IN RE TRANSIENT OCCUPANCY TAX CASESAppellant’s Reply Brief on the MeritsCal.May 21, 2015No. 8218400 IN THE SUPREME COURTOF CALIFORNIA In Re Coordinated Proceeding Special Title (Rule 3.550(c)) TRANSIENT OCCUPANCY TAX CASES SUPREME COURT CITY OF SAN DIEGO, CALIFORNIA, | L E D Appellant, y MAY 21 2015 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 REPLY BRIEF ON THE MERITS CITY OF SAN DIEGO McKOOL SMITH HENNIGAN CITY ATTORNEY’S OFFICE Steven D. Wolens (Admitted Pro Hac Vice) Daniel F. Bamberg, SBN 60499 Gary Cruciani (Admitted Pro Hac Vice) Jon E. Taylor, SBN 155429 300 Crescent Court, Suite 1500 1200 Third Avenue, Suite 1100 Dallas, Texas 75201 San Diego, California 92101 Tel: 214-978-4000 / Fax: 214-978-4044 Tel: 619-533-5800 / Fax: 619-533-5856 KTESEL BOUCHER LARSON LLP BARON & BUDD,P.C. William L. Larson, SBN 119951 Laura J. Baughman, SBN 263944 Paul R. Kiesel, SBN 119854 Thomas M.Sims, SBN 261474 8648 Wilshire Boulevard 3102 Oak Lawn Ave,Suite 1100 Beverly Hills, California 90211 Dallas, Texas 75219 Tel: 310-854-4444 / Fax: 310-854-0812 Tel: 214-521-3605 / Fax: 214-520-1181 GREINES, MARTIN, STEIN & RICHLAND LLP Irving H. Greines, SBN 39649 Kent L. Richland, SBN 51413 *Cynthia E. Tobisman, SBN 197983 David E. Hackett, SBN 271151 3900 Wilshire Boulevard, 12th Floor Los Angeles, California 90036 Tel: 310-859-7811 / Fax: 310-276-5261 Attorneysfor Petitioner CITY OF SAN DIEGO, CALIFORNIA COPY No. 8218400 IN THE SUPREME COURTOF 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 REPLY BRIEF ON THE MERITS CITY OF SAN DIEGO McKOOL SMITH HENNIGAN CITY ATTORNEY’S OFFICE Steven D. Wolens (Admitted Pro Hac Vice) Daniel F. Bamberg, SBN 60499 Gary Cruciani (Admitted Pro Hac Vice) Jon E. Taylor, SBN 155429 300 Crescent Court, Suite 1500 1200 Third Avenue, Suite 1100 Dallas, Texas 75201 San Diego, California 92101 Tel: 214-978-4000 / Fax: 214-978-4044 Tel: 619-533-5800 / Fax: 619-533-5856 KIESEL BOUCHER LARSON LLP BARON & BUDD,P.C. William L. Larson, SBN 119951 Laura J. Baughman, SBN 263944 Paul R. Kiesel, SBN 119854 Thomas M.Sims, SBN 261474 8648 Wilshire Boulevard 3102 Oak Lawn Ave, Suite 1100 Beverly Hills, California 90211 Dallas, Texas 75219 Tel: 310-854-4444 / Fax: 310-854-0812 Tel: 214-521-3605 / Fax: 214-520-1181 GREINES, MARTIN, STEIN & RICHLAND LLP Irving H. Greines, SBN 39649 Kent L. Richland, SBN 51413 *Cynthia E. Tobisman, SBN 197983 David E. Hackett, SBN 271151 5900 Wilshire Boulevard, 12th Floor Los Angeles, California 90036 Tel: 310-859-7811 / Fax: 310-276-5261 Attorneys for Petitioner CITY OF SAN DIEGO, CALIFORNIA TABLE OF CONTENTS INTRODUCTION ARGUMENT I. UNDER THE PLAIN TERMS OF THE ORDINANCE, THE TAX BASE IS THE ROOM RATE THAT THE CUSTOMERIS QUOTED,IS CHARGED AND MUST PAY TO RENT A ROOM,NOT SOME HIDDEN, LESSER AMOUNT THAT THE HOTEL RETAINS AFTER SPLITTING RENTAL REVENUE WITH THE OTCS. A. The Plain Terms And Clear Intent Of The Room- Tax Ordinance Are To Levy A Tax On The Room _ Rate The Customer Is Charged And Must Pay To Get His Room. B. The City Seeks To Tax Only The Room Rate. The City Does Not Seek To Tax The Service Fees That The OTCs Independently Charge Customers On Top Of That Room Rate As A Separate Line Item. C. The Hotels “Charge” The “Room Rate” Quoted On The OTCs’ Websites And That The Customer Must Pay To Obtain A Privilege Of Occupancy. 1. Because the OTCsactas the hotels’ agents for purposes of charging the room rate,it is the hotels themselves whoare charging the room rate—thus establishing that the tax base is the room rate, not just some portion ofit. a. The hearing officer’s undisputed factual finding that the OTCsact as the hotels’ agents for purposes of charging customersthe “room price,” dictates that the room rate that the OTCscollect is taxable “rent.” PAGE TABLE OF CONTENTS PAGE b. Even if there wasn’t an undisputed agency finding in this case, the OTCs would still be the hotels’ agents as a matter of law for purposes of chargingrent. 8 Underthe rate-parity agreements between the hotels and the OTCs,the hotels set the floor “room rate” that the OTCs must quote and charge to customers—suchthat the hotels are the ones doing the “charging” of that room rate. 9 a. The OTCs concede the rate-parity agreements require them to quote room rates that do not undercut the hotels’ own customer-direct room rates. 10 b. The OTCs’assertions regarding the numberof contracts containing rate- parity provisions are unsupported and wrong. 12 c. Because the rate-parity provisions are not relevant to opaque transactions, the City did not reference those transactions when discussing rate- parity agreementsin its openingbrief. 13 Noneofthe OTCs’ other arguments undercut the conclusive effect of either the OTCs’ agencyrelationship with the hotels, or the rate-parity agreements. 14 a. The OTCs’attempts to dissect and rename the room rate in their contracts with the hotels do not govern the extent to which the room rate is taxable. 14 il II. TABLE OF CONTENTS PAGE b. The hearing officer’s factual findings do not support the OTCs’ contention that the scope of the OTCs’ agency was limited to collecting a mere portion of the room rate. 16 c. The rules governing construction of tax ordinancesdo not help the OTCs here. 17 THE OTCS HAVEFAILED TO REFUTE ANY OF THE MULTIPLE INDEPENDENT BASES ON WHICH THEY CAN BE HELD LIABLE FOR UNPAID ROOM TAXES. 20 A. The OTCs Have Not Rebutted That Ordinance Section 35.0123 Imposes Tax Liability To The City. 20 The OTCs Have Not Rebutted The Contractual Bases For Their Tax Liability To The City. 22 1. There is no merit to the OTCs’ claim that they never agreed, norcould they legally agree, to be “solely responsible” for room- tax underpayment. 22 The OTCs’assertion that their agreements to assume room-tax liability do not render them primarily liable is meritless. 24 The OTCs’claim that the City is not a third- party beneficiary of the hotel-OTC contracts is meritless. 25 The OTCs’assertion that the indemnity provisions in their contracts do not afford a basis for imposingliability for room-tax underpaymentsis meritless. 26 ili TABLE OF CONTENTS PAGE C, The OTCs Have Not Rebutted The Multiple, IndependentStatutory Bases For Their Liability. 27 1. The OTCsare statutorily liable under Civil Code section 2777. 28 2. The OTCsare statutorily liable under Civil Codesection 2344. 29 D. The City Need Not Amend The Room-Tax Ordinance To Accomplish What It Is Already Designed To Accomplish. 30 E. The OTCs’ Suggestion That They Could Not Properly Have Been Subjected To Administrative Liability Is Meritless. 31 IN. THE OTCS PROVIDE NO JUSTIFICATION FOR THE COURT OF APPEAL’S ERRONEOUS HOLDING THAT THE SANTA MONICA AND ANAHEIMOPINIONS ARE BINDING AS LAW OF THE CASE. 32 CONCLUSION 35 CERTIFICATE OF COMPLIANCE 36 iv TABLE OF AUTHORITIES PAGE CASES Aguilar v. Lerner (2004) 32 Cal.4th 974 31 Apple Inc. v. Superior Court (2013) 56 Cal.4th 128 21 Atkinson v. Foote (1919) 44 Cal.App. 149 7 Bank ofAmerica, N.A. v. Roberts (2013) 217 Cal.App.4th 1386 32 Bryan v. Banks (1929) 98 Cal.App. 748 28, 29 California Medical Assn v. Aetna U.S. Healthcare ofCalifornia, Inc. (2001) 94 Cal.App.4th 151 23 City ofBurbank v. Nordahl (1962) 199 Cal.App.2d 311 23, 25 City ofLos Angeles v. Belridge Oil Co. (1954) 42 Cal.2d 823 18 Columbia Pictures Corp. v. DeToth (1948) 87 Cal.App.2d 620 7 Expedia, Inc. v. City ofColumbus (Ga. 2009) 681 S.E.2d 122 11 Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 1118 24 Garratt v. Baker (1936) 5 Cal.2d 745 25 General Motors Corp. v. Franchise Tax Bad. (2006) 39 Cal.4th 773 14 Hartman Ranch Co. v. Associated Oil Co. (1937) 10 Cal.2d 232 26 vi TABLE OF AUTHORITIES CASES Hospital Service ofCalifornia v. City ofOakland (1972) 25 Cal.App.3d 402 Johnson v, Superior Court (2000) 80 Cal.App.4th 1050 Kowis v. Howard (1992) 3 Cal.4th 888 Le Ballister v. Redwood Theatres, Inc. (1934) 1 Cal.App.2d 447 Lucas v. Hamm (1961) 56 Cal.2d 583 Lungren v. Deukmejian (1988) 45 Cal.3d 727 Montgomery v. Dorn (1914) 25 Cal.App. 666 Riley v. Havens (1924) 193 Cal. 432 SCC Acquisitions, Inc. v. Central Pacific Bank (2012) 207 Cal.App.4th 859 Scholastic Book Clubs, Inc. v. State Bd. ofEqualization (1989) 207 Cal.App.3d 734 Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004 Vii PAGE 19 26 32 26 25 17 26 19 12 8,9 26 TABLE OF AUTHORITIES STATUTES Civil Code Section 2344 Section 2777 San Diego Municipal Code Section 35.0123 Vili PAGE 29, 30 28 21,31 INTRODUCTION This case presents a straightforward question and an equally straightforward answer. The Question: Is the tax base for calculating room tax the amount that a customeris charged and mustpay to rent a hotel room—i.e., his room rate? Or is the tax base some lesser amountthat the customer knows nothing about, an amountbased only on the portion of the customer’s room rate that the hotel ultimately receives after the OTCs have taken their cut? The Answer: Thetax base is the room rate charged to and paid by the customerto gainthe privilege of occupancy. Nothingless. Thisis the only answerconsistent with the manifest purpose and plain language of the room-tax ordinance, as well as with commonsense. Historically, the rate that the customer must pay to rent a room has been the tax base, regardless of whetherthe transaction was completed by a hotel or by a third-party sales agent. There is no reason whythe introduction of new technology (Internet room bookings) or the use of a different booking model (the “merchant model”) should change anything. New technology cannot alter what the law demands. The OTCsoffer no explanation why customers,the only taxpayers, would expect to pay room taxes based on somethingless than the quoted room rates. Nor do the OTCs explain whya city would ever chooseto tax amountsthat are less than the room rates that the customersactually pay. Instead of addressing these commonsenseissues, the OTCs use semantic gamesto argue they maycalculate taxes based on only the share of the rental proceeds that the hotels have agreed to receive after the OTCs have taken their cut. These games don’t work. The ordinance plainly imposes tax on what the taxpaying customeris charged and mustpayto obtain a room. Howthatrentis split between the hotels and third-party sales agents like the OTCsis immaterial under the ordinace. For years, the OTCs have underpaid millions of dollars in taxes, depriving the City andits residents of funds needed for important public services. It is time for the OTCs to remit what they owe. ARGUMENT I. UNDER THE PLAIN TERMS OF THE ORDINANCE,THE TAX BASE IS THE ROOM RATE THAT THE CUSTOMER IS QUOTED, IS CHARGED AND MUSTPAY TO RENT A ROOM, NOT SOME HIDDEN, LESSER AMOUNT THAT THE HOTEL RETAINS AFTER SPLITTING RENTAL REVENUE WITH THE OTCS. A. The Plain Terms And Clear Intent Of The Room-Tax Ordinance Are To Levy A Tax On The Room Rate The Customer Is Charged And Must Pay To Get His Room. Whena customerreads on an OTC’s website that he must pay a $100 “room rate” to book a room, and the customer’s guest receipt recites that he has been charged $100 for his room, then that $100 is the taxable “rent.” (Opening Brief [“OB”] 29-46.) Indeed, the room-tax ordinance states that the tax is based on the amountofrent a customeris charged by the operatorto obtain the privilege of occupancy, as that amount is shown on a guest receipt. (§§35.0102, 35.0103.) And the ordinancestates that the tax mustbe levied at the time the customer books his room andpayshis rent. (§ 35.0112, subd. (a).)' Thus, the tax base is the amountthe customer is quoted, is charged, and must pay for his room, not some lesser amount. ' The OTCsclaim the City “rewr[o]te the definition of Rent by ellipsis” whenit quoted the ordinance provisions defining “Rent”as the “total consideration charged to a Transient as shown onthe guestreceipt for the Occupancy of a room . . . without any deduction therefrom.” (Answering The OTCsargue that the City relies on “a supposed implied intent” of the ordinance. (AB21-22.) But there is nothing “implied” about what the ordinance plainly declares. Onits face, the ordinance taxes what the customeris charged and must pay for his room. That’s why the opening brief correctly describes the tax base as the amountofrent the taxpaying customeris chargedforhis room, viewed from his perspective, and as reflected on his guest receipt. (OB29-31.) That’s why the opening brief correctly explains that the “taxable moment”occursat the second step of the merchant-model transaction, when the customer pays the quoted room rate and obtains a right of occupancy—andnotat the third step of the transaction, when the hotel and OTC divvy up that rental payment, or even at the first step, when the hotel and OTC enter into an agreement. (OB36-37.) And that’s why the opening brief correctly notes that the tax is imposed on what the customeris charged for occupancy, not on whatthe hotel receives at the end of the day. (OB38-40.) It is undisputed that under every other room-rental model(i.e., the agency model), the room rateis the tax base, without regard to whatportion of that amount the hotel ultimately keeps after sharing rental proceeds with third-party sales agents. (See OB11-12.) Thereis no possible justification Brief [“AB”] AB23-24.) The City stands by its appropriate use ofellipses to eliminate words that are immaterial to the issues presented. for treating merchant-modeltransactions any differently, nor have the OTCsproffered any tenable justification for doing so. B. The City Seeks To Tax Only The Room Rate. The City Does Not Seek To Tax The Service Fees That The OTCs Independently Charge Customers On Top Of That Room Rate As A Separate Line Item. Just to be clear: The City did notassert in its openingbrief any entitlement to taxes on the OTCs “service fees,” nor does it do so now. When a customervisits an OTC website to rent a hotel room, he sees twoline items: a “room rate”line item and a “taxes and fees”line item. (OB11-12.) As the City explained in its opening brief, the ordinance levies a tax on the former,i.e., the “room rate.” (OB30, 31, 36, 37, 43.) The City has not urged that the ordinanceentitles it to taxes on the “service fees”that the OTCs separately charge customers whouse the OTCs’ websites orcall centers.’ This distinction is important because the OTCsattempt to conflate the twoline items. They fault the City for trying to tax “[t]he amount an OTC charges a customerfor its services.” (AB19;id. at pp. 4, 5, 23, 25.) They argue that such service fees are not taxable because theyare not * Below,the City sought taxes based on both the room rate andthe service fees. The City argued that, at the very least, the room rate was taxable. In these proceedings before this Court, the City argues only that the room rate charged to and paid by the customeris taxable. The City no longer seeks to imposea tax on the OTCs’service fees. charged by the operator (the hotel). (E.g., AB 23 [“‘[t]he OTC service charges are not charged by the Operator’”’].) But saying the City seeks to tax the OTCs’ service fees does not make it so, no matter how often the OTCsrepeatit. In these proceedings, the City does not claim that the OTCs’ service fees are taxable. Indeed, the OTCsdonotact as the hotel’s agents for purposes of collecting the OTCs’ service fees. Nor are those fees governed by the rate-parity agreements, pursuant to which the hotels dictate the room rates quoted to customers. But the opposite is true for the room rate. While the hotels do not “charge” the service fees, there is no question that the hotels do “charge” the room rate. The law of agency compels this conclusion, as do the rate-parity agreements between the hotels and OTCs, as we now explain. C. The Hotels “Charge” The “Room Rate” Quoted On The OTCs’ Websites And That The Customer Must Pay To Obtain A Privilege Of Occupancy. 1. Because the OTCsact as the hotels’ agents for purposesof charging the room rate,it is the hotels themselves whoare charging the room rate—thus establishing that the tax base is the room rate, not just someportionofit. Thefirst reason why it is the hotels that are charging the room rate quoted to customers on OTC websitesis that the OTCsactas the hotels’ agents for purposes of charging andcollecting rent, and under long- established agency law,the acts of an agentare legally equivalentto the acts of the principal. (OB33-35.) The OTCsconcede that the acts of an agent in the scope ofhis agency are tantamountto and must be treated as the acts ofthe principal. (See AB30, citing Columbia Pictures Corp. v. DeToth (1948) 87 Cal.App.2d 620; see also Atkinson v. Foote (1919) 44 Cal.App. 149, 165 [same]; see also OB34-35.) This rule governs the result here. Both the hearing officer’s factual findings and the law governing the creation of agencyrelationships, independently compel that when the OTCs charge customers for rooms,it is the same thing as the hotels charging those amounts for rooms. a. The hearing officer’s undisputed factual finding that the OTCsactas the hotels’ agents for purposes of charging customers the “room price,” dictates that the room rate that the OTCscollect is taxable “rent.” The hearing officer made an unchallenged factualfinding that the OTCsactas the hotels’ agents for purposesof“assumingessentially (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. ... All dealings are with and through the OTCs as the authorized agents ofthe hotels.” (1JA207; OB24-25 & fn. 17.) Since the OTCs concedethis finding is binding (AB4-5) andthat the OTCsare the hotels’ “agent[s] for the limited purposeofcollecting the 7 amount chargedby the hotel for providing Occupancy of a room,plus the tax the hotel will owe on that amount” (AB30), this should end the inquiry. Asagents for the hotels in charging room rates, the OTCs’acts are equivalent to the hotels’ own acts. In the ordinance’s terms, that room rate is the “Rent” the “Operator”(the hotel) charges “for the Occupancy of aroom.” (See §§35.0102-35.0108.)° b. Evenif there wasn’t an undisputed agency finding in this case, the OTCs wouldstill be the hotels’ agents as a matter of law for purposesof charging rent. In addition, governing law establishes that when someonecollects funds for someoneelse, he becomes an agent, such that his act of collecting funds is tantamount to the principal’s own act. (See Scholastic Book Clubs, Inc. v. State Bd. ofEqualization (1989) 207 Cal.App.3d 734, 739-740 [involving use tax which,like hotel bedtax, is legally incident on buyers but collected by vendorsor their agents]; OB34-35.) Thus, even if there > In bizarre argument accompanied by a Request for Judicial Notice, the OTCsclaim the City should be bound by an argument madebyits counsel while representing a different client in a different proceeding involving the application of the laws ofHawaii. (AB27.) The City is not a party to the Hawaii proceeding,its ordinance was not subject to interpretation in that proceeding, and its lawyers speak for the City only in this proceeding. Regardless, there is no inconsistency between the Hawaii statement that the hotels have delegated room-charging responsibilities to the OTCs and the City’s position here that the OTCsare the hotels’ agents and,thus, that the OTCs’ actions within the scope of that agency are tantamountto the hotels’ acts. (See RJN, Ex. 1, pp. 5-6.) were not an undisputed finding that the OTCsact as the hotels’ agents for purposesofcollecting the room price, the OTCs would bethe hotels’ agents for that purpose as a matter of law. The OTCs’ response to Scholasticis that the court there “answered only whether ‘use of California’s teachers and school librarians to solicit sales from California students constitutes a sufficient nexusfor the imposition of .. . use taxes.”” (AB32.) This is immaterial. Scholastic’s holding depended onthe court’s determination that an agencyrelationship had been been formed between teachers and Scholastic. (See Scholastic, supra, 207 Cal.App.3dat p. 738.) Because the OTCs charge andcollect the room rate for the hotels, the OTCsare the hotels’ agents as a matter of law. The OTCs’acts are treated as the hotels’ own acts. Since the hotels, through their agents, “charge” the room rate, that room rate constitutes taxable “rent.” 2. Underthe rate-parity agreements between the hotels and the OTCs,the hotels set the floor “room rate” that the OTCs must quote and charge to customers—such that the hotels are the ones doing the “charging”of that room rate. Separate and independent from the agency relationship between the hotels and OTCs,there is another reason whyit is the hotels that charge and collect the room rate from customers: Underthe rate-parity agreements, the hotels mandate the minimum roomrate that the OTCs may quote, charge and collect from customers. (See OB13-15, 31-33.) 9 a. The OTCs concedethe rate-parity agreements require them to quote room rates that do not undercut the hotels’ own customer-direct room rates. The OTCs concedethatthe rate-parity provisions are designed “to ensure that the ‘room rate’ shown to customers by the OTCis not less than the rate offered to customersby the hotel on its own website, because the hotel and OTCs are competitors for customers seeking reservations.” (AB26-27.) These OTC concessionsestablish that the OTCs do not have the freedom to charge whatever they want. Rather, the hotels constrain that freedom by dictating the minimum room rate that must be charged before the hotels will confer occupancy. Not only does the OTCs’ Answerconcedethis, so too, do the OTCs’ and hotels’ executives; and courts from otherjurisdictions confirm the concession is accurate. OTC Executives: The OTCs’ executivestestified that the rate- parity agreements preclude the OTCsfrom ever charging less than what the hotels charge customersdirectly. (E.g., 26AR3427-3428 [rate-parity agreements mean “you cannotsell a room atthesell rate for less than the hotel”]; see also OB8-9, 13-16, citing additional testimony.) Hotel Executives: The hotels’ executives testified that the rate- parity agreements ensure that customerssee “the samesell rate, no matter what channel they actually go, whether through a travel agent, through [an OTC], or on [the hotel’s own] branded websitedirect.” 10 (E.g., 51AR8144-8148 [rate-parity contracts mean customers “get the same price available forall of those, so that it’s more of a level playing field in the channel”]; see also OB8-9, 13-16, citing additional testimony.) The Courts: Courts across the country have held that rate-parity agreements are ubiquitous and have the uniform effect of requiring the OTCsto charge a room rate equal to what the hotel charges customers directly. (E.g., Expedia, Inc. v. City ofColumbus (Ga. 2009) 681 S.E.2d 122, 124, fn. 1 [In mostof its contracts with hotels, however, there is ‘rate parity’ language which prohibits Expedia from charging a room rate thatis less than the rate the hotel would charge the consumerdirectly for occupancy of the room”]; see also OB8-9, 13-16, citing additional courts.) The OTCsnote the rate-parity agreements “do not address how much an OTC can charge a customerfor its services.” (AB26.) So what? The City does not suggest that the rate-parity agreements affect the service fees that the OTCs chargeasa part of the “taxes/fees” amount. The City’s position is simply that the rate-parity agreements dictate the floor room rate that the OTC can quote to customers andthat, for this reason, it is the hotels that are doing the “charging”ofthe floor room rate that the customer must pay. Underthe ordinance,this room rate, charged by the hotel and paid by the customer, necessarily establishes the tax base. 11 b. The OTCs’ assertions regarding the number of contracts containing rate-parity provisions are unsupported and wrong. As shown,rate-parity agreements are the norm in the industry. The record in the presentcase bearsthis out: Fifty-nine of the 63 standard merchant-model contracts, each cited in this proceeding, include rate-parity provisions dictating the minimum roomrate that the OTCs must charge customers. (OB13-16.)* The wording ofthe provisions varies from contract to contract, but all dictate in substance that an OTC cannotsell a room for rentthat is less than the hotel’s own customer-facingrate. (bid.) Asthe opening brief showed, rate-parity agreements uniformly require OTCs to charge customers at least as muchasthe hotels charge customersdirectly via their own websites. These agreements establish that it is the hotels who control the minimum room rate quoted to customers, such that the hotels are the ones “charging” the minimum room rate. It is this hotel-mandated rate on which taxes mustbe calculated. * While OTCs concede that 38 (i.e., 60%) of the contracts includerate- parity provisions, they assert that the other contracts do not. (AB26 & fn. 10.) The OTCsprovide no record citations to support their assertions or their calculations, and thus, they should be disregarded. (See SCC Acquisitions, Inc. v. Central Pacific Bank (2012) 207 Cal.App.4th 859, 863 [reviewing court will not consider factual allegations “unsupported by reference to the record”].) 12 c. Because the rate-parity provisions are not relevant to opaque transactions, the City did not reference those transactions when discussing rate-parity agreementsinits openingbrief. The OTCsfault the City for not including so-called opaque-model transactionsas part of the numberof contracts the City asserted contained rate-parity provisions. (AB26.) The opaque-modeltransactions were not included becausetheyare irrelevant to transactions covered bytherate- parity agreements. This is so because in opaque-modeltransactions, the OTCsdo not quote a room rate. Instead, the OTCs allow the customerto specify the room rate he is prepared to pay and, after he does this, the OTC finds a hotel willing to allow a room to berentedat the rate specified by the customer. (See 1JA61, 207.) When this model is used, customers do not know in advancethe identity of the hotel where the booking will be made. (1JA207.) Given the nature of opaquetransactions,there is no danger that an OTC will compete with hotels by quoting a room rate that undercuts the hotel’s publicly available rate—i.e., the concern that drives the rate-parity provisions in standard merchant-model contracts. Simply put, opaque transactions don’t fit what rate-parity provisions are designed to address. Nonetheless,the room rates that customers pay in opaque transactionsare still taxable, since agency law establishesthatit is the hotels, acting through their OTC agents, whoare “charging”that rent. 13 Indeed,this is so in opaquetransactions, just as it is so in standard merchant-modeltransactions. 3. None of the OTCs’ other arguments undercut the conclusive effect of either the OTCs’ agency relationship with the hotels, or the rate-parity agreements. a. The OTCs’attempts to dissect and rename the room rate in their contracts with the hotels do not govern the extent to which the room rateis taxable. The OTCspoint to their secondary payment arrangements with the hotels (which divvy up and renameportionsofthe rental payment), and argue that these arrangments establish the tax base as the lower amountthat the hotel retains after the OTCs havetakentheir cut. But the ordinance dictates the tax that must be paid. Theparties cannot by private agreement alter what the ordinance compels. Asthis Court has held, “for tax purposes the economicreality of a transaction, not the form the parties employ, is dispositive.” (General Motors Corp.v. Franchise Tax Bd. (2006) 39 Cal.4th 773, 785.) Here, there is only one “economicreality”: The customer must pay the full amountofthe “room rate” quoted on the OTCs’ website to book aroom. Thatis the sole reality that dictates the tax base. The OTCs make muchofthefact that in their private agreements with the hotels, they divide the “room rate” into two separate components: 14 (1) the amount the hotel retains on the room-rental transaction, which the hotel-OTC agreements namethe “wholesale” price; and (2) the difference between that “wholesale”price and the room rate paid by the customer, which the hotel-OTC contracts name the “margin” or “markup.” (AB14 [“The ‘Room Rate,’ is the Rent the hotel is charging for providing Occupancy of a room to the Transient(the ‘wholesale’ price), plus an amount the OTCsets and charges as compensationforits services (the ‘margin,’ together with the Room Rate, the ‘retail’ price)”].) The OTCs contend that only the amountthey and the hotels have denominated, the “wholesale” price, constitutes “Rent charged by the Operator”—i.e. taxable rent. (AB23, fn. 8.) But the terms “wholesale” and “retail” are not used in the room-tax ordinance. Andit is the ordinance that governs, not the terms manufactured by the hotels and OTCsintheir private agreements. The ordinance is as unconcerned with how the hotels and OTCsdivvy up the room rate that the customer pays for occupancy,as it is with whatthe hotel pays its staff. The ordinance does not care what portion of the room rate the hotel pays to third-party sales agents like the OTCs as a commission for successfully renting a room that would otherwise sit empty. Rather, the sole concern of the ordinance is the amount the customeris charged for occupancy. (See OB29-40.) There is no “wholesale”price from the customer’s perspective. Because a customer cannot obtain a room forthat price, it does not matter for tax purposes.It is just a fiction created by the OTCstotry to justify 15 their underpayment of room taxes. That fiction cannot trump whatthe ordinance compels. That the OTCsand hotels have, between themselves, dissected the room rate into “wholesale” and “retail” components and have dubbedthe difference “markup,” has no effect on the tax treatment of the transaction. The “economicreality of the transaction” from the taxpaying customer’s perspective governs—areality under which the only room rateis the amount the customer pays to book a room. b. Thehearing officer’s factual findings do not support the OTCs’contention that the scope of the OTCs’ agency waslimited to collecting a mere portion of the room rate. The OTCsargue that underthe hearing officer’s findings, “the scope of any purported OTC agencyis limited to ‘charging and collecting’ the hotel’s ‘wholesale’ price and tax on that amount.” (AB31 [Only those amountsare collected on the hotel’s behalf, and therefore can be attributed to the hotel”].) This is wrong. The hearing officer found that the OTCsact as agents for the hotels in handling “all of the marketing, reservation, room price collection, tax collection, and customerservice functions as to those Transients who book online through the OTCs.” (1JA207.) Thus, the scope of the OTCs’ agency includes “room price collection” and “tax collection,” without any limitation whatsoever. The notion that the OTCs’ agencyis limited to collecting only the so-called “wholesale” amountis a fabrication. 16 Noris it true, as the OTCs suggest, that the hearing officer found that the only “rent” the OTCscollect for the hotels is the so-called “wholesale” rate. The hearing officer declared that the “‘wholesale’ price” is the amount“charged to the OTCs”for the rooms. (1JA199.) Because OTCsdo not rent rooms,this ““wholesale’ price” does not fall under the ordinance’s definition of “rent”—.e., the amount charged “to a Transient” for the right of occupancy. (See § 35.0102.) Thus, whatever amounts the OTCsare “charged”are irrelevant to the tax base. Cc. The rules governing construction of tax ordinances do not help the OTCshere. The OTCsinvokethe principle that if there’s ambiguity in a tax law, the law must be construed “‘most strongly against the government, and in favorofthe citizen.’” (AB39.) The argumentfails. First, there is no ambiguity in the room-tax ordinance. The ordinanceplainly levies a tax on the amountthat the customeris told he must pay to rent his room. (See §1.A., ante.) Because there is no ambiguity, there is no need toresort to rules of statutory interpretation. (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735.) Second, even if the ordinance were ambiguous, the OTCs cannot invokethe “favorable to the taxpayer” rule of construction because the OTCsare not making arguments on behalf of taxpayers. Taxpayers could never argue—as the OTCs argue here—that the tax base is the “wholesale” price, since that argumentis based on facts that the hotels and OTCs have 17 secreted from the public. (See OB18-19.) Because of the secrecy agreements and the fact that the guest receipts issued in OTC transactions combine “taxes/fees” as a single undifferentiated line item, taxpaying customers neverlearn that the taxes the OTCsremit are not calculated based on the room rate that the customers are charged to book their rooms. The OTCscannot credibly advance taxpayer-based argumentsthattheir ownsecretive conduct prevents the taxpayers themselves from making. Indeed, the OTCscite no case, and we are aware of none, in whicha tax- collecting party was permitted to invokethestrict construction rule on behalf of the taxpayer, while also actively concealing from the taxpayer the true amountofthe tax being charged and remitted. | Third, even if the OTCs could be said to be making arguments on behalf of taxpayers, they are wrong that their interpretation of the ordinance must automatically be adopted underthe “favorable to the taxpayer”rule of construction. (AB39-40.) As this Court has explained, “we are aware that tax lawsare to be construed against the municipality and in favor of the taxpayer, but it must also be rememberedthat such a rule doesnot take precedenceover other fundamentalrules of statutory construction. It is fundamental that ‘judicial construction should be in keeping with the natural and probable legislative purpose, and avoid conflict, and harmonize all the applicable provisions of the law on the subject if possible.’” (City of Los Angeles v. Belridge Oil Co. (1954) 42 Cal.2d 823, 827.) 18 Here, the “natural and probable legislative purpose”is that the City intended to collect room taxes based on the amount chargedto the customer to gain a privilege of occupancy, not a penny less. (See §I.A., ante.) Fourth, the OTCsreliance on Hospital Service ofCalifornia v. City ofOakland (1972) 25 Cal.App.3d 402, is misplaced. The OTCsclaim the case supports their argumentthat if their interpretation of the ordinanceis reasonable, it must be adopted. (AB39-40.) But as the OTCsareforced to admit (see AB40, fn. 20), Hospital Services did not involve construction of a tax statute, only an exemption. Even if that were not the case, the OTCs’ interpretation of the ordinanceis not reasonable—itis inconsistent with what customers expect will be taxed when they pay the quoted room rate; and it defies the clear language of the ordinance. Although tax statutes are generally construed in favor of the taxpayer, “this does not mean that the language of a statute must be given an unnatural construction to defeat tax legislation or that the evident intention ofthe Legislature in this particular may be disregarded.” (Rileyv. Havens (1924) 193 Cal. 432, 440.) Here, the City’s construction gives effect to the evident intention for which the tax was enacted: To tax the amount a customerpaysfor a room. The Court should give effect to that clear intention. Ae He ae 2 2 19 The termsofthe ordinance, the mandates ofthe rate-parity provisions, the law of agency, and plain commonsenseall compel the same conclusion: The customer’s room rate constitutes the tax base. Il. THE OTCS HAVE FAILED TO REFUTE ANY OF THE MULTIPLE INDEPENDENT BASES ON WHICH THEY CAN BE HELD LIABLE FOR UNPAID ROOM TAXES. The OTCsclaim that even if additional room tax is owed, they cannot“be assessed andheld liable for tax on those amounts,”since they are not “Operators” or “Transients” under the ordinance. (AB32.) But as shown (OB46-54), there are multiple independent contractual andstatutory bases for holding the OTCsliable even if they do not qualify as Operators or Transients. The OTCshave not rebutted any of them. A. The OTCs Have Not Rebutted That Ordinance Section 35.0123 Imposes Tax Liability To The City. Mostofthe OTCs’ arguments sound a common theme: The ordinance makesonly “Operators”and “Transients” responsible for paying tax, and since the OTCs don’tfall into either of those categories, they cannot be held liable. (See AB36,38.) But the drafters of the ordinance were not so short-sighted. Rather than limiting liability just to Operators and Transients, section 35.0123 provides that anybody can beheldliable: “Anyperson owing money to the City underthe provisionsofth[is] Article shall be liable to an action 20 broughtin the nameof[the City] for the recovery of such amount.” (§ 35.0123, subd.(a), italics added.) Here, as shown, the OTCs have contractually assumedthe tax liabilities owed by hotels underthe ordinance and thus can be held liable underordinance section 35.0123, subdivision (a). (See OB10,fn. 5.) Nor can the OTCsescapeliability by arguing that the drafters could not have had them in mind when the tax law was enacted. As this Court recently observed: “In construing statutes that predate their possible applicability to new technology, courts have not relied on wooden construction of their terms. Fidelity to legislative intent does not ‘makeit impossible to apply a legal text to technologies that did not exist when the text was created .... Drafters of every era know that technological advances will proceed apace and that the rules they create will one day apply to all sorts of circumstances they could not possibly envision.’” (Apple Inc. v. Superior Court (2013) 56 Cal.4th 128, 137,citing Scalia & Garner, Reading Law:The Interpretation of Legal Texts (2012) pp. 85-86.) Accordingly, evenifthere were no other basis for imposingliability on the OTCs, they wouldstill be liable under the catch-all provision ofthe ordinance. But as we now show,there are multiple other, independent basesthat also justify imposingliability on the OTCs. 21 B. The OTCs Have Not Rebutted The Contractual Bases For Their Tax Liability To The City. 1. There is no merit to the OTCs’ claim that they never agreed, nor could they legally agree, to be “solely responsible” for room-tax underpayment. The OTCshavecontractually agreed with the hotels to collect and remit room tax: The OTCs have agreed to be “solely responsible”or “solely and directly responsible” for remitting room tax onthe full room rate, including any taxes determined to be due and owing. (OB47-48.) The OTCsassert they did not agree to be solely responsible for collecting and remitting taxes on the full room rate. (AB33-34.) But the hotel-OTC contracts themselves refute this assertion. Those contracts say exactly what the City says they provide. (See, e.g., 16AR937 [“Expedia shall be solely responsibleforall taxes, if any, assessed by any governmental entity or agency on the difference” between the portion of the rent the hotels have agreedto retain and the “price quoted . . to the guest”]; 17AR1125 [Travelscape and Hotels.com “shall be solely and directly responsible andliable” for “collecting and remitting” unpaid room tax to a “government agency”if such remittance is “required”]; 20AR1818 [Travelocity is solely responsible for any Taxes determinedbyanystate, county or local taxing jurisdiction to be due and owing on any amount collected by Travelocity from a guest in excess of the”portion ofthe rent the hotel has agreed to keep].) 22 The languagein the handful of agreements that the OTCscite in their Answer confirm that the OTCs have agreedto be “solely responsible” for room-tax underpayments. (See 16AR937; 17AR1125 [the OTC “shall be solely and directly responsible andliable .. . if... a government agency responsible for administering an Occupancy Taxfinally determines . . . that either [the OTC] or[hotel] is required to collect and remit Occupancy Taxes on the Gross Margin,collecting and remitting such Occupancy Taxes to the governmentagencyor [hotel], as required”].) Case law is clear that the OTCs’ agreementto be “solely responsible” for unpaid room tax obligates them to remit the tax to the taxing authority. (See OB48,citing California Medical Assn v. Aetna U.S. Healthcare ofCalifornia, Inc. (2001) 94 Cal.App.4th 151, 167.) Aetna establishes that when oneparty agrees to be “‘solely responsible for paying’” a counter-party’s remittances, the “‘payment obligation has been shifted by contract.’” (OB48,citing 94 Cal.App.4th at p. 167.) Tellingly, the OTCsfail to address the application ofAetna here. The OTCsassert that even if they agreed to be solely responsible for the hotels’ tax paymentobligations, those “obligations andliability” cannot be contractually extended “beyond whatis authorized by the Ordinance’s express terms.” (AB34.) The assertion is unsupportable. Ofcourse, tax liabilities can lawfully be transferred and assumed by contract. (See City of Burbank v. Nordahl (1962) 199 Cal.App.2d 311, 325-326.) That’s what happened here. Such a contract violates no public policy (AB34), as it does 23 nothingto relieve the original debtor from its obligationsto paythe tax. These agreements simply add another obligor to pay the tax. 2. The OTCs’assertion that their agreements to assume room-taxliability do not render them primarily liable is meritless. The OTCschallenge the City’s reliance on other hotel-OTC covenants, under which the OTCs agreed to assumethe hotels’ room- tax obligations. (OB50-51; AB36.) The OTCs claim that they “have not assumed any knowndebtobligation owed by hotels to the City” and that they cannot be held primarily liable on that basis. (AB36.) But the covenants mean exactly what they say. By agreeing that the hotels shall “in no event”be liable for unpaid room tax on the full room rent (see OB50), the OTCs have covenantedto limit the hotels’ room-tax liability and thus have taken on that liability themselves. (Cf. Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 1118, 1128 [agreementstating that party was ““‘[iJn no event’ . . . liable for damages” was “broad and unqualified language”that “must be regarded as establishing a limitation on[its] liability”].) While such contract provisions would not preclude the City from suing the hotels on such obligations, these provisions provide the City with a basis for also seeking compensation from the OTCs. For example, the Orbitz-Hilton contract states that Orbitz “acknowledges that certain government agencies and other persons have asserted claims that tax is owed in amounts greater than” the OTCs have 24 been remitting “and (Orbitz) assumesall risk, responsibility andliability relating to these andthepossibility of other claims regarding Occupancy Tax. This risk, responsibility andliability is unconditional.” (18AR1379.) By agreeing to assume Hilton’s responsibility for room taxes, Orbitz becameresponsible to pay those taxes. (See Nordahl, supra, 199 Cal.App.2d at p. 325 [discussing contractual assumption of counter-party’s taxes and stating “the term ‘assume’. . . under accepted usage include[s] an 399agreement ‘to pay’”].) That’s the necessary effect of an assumption covenant. 3. The OTCs’ claim that the City is not a third-party beneficiary of the hotel-OTC contracts is meritless. The OTCsattemptto avoid their contractual obligations by arguing that the City is not an intended third-party beneficiary ofthe contracts requiring collection and remittance of room tax. (AB34-35.) But as the opening brief showed, the clear goal of the contracts’ tax-collection-and- remittance terms is to ensure paymentto theCity ofall taxes due and owing. (OB47-50.) Of course, the City is a direct and obvious intended beneficiary of any contract whereby one person undertakes to pay taxes due to the City. The requirementthat a contract be made “expressly” for the benefit of the third party does not require that the beneficiary be specifically named or identified in the contract. (See Lucas v. Hamm (1961) 56 Cal.2d 583, 590; Garratt v. Baker (1936) 5 Cal.2d 745, 748.) Rather, the word “expressly” has “now come to mean merely the negative of‘incidentally.’” 25 (Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1022.) Likewise, while a third-party beneficiary must show that a contract was “made expressly for [its] benefit,” (Johnson v. Superior Court (2000) 80 Cal.App.4th 1050, 1064), that requirement has not been construed to 99 66mean “exclusively,” “solely,” or “primar[il]y” for the benefit of a third person (see Hartman Ranch Co. v. Associated Oil Co. (1937) 10 Cal.2d 232, 247; Le Ballister v. Redwood Theatres, Inc. (1934) 1 Cal.App.2d 447, 448; Montgomery v. Dorn (1914) 25 Cal.App. 666, 674). The City is the only entity in the world that is entitled to receive the taxes that it has levied and that the hotel-OTC agreements obligate the OTCsto collect and remit. Thus, the City was an intended third-party beneficiary of the contracts. 4. The OTCs?’assertion that the indemnity provisions in their contracts do not afford a basis for imposing liability for room-tax underpaymentsis meritless. The openingbrief established that the OTCsare also liable because their contracts require them to indemnify the hotels against underpayment of room tax. (OB51-52.) The OTCs’ argumentsto the contrary are confusing and self-contradictory. At one point, the OTCs acknowledgethat there are “indemnification provisions” in these contracts, but claim those provisions only provide for OTC reimbursementofthe hotels once the hotels have “incurred”liability for unpaid room tax. (AB36-37.) Laterin their brief, however, the OTCs claim that they have not agreed to 26 “indemnify the hotel[s] if the OTC[s] fail[] to” pay room tax “to any tax authority on a hotel’s behalf.” (AB37-38.) Regardless, the language ofthe contracts leaves no doubt as to what the OTCs agreed. That language explicitly provides that the OTCs have agreed to indemnify the hotels against room-tax underpayments. (See OB51-52 & fn. 28, citing language.) Andthe hearingofficer’s factual finding says exactly this: “In their contracts with the OTCs dating back to the 1990s, the hotels have always required that the OTCs agree to indemnify the hotels for any [room tax] not paid . . . under the Merchant Model.” (1JA214,italics added.) The OTCsagreethat the hearing officer’s factual findings are binding here. (AB4-5.) Thus, where the OTCs have agreed to indemnify the hotels against room-tax underpayments, the OTCsare jointly liable with the hotels for any such underpayments. C. The OTCs Have Not Rebutted The Multiple, Independent Statutory Bases For Their Liability. The opening brief demonstrated that, in addition to the contractual bases for the OTCs’ liability, there are multiple, independentstatutory basesfor their liability, as well. (OB51-53.) The OTCsoffer no tenable reason whytheyare not liable underthosestatutes. 27 1. The OTCsarestatutorily liable under Civil Code section 2777. In addition to being liable becausethe City is a third-party beneficiary of the indemnity provisions in the hotel-OTC contracts, the OTCsare liable because Civil Code section 2777 provides that “[o]ne who indemnifies another against an act to be done bythelatter, is liable jointly with the person indemnifid, and separately, to every person injured by such act.” (Civ. Code, § 2777.) Bryan v. Banks (1929) 98 Cal.App. 748 so holds in circumstancesthat render it on point here. (See OB51-52.) The OTCsseek to distinguish Bryan. (AB37-38.) But a review of Bryan’s facts showsthe presentcaseis on all fours with it. In Bryan, two businessmen purchaseda business from its owners and gave the owners a promissory note. (98 Cal.App. at pp. 750-751.) Later, a corporation agreed to indemnify and “hold harmless” both businessmen against “paymentofthe balance due” on the note. (/d. at pp. 752, 756.) The appellate court rejected the argumentthat the creditor had noright of action against the indemnitor, reasoning that the creditor “was the person for whosebenefit the contract was made—the person injured, and the subsequent default or nonpayment wasthe future act indemnified against and by which she suffered injury.” (/d. at p. 756.) Thus, the indemnitor “becamejointly liable with” the indemnitees. (/bid.) So, too, here. The “nonpayment”(or underpayment) of room tax is the “future act indemnified against.” The indemnifying OTCs thus have “bec[o]mejointly liable with” the indemnitee-hotels for that nonpayment. 28 Under Bryan and the express language of Civil Code section 2777, the City is allowed “‘to proceed against the [OTC-indemnitors] separately or jointly with the’” indemnitee-hotels. (See Bryan, supra, 98 Cal.App.at pp. 756- 757.) 2. The OTCsare statutorily liable under Civil Code section 2344, The opening brief demonstrated that Civil Code section 2344 establishes yet another separate basis for OTC liability. That statute requires that “[i]f an agent receives anything for the benefit of his principal, to the possession of which another personis entitled, he must, on demand, surrender it to such person... .” (OB52-53.) The OTCsargue that despite the unchallenged finding that they are the hotels’ tax agents for purposes of collecting and remitting taxes, they cannot be held liable under section 2344, since they are already remitting taxes on the only rent they are collecting for the City (i.e., the so-called “wholesale” room rate). (AB38-39). But the OTCs’ argumentis a bootstrap that assumesthe correctness ofthe position they seek to prove. If, as the City contends, tax is owed over and above the amounts that have been remitted, then the funds that the OTCs have chargedto the customer but failed to remit are certainly being held “for the benefit of [the OTCs’] principal,” the hotels, and must certainly be “surrender[ed]’to the City. (Civ. Code, § 2344.) Once again, the hearing officer’s factual finding on agencyis controlling: “The OTCsserve as the hotels’ agents in assuming essentially 29 (or absolutely)all ofthe... room price collection, tax collection, and customer service functions as to those Transients who book online through the OTCs.” (1JA207.) As shown, when the OTCscollect room rent and taxes,they act as the hotels, as operators. That being so, the OTCs must collect and remit all room tax that is dueto the City. The OTCsarguethat they cannotbe liable as agents becausethe room-tax ordinance imposesliability “only on three types of designees of the hotel “‘proprietor,’” namely, a “managing agent, resident manageror resident agent.” (AB38.) But the OTCs’ liability under section 2344 does not depend on the room-tax ordinance’s definition ofwho constitutes an “Operator.” Rather, the OTCs’ liability stems from contractual agreement, the provisions of section 2344 itself and from agency principles. So long as someoneis an agent, section 2344 compels that agent to surrender amounts collected for the benefit of his principal, to the party to whom the principal owessuch amounts. D. The City Need Not Amend The Room-Tax Ordinance To Accomplish WhatIt Is Already Designed To Accomplish. The OTCsargueat length regarding Proposition 218 and urgethat the City must amendits ordinancesif it wants to imposeliability on them. (AB42-43.) These arguments fail because there is no need for amendment to imposeliability where such liability presently exists—as it certainly does for all the reasons stated above and in the opening brief. All the City asks is that its ordinances be enforced as written. 30 E. The OTCs’ Suggestion That They Could Not Properly HaveBeen Subjected To Administrative Liability Is Meritless. With the OTCs’liability under the contract terms and the ordinance itself established, that should end the matter. Nonetheless, the OTCs suggest that because they are not Operators or Transients, they were not properly subjected to administrate liability. (AB32, 34.) Not only does ordinance section 35.0123 refute their claim, so, too, do the facts. The City commencedthis action by suing the OTCsin Superior Court, and the OTCs responded by objecting that the action should be dismissed because administrative remedies had notfirst been pursued. (1JA46-47.) The OTCs succeededin obtaining dismissalofthe civil action, after which administrative proceedings against them were pursuedat their request and an award wasentered against them. (Ibid.) At no time during the administrative proceedings, during the Superior Court mandate proceedings, or in the Court of Appeal, did the OTCsever contend that the administrative proceedings against them were improper. Instead they insisted, over the City’s objection, that the administrative process be followed. The OTCsare thus precluded from now suggesting that they are somehow improperparties here. Not only does their successful motion to dismiss the civil action in favor of administrative proceedings judicially estop them from making such a claim (see Aguilar v. Lerner (2004) 32 Cal.4th 974, 986-987), but also their failure to timely raise the point 31 previously amounts to a waiverofthe claim (Bank ofAmerica, N.A.v. Roberts (2013) 217 Cal.App.4th 1386, 1399). In sum, the OTCs requested administrative proceedings, got the administrative proceedings they requested, willingly participated in such proceedings withoutobjecting to their propriety, and cannot now complain that they got exactly what they requested. 28K 26 ok ok For multiple, independent contractual and statutory reasons, the OTCsare properly subject to liability for unpaid room taxes, regardless whetherthey are “Operators” under the ordinance. Il. THE OTCS PROVIDE NO JUSTIFICATION FOR THE COURT OF APPEAL’S ERRONEOUS HOLDING THAT THE SANTA MONICA ANDANAHEIM OPINIONS ARE BINDING AS LAW OF THE CASE. The OTCs attempt to defend the Court of Appeal’s reliance onits prior unpublished opinions by arguingthat the “court did not suggest it was constrained” byits prior ruling in the Anaheim litigation, and the Santa Monica decision was mentioned “only in passing.” (AB44-45 & fn. 22.) But as explained in the opening brief (OB54) andas the opinion makesclear, the Court of Appeal deemedthe prior unpublished opinions to be “law of the case”and, therefore, that those unpublished opinions “must be adhered to” under the law-of-the-case doctrine (Opn.3,fn. 4, citing Kowis v. Howard (1992) 3 Cal.4th 888, 892-893). Clearly, the Court of Appeal considered the earlier decisions binding. 32 The Court of Appeal erred by doing so. The law-of-the-case doctrine does not apply unless there is both case identity andparty identity. (See OB54-56.) Neither element is satisfied here. The OTCs do not make any argumentto the contrary, forfeiting the point. The OTCs’ remaining arguments are attacks on straw men: First, the OTCs claim that it was “imperative” for the Court of Appealto “consider”its prior Anaheim decision. (AB44-45.) But the City has never claimedthe appellate court should ignore the reality of whatit previously held; indeed, that’s whythe parties, recognizing the reality that the court would remember whatit had previously held, found it necessary to addressthat reality in trying to convince the court that its prior reasoning should not apply here. The problem is that the unpublished prior decisions were treated as binding law despite the fact that the City seeks recovery here based its own, different room-tax ordinance, and despite the fact that the City was never afforded notice and an opportunity to be heard in the Anaheim and Santa Monica proceedings. Applying those separate, prior rulings as binding law of the case is not only contrary to the law-of-the-case doctrine, it violates settled rules governing merger of cases, contradicts the California Rules of Court, and violates due process. (OB56-62.) Second, the OTCsargue that the City seeks a “blanket rule” prohibiting the citation of unpublished decisions within a coordinated proceeding. (AB46.) Not so. The City simply contends that(a) citing unpublished decisions as binding authority is generally prohibited, (b) the 33 “law-of-the-case” exception to citing unpublished decisions does not apply in these circumstances, and (c) the mere fact that many room-tax cases are coordinated (but not merged) does not permit the court to do whatis otherwise prohibited. (OB54-62.) Third, the OTCsarguethat if this Court concludes the Court of Appeal erred by citing its prior unpublished decisions, the Court should not reach the merits of this now-fully-briefed case, but rather should just order the Court of Appeal to modify its published opinion to omitits references to the unpublished decisions. (AB47, fn. 24.) But this would be an empty exercise. Based onits rulings in the prior cases and in this case, we know where the Court ofAppeal stands on issues presented here and we know how it will decide future cases given its previous dispositions, unless this Court decides the merits of the issues presented. The manypublic entities whose room-tax ordinancesare sustantively similar to the City’s ordinance should not have to go through the burdensomeprocessoflitigating their claims through administrative tribunals and the Superior Court and Court of Appealjust to bring their cases to where this fully-briefed appeal now stands. 34 CONCLUSION The Court should reverse with directions that the tax base for calculating room tax is the “room rate” quoted to, charged to and paid by customers to book aroom. The Court should hold that the OTCsare subjectto liability for unpaid room taxes. And the Court should hold that the Court ofAppeal erred in holding that prior unpublished cases are binding as law ofthe case. DATED: May20, 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. ThomasM.Sims, Esq. GREINES, MARTIN, STEIN & RICHLAND LLP Irving H. Greines, Esq. Kent L. Richland, Esq. Cynthia E. Tobisman, Esq. David E. Hackett, Esq. By: CCYCc Cynthia E. Tobisman Attorneys for Petitioner, CITY OF SAN DIEGO, CALIFORNIA 35 CERTIFICATE OF COMPLIANCE Pursuant to California Rules of Court, rule 8.204(c)(1), I certify that this PETITIONER’S REPLY BRIEF ON THE MERITScontains 8,280 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 used to generateit. Dated: May 20, 2015 LO. Cynthia E. Tobisman 36 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am employedin 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 May 20, 2015, I served the foregoing document described as: PETITIONER’S REPLY BRIEF ON THE MERITSonthe parties in this action by serving: SEE ATTACHED SERVICE LIST (X) By Envelope- by placing () the original (X) a true copy thereof enclosedin 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. Underthat 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 presumedinvalid if postal cancellation date or postage meter date is more than 1 day after date of deposit for mailing in affidavit. Executed on May 20, 2015, at Los Angeles, California. (X) (State) I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Oharive bk(hrc ChariceL. Lawrie 2d Civ. No. B243800 In Re Coordinated Proceeding Special Title (Rule 3.550(c)) TRANSIENT OCCUPANCY TAX CASES SERVICE LIST Darrel J. Hieber Daniel Martin Rygorsky 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] Nathaniel Sadler Currall K & L Gates 1 Park Plaza, 12th Floor Irvine, CA 92614 Brian S. Stagner J. Chad Amette Kelly Hart & Hallman LLP 201 Main Street, Suite 2500 Fort Worth, TX 76102 [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 Monroe St Chicago, IL 60606-5096 [Attorneys for Defendants and Respondents: Orbitz, LLC; Trip Network,Inc.; Internetwork Publishing Corporation]
