with independent chains); 4AR, T.7, pp. 14241-14243 (Priceline.com executive: “the hotel doesn’t want you to undercutthe price that they want to makeavailable”). 'T Some rate-parity provisions expressly require the OTC to charge customers the exact same room rate that the hotel charges customers directly on the hotel’s own website. (See, e.g., 16AR, T.60, pp. 961-962 [sections 2m, 2u, 2b, 20], 963 [sections 7, 8]; 17AR, T.968, pp. 1117-1118 [Exhibit A, section 10.1]; 18AR, T.85, pp. 1371-1372; 38AR, T.264,pp. 12053, 12056; 40AR, T.289, p. 6193.) Other rate-parity agreements do not 15 b. Provisions establishing that the OTCs are the hotels’ agents in booking rooms and collecting rent and room tax. The hotel-OTC agreements provide that the OTCsact on behalf of the hotels in booking the hotel rooms, including by charging rent and collecting it from customers.'” These agreements also provide that the OTCs must collect and remit taxes for each booking they complete. (E.g., 17AR,T.62, pp. 990, 982; 18AR,T.79, p. 1312; 18AR, T.85, p. 1379; preclude the relevant OTC from charging a higher room rate than the minimum rate that the hotel demands be charged. (See, e.g., 16AR, T.58, p. 937; 17AR, T.62, pp. 982, 985, 988; 17AR, T.63, p. 1009.) However, the practicalities of competition renderit highly unlikely that a customer would ever choose to book a room through an OTCthat is charging higher rates than the rates charged bythe hotelitself or by other OTCs. "? See IJA, T.4, pp. 199-201; Opn.4, 15; 16AR, T.52, pp. 862, 863; 16AR, T.55, p. 894; 16AR, T.57, pp. 904, 912; 16AR,T.58, pp. 935, 938; 16AR, T.60, pp. 960, 963; 17AR, T.62, pp. 981-983; 17AR,T.63, pp. 1009-1010; 17AR, T.64, p. 1015; 17AR, T.65, p. 1025; 17AR, T.66, p. 1040; 17AR, T.67, p. 1046; 17AR, T.68, p. 1114; 17AR, T.69, pp. 1130-1131; 17AR, T.70, pp. 1144-1145; 17AR,T.71, p. 1157; 17AR,T.72, p. 1182; 17AR, T.74, p. 1015; 18AR, T.79, pp. 1294-1295; 18AR,T.80, p. 1321; 18AR, T.83, p. 1343; 18AR, T.85, pp. 1371, 1375; 18AR,T.86, p. 1382; 18AR, T.87, pp. 1393, 1394; 19AR, T.92, p. 1517; 19AR, T.93,pp. 1542, 1544- 1545; 19AR,T.94, pp. 1560-1563; 19AR,T.95, p. 1576; 19AR, T.96,pp. 1621-1622; 19AR,T.97, pp. 1658, 1661; 19AR, T.98, p. 1678; 19AR,T.99, p. 1685; 19AR, T.100, pp. 1700, 1702; 19AR, T.101, pp. 1708, 1710; 20AR, T.102, pp. 1716, 1722; 20AR, T.103, pp. 1768, 1764, 1748, 1760; 20AR,T.105, pp. 1790, 1784; 20AR,T.106, p. 1800; 20AR,T.106,p. 1818; 20AR, T.107, pp. 1822-1823; 20AR, T.108, pp. 1835, 1838; 38AR, T.264, p. 12053; 39AR,T.284,p. 12241; 40AR, T.289, p. 6191; 40AR, T.292, p. 6259; 40AR, T.293, p. 6273; 40AR, T.294, p. 6289; 40AR, T.295, p. 6298; 41AR,T.312, p. 6468; 41AR, T.313, p. 6476; 41AR,T.314,p. 6486; 41AR,T.315,p. 6496; 41AR,T.316, p. 6506; 41AR,T.317, p. 6520; 41AR, T.319, p. 6549; 41AR,T.320, p. 6556; 41AR, T.321, p. 6568; 42AR, T.322, p. 6576; 42AR,T.323, p. 6585; 42AR, T.325,p. 6609; 42AR, T.326, p. 6620; 42AR,T.327,p. 6632; 42AR, T.328,p. 6646; 43AR, T.349, p. 6915. 16 18AR, T.78, pp. 1250-1251; 18AR,T.92, pp. 1518, 1523; 19AR, T.93,pp. 1543-1544; 19AR, T.94,p. 1572.) c. Provisions establishing how rental proceeds are to be shared after they have been collected. The hotel-OTC agreements specify how the OTCsandhotels will share the rental proceeds after the customers have paid rent. (1JA, T.4, pp. 199, 206-207.) Those agreements provide that for each room that a customer books through the OTC,the hotel will accept a certain portion of the rental revenueas its share of the transaction receipts, while the OTC will retain another portion of the rental revenue as additional compensation for helping the hotel to book its rooms. (1JA, T.4, pp. 199-201; Opn.4, 15.) d. Provisions reciting that the OTCs will indemnify and hold the hotels harmlessfor any room-tax underpayment. The hotels and the OTCs have long been aware oftheir potential exposure to additional room-taxliability based ontheir failure to transmit room tax based on the full amount of rent charged to and paid by hotel customers. (See IJA, T.4, pp. 214-216.) Indeed, hotel executives havetold the OTCsthat they believe the OTCs should be collecting and remitting room tax based on the full rent the customer has paid. (/bid; see also 26AR, T.210, pp. 3450-3453; 25AR, T.208, pp. 3033-3035, 3108-3109; 27AR, T.212, pp. 3785-3786; 44AR, T.355, pp. 8536-8537; 29AR, T.215, pp. 4063-4064; 17AR, T.68, p. 1124; see also 23AR, T.197, pp. 2590-2591 [tax advisor to OTC cautioned in 2002 that “the entire amountofthe cost of 17 the room (plus markup)is subject to tax” and that OTC should “calculate and remit the tax based on the” full rent the customer pays].) Knowingofthis exposure, the hotels and the OTCshave frequently includedliability-allocating provisions in their agreements. Underthese provisions, the OTCs(a) directly assumethe hotels’ tax-payment obligations; (b) agree to be directly responsible for paying any room tax that might be owing based on rent charged to and paid by the customer; and/or (c) agree to indemnify and/or hold harmless hotels against room-tax paymentliability."° e. Provisions mandating that the terms ofthe agreements shall remain confidential. The hotel-OTC agreements uniformly mandate that the OTCs’ arrangement with the hotels mustbe kept secret from the public.'* This *° See, e.g., 16AR,T.57, p. 913; I8AR, T.85, p. 1363; 18AR,T.86,p. 1383 (contracts providing that “in no event”shall the relevant hotel chain be liable for room tax underpayments); 16AR,T. 58, p. 937; 17AR,T.68,p. 1117; 20AR, T.105, p. 1790 (contracts providing that the relevant OTC shall be “solely responsible” for room tax underpayments); 3AR,T.5,p. 13923:7-18; 34AR, T.238, pp. 5311:16-5312:16; 29AR,T. 215, pp. 4127:16-4128:8; 17AR, T.67, p. 1060; 18AR, T.82, p. 1337; 20AR, T.102, p. 1721 (contracts and testimonyestablishing that OTCs have frequently indemnified hotel chains for room tax underpayments). " See 1JA, T.4, p. 201; SOAR, T.364, pp. 7970-7971; 5LAR,T.365,pp. 8145-8146; 16AR,T.60,p. 968; see also 16AR, T.52, p. 863; 16AR,T.55, p. 894; 16AR,T.57, pp. 912-913; 16AR, T.58, p. 937; 17AR, T.62,p. 988; 17AR, T.64, p. 1016; 17AR, T.65, pp. 1025, 1029-1030; 17AR, T.66,p. 1041; 17AR,T.67, p. 1049; 17AR, T.68, p. 1108; 17AR, T.69, p. 1130; 17AR,T.70, p. 1145; 17AR,T.71, p. 1165; 17AR, T.72, p. 1182; 17AR, T.74, p. 1016; 18AR, T.79, p. 1298; 18AR, T.80, p. 1322; 18AR, T.83, p. 1344; 18AR,T.85, p. 1377; 18AR, T.86, p. 1386; 18AR, T.87, p. 1402; 18 meansthat a customer never learns what portion ofthe rent he has paid to the OTC will be remitted to the hotel; a customer is nevertold that the OTCs are remitting room tax based on an amountthat is less than the rent he paid to book a room; and a customeris never told what portion ofhis rental paymentis retained by the OTCasthat entity’s contractual compensation for acting as a rental agent. (1JA, T.4, p. 201.) The tax- avoidance purposeis explicit in some of the contracts, which provide that the hotels are precluded from advocating that taxes be based on the full rent charged to and paid by the customer and/or from contacting taxing authorities regarding theissue.’° 19AR,T.92, pp. 1524, 1531-1532; 19AR, T.93, pp. 1550-1551; I9AR, T.94, pp. 1558, 1568; 19AR,T.95, p. 1579; 19AR, T.96,p. 1622; 19AR, T.97, p. 1661; 19AR,T.99, p. 1692; 19AR, T.100, p. 1703; 19AR, T.101, pp. 1708, 1710; 20AR, T.102, p. 1736; 20AR,T.103, pp. 1754, 1761; 20AR, T.105, p. 1784; 20AR,T.106, p. 1794; 20AR, T.106,p. 1812; 20AR, T.107, p. 1827; 20AR,T.108, p. 1838; 38AR, T.264,p. 12058; 39AR, T.284, p. 12242: 40AR,T.289, p. 6193; 40AR, T.292,p. 6260; 40AR,T.293, p. 6275; 40AR,T.294, p. 6291; 40AR,T.295,p. 6300; 41AR, T.312, p. 6469; 42AR, T.313, p. 6478; 41AR,T.314, p. 6487; 41AR, T.315, p. 6498; 41AR,T.316, p. 6508; 41AR,T.317,p. 6520; 41AR, T.319, p. 6550; 41AR, T.320, p. 6557; 41 AR,T.321, p. 6569; 42AR,T.322, p. 6577; 42AR, T.323, p. 6586; 42AR, T.325, p. 6609; 42AR,T.326, p. 6620; 42AR, T.327, p. 6634; 42AR, T.328, p. 6648; 43AR,T.349, p. 6916. 15 19 2. Transactional step no. 2: The process of renting a room through an OTC. The secondtransactional step in the merchant model is when the customerpays rent for the right to occupy a room. The customer goes online and sees the following information posted on the OTC’s website: A “room rate” (which, underthe rate-parity provisions, is never less than the room rate currently being quoted directly by the hotel to customers on the hotel’s own website) and an undifferentiated line item for “taxes/fees.” (1JA, T.4, pp. 199-200; 2JA, T.10, p. 413; see e.g., 41AR, T.310, pp. 6370-6374 [screen shot of Expedia booking page].) To rent the room,the customerclicks the “book” button, pays the quoted rent and the taxes/fees, and then receives a confirmation from the OTC that he has now obtained the right to occupy the room. (1JA, T.4, pp. 200-201; 2JA, T.10, p. 413.) Ifthe customer does not pay the rent quoted as the “room rate,” he cannot complete the online booking and doesnot obtain the privilege of occupancy. (1JA, T.4, pp. 199-200, 205, fn. 5.) Under the ordinance, the room tax must be calculated and collected at this point in the transactional process—i.e., at the moment whenthe room booking is consummated. (See p. 10, ante.) 3. Transactional step no. 3: Divvying up the rental revenue, and remitting room tax. The final transactional step in the merchant model occursafter the customerhaspaid the quoted rental amount, as well as the taxes/fees, and has completed his stay at the hotel. Then, the OTC andthe hotel divvy up the proceeds received from the customer’s rental payment and transmit 20 an amount for room taxesto the City.’ This exchange of money between the OTC andthe hotel takes place typically weeks or months after the hotel guest has completed his hotel stay. (See, e.g., 17AR, T.64, p. 1016 [hotel- OTCinvoicingprocessmaybegin“180daysafteraguest’sdeparture” fromthehotel]; 16AR, T.57, p. 913 [same].) THE COORDINATION ORDER AND COORDINATION PROCEEDINGS. Numerous unpaid-room-tax claimssimilar to this case are pending throughout California. On July 27, 2006,all of those proceedings were ordered coordinated as In re Transient Occupancy Tax Cases (Super.Ct. '® See 1JA, T.4, pp. 199-201, 205, fn. 5, 206-207; 8JA, T.25, pp. 1629, 1632; 2JA, T.10, p. 413; see also 16AR, T.52, pp. 862-864; 16AR, T.57, pp. 912-914; 16AR, T.58, pp. 941-942; 16AR, T.60, pp. 960-961, 963, 965- 967; 17AR, T.62, pp. 984-985, 990; 17AR, T.64, p. 1016; 17AR, T.65, pp. 1027, 1029; 17AR, T.66, p. 1041; 17AR, T.67, p. 1055; 17AR, T.68, pp. 1120-1121, 1124-1125; 17AR, T.69, pp. 1131-1132, 1130, 1138; 17AR, T.70, pp. 1146-1147, 1149; 17AR, T.71, pp. 1160, 1167; 17AR,T.72, p. 1183; 17AR, T.74, p. 1016; 18AR, T.79, pp. 1292-1293, 1312; 18AR, T.80, pp. 1321-1322; 18AR, T.83, pp. 1343-1344; 18AR, T.85, pp. 1375, 1379; 18AR, T.86, pp. 1383-1384; 18AR, T.87, p. 1400; 19AR, T.92, pp. 1518, 1523; 19AR, T.93, pp. 1543-1544, 1546-1547; 19AR, T.94, pp. 1563, 1572; 19AR, T.95, pp. 1578, 1582; 19AR, T.96, pp. 1625, 1621-1622, 1629, 1620; 19AR, T.97, pp. 1660, 1663, 1666; 19AR, T.98, pp. 1678, 1680; 19AR, T.98, pp. 1686, 1691; 19AR, T.100, pp. 1702-1703; 19AR, T.101, pp. 1708, 1710; 20AR, T.102, pp. 1721-1722, 1738; 20AR, T.103, pp. 1768, 1772-1773; 20AR, T.105, pp. 1785, 1790; 20AR, T.106, pp. 1795-1796, 1798, 1800; 20AR, T.106, pp. 1813-1814, 1816, 1818; 20AR, T.107, pp. 1823, 1826-1827; 20AR, T.108, pp. 1841, 1837, 1846-1847; 38AR, T.264, p. 12054; 39AR, T.284, p. 12242; 40AR, T.289, p. 6194; 40AR, T.292, pp. 6261-6262; 40AR, T.293, p. 6274; 40AR, T.294, p. 6290; 40AR,T.89, p. 6299; 41AR, T.312, pp. 6469-6470; 41AR, T.313, p. 6477; 41AR, T.314, pp. 6487-6488; 41AR, T.315, p. 6507; 41AR, T.317, p. 6521; 41AR, T.319, pp. 6550-6551; 41AR, T.321, pp. 6569-6570; 42AR, T.322, pp. 6587-6588; 43AR, T.349, p. 6920. 21 L.A. County, 2006, No. JCCP 4472). (1JA, T.3, pp. 54-55; see also Petitioner’s Request to Take Judicial Notice (“RIN”), filed May 7, 2014, Exs. A-C.) Under the coordination order, all California cases involving claims that additional room taxesare due are assigned to the same Los Angeles County Superior Court judge (currently, Judge Elihu Berle) and the same panelofthe Court of Appeal (Division Two, Second Appellate District). Ud., Exs. C & D.) Althoughall pending and future room-tax cases have been ordered coordinated, there has never been any order that consolidates (as opposed to coordinates) the cases. (See Petitioner’s RJN, Exs. A-H.) Nor has there ever been any notification in the coordination proceedings that resolution of one coordinated matter would be binding on others. To date, the Court ofAppeal has disposed of three appeals in the coordinated proceedings. (/n re Transient Occupancy Tax Cases (2014) 225 Cal.App.4th 56, review granted July 30, 2014 [hereafter San Diego]; In re Transient Occupancy Tax Cases (Nov. 1, 2012, B230457) [nonpub. opn.] [hereafter Anaheim]; In re Transient Occupancy Tax Cases (Nov.1, 2012, B236166) [nonpub. opn.] [hereafter Santa Monica].) Twoappellate cases(in addition to this one) are pending. (City ofLos Angelesv. Hotels.com, L.P. (B255223, app. pending) [hereafter Los Angeles]; In re Transient Occupancy Tax Cases (B253197, app. pending) [hereafter San Francisco].) 22 On August7 and 13, 2014, the Court ofAppeal issued orders staying further proceedings in those appeals pending this Court’s resolution of the instant case. (See Aug. 13, 2014 Order Granting Appellant’s Request to Stay Appeal, Los Angeles, supra, B255223; Aug. 7, 2014 Order Granting Appellant’s Motion to Stay Appeal, San Francisco, supra, B253197.) PROCEDURAL HISTORY A. The City’s Tax Collector Audits The OTCs And Assesses Millions Of Dollars In Unpaid Room Tax, Penalties And Interest. Underordinance sections 35.0116 and 35.0117, the City is authorized to audit OTCsand to assess them for any room tax that the City’s tax collector determines remains owing. Pursuantto that authority, the tax collector audited the OTCs, determined they had failed to remit the full amount of room tax due, and assessed them for unpaid room tax, penalties and interest. (Opn. 5; LJA, T.4, p. 196; 2JA, T.8, pp. 288, 293; 1JA, T.4, pp. 222-223.) Then, as now,the City’s position was that room tax should have been calculated, collected and remitted based on the rent that the customer wascharged andpaid in order to obtain his privilege of occupancy. The City disputed the OTCs’ contention that room tax should be based on only the portion of the rental proceeds that the hotels agreed to acceptin their deals with the OTCs. 23 B. TheLitigation. 1. Administrative proceedings: The hearing officer determines that in OTC transactions, the tax base for calculating room taxis the full amount of the rent charged to and paid by the customer, and that the OTCsare agents for the hotels asto all of the reservation, rent-collection, tax-collection, and customer-service functions. The OTCschallenged the City’s tax assessments under the ordinance’s administrative procedures, and a hearing officer heard their challenge. (1JA, T.4, pp. 195-196.) After a five-day evidentiary hearing, the hearing officer issued a lengthy decision containing extensive factual findings. He determined that the OTCs owedtax based on the full amount of rent charged to and paid by the customerin order to obtain the privilege of occupancy. (1JA, T.4, pp. 203-206.) The hearing officer determined that: (a) “it is clear that, in promulgating the Ordinance, the City Council intendedto collect [room tax] on all monies charged to the Transient for the privilege of Occupancy of a given hotel room” (1JA,T.4, pp. 203-204); (b) “the City Council anticipated that all due [room tax] would be paid asa straight pass-through from the Transient to the Operator [hotel] to the City without reduction and without exception,”so that “whatever the Transient paid for the right of Occupancy would bethe basis upon which the [room tax] would be calculated and paid to the City on behalf of a Transient by the Operator” (JA, T.4, pp. 204, 205, 206, 212, 217); and (c) the room tax ordinance requires a tax on “whateveris ultimately chargedfor the room” (1JA,T.4, p. 213, original emphasis; 1JA, T.4, p. 216). The hearing officer also found 24 that the OTCsact as the hotels’ agents (1JA, T. 4, pp. 206-211); and “[ajll dealings [by customers] are with and through the OTCsasthe authorized agents ofthe hotels” (1JA,T.4, p. 207)."’ The hearing officer concluded that back taxes were due and awarded over $21 million in back taxes and penalties. (1AR, T.4, pp. 222-223.) The hearing officer further concluded the OTCs oweda duty to remitthat amount. ([bid.) 2. Writ-of-mandate proceedingsand trial court decision: The trial court concludes the tax base for calculating room taxis the portion of the rental proceedsthe hotels ultimately receive after the OTCstaketheir cut. Following the hearing officer’s determination, the OTCs commenced mandate proceedings seeking review of the hearing officer’s assessmentof unpaid taxes and penalties. (1JA, T.3, pp. 35-101; 1JA, T.4, pp. 222-223.) The OTCsalso movedto seal significant portions of the administrative record, and thetrial court entered sealing orders. (7JA, T.21, '” More specifically, the hearing officer found as to the OTCs’ agency relationship with the hotels: “The OTCsserve as the hotels’ agents in assuming essentially (or absolutely)all of the marketing, reservation, room price collection, tax collection, and customerservice functions as to those Transients who book online through the OTCs. The OTCsare authorized (a critical componentof an agencyrelationship) by the hotels to market room reservationsto the general public. Per the terms of lengthy contracts between the OTCsandthe hotels, the OTCs are authorized to makecertain representationsto the public about the availability, features and prices of hotel rooms. In the merchant model, Transients do not havedirect dealings with the hotels. All dealings are with and through the OTCsas the authorized agents of the hotels.” (1AR, T.4, p. 207.) 25 pp. 1241-1479; 7JA, T.22, pp. 1784-1492; see also 7JA, T.21, p. 1243 [referencing OTCs’ “Motion to Seal Excerpts of the . . . Administrative Record”].) Duringthe trial court proceedings, the OTCs did not challenge the hearing officer’s factual findings. (6JA, T.19, p. 1203 [“The OTCs do not dispute the Hearing Officer’s findings of fact for purposes of these motions. They do dispute the interpretation of the law’’].) The trial court accepted the hearing officer’s factual determinations and reviewedonly his legal conclusions—i.e., whether the hearing officer “properly interpreted the ordinancesat issue.” (8JA, T.25, p. 1632.) Thetrial court issued a writ of mandate rejecting the hearing officer’s interpretation of the room-tax ordinance. (8JA, T.25, pp. 1620, 1622-1654.) On the issue of what constitutes taxable “rent,” the court reasoned that the ordinance language taxing the amount“charged by the operator”(i.e., the hotel) referred only to the portion of the customer’s paymentthat the hotel receives after the OTC receives its cut. (8JA, T.25, pp. 1639-1654; see also § 35.0101, subd. (a).) The court concluded, therefore, that no additional room tax was owing. (8JA, T.25, pp. 1639- 1654.) 26 3. The Court of Appeal affirmsthe trial court’s ruling that room taxis calculated based on the portion of the rental proceeds that the hotel receives and concludesthat, by reason ofthis ruling, it is not necessary to address whether the OTCsare obligated to collect/remit room taxes. The Court ofAppeal affirmed the judgment, holding that the tax base for calculating room tax is only the portion of the customer’s rental paymentthat the hotel receives after the OTC hastaken its cut. (Opn. 7-9.) The Court of Appeal reasonedthat“[t]he OTCs’ markups andservice fees cannot be considered ‘Rent charged by the Operator.’” (Opn. 17.) The court defined “markups”as the amounts charged to customers that were over and abovethe pre-agreed amountthe hotels agreedto retain from the customer’s rental payment on OTC transactions. (Opn. 9, 10, fn. 10.) Because the Court of Appealruled that no further taxes were due,it did not rule on the issue of whether the OTCs could beliable for remitting room taxes based ontheir status “as agents of the hotel operators.” (Opn. 17.) The court reasoned that even “under [such] labels,” there could be noliability since all room taxes due and owing had been paid. (/bid.) In rendering its decision, the Court of Appeal relied on two unpublished decisionsthat it had previously issued in two of the other coordinated actions, cases in whichit had rejected room-tax claims by the cities of Anaheim and Santa Monica,respectively. (Anaheim, supra, B230457; Santa Monica, B236166.) The court said those unpublished decisions decided “the question of whether OTCsare liable for” room tax and that “[i]n both of those cases, we determinedthat the ordinances at 27 issue did not imposea tax on the service fees charged by the OTCs.” (Opn 7.) 4. The City’s petition for rehearing and the Courtof Appeal’s modification of its opinion in response. The City filed a petition for rehearing objecting to the Court of Appeal’s reliance on unpublished decisions because, it asserted, such reliance violated the proscription of California Rules of Court, rule 8.1115. (Petition For Review 16.) The court disagreed, stating in a modified, published opinionthat its reliance on unpublished decisions was permissible because those decisions are law of the case and, thus, satisfied an exception to the usualrule that unpublished decisions in one case are not binding in another case. (Opn.3-4, fn. 4, citing Cal. Rules of Court, rule 8.1115(b).)"® 5. San Diego successfully petitions for review. This Court granted San Diego’s petition for review on July 30, 2014. '8 This ruling was set forth in a new footnote 4 added in a modified opinion issued on March 27, 2014: “Pursuant to California Rules of Court, rule 8.1115, subdivision (b), this court may cite and rely upon an unpublished case whenit is relevant as law of the case. The unpublished opinionsthat wecite in this opinionare part of the same single coordinated proceeding as this case, captioned ‘In re Transient Occupancy Tax Cases (No. JCCP 4472).’ The coordinated transient occupancy tax cases necessarily share common questions of fact and law. (Code Civ. Proc., § 404.) Under the circumstances, we cite these unpublished opinions as law ofthe case.” (Opn.3-4, fn. 4.) 28 ARGUMENT I. THE TAX BASE FOR CALCULATING ROOM TAX MUST BE THE RENTAL PAYMENT THE HOTEL REQUIRES THE CUSTOMERTO BE CHARGED TO OBTAIN OCCUPANCY. THE PORTION OF THE RENTAL PROCEEDS THAT THE HOTEL HAS CONTRACTUALLY AGREED TO ACCEPT AS ITS SHARE OF THOSE RENTAL PROCEEDSIS IRRELEVANT TO THE TAX CALCULATION. A. The Governing Ordinance Imposes Room Tax On The Customer And Bases The Tax On The Rent Charged To And Paid By The Customer To Obtain The Privilege Of Occupancy. The tax base is determined by looking through the lens of what the customer is charged and must pay to obtain a room,not by looking at what amountthe hotel nets after the OTC has taken its share of those rental proceeds. Thetax ordinanceis laser-focused on the customer and on what the customer must pay to obtain the privilege of occupancy. This focus makes sense since the customeris the sole taxpayer. He is the only one who wants to obtain the privilege of occupancy. He is the only one who paysrent to obtainit. In contrast, the hotels and the OTCsare not taxpayers; they do notpay rent; they do not seek a privilege of occupancy. Thus, taxable “rent” must be what the customer is charged, not what the hotel ultimately receives. Considerthe following: The ordinance expressly states that the customer, the sole taxpayer, is the exclusive focus of the room tax: “It is the purpose and intentofthe City Council that there shall be imposed a tax on Transients [customers].” 29 (§ 35.0101, subd. (a), emphasis added; § 35.0102 [“Transient”is “any Person who exercises Occupancy,or is entitled to Occupancy”’].) Consistent with this focus, room tax is based on the rent “charged” by the hotelas the price that the customer must pay to obtain an occupancy privilege. (§ 35.0103.) As defined in section 35.0102, that rental chargeis described as “the total consideration charged to a Transient as shown on the guest receipt for the Occupancy of a room . . . without any deduction therefrom.” (§ 35.0102, emphasis added.) Thus, the trigger and purpose of the room tax are each rooted in the Transient’s purchase of Occupancy. The tax baseisset as the total consideration charged for that occupancy as shownonthe guest receipt— i.e., the full room rate quoted to, charged to and paid by the customer. The amountthe hotel has contractually agreed to accept as its share of the rental proceeds cannot qualify as taxable “rent” because that amount is Jess than the consideration charged to the customerfor theprivilege of occupancy. Indeed, a customer cannot obtain a room for the amount the hotel “nets” on OTC transactions. A customeris never offered a room for that price. A customer can never book a room forthat price. The only way a customercan ever obtain the privilege of occupancy when dealing with an OTC is by paying thefull amount ofthe room rate required by the hotel and quoted on the OTC’s website. Thus,it is that rent that necessarily establishes the basis on which room tax must be calculated and paid. 30 That the tax base is the amount of rent the customeris charged and must pay to book his room is buttressed by section 35.0112, subdivision (a), which states that room tax must be calculated and collected at the same time the room is booked. (§35.0112, subd. (a) [tax is determined and must be collected “at the same time as the Rentis collected from every Transient”].) Since the taxable moment occurs when the customer pays rent and obtains the right of occupancy, nothing that happenslater is relevant to the tax calculus. It simply does not matter how the OTCs and hotels later share the rental proceeds paid by the customer. B. Undisputed Evidence And Uncontested Factual Findings Conclusively Establish That It Is The Hotels That “Charge” Rent In Exchange For The Privilege Of Occupancy—And That The Full Amount Of That Rent Must Be The Tax Base, Not Some Lesser Amount. The record confirms whatthe ordinanceitself establishes. Uncontroverted evidence and uncontested findings combine to confirm that the rent that is actually charged to and paid by the customerto obtain occupancy formsthe basis for calculating room tax. This is so for two reasons: First, under the rate-parity agreements, the hotels set the minimum rent that must be charged in OTC transactions and preclude the OTCs from ever quoting or charging a lesser rate. Second, the OTCsare the undisputed agents of the hotels in charging and collecting rent and, thus, the acts of the agent OTCsare the sameasthe acts of the hotels, such that the room rate the OTCs charge and collect is of the samelegal effect as though the hotel directly charged and collected that room rate. 31 1. The rate-parity agreements establish thatit is the hotels that chargerent, as those agreements give the hotels the exclusive powerto fix the minimum rent that must be chargedto and paid by the customerif he is to obtain a privilege of occupancy. The Court of Appeal correctly recognized that “each hotel establishes and maintains complete control of its room rates and availability.” (Opn. 15, fn. 12.)'? The hotels exercise this control via their rate-parity agreements with the OTCs, which mandate that the hotels set the minimumrate that will be charged to customers. (See pp. 13-15, ante.) By setting the minimum rental rate that is charged to the customer,it is the hotels that are chargingthatrent. Thus,it is the amountofrent that the hotels determine must be charged andthat the customer mustpaythat necessarily determines the tax base. Asthe Court of Appeal also correctly held, “Rent” does not change: “Whether[] rent is charged directly by the hotel or indirectly through a third party—the OTC—its numeric value does not change. The [room tax]is '? While the Court of Appeal’s quoted words are objectively accurate, the conclusion the court drew from those words is not. The Court ofAppeal concludedthat the tax base is what the hotels are willing to accept from the OTCsastheir share of the rental proceeds. But, that can’t be: The amount the hotels are willing to accept as their share of the rental proceeds can never be treated as “rent” because the definition of “rent” establishes that “rent”is “the total consideration charged to the Transient”for the privilege of Occupancy. (§35.0102) and, underthe rate-parity agreements, that amount can neverbe less than what the hotels have insisted the OTCs must quote and charge on their websites. Since a customer can neverobtain a privilege of occupancy by paying the lesser amountthe hotels are willing to accept as their cut, that amount simply does not meetthe definition of “rent” and cannot form the basis on which room tax is imposed. 32 calculated on the rent charged by the operator, regardless of whether the hotel-transient transactionis direct or indirect.” (Opn. 17.) The City agrees with this statement, though the Court of Appeal failed to applyit correctly. Properly applied, the Court of Appeal’s holding means that whether the hotel “directly” charges the transient $100 for the room (as in a hotel-direct transaction)orthe hotel “indirectly” charges the transient $100 (as in a merchant-model transaction subject to rate parity), the “numeric value does not change.” “Rent” is $100 in both cases. 2. The agency finding—that the OTCsactas the hotels’ agents when charging andcollecting rent— establishes as a matter of law that the hotels themselvesare the entities charging the customers rent, since the acts of an agent are tantamountto the acts of the principal. Thatthe hotels are charging the rent that the customers pay via the OTCs’ websites is also established by the fact that the OTCs function as the hotels’ agents for purposes of charging and collecting rent. The hearing officer found the OTCs acted as the hotels’ agents for these purposes. (See pp. 24-25 & fn. 17, ante.) The OTCsdid not challengethis factual finding, and the lowercourts did not review it. (See pp. 26-27, ante.) Moreover, the Court of Appeal confirmedthe finding’s accuracy, stating in its opinion that “[t]he OTC collects the rent on the hotel’s behalf... . Regardless of the timing or meansofthe hotel’s collection of the rent charged for the occupancy of a room,it is this amountthat sets the tax base.” (Opn. 14- 15.) And, the OTCs have conceded the point, admitting that that they 33 “serv[e] as an intermediary”in “facilitating a guest’s paymentto the hotel for the hotel’s furnishing of sleeping accommodations.” (1JA, T.4, p. 165.) The agency finding and the uncontroverted evidence that supports it establish that when the OTCscharge andcollect rent, it is the hotels themselves that are performing these acts. Elementary principles of agency law compelthat the acts of agents are deemedto be the sameasacts ofthe principal. (E.g., Columbia Pictures Corp. v. DeToth (1948) 87 Cal.App.2d 620, 630 [“The agent acting within the scope of his authority, is, as to the matters existing therein during the course of the agency, the principal himself’]; Handley v. Guasco (1958) 165 Cal.App.2d 703, 709 [“In the . case of a contract, if the agent, at the time of making the contract, makes any representation, declaration or admission, whethertrue or false, touching the matter of the contract, it is treated as the representation, declaration or admission ofthe principal himself”’].) Numerouscasesestablish that when someoneacts as an intermediary in handling funds on behalf of a principal, he acts as an agent, such that the entirety of what he collects is deemed collected on behalf of the principal. (See, e.g., Scholastic Book Clubs, Inc. v. State Bd. ofEqualization (1989) 207 Cal.App.3d 734, 739-740 [schoolteachers who took orders and payments from their students for a bookseller’s books were the bookseller’s agents; by accepting orders and payments, and by delivering the books, bookseller confirmed the teachers’ authority as bookseller’s representatives]; Groves v. City ofLos Angeles (1953) 40 Cal.2d 751, 760 [wherecity taxed “gross receipts” of bail bond companies, “gross receipts” 34 meantthe full amountpaid to the insurer via the bail bond agent; “What the agent receives, in legal effect the insurer receives’’].) Here, as far as the customeris concerned, the OTC standsin the shoes of the hotel for rent-charging and rent-collecting purposes. In other words, the OTCis the hotel’s agent for those purposes as a matter of law. Indeed, even if the hearing officer had not found that the OTCsacted as the hotels’ agents, the uncontroverted evidence would separately compel such a finding. (Cf. Van’t Rood v. County ofSanta Clara (2003) 113 Cal.App.4th 549, 562, 571-576 [agency is established by evidence that agent acted on behalf of and underthe control of the principal; ““Whenthe essential facts are not in conflict and the evidence is susceptible to a single inference, the agency determination is a matter of law for the court”].) Thus,it is the hotels themselves that are charging the rent that the customers must pay to obtain the privilege of occupancy. The rentthat the OTC chargesandcollects is the rent that the hotel itself charges and collects. Accordingly, the room-tax percentage must be applied to that rental amount, not to somelesser portion ofit. Cc. The Portion Of The Rental Proceeds That The Hotel Receives After Rent Is Paid By the Customer And After The Booking Is Made Cannot Define The Tax Base. That the proper tax base must be the rent chargedto and paid by the customer is underscored by the fact that the tax must be calculated at the moment when the customerpays rent. There is no other point in the 35 transactional relationship that can possibly trigger the room tax or set the tax base. Asshown,the merchant model consists of three transactional steps: (1) the agreement betweenthe hotel and the OTC;(2) the customer’s room- rental transaction; and (3) the post-occupancy exchange of money between the OTC and the hotel. (See pp. 13-21, ante.) There is only onepart of this process that could possibly trigger a tax: That is in transactionalstep no. 2, when the customerpaysrent to purchasethe privilege of occupancy. No other part of the transactional process can possibly define the proper tax base. Here’s why: l. Thefirst transactional step—whenthe hotel signs an agreement with the OTC—isnot a taxable event because no roomis rented, no right of occupancyis transferred, and no money changes hands. In their agreements with the hotels, the OTCs makeclear that they do not buy rooms;rather, all the OTCsreceiveis a right to sed/ the privilege of occupancy to customersat rental rates not less than the minimum rent the hotels specify (i.e., the hotel’s room rate in customer-direct transactions). (JA, T.4, p. 208; 2JA, T.10, p. 412; see, e.g., 16AR, T.60, p. 964; 17AR, T.64, p. 1016; 18AR, T.79, pp. 1294-1295, 1307; and see pp. 13-19, ante.) The customer, on whom the tax is levied and whois the only onedesiring to obtain occupancy,is not a party to this hotel-OTC agreement. The customeris not yet part of the picture. 36 2. The second transactional step—whenthe customerclicks the “book” button on the OTC’s website and pays rent in order to obtain the privilege of occupancy—is the only event that gives rise to the room tax. (See p. 20, ante.) The ordinance so provides: The customeris the taxpayer (§ 35.0101, subd. (a)); the customeris the only one who seeks occupancy and who paysrentto obtain it (§ 35.0102); the tax is due and must be calculated and collected “at the same time as the Rentis collected from every Transient” (§ 35.0112, subd. (a)); and “Rent”is the amount stated on the customer’s receipt (§ 35.0102). What the customeris charged when he books a room is the “rent” upon which the tax must be calculated. 3. Thethird transactional step—whenthe hotel and OTC divvy up the rental proceeds—occursafter the booking has been completed, after rent has been paid and after the customerhas obtained a right of occupancy. Atthis point, the taxable momenthas already passed—typically weeks or months earlier. The object of the room tax, the customer, is not even a party to this transaction. What happensafter rent is charged and paid has nothing to do with determining the proper base for calculating the tax. * * * * * The bottom line: Room tax must be calculated based on the rental amountthat the hotels insist the taxpaying customer must be charged and must pay in orderto obtain the privilege of occupancy. Rent is rent. The room rate the customer must pay mustbe the tax base. The tax base cannot be somelesser portion of that rental amount. 37 D. The Court Of Appeal Reached The Wrong Result: It Incorrectly Read The Terms “Rent Charged” To Mean “Rental Proceeds Received’; It Gave No Effect To The Phrase “For The Privilege Of Occupancy”; It Ignored The Definition Of “Rent”; And It Lost Sight Of The Fundamental Purpose Of The Ordinance. The Court of Appeal concluded that room tax was due on only a portion of the rent that customers are charged and must pay to booktheir rooms. The court reasoned that “rent charged by the Operator”is “the same amountthat the hotel receives back from the OTC after the transaction with the transient is complete.” (Opn. 17.) In other words, the only taxable “rent” is the hotel’s post-booking share of the rental proceeds. This determination is wrong. It misreads key languagein the ordinance by reading “rent charged” to mean “the share of the rental proceedsthe hotel has agreed to receive.” It overlooks that the tax base is not simply “rent charged,” but rather is “rent charged”“[/Jor the privilege ofOccupancy’—aprivilege that can only be obtained by the customer by paying the amountofrent reflected on the OTC’s website. It effectively nullifies the definition of “Rent” whichis “the total consideration charged to a Transient as shown onthe guest receipt.” (§ 35.0102.) And,it fails to grasp the fundamental purpose of the Transient Occupancy Tax ordinance, namely, to tax transients on the room rates they are actually charged and mustactually pay to obtain the privilege of occupancy. 38 1. The Court of Appeal misread the terms “rent charged by the Operator” to mean “rental proceeds received by the Operator.” The ordinancelevies a tax based onthe rent “charged bythe [hotel]” for the “privilege of Occupancy.” (§ 35.0103.) In construingthis language, the Court of Appeal misread “charged” to mean “received.” Specifically, the court concluded that the portion of the customer’s rental paymentthat is ultimately received by the hotel (after the OTC has taken its cut) forms the tax base, rather than the amount chargedto the customerfor the privilege of occupancy. (See, e.g., Opn. 17 [“In the merchant modeltransactions at issue, the amount charged by the operatoris the lower, wholesale price of the room. It is the same amountthat the hotel receives backfrom the OTCafter the transaction with the transient is complete,” emphasis added].)”° But the ordinance doesn’t calculate tax based on the share ofthe rental proceeds that “the hotel receives back from the OTC.” The ordinance calculates room tax based on the amount “charged”by the hotel for the privilege of occupancy. Thehotel’s act of charging rent is far © In the proceedings below,the parties used the shorthand terms“retail rate” and “wholesale rate” to describe the difference between the rent that the customer must pay to book his room (describedas the “retail rate”), and the portion of the rental revenue that the hotels have agreed to accept from the OTCsas their share of the customer’s room-rent (described as the “wholesale rate”). However, the shorthand terms “retail” and “wholesale” do not appearin the San Diego ordinance. In this brief, we have used the actual ordinance terms,including the term rent, not the shorthand terms the parties previously used. 39 different than the hotel’s act of receiving a portion of the rental proceeds after the room is booked andpaid for. “Charge” meansto “[d]emand (an amount) as a price from someone for a service rendered or goods supplied: ‘the restaurant charged $15 for dinner.’””! (Oxford Dict. (2014), online at .) Thus, “charge” means the amount ofmoney demandedof someone wanting to acquire something. It has nothing to do with the amount of moneythe seller pockets after splitting the customer’s payment with third parties. The room-tax ordinance focuses on “rent charged” by the hotel— i.e., the amount the hotel has determined the OTCs must demand and the customer must pay to obtain the right of occupancy. What the hotel ultimately receivesas its share of that rental revenueis irrelevant to how the tax base is determined. The Court ofAppeal’s misreading of the term “rent charged”contributed significantly to its reaching the wrongresult. 7! The restaurant examplein the dictionary’s definition of “charge”is instructive. A sales tax imposed on the $15 dinner would without question be understoodto apply to the $15 charge the customerpaid for the meal, not the lesser amountthe restaurant owner ended up with after paying its food purveyors. In like fashion, if a hotel customer is charged and pays $100 for a hotel room, that is the amountthat is taxable under the ordinance,not the lesser amount the hotel owner ends up with after paying the OTC. 40 2. The Court of Appeal gaveno effect to the terms “for the privilege of Occupancy,”termsthat are essential in interpreting what is meant by the terms “rent charged by the Operator.” The Court of Appeal also erred by failing to give effect to the ordinance language declaring that taxable “rent” is the amount charged for a specific purpose—namely, for a customerfo obtain “the privilege of occupancy.” (See pp. 9-10, ante.) Because the “rent charged”is necessarily tied to what the customer mustpay to obtain theprivilege of occupancy, the phrase cannot mean a lesser amount for which the customer could never obtain occupancy. Indeed, a customer cannot obtain a $100 room by paying the $80 that the hotel receives on the transaction (after the OTC takesits cut). Not only is the customer never quoted a room atthat lower amount, the hotel-OTC secrecy agreements prevent the customer from even knowing about that lower amount. (See pp. 18-19, ante [hotel- OTCcontractskeeptherent-splitsecret].) Accordingly, it makes no sense to treat that $80 as the tax base. Nothingin the ordinanceties the tax to whatthe hotel is ultimately willing to accept as its share of the rental revenue generated by the payment of rent. Rather, the ordinance’s exclusive focus is the customer-taxpayer and what he is charged and must pay for the privilege of occupancy. The Court ofAppeal’s failure to pay heed to the “privilege of Occupancy” language was prejudicialerror. 41 3. The Court of Appeal gave no effect to the ordinance languagedefining “rent” as the “total consideration” “shown on the guest receipt” “without any deduction therefrom.” In addition to misreading the “charged by the [hotel]” language in the tax imposition provision of the ordinance (§ 35.0103), the Court of Appealalso failed to give proper effect to the definition of “rent”as “the total consideration charged to a Transient as shown onthe guest receipt for the Occupancy of aroom. . . without any deduction therefrom” (§ 35.0102, emphasis added). The“total consideration” language makesclear that “rent” is defined as the “total” amount a customeris charged for the privilege of occupying a room, not any lesser amount. That this is so is confirmed by the additional definitional requirements that “rent” is the amount “shown on the guest 39 66receipt” “without any deduction therefrom.” The “without any deduction” language showsthatthe drafters of the ordinance anticipated and rejected the very type of argument the OTCs makein this case—i.e., thatit is appropriate to deduct amounts from the rent the customer pays and then apply the tax percentage to thatartificially-lowered portion ofrent. It is undisputed that the OTCsprovide their customers with a guest receipt, and that the “room amount” shownonthe guest receipt is always thefull amount the customeris charged for his room—a room rate that the rate-parity agreements require must neverbeless than therate set by the hotels in their direct-purchase transactions. As the ordinance commands, there can be no deduction from this amount. Thus, if a hotel chargesits 42 direct-purchase customers $100 for a room, then the OTC must chargeat least $100 for the same room and the OTCs muststate on the customer’s guest receipt that the “room amount” is $100. This is the rent charged by the hotel and it equals the consideration the customer must pay to gain an occupancy privilege. This amountis necessarily the taxable “rent.” In coming to a contrary conclusion, the Court of Appeal gave no effect to the ordinance’s definition of rent, and it misunderstood what the “guest receipt” and the “without any deduction” language means. It erred in at least two ways. First, the Court of Appeal erred whenit stated the guest receipt cannot be conclusive becauseit might reference charges in additionto rent. (Opn. 10.) While that may betrue, it doesn’t negate the fact that the rent is itemized on the guest receipt. For tax-imposition purposes, the rent charged to and paid by the customeris shown on the guest receipt and that is all that matters. That the guest receipt might also contain other charges doesnotalter this truth: the stated room rate is what was charged anditis necessarily the tax base. Second, the Court of Appeal erred whenit concludedthe definition of rent “has no effect” for tax purposes unless the rent is “charged by the Operator,” and thus, that the only taxable rent is the amount the Operator ultimately receives as its share of rental proceeds. (Opn. 10.) As shown, whatthe hotel receives is irrelevant. That amount cannot be rent since “rent” is defined as the consideration “charged to the Transient.” The 43 hotel’s ultimate share of rental proceeds is never whatis “charged to the Transient.” The customer can never gain a privilege of occupancy by paying that amount, nor can the OTCsevertransfer a possessory right for that amount. By definition, the lower amount cannot be “rent”andit is never “charged” to the customerbythe hotel or anyoneelse. The only “rent” charged is the room rate the hotel insists must be charged to and paid by the customerto obtain an occupancyprivilege. This rent is therefore the amount on which the tax must be calculated. 4. The Court of Appealfailed to consider or give effect to the fundamental purpose of the room-tax ordinance; namely, to tax the customer on the rent he is charged and must payto gain the privilege of room occupancy. By focusing too narrowly, the Court ofAppeal lost track of what the room-tax ordinance wasenacted to achieve—namely, to tax the customer whopaysrent to acquire the right to occupy a room. Given this purpose,it makes perfect sense that the amountofthe tax should be calculated as a percentage of the rent charged to and paid by the customerto gain that privilege. It makes zero sense that the amount of tax would be based on the hotel’s contractually-determined, post-booking entitlement to a share of rental proceeds. The Court ofAppeal’s misreading of the ordinanceis clearly revealed in the following passage of the opinion: “In the OTC-hotel relationship, the price charged to the OTCsfor the roomsis . . . the ‘wholesale’ price.” The OTCs then offer the 44 roomsto the public at retail prices, which are set by the OTCs and are higher than the wholesale price. (Opn. 4, emphasis added,originalellipses.) This description of the transaction is wrong for multiple reasons. Rentis never “charged to the OTCs.” The OTCsdo notobtain anyright of room occupancy. The OTCsare not wholesalers—they do notpre- purchase roomsfor resale. The OTCs neverpay rent, nor are they ever charged rent. They are not lessees, they are not sublessees, and they never take title to rooms. (1JA, T.4, p. 208; 2JA, T.10, p. 412.) In failing to take a step back and assess what the room-tax ordinance wasdesignedto achievein light of the entire statutory scheme, the Court of Appealviolated the mostbasic of statutory-construction precepts: “A fundamental rule of statutory construction is that a court should ascertain the intent of the Legislature so as to effectuate the purpose ofthe law.” (Phelps v. Stostad (1997) 16 Cal.4th 23, 32.) The statutory language at issue must be considered “in the context of the entire statute and the statutory scheme of whichitis a part,” and “the variousparts of a statutory enactment must be harmonized by considering the particular clause or section in the context of the statutory framework as a whole.” (Jbid.) Whenthe ordinance is properly viewed as a whole andthe taxation purpose is properly assessed, the only proper constructionis that the room tax mustbe calculated as a percentage of the rent actually charged to and actually paid by the customerto obtain the privilege of occupancy. 45 Forall the reasons stated above, the judgment should be reversed with directions that room tax must be calculated based on the amountof rent charged to andpaid by the customer, not somelesser amount.” II. THE OTCS CANNOT ESCAPE LIABILITY FOR UNPAID ROOM TAX BY CLAIMING THEY HAVE NO REMITTANCEDUTIES. Below,the OTCs claimed they should prevail because they are not “Operators” within the meaning of the ordinance, and thus had no room-tax remittance obligations. (See, e.g., OTCs’ Respondents’ Brief 11-17.) The Court ofAppeal concludedit didn’t need to resolve the question becauseit determined that no additional taxes were owing. (Opn. 17 [““We need not address the OTCs’ potential liability for TOT underthe variouslabels listed *2 The OTCs have goneto great lengths to keep the public from learning the details of their economic arrangements: They have secrecy agreements with the hotels, and they arranged for a sealing order in this case that assures continued secrecy. It can be inferred from these secrecy efforts that the OTCs do not want customers to know that the room rates they quote are not bargains because they can never be cheaper than those charged by the hotels directly. The opacity resulting from this secrecy is reflected in the OTCs’practice of charging “taxes and fees” in a combinedbilling line without differentiation of the amounts charged for each component. Because the numbers are combined, the customer cannot learn from reading the guest receipt how muchheis being charged for each item and,thus, cannottell how muchheis paying in taxes or whetherheis actually being charged more than what he would payifhe booked directly with the hotels. In fact, the “consumer almost always pays more for hotel occupancy when transacting business with the OTC[s] as opposed tothe hotels directly as a result of the mark up and fees charged by the OTC.” (City ofSan Antonio v. Hotels.com (W.D.Tex., July 1, 2011, Civil No. SA-06-CA-381-OG) 2011 U.S. Dist. LEXIS 72665, *36, emphasis added.) 46 by the City” because “(e)ven if the OTCs were liable for (room tax) under any of these labels, they would only be liable for (room tax) on the rent charged by the operator—not on the fees that the OTCs themselves charge”’].) We expect the OTCswill reassert the duty-to-remit argumentin these proceedings. In anticipation of that argument, we will show that, for multiple reasons, the OTCsare obligated to collect and remit room tax, regardless of whether they qualify as “Operators” underthe ordinance. A. The OTCs CanBe Held Liable Because They Have Directly Agreed To Collect And Remit Room Taxes. The OTCs must collect and remit room tax because manyofthe hotel-OTC contracts obligate them to do so. Those contracts contain terms making the OTCsdirectly liable to the City for non-payment of room tax. They contain covenants pursuant to which the OTCsagreeto be “solely responsible”or “solely and directly responsible” for either payment of room tax on the full room rate, or any and all room taxes determined to be due and owing.”” These provisions render the OTCsdirectly liable to the City since when onecontracting party agrees to be “solely responsible for paying”the counter-party’s remittances, the counter-party “ha[s] no contractual 3 16AR,T.57, p. 914; 16AR,T.58, p. 937; 17AR, T.68, pp. 1114, 1125: 19AR,T.92,at p. 1518; 20AR, T.103, p. 1772; 20AR, T.105, p. 1790; 20AR, T.106, p. 1800; 20AR, T.106, p. 1818; 20AR,T.108,p. 1846: 40AR,T.289,p. 6193. 47 obligation” to “pay [the remittances] directly” and the “payment obligation has been shifted by contract.” (See California Medical Assn. v. Aetna U.S. Healthcare ofCalifornia, Inc. (2001) 94 Cal.App.4th 151, 167 [discussing contractual shift of liability from large medical groups and independent practice organizations onto medical insurers].) In addition, some contracts between the hotels and the OTCs provide that the OTCsare responsible for collecting and remitting room tax to the City. (17AR, T.68, p. 1125; 19AR, T.92, p. 1518; 20AR,T.103, pp. 1772- 1773.) Other contracts require the OTCsto collect and remit all applicable room tax to the hotels, to be forwarded to the City.”* Andstill other contracts require the OTCsto remitto the hotels the portion of the rent that the hotel has agreed to keep, as well as room tax calculated on that amount.25 ** 16AR, T.52, p. 862; 16AR, T.58, p. 938; 17AR, T.62, pp. 983, 990, 982; 17AR,T.66, p. 1041; 17AR, T.67, p. 1055; 18AR, T.79, p. 1312; 18AR, T.80, p. 1321; 18AR, T.85, p. 1379; 19AR, T.93, pp. 1543-1544; 19AR, T.94, p. 1572; 19AR, T.95, pp. 1578, 1606; 19AR, T.96, pp. 1629, 1621, 1620; 19AR, T.97, pp. 1660, 1666; 19AR, T.98, pp. 1678, 1680; 19AR, T.101, pp. 1708, 1710; see also 17AR, T.71, p. 1167 (Expedia must “collect all applicable taxes from its customers” but remits only certain amounts collected to hotel). *° 16AR,T.57, p. 914; 16AR, T.60, pp. 961, 963, 967; 17AR,T.65,p. 1029; 17AR, T.70, p. 1149; 17AR, T.72, pp. 1182-1183; 18AR,T.80,p. 1321; 18AR, T.83, p. 1344; 18AR, T.86, p. 1383; 18AR,T.87, p. 1400; 19AR, T.99,pp. 1686, 1691; 20AR, T.102, pp. 1721-1722, 1738; 20AR, T.105, p. 1790; 20AR, T.106, p. 1800; 20AR, T.106, p. 1818; 20AR, T.107, pp. 1826-1827; 20AR, T.108, pp. 1837, 1846; 38AR, T.264, pp. 12057- 12058; 38AR,T.284, p. 12242; 40AR,T.289,p. 6194; 40AR,T.292,p. 6261; 40AR,T.293, p. 6274; 40AR, T.294,p. 6290; 40AR, T.295, p. 6299; 48 Furthermore, many hotel-OTC agreements provide that the OTCs are liable for the full amount of room tax(i.e., tax on the full amount of the rent charged to and paid by the customer) underalternative theories.”° The purposeof all of these contractual duties is to make sure that the City receives all taxes owed. Asa result, the City is a third-party beneficiary of these agreements. (Johnson v. Superior Court (2000) 80 Cal.App.4th 1050, 1064 [a third party qualifies as a beneficiary of a contract where the contracting parties “intended to benefit that third party”]; Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225, 1232-1233 [third party may enforce contract whereit “appear(s) to have been the intention ofthe parties to secure to him personally the benefit of its provisions”].) As such, the City may directly enforce the OTCs’ collection and remittance duties. (E.g., Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 [“A third party beneficiary may enforce a contract made 41AR, T.312, p. 6469; 42AR, T.313, p. 6477; 41AR, T.314, p. 6487; 41AR, T.315, p. 6497; 41AR,T.316, p. 6507; 41AR, T.319, p. 6550; 41AR, T.321, p. 6569; 42AR, T.322, p. 6578; 42AR, T.323, p. 6587; 43AR, T.349, p. 6918. 6 For example, some contracts require the OTCs to indemnify the hotels against any tax underpayment. (See, e.g., 16AR, T.60, pp. 967, 961; 17AR, T.70, p. 1149; 17AR, T.72, p. 1184; 19AR,T.99, pp. 1693, 1691; 20AR, T.102, p. 1721; 20AR, T.107, p. 1828.) Other contracts require the OTCs to assumeliability for any unpaid taxes. (See, e.g., 18AR, T.86, p. 1383; 18AR, T.87, p. 1400.) Yet other contracts render the OTCs “solely responsible” for paymentoftaxes. (See, e.g., 20AR, T.105, p. 1790; 20AR, T.106, p. 1800; 20AR, T.106, p. 1818; 20AR, T.108, p. 1846.) As discussed at pp. 47-52, under the indemnification and assumption language, the City is entitled to proceed directly against the OTCs for unpaid room tax. 49 for its benefit,” citing Civ. Code, § 1559]; Expedia, Inc. v. City of Columbus (Ga. 2009) 681 S.E.2d 122, 127 [held, “(h)aving contracted with City hotels to collect hotel occupancy taxes, Expedia has rendereditself duty-bound to remit the taxes it has collected to the City’s taxing authority”’].) B. The OTCs Are Liable Because They Have Contractually Agreed To Assume The Risk Of Non-Payment Of Room Taxes. In addition, many OTCshavecontractually assumedthe risk and undertaken liability for any underpayment of room tax. Under many contracts, the OTCsagree that the hotels shall “in no event” be liable for paying room tax onthe full room rate, or paying any other room taxesthat becomedue.” These contracts, too, can be enforced by the City as a third-party beneficiary since the OTCs, by assumingthe risk of room-taxliability, have becomethe “primary obligors” for collecting and remitting room tax. (See, e.g., Layton v. West (1969) 271 Cal.App.2d 508, 511 [becoming a primary obligor is “the generally accepted effect of an assumption”in this state]; Parrish v. Greco (1953) 118 Cal.App.2d 556, 561 [“‘if the debt be assumed by the grantee he becomestheprincipal debtor”]; Travelers Indemnity Co. v. Gillespie (1990) 50 Cal.3d 82, 95 [“reinsurance and assumption *7 See 16AR, T.57, p. 914; I8AR,T.85, p. 1379; 18AR,T.86, p. 1383; 18AR, T.87, p. 1400; 19AR,T.96, p. 1621; 19AR, T.97, p. 1661. 50 agreement()” results “in both the original insurer and the assuming insurer being obligated to the insured”].) C. The OTCs Are Liable Because They Have Contractually Agreed To Indemnify And Hold Harmless The Hotels For Any Failure To Pay Room Tax. Many hotel-OTC contracts also contain indemnification provisions, under which the OTCs have (a) indemnified the hotels against liability for room tax owed on the full room rate and/or (b) agreed to hold the hotels harmless from suchliability.”® These provisions, like those discussed above, render the OTCs directly liable to the City. This is so not only because the City is a third- party beneficiary of these agreements,but also because Civil Code section 2777 provides: “One who indemnifies another against an act to be done by the latter, is liablejointly with the person indemnified, and separately, to every person injured by such act.” (Civ. Code, § 2777, emphasis added.) *8 See, e.g., 3AR, T.5, p. 13923:7-18; 34AR, T.238, pp. 5311-5312; 29AR, T. 215, pp. 4127-4128; see also 1JA, T.4, pp. 214-216 (Hearing Officer: “In their contracts with the OTCs dating back to the 1990s, the hotels have always required that the OTCsagree to indemnify the hotels for any [room tax] not paid on ‘mark up’ and service charges under the Merchant Model”); 16AR, T.52, p. 865; 16AR, T.60, pp. 967, 961; 17AR, T.62,pp. 992, 990; 17AR,T.67, p. 1060; 17AR, T.68, pp. 1109, 1125; 17AR, T.70, p. 1149; 17AR, T.71, pp. 1169-1170; 17AR,T.72, p. 1184; 18AR, T.79, pp. 1229, 1233; 18AR, T.79, p. 1297; 18AR, T.85, p. 1380; 18AR, T.87, p. 1400; 19AR,T. 92, p. 1529; 19AR, T.93, p. 1549; 19AR, T. 94,p. 1566; 19AR, T.95, p. 1583; 19AR, T.99, pp. 1693, 1691; 19AR, T.100, p. 1703; 20AR,T.102, p. 1721; 20AR, T.103, p. 1773; 20AR, T.107, p. 1828; 20AR, T.108, pp. 1837, 1849; 38AR, T.264, p. 12059; 40AR,T.292,p. 6264; 42AR, T.322, p. 6581; 42AR,T.323, p. 6590; 43AR, T.349, p. 6924. 51 Here, “nonpayment” of room tax to the City is the “future act indemnified against,” and the indemnifying OTCshave“bec[o]mejointly liable with” theindemnitee-hotels for that nonpayment. (See Bryanv. Banks (1929) 98 Cal.App. 748, 756.) Under Bryan and the express language of Civil Code section 2777, the City is “allow[ed] . . . to proceed against the [OTC-indemnitors] separately, or jointly with the” indemnitee- hotels in these circumstances. (/d. at p. 757.) D. The OTCsAre Liable Because They Are The Hotels’ Agents And, Thus, Are Obligated Under Civil Code Section 2344 To Surrender All Room Tax They Collect On Behalf Of The Hotels, But Fail To Remit To The City. Civil Code section 2777 is not the only statutory basis for imposing liability on the OTCs. Civil Code section 2344 also compelsthat result. Section 2344 requires that “[i]f an agent [the OTC] receives anything for the benefit of his principal [the hotel], to the possession of which another personis entitled [the City], he must, on demand, surrenderit to such person... .” That requirement squarely applies here. Asthe Court of Appeal expressly recognized, the OTCsact on behalf of the hotels when they rent rooms,“‘handleall financial transactionsrelated to the hotel reservations,” collect rent, handle customer service up until the time the customer checksinto the hotel, “provide[] a receiptto the transient, which includes a room rate and separately delineated taxes and fees,” and remit room tax to the hotel to be remitted to the City. (Opn. 4, 14-15.) This confirms what the hearing officer found, 52 namely, that the OTCsare agents of the hotels for purposesofall collection and remittance obligations. (See pp. 24-25 & fn. 17, ante.) While the Court of Appeal expressly declined to opine on the effect of the agency finding (see Opn. 17), the agency finding further compels the conclusion that the OTCsare obligated for remitting the room tax under Civil Code section 2344.” To the extent the OTCs have received funds from customers that should properly be designated as additional room taxes, the OTCs must remit such fundsas taxes and cannotunilaterally change their character by mis-labelling those taxes as the OTCs’ “fees.” The OTCshold these funds “for the benefit of’ the hotels because the hotels would be obligated to collect those funds as room taxesifthey handled the transaction directly. And since all room taxes are owedto the City, any collection by the OTCs of amounts that can be characterized as unpaid room taxes are necessarily collected for the benefit of the City and must, on demand,be relinquished. x oe * oR Ok For these reasons, any argument by the OTCsthat they have no duty to collect and remit unpaid room taxes must be rejected. Regardless ”? Though the Court of Appeal declined to rule on the agencyissue,it did conclude the OTCs were not “managing agents”of the hotels. (Opn. 8-9.) The City does not assert that the OTCs are the managing agents or even the general agents of the hotels. The City asserts only that the OTCsare the hotels’ agents with respectto the particular duties they have undertaken to perform—including, as relevanthere, the duties to charge and collect rent from customers, and to calculate and remit room taxes. 53 whether the OTCsare “Operators” under the ordinance,they are obligated to collect and remit room taxes underthe multiple theories of liability just described. Il. THE COURT OF APPEAL ERRED IN RULING THAT THE UNPUBLISHED ANAHEIMAND SANTA MONICA OPINIONS WERE BINDING AS LAW OFTHIS CASE. In holding that the OTCs did not owe room tax beyond what had previously been collected and paid, the Court of Appealrelied on its two prior unpublished decisions in Anaheim and Santa Monica. (Opn. 7.) The court justified citing these unpublished decisions by stating they were applicable as “law ofthe case” and thusfell within an exceptionto the rule precluding citation of unpublished opinions. (Opn.3, fn. 4.) This ruling was erroneous. Prerequisites to the application of the law-of-the-case doctrine (1.e., case and party identity) are not satisfied. Moreover, a coordination order that merely provides for administrative coordination of certain cases does not, without more, render a disposition in one coordinated case law of the case in others. A. The Law-Of-The-Case Doctrine Is Inapplicable Here Because There Is No Case Or Party Identity. For the law-of-the-case doctrine to apply, there must be both case identity and party identity. Neither requisite is satisfied here.°*° *° We recognize that the law announcedin a published decision can be binding in other cases, not becauseit is law of the case, but because the decision has precedential effect. That is not the situation here, as the Anaheim and Santa Monica decisions on which the Court of Appeal relied were not published. 54 1. Thecase-identity elementis not satisfied. An appellate decision “stating a rule of law necessary to the decision of [a] case” is binding “in any subsequentretrial or appeal in the same case.” (Morohoshi v. Pacific Home (2004) 34 Cal.4th 482, 491, emphasis added, internal quotation marks omitted.) Where a prior appeal “involve[s] a different case,” the result cannot be applied as law ofthe casein later appeal. Un re Rosenkrantz (2002) 29 Cal.4th 616, 626.) Thus,it is error to apply the law-of-the-case doctrine in a proceeding that does “not involve the same case . . before th[at] court” previously. (Jd. at p. 668.) Case identity is absent here. This case concerns the OTCs’ challenge to the San Diego “hearing officer’s decision” regarding the construction of San Diego Municipal Code § 35.0101 et seq. The separate Anaheim and Santa Monica appeals involved different and distinct complaints/petitions, different room-tax ordinances, and differentcities. The cases were never ordered consolidated, nor was notice ever given to any of the parties in the coordinatedlitigation that an appellate resolution in either of these cases would be binding in others. The “prior appeal[s]” in Anaheim and Santa Monica thus each “involved a different case” from the instant appeal. (Rosenkrantz, supra, 29 Cal.4th at p. 626.) 2. The party-identity elementis not satisfied. The law-of-the-case doctrine applies only “with regard to the rights of the same parties who were before the court” whenan initial ruling was made. (Rosenkranz, supra, 29 Cal.4th at p. 668, emphasisin original.) If “different parties” were before the court when a ruling was entered, then 55 that ruling “does not support application of the law of the case doctrine.” (Id. at p. 626.) This element, too, has not been satisfied here, as Anaheim and Santa Monicaare obviously different cities than San Diego. B. The Law-Of-The-Case Doctrine Is Inapplicable Here Because Coordinated Cases Remain Separate Unless They Are Ordered Merged Or The Parties Are Given Notice That A Decision In One Case Will Be Binding In Others And Are Afforded An Opportunity To Be Heard—None Of Which HappenedHere. The Court of Appeal apparently determined, without ever saying so, that all coordinated cases necessarily become the samecase, such that every ruling in one case becomeslaw ofthe caseasto all of the other coordinated cases. This is wrong. The mere fact that one case is coordinated with another does not mean that a decision in oneis bindingin the other. 1. There was never a merger order entered nor was San Diego ever given notice and an opportunity to be heard in the coordinated cases. The purpose of a coordination orderis to allow for the efficient administration of related cases separately pending in different jurisdictions throughoutthe state. (See McGhan Medical Corp. v. Superior Court (1992) 11 Cal.App.4th 804, 813 [discussing purposes of coordination]; Cal. Rules of Court, rule 3.541 [duties of trial coordination judge].) Consolidation achieves the same end underdifferent circumstances.”! 5! “Coordinated” and “consolidated” proceedingsare not the same, but they achieve similar purposes. Coordinated proceedings,like those here, bring before the same court complexcasesoriginally pending before different courts in the state. (See Code Civ. Proc. § 404 et seq.; Cal. Rules of Court, rules 3.501 et seq.) “Consolidated” proceedings unify cases pending before 56 Because the two types of orders serve the same function, the case law illuminating one,illuminates the other. That case law establishes that without an orderorstipulation specifically merging the coordinated/consolidated cases into one case, the cases remain separate; they do not become merged into a single case. Here, there was no order directing that the separate coordinated actions would betreated as one. Sanchez v. Superior Court (1988) 203 Cal.App.3d 1391 is instructive. There, a party formally appeared in one of two consolidated actions arising from the same auto accident. The Court of Appeal held that even though the actions were consolidated fortrial, the actions retained their separate identities so that the appearance in one of the consolidated actions did not constitute an appearancein the other. (/d. at pp. 1385- 1396.) In so holding, Sanchez began by describing the two different types of consolidation: [1] a complete consolidation resulting in a single action, and [2] a consolidation of separate actions for trial. Under the former the same court if it is shown that those cases have commonissues of law or fact. (Code Civ.Proc., § 1048; Cal. Rules of Court, rules 3.350, 3.500.) Thus, whethercases are ordered “coordinated” or ordered “consolidated” primarily depends on whetherthe different cases were originally pending in the different courts or in the same court. (Younger & Bradley, Younger on Cal. Motions (2013) § 22:14, p. 697 [“(c)oordination is the equivalent of consolidation for cases pending in different counties”].) Opinions often use the terms “coordinated” and “consolidated” interchangeably. 57 procedure, which maybeutilized where the parties are identical and the causes could have been joined, the pleadings are regarded as merged, one set of findings is made, and one judgmentis rendered. In a consolidation fortrial, the pleadings, verdicts, findings and judgments are kept separate; the actions are simply tried together for the sake of convenience andjudicial economy. (d. at p. 1396, generally citing 4 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 298 et seq; see also 4 Witkin, Cal. Procedure (Sth ed. 2008) Pleading, §§ 341, 346, 347; Cal. Rules of Court, rule 3.350(c).) Only thefirst type of consolidation results in a complete merger. Thus, Sanchez held: “While it is clear that the two actions arose from the same incident, nonetheless there were two different sets of plaintiffs who pleaded their cases separately and would presumably expect separate judgments. There is no indication in the record that the two complaints in these actions became merged. Onthe contrary, the actions retained their separate numbers.” (/d. at p. 1396; see also 4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 341.) Finally, Sanchez reasonedthat in order for a consolidated case to become completely merged, the parties must have agreed to such a complete merger. (/bid. [“Furthermore, a complete merger of the two actions would be improperin the absenceofa stipulation or consent by defendants”].) Here, the parties never stipulated to a merger. That coordinated cases do not automatically become merged into a single case is further evidenced by the fact that not one of the many rules 58 governing coordinated cases even hints that mere coordination without more yields a merger. (Code Civ. Proc., § 404 et seq.; Cal. Rules of Court, rule 3.501 et seq.) Rather, the coordination rules are designed to assure administrative consistency and to assure thatall parties receive notice of other coordination orders and proceedings, so that they may know when participation in a particular proceeding is appropriate in order to protect their rights. (See, e.g. Cal. Rules of Court, rules 3.501, 3.506, 3.510, 3.513, 3.531, 3.541 [provisions for the appointmentof liaison counsel, allowing court to separately try different issues, and requiring separate service ofall court filings or submissionsto all parties in “all included actions and coordinated actions”’].) If anything, these rules suggest that before parties in a coordinated case can be bound, they must receive notice of all proceedings that can affect their rights. This is a far cry from mandating that separate cases automatically merge into one for all purposes, as the Court of Appeal apparently believed happenedhere. All parties that might be bound must be given an opportunity to request permission to make appearances. (See Cal. Rules of Court, rules 3.501, 3.510, 3.513, 3.514.) Here, San Diego never received notice that appellate determinations in the Anaheim and Santa Monica cases would be binding on San Diego. San Diego wasnotrepresented in either of those proceedings, nor was San Diegoever afforded an opportunity to appear and be heard in those cases. Under these circumstances, the mere coordination 59 of the room-tax cases did not result in a complete merger of the coordinated Cases. 2. The federal law upon which California coordination and consolidation law is based offers powerful support for the conclusion that coordination and consolidation alone does not result in an automatic merger. That coordinated cases remain separate absent an order providing otherwise is echoed bythe relevant federal law of consolidation and multi- district litigation, all of which underlies California’s law of consolidation and coordination. (See 4 Witkin, Cal. Procedure, supra, Pleading, §§ 342, 352; Legis. Com. com. (1971) Deering’s Ann. Code Civ. Proc., § 1048 (1971 Supp.) [consolidation “conform(s) in substance” to Fed. Rules Civ.Proc., rule 42, 28 U.S.C.].) Federal law holds that consolidated proceedings do not automatically merge for law-of-the-case purposes. (Johnson v. Manhattan Ry. Co. (1933) 289 U.S. 479, 496-497 [consolidation “does not merge the suits into a single cause, or changetherights of the parties, or make those whoare parties in one suit parties in another”]; Simmonds v. Credit Suisse Securities (USA) LLC (9th Cir. 2010) 638 F.3d 1072, 1097-1098 & fn. 23, as amended (9th Cir., Jan. 18, 2011) 2011 U.S. App. LEXIS 974, *46 & fn. 23, judg. vacated on unrelated grounds,affd. in part without precedential effect (2012) 132 S.Ct.1414 [a “district court should be careful about invoking the ‘law of the case’ doctrine”in consolidated cases where only certain parties were subject to the Court’s opinion on appeal and materials involving other parties were not in the record, despite the similarity of those 60 remaining parties’ cases]; Advisory Com. Note, Fed. Rules App.Proc., rule 3, as amended Apr. 24, 1998, 28 U.S.C. (1998 amend.) [consolidated appeals “do not mergeinto one”for all purposes].) C. Applying The Law-Of-The-Case Doctrine In This Case Would Violate Due Process Guaranteed By The United States And California Constitutions. Fatal due process problems are created when the law-of-the-case doctrine is applied without prior notice that a decision will be binding onall parties in all actions. As one scholar has explained, “consolidation does not renderrulings in one casealso rulings ‘in’ the other consolidated actions”; thus, “‘a request for a ruling on the samepointin one ofthe other consolidated actions does not trigger law of the case principles.” (Steinman, Law ofthe Case: A Judicial Puzzle in Consolidated and Transferred Cases and in Multidistrict Litigation (1987) 135 U.Pa. L.Rev. 595, 623, internal footnotes omitted.) Here’s why: Parties to the other consolidated actions whoare neither parties nor in privity with parties to the ‘case of origin’ did not have their day in court, their opportunity to be heard before the initial ruling was rendered. If, through consolidation, an adverse ruling automatically became the law in their cases and law of the case doctrine were held to preclude reconsideration, these litigants’ due process rights would be infringed. (Ud. at pp. 623-624 [there must be assurancethat“all interested parties should be heard, without hindrance from law of the case”’].) 61 While it is certainly understandable that a court would have a “strong inclination to bring harmony and uniformity to the rulings” in coordinated cases (id. at p. 624), courts must be sensitive to the fact that due process precludes them from doing so unlessthere is assurance thatall interested parties have been given notice and an opportunity to be heard in the matters that will later be considered binding on all. San Diego wasnot given such notice here, and therefore due process prevents San Diego from being boundbyrulingsin the separate room tax collection appeals. CONCLUSION Forall the reasons stated above, the Court ofAppeal’s ruling should be reversed with directions that the tax base for calculating room tax is the rent charged to and paid by the customeras consideration for transferring the right of occupancy, and that the unpublished decisions in the Anaheim and Santa Monica cases are not binding on any issue presented in the instant case. The Court should reject any argument that the OTCsare not obligated to collect and remit room taxes; indeed, this Court should direct that the OTCs are duty-boundto do so. 62 DATED:January 26, 2015 Respectfully Submitted, CITY OF SAN DIEGO CITY ATTORNEY’S OFFICE Daniel F. Bamberg, Esq. Jon E. Taylor, Esq. McKOOL SMITH HENNIGAN Steven D. Wolens, Esq. Gary Cruciani, Esq. KIESEL BOUCHER LARSON LLP William L. Larson, Esq. Paul L. Kiesel, Esq. BARON & BUDD,P.C. Laura Baughman, Esq. Thomas M.Sims, Esq. GREINES, MARTIN, STEIN & RICHLAND LLP Irving H. Greines, Esq. Kent L. Richland, Esq. Cynthia E. Tobisman,Esq. David E. Hackett, Esq. By: ZOEKZ__~ Cynthia E. Tobisman Attorneys for Petitioner, CITY OF SAN DIEGO, CALIFORNIA 63 CERTIFICATE OF COMPLIANCE Pursuant to California Rules of Court, rule 8.204(c)(1), I certify that this PETITIONER’S OPENING BRIEF ON THE MERITScontains 13,296 words, not including the tables of contents and authorities, the caption page, signature blocks, the verification or this certification page, as counted by the word processing program usedto generateit. Dated: January 26, 2015 OEY . Cynthia E. Tobisman 64 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action; my business address is 5900 Wilshire Boulevard, 12th Floor, Los Angeles, California 90036. On January 26, 2015, I served the foregoing document describedas: PETITIONER’S OPENING BRIEF ON THE MERITSontheparties in this action by serving: SEE ATTACHED SERVICELIST (X) By Envelope - by placing () the original (X) a true copy thereof enclosed in sealed envelopes addressed as above and delivering such envelopes: (X) By Mail: As follows: I am "readily familiar" with this firm's practice of collection and processing correspondence for mailing. Under that practice, it would be deposited with United States Postal Service on that same day with postage thereon fully prepaid at Los Angeles, California in the ordinary course of business. I am aware that on motion of party served, service is presumed invalid if postal cancellation date or postage meter date is more than 1 day after date of deposit for mailing in affidavit. Executed on January 26, 2015, at Los Angeles, California. (X) (State) I declare under penalty of perjury under the laws of the State of California that the foregoingis true and correct. mnAy y Joyce MoGilbert / 65 Supreme Court Case No. S218400 In Re Coordinated Proceeding Special Title (Rule 3.550(c)) TRANSIENT OCCUPANCY TAX CASES SERVICE LIST Darrel J. Hieber Nathaniel Sadler Currall Daniel Martin Rygorsky K & L Gates Stacy R. Horth-Neubert Skadden, Arps, Slate Meagher & Flom 300 S. Grand Avenue, Suite 3400 Los Angeles, CA 90071 [Attorneys for Defendants and Respondents: Priceline.Com,Inc.; Travelweb, LLC; Lowestfare.com, LLC] Brian D. Hershman James P. Karen Jones Day 555 S. Flower Street, 50th Floor Santa Monica, CA 90071-2300 [Attorneys for Defendants and Respondents: Expedia, Inc.; Hotwire, Inc.; Hotels.com L.P.; Travelnow.com; Hotels.com GP, LLC] 1 Park Plaza, 12th Floor Irvine, CA 92614 Brian S. Stagner J. Chad Arnette Kelly Hart & Hallman LLP 201 Main Street, Suite 2500 Fort Worth, TX 76102 William Bryan Grenner K&L Gates LLP 1900 Main Street, Suite 600 Irvine, CA 92614 [Attorneys for Defendants and Respondents: Travelocity.com LP and Site59.com LLC] Matthew X. Oster McDermott, Will & Emery LLP 2049 Century Park East, Suite 3800 Los Angeles, CA 90067-3218 [Attorneys for Defendants and Respondents: Orbitz, LLC; Trip Network, Inc.; Internetwork Publishing Corporation| Jeffrey Alan Rossman McDermott Will & Emery 227 W MonroeSt Chicago, IL 60606-5096 [Attorneys for Defendant and Respondent: Orbitz, Inc.] Clerk of the CourtSupreme Court of California350 McAllister StreetSan Francisco, CA 94102-7303(Electronically submitted) 66