IN RE TRANSIENT OCCUPANCY TAX CASES

Respondents’ Request for Judicial Notice

Cal.March 18, 2015

Case No. 218400 IN THE SUPREME COURT OF CALIFORNIA | In Re TRANSIENT OCCUPANCY TAX CASES SUPREME COURT CITY OF SAN DIEGO, CALIFORNIA F | | E D Petitioner, v. MAR 1 8 2015 HOTELS.COM,L.P., et al., . Frank A. McGuire Clerk Respondents. After an Opinion by the Court of Appeal, Second Appellate District, Division Two, Case No. B243800 On Appeal from the Superior Court for the County ofLos Angeles The Hon. Elihu Berle, Judge of the Superior Court, Department 323 Los Angeles County Superior Court Case No. JCCP 4472 RESPONDENTS’ REQUEST FOR JUDICIAL NOTICE; MEMORANDUM IN SUPPORT; DECLARATION OF DARRELJ. HIEBER; [PROPOSED] ORDER Darrel J. Hieber (SBN 100857) Stacy R. Horth-Neubert (SBN 214565) Daniel M. Rygorsky (SBN 229988) SKADDEN,ARPS, SLATE, MEAGHER & FLOM LLP 300 South Grand Ave., 34" Fl. Los Angeles, CA 90071 Telephone: (213) 687-5000 Facsimile: (213) 687-5600 Attorneysfor Respondents priceline.com Incorporated (n/k/a The Priceline Group Inc.) and Travelweb LLC Jeffrey A. Rossman (SBN 189865) McDERMOTT WILL & EMERY LLP 227 West Monroe Street Chicago, IL 60606 Telephone: (312) 372-2000 Facsimile: (312) 984-7700 Attorneysfor Respondents Orbitz, LLC, Trip Network, Inc. (d/b/a Cheaptickets.com), and Internetwork Publishing Corp. (d/b/a Lodging.com) Nathaniel S. Currall (SBN 210802) K&L GATES LLP 1 Park Plaza, Twelfth Floor Irvine, California 92614 Telephone: (949) 623-3534 Facsimile: (949) 253-0902 Brian S. Stagner (admitted pro hac) Chad Amette (admittedpro hac) KELLY HART & HALLMAN LLP 201 Main Street, Suite 2500 Fort Worth, TX 76102 Telephone: (817) 878-3567 Facsimile: (817) 878-9280 Attorneyfor Respondents Travelocity.com, LP and SiteS9.com, LLC Elwood Lui (SBN 45538) Brian D. Hershman (SBN 168175) Erica L. Reilley (SBN 211615) JONES DAY 555 South FlowerStreet, 50th Floor Los Angeles, CA 90071 Telephone: (213) 243-2445 Facsimile: (213) 243-2539 Attorneysfor Respondents Expedia, Inc., Hotwire, Inc., Hotels.com, L.P., and Hotels.com G.P., LLC Case No. 218400 IN THE SUPREME COURT OF CALIFORNIA In Re TRANSIENT OCCUPANCY TAX CASES CITY OF SAN DIEGO, CALIFORNIA Petitioner, Vv. HOTELS.COM,L.P., et al., Respondents. After an Opinion by the Court of Appeal, Second Appellate District, Division Two, Case No. B243800 On Appealfrom the Superior Court for the County of Los Angeles The Hon.Elihu Berle, Judge ofthe Superior Court, Department 323 Los Angeles County Superior Court Case No. JCCP 4472 RESPONDENTS’ REQUEST FOR JUDICIAL NOTICE; MEMORANDUMIN SUPPORT; DECLARATION OF DARRELJ. HIEBER; [PROPOSED] ORDER Darrel J. Hieber (SBN 100857) Stacy R. Horth-Neubert (SBN 214565) Daniel M. Rygorsky (SBN 229988) SKADDEN,ARPS, SLATE, MEAGHER& FLOM LLP 300 South Grand Ave., 34" FI. Los Angeles, CA 90071 Telephone: (213) 687-5000 Facsimile: (213) 687-5600 Attorneysfor Respondents priceline.com Incorporated (n/k/a The Priceline Group Inc.) and Travelweb LLC Jeffrey A. Rossman (SBN 189865) McDERMOTTWILL & EMERY LLP 227 West MonroeStreet Chicago, IL 60606 Telephone: (312) 372-2000 Facsimile: (312) 984-7700 Attorneysfor Respondents Orbitz, LLC, Trip Network, Inc. (d/b/a Cheaptickets.com), and Internetwork Publishing Corp. (d/b/a Lodging.com) Nathaniel S. Currall (SBN 210802) K&L GATES LLP 1. Park Plaza, Twelfth Floor Irvine, California 92614 Telephone: (949) 623-3534 Facsimile: (949) 253-0902 Brian S. Stagner (admitted pro hac) Chad Arnette (admittedpro hac) KELLY HART & HALLMAN LLP 201 Main Street, Suite 2500 Fort Worth, TX 76102 Telephone: (817) 878-3567 Facsimile: (817) 878-9280 Attorneyfor Respondents Travelocity.com, LP and Site59.com, LLC Elwood Lui (SBN 45538) Brian D. Hershman (SBN 168175) Erica L. Reilley (SBN 211615) JONES DAY 555 South Flower Street, 50th Floor Los Angeles, CA 90071 Telephone: (213) 243-2445 Facsimile: (213) 243-2539 Attorneysfor Respondents Expedia, Inc., Hotwire, Inc., Hotels.com, L.P., and Hotels.com G.P., LLC UnderCalifornia Rules of Court, rule 8.252(a)(2) and Evidence Code Sections 452(d) and 459, in connection with its concurrently filed AnswerBrief on the Merits, Respondent Online Travel Companies (“OTCs”) requestthat this Court take judicial notice of Exhibit A to this Request, which wasfiled by Steven D. Wolens ofthe law firm ofMcKool Smith PC on behalf of the Hawaii Director of Taxation in the Supreme Court of the State of Hawaii (Case SCAP No. 13-0002896), and entitled the Director of Taxation’s Memorandum in Opposition to Appellants/Appellees Motion for Judicial Notice. Mr. Wolensis also counsel of record for the City of San Diego in connection with this appeal. This Request is based upon the accompanying Memorandum of Points and Authorities, the Declaration of Darrel J. Hieber and Exhibit A attached hereto, and the Answer Brief and other documentsfiled in this appeal. Dated: March 17, 2015 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP By: \saybe Darrel J. Hieber Attorneys for PRICELINE.COM INC. and TRAVELWEB LLC Dated: March 17, 2015 JONES DAY By: ba b. honeWhgun Brian D. Hershman Attorneys for EXPEDIA,INC., HOTWIRE,INC., HOTELS.COM,L.P., and HOTELS.COM G.P., LLC Dated: March 17, 2015 Dated: March 17, 2015 758338-LACSRO2A - MSW McDERMOTT WILL & EMERY LLP By: A Jeffrey A. Rossman Attorneys for ORBITZ, LLC, TRIP NETWORK,INC. (D/B/A CHEAPTICKETS.COM), and INTERNETWORK PUBLISHING CORP. (D/B/A LODGING.COM) K&L GATES LLP By: Nati ¢. Lesdh lean Nathaniel S. Currall Attorneys for TRAVELOCITY.COM, L.P. and SITES9.COM, LLC MEMORANDUMOFPOINTS AND AUTHORITIES As explained in the accompanying Declaration of Darrel J. Hieber, Exhibit A is a true and correct copy of the Director of Taxation’s Memorandum in Opposition to Appellants/Appellees Motion for Judicial Notice, filed on February 10, 2015, by the same outside counsel that represents the City of San Diego (“San Diego”) here, in Case SCAP No. 13-0002896, before the Supreme Court of the State of Hawaii. Exhibit A wasnot the subject ofjudicial notice before thetrial court or the Court of Appeal because the documentdid not exist until after review by this Court was granted. This documentis judicially noticeable under Evidence Codesection 452, subdivision (d). That section permits the Court to take judicial notice of “[rJecords of ... (2) any court of record of the United States or of any state of the United States.” (Evid. Code, § 452, subd. (d); see Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1098 [taking judicial notice of “part of the record in the court of another state”].) Exhibit A is a record from the Supreme Court ofthe State of Hawaii, and therefore is a judicially noticeable record of a “court ofrecord of .. . [a] state of the United States.” Moreover, Exhibit A is relevant to the issues raised by this appeal. In Exhibit A, San Diego’s outside counsel makes representations to the Hawaii Supreme Court explaining the arguments madeto this Court in San Diego’s Opening Brief. For example, counsel represents that the Opening Brief to this Court should not be read as asserting that the hotel sets (and charges) the OTC’s margin and service fee in merchant modeltransactions (Ex. A, p. 10), explaining that the “OTC alone determines” and chargesits margin and service fee. Counsel’s representations to another court about the nature of its arguments before this Court is relevant to this Court’s consideration of the City’s arguments in deciding this appeal. Thus, the OTCs respectfully request that the Court grant this Request and take judicial notice ofExhibit A to the Declaration of Darrel J. Hieber. Dated: March 17, 2015 Dated: March 17, 2015 Dated: March 17, 2015 Dated: March 17, 2015 758338-LACSRO2A - MSW SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP By: VosHae Dhue Darrel J. Hieber Attorneys for PRICELINE.COM INC. and TRAVELWEB LLC JONES DAY By: Bin PNA lane Brian D. Hershman Attorneys for EXPEDIA,INC., HOTWIRE,INC., HOTELS.COM,L.P., and HOTELS.COM G.P., LLC McDERMOTT WILL & EMERY LLP By: Yet , Ayn. Le sng Jeli rey A. Rossman Attorneys for ORBITZ, LLC, TRIP NETWORK,INC. (D/B/A CHEAPTICKETS.COM), and INTERNETWORK PUBLISHING CORP.(D/B/A LODGING.COM) K&L GATES LLP By: Nimwt §, Leal es Nathaniel S. Curral Attorneys for TRAVELOCITY.COM, L.P. and SITES9.COM, LLC DECLARATION OF DARREL J. HIEBER I, Darrel J. Hieber, declare that: 1, I am an attorney licensed to practice law in the State of California and this Court, and I am a partner with the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, counsel of record for Respondents priceline.com Incorporated and Travelweb LLC. I makethis declaration in support of Respondents’ Request for Judicial Notice. 2. I have personal knowledge of the matters set forth herein and am competentto testify to those matters. 3. San Diego’s outside counsel, Steven D. Wolens of McKool Smith PC, also is outside counsel representing the Director of Taxation for the State of Hawaii in an appeal before the Hawaii Supreme Court, Case No. SCAP No.13-0002896. 4. Exhibit A is a true and correct, filed-stamped copyofthe Director of Taxation’s Memorandum in Opposition to Appellants/Appellees Motion for Judicial Notice (without exhibits), filed on February 10, 2015, before the Hawaii Supreme Court. 5. Exhibit A was not the subject ofjudicial notice by thetrial court or the Court of Appeal because the document wasnot filed with the Supreme Court ofHawaii until after this appeal had beenfiled. I declare under penalty of perjury under the laws of the State of California that the foregoingis true and correct. Executed on March 17, 2015, at Los Angeles, California. hh Dafyfl J. Hieber 758338-LACSRO2A - MSW Electronically Filed Supreme Court SCAP-13-0002896 10-FEB-2015 01:34 PM SCAP No. 13-0002896 IN THE SUPREME COURT OF THE STATE OF HAWAI‘I IN THE MATTER OF THE TAX APPEAL OF TRAVELOCITY.COM,LP, Taxpayer-Appellant-Appellee/Cross- Appellant. And consolidated cases T. A. No. 11-1-0021 AND CONSOLIDATED CASES:(11-1-0022, 11-1-0023, 11-1-0026, 11-1-0027, 11-1- 0029, 11-1-0030, 11-1-0031, 11-1-0032, 11-1-0033, 12-1-0287, 12-1-0288, 12-1- 0289, 12-1-0292, 12-1-0293, 12-1-0294, 12-1-0295, 12-1-0297, 12-1-0299 and 12- 1-0300) APPEAL AND CROSS-APPEAL FROM THE FINAL JUDGMENT DISPOSING OF ALL ISSUES AND CLAIMS OF ALL PARTIES, FILED ON AUGUST15, 2013 (AND UNDERLYING ORDERS) TAX APPEAL COURT HONORABLE GARY W.B. CHANG DIRECTOR OF TAXATION’S MEMORANDUMIN OPPOSITION TO APPELLANTS/APPELLEES-CROSS-APPELLANTS’ MOTIONFOR JUDICIAL NOTICE DECLARATIONOF STEVEN D. WOLENS EXHIBITS A AND B CERTIFICATE OF SERVICE DKT #184 RUSSELL A. SUZUKI 2084 Attorney General HUGHR. JONES 4783 Deputy Attorney General GIRARD D. LAU 3711 Solicitor General KIMBERLY TSUMOTO GUIDRY 7813 First Deputy Solicitor General Department of the Attorney General 425 Queen Street Honolulu, Hawai‘i 96813 Phone:(808) 586-1473 E-mail: russell.a.suzuki@hawali.gov hugh.r.jones@hawaii.gov girard.d.lau@hawaii.gov kimberly.t.guidry@hawali.gov WARRENPRICEIII 1212 KENNETH T. OKAMOTO 2068 ROBERT A. MARKS 2163 Special Deputy Attorneys General 707 Richards Street, Suite 728 Honolulu, Hawai‘i 96813 Phone:(808) 538-1113 E-mail: wprice@pohlhawaii.com kokamoto@pohlhawaii.com ram@pohlhawaii.com GARY CRUCIANI admittedpro hac vice STEVEN D. WOLENSadmittedpro hac vice Special Deputy Attorneys General 300 Crescent Court, Suite 1500 Dallas, Texas 75201 Phone: (214) 978-4000 E-mail: gcruciani@mckoolsmith.com swolens@mckoolsmith.com Attorneys for Appellant/Cross-Appellee Director of Taxation, State of Hawai‘i SCAP No. 13-0002896 IN THE SUPREME COURT OF THE STATE OF HAWAI‘T IN THE MATTER OF THE TAX T. A. No. 11-1-0021 AND APPEAL CONSOLIDATEDCASES:(11-1-0022, 11-1-0023, 11-1-0026, 11-1-0027, 11-1- OF 0029, 11-1-0030, 11-1-0031, 11-1-0032, 11-1-0033, 12-1-0287, 12-1-0288, 12-1- TRAVELOCITY.COM,LP, 0289, 12-1-0292, 12-1-0293, 12-1-0294, Taxpayer-Appellant-Appellee/Cross- 12-1-0295, 12-1-0297, 12-1-0299 and 12- Appellant. 1-0300) . APPEAL AND CROSS-APPEAL And consolidated cases FROM THE FINAL JUDGMENT DISPOSING OF ALL ISSUES AND CLAIMS OF ALL PARTIES, FILED ON AUGUST15, 2013 (AND UNDERLYING ORDERS) TAX APPEAL COURT HONORABLE GARY W.B. CHANG APPELLEE/CROSS-APPELLANT DIRECTOR OF TAXATION’S MEMORANDUM IN OPPOSITION TO APPELLANTS/APPELLEES MOTION FOR JUDICIAL NOTICE The Director of Taxation demonstrates below that the “inconsistencies” 9alleged by the OTCsare not properly the subject of “judicial notice.” Moreover, —as a matter of fact— there are no inconsistencies. The OTCsare engaged in a ruse with their inapt and inaccurate Motion For Judicial Notice (“Motion”). The ruse is underscored by their assertion that the statements they quote from the California brief were essentially “unreadable” until recently due to redactions in the previously-filed California brief. In fact, the OTCs’ proffered excuse to explain their delay in seeking judicial notice is false.’ I. THE COURT SHOULD NOT TAKE JUDICIAL NOTICE AS A MATTER OF LAW. The Motion should be denied because the OTCs are not seeking judicial notice of “adjudicativefacts” as Hawai‘i Evidence Rule (“HRE”) 201 allows. The OTCs improperly ask the Court to take judicial notice of arguments and statements made by counsel to the California Supreme Court (on behalf of the City of San Diego), and comparing those arguments to those made by the Director of Taxation to this Court. ' Nothing the OTCshavecited to support their spurious “inconsistency” argument was redacted in California and has been publically available for nearly four months. OnFebruary 3, 2015 — 112 days after San Diego originally filed its Opening Brief in California on October 14, 2014, the OTCsfiled the present Motion seeking judicial notice of the California brief. In footnote 1 of the Motion, the OTCs attempt to excuse their nearly four-month delay in seeking judicial notice by arguing that the original brief “was extremely difficult to read because of redactions” and “the OTCswaitedto file this motion until that new, readable filing becamepublicly available.” Motion at 1, n.1. However, the OTCsfail to tell this Court that of the seven sentences that the OTCs plucked from the California brief and quoted in the chart at pages 2-3 of their Motion, none was redacted in the original California brief that was publicly filed on October 14. Thus, there is no reason the Motion could not have beenfiled nearly 4 months ago. See Exhibit A and Declaration of Steven D. Wolens (“Wolens Decl.”) hereto. HRE 201 is designed to save time by allowing a Court to take judicial notice ofindisputablefacts.” “The Hawai‘i courts have held that a fact is a proper subject for judicial notice ifit is common knowledgeoris easily verifiable.” Judicial notice cannot properly be taken of statements or arguments of counsel. How a lawyer characterizes evidence is not a “fact;” it is an argument. While court records are “sources whose accuracy cannot reasonably be questioned,”* that does not mean court records are automatically entitled to judicial notice. To the contrary, “[flactual allegations, conclusions, and findings, whether authored by the court, by the parties or their attorneys, or by third parties, should not be noticed to prove the truth of the matter asserted, even though the material happensto be contained in court records.” A lawyer’s characterization of evidence in the record in a California case for a California client—that will be decided under California law—cannotbe expected to be identical to a lawyer’s characterization of evidence in the record before this Court on behalf of a Hawai‘i client in a case that will be decided underdistinctly different Hawai‘i law. * Commentary to HRE 201, quoting McCormick § 328 (emphasis added). > Commentary to HRE 201, quoting Almeida v. Correa, 51 Hawai‘i 594, 465 P.2d 564 (1970) (emphasis added). * HRE 201(b)(2). > Bowman, Hawai‘i Rules of Evidence Manual, 2014-15 ed., § 201-5[4], citing Ditto v. McCurdy, 98 Hawai‘i 123, 130, 44 P.3d 274, 281 (2002) and State v. Kotis, 91 Hawai‘i 319, 342, 984 P.2d 78, 101 (1999) (emphasis added). 3 Underthe guise of “judicial notice,” the OTCs attempt to re-argue their case four months after this Court heard oral argument on October 2, 2014. For these reasons, as well as the others addressed below, the OTCs’ request for judicial notice should be denied. I. EVEN IF JUDICIAL NOTICE OF SAN DIEGO'S BRIEF IS TAKEN, STATEMENTS MADE BY COUNSEL ON BEHALF OF SAN DIEGO ARE NOT MADE ON BEHALF OF HAWAI‘LAND HAVE NO BEARING UPON THIS HAWAIL‘I CASE. ‘As shown below,counsel made noinconsistent arguments in California and ”© Asa threshold matter, however, evenHawai‘i “regarding how the model works. if counsel had madeinconsistent arguments in the two proceedings, the OTCsfail to explain the relevance to this appeal. The Hawai‘i Tax Director had no involvement whatsoever in the San Diego case and vice versa. The Hawai‘i and San Diego cases are separate lawsuits, with separate records on appeal, and that involve completely different statutes/ordinances and different legal theories. Here, the only relevant representations are those made by counsel on behalf of the Hawai‘i Tax Director; statements made by counsel on behalf of the City of San Diego are legally irrelevant to this Hawai‘i case. © Motion at2. Iii. COUNSEL DID NOT MAKE ANY “INCONSISTENT _ ARGUMENTS”; RATHER, THE OTCs HAVE ATTEMPTED TO MANUFACTURE INCONSISTENCIES THROUGH SELECTIVE AND OUT-OF-CONTEXT SNIPPETS FROM LENGTHYBRIEFS. The OTCsdo notassert that any of the four “Hawai‘i arguments” appearing in the chart at pages 2-3 of their Motion are unsupported by evidence in the Hawai‘i record. The reason is simple: each statement finds voluminous evidentiary support in the Hawai‘i record. That is what matters. Instead, the OTCslift seven sentences from a 62-page California appellate brief and five sentences from 79 pages of Hawai‘i appellate briefs as examples of alleged inconsistencies. In fact, there are no inconsistencies; only attempts by the OTCs to take counsel’s statements out of context to try to manufacture inconsistencies. Alleged Inconsistency #1: Who “rents” the room and charges for occupancy? Thetransient pays rent to the OTC to obtain the privilege of occupancy. Counsel has consistently argued in both Hawai‘i and California that the sole rental transaction is the one between the OTC andthe transient in which the OTC sells theprivilege ofoccupancy to the transient. California Hawai‘i “The second transactional step — when| “Based upon contractual rights the hotel the customer clicks the ‘book’ button delegates to the OTC,it is the OTC (not on the OTCs’ website andpays rentin the hotel) that is the party to the rental order _to obtain the privilege _of| transaction with the transient and, occupancy — is the only event that gives rise to the room tax.” (37)’ “{T]he privilege of Occupancy[is] a privilege that can only be obtained by the therefore, it is the OTC (not the hotel) who rents hotel rooms to transients and transfers the right of occupancy to transients.” TAT OB at10.° customer by paying the amount ofrentreflected on the OTC’s website.” (38) Thus, the OTCs’ central argument in their Motion — that the California brief “directly contradicts the Director’s representations regarding who provides the right of occupancy in merchant model transactions” — is demonstrably false. Motion at 1 (emphasisin original). The OTCsdo not obtain any right of room occupancy. The OTCs cite as another example of an alleged “inconsistent” statement made in California the following: “The OTCs did not obtain any right of room occupancy.” (45). But, the identical statement appears in the Director’s Hawai‘i brief. ’ Emphases in quoted passages from the California and Hawai‘i briefs are added unless otherwise noted. Numbersin parentheses refer to page numbersofthe City of San Diego’s opening brief in the California appeal. See Ex. 1 to Motion. The California brief is sometimesalso cited as “Cal. OB.” * The JEFS docket numbers for the briefs referenced herein are as follows: The Director’s TAT Opening Brief (TAT OB): Dkt 43; Director’s GET Answering Brief (GET AB): Dkt 64; Director’s TAT Reply Brief (TAT RB): Dkt 106; The OTCs’ GET Opening Brief (OTC GET OB): Dkt 29; OTCs’ TAT Answering Brief (OTC TAT AB): Dkt 56; OTCs’ GET Reply Brief (OTC GET RB): Dkt 108. 6 California Hawai‘i “The OTCs do not obtain any right of “The OTC is not an occupant and never room occupancy.” (45) obtains any right of occupancy in an OTC-Controlled Sale.” TAT OBat 17, 433. Ironically, the OTCs agree that the OTCs—themselves—are never occupantsand donotobtain any right ofroom occupancy.” Alleged Inconsistency #2:“Whois the ‘principal;’ whois the ‘agent’”? In OTC-Controlled Sales, it is undisputed that there is no contract between the hotel and transient.'° The only contract to which the transient is a party is the rental contract with the OTC. Jd. Thus, the “principals” to that contract are the OTC and transient. In fact, the OTCs have admitted in their SEC filings and elsewhere that the OTC “acts as a principal” and “bypasses intermediaries” in OTC-Controlled Sales." The recordis also clear that in OTC-Controlled Sales, the hotel delegates the tax collection duty to the OTCs whothencollect the tax from the transient on the hotel’s behalf. ” “The OTCsdo not possess (or even have the right to possess) any hotels or hotel rooms[.]” OTC AB at1. '° TAT OB at 15, 913. '' See record cites at TAT OB at4 and 8. 7 California Hawai‘i The OTCs mustcollect and remit room “The hotel contractually delegates tax because many of the hotel-OTC numerous ‘day-to-day’ responsibilities contracts obligate them to do so.” (47) the hotel would otherwise perform itself, including ... tax collecting.” TAT OBat 13, BB. On that basis, San Diego has argued that the OTCs were the limited agents of the hotels for tax collection purposes.'* That is an issue under California law based upona legal theory that San Diego has pursued. It is not an issue beforethis Court as the Director has argued that the OTCsare directly liable to remit tax to the State because they are “TAT operators” under the TAT’s unique and expansive operator definition.'> The fact that the Hawai‘i Tax Director and the City of San Diego have different legal theories of liability based on very different statutory language does not mean that counsel was inconsistent in describing “how the model works.” It works the same everywhere. Alleged Inconsistency #3: “Who determines the ‘rent’? charged to the customer?” Cal. OB at 53, n.29. ' In Hawai‘i, the secondhalf ofthe “Operator” definition is exceedingly broad and applies to “any person engaging or continuing in any service business which involves the actualfurnishing oftransient accommodations.” HRS §237D-1. By contrast, San Diego’s ordinance essentially defines the “operator” as the “hotel proprietor,” and San Diego did not argue to the California Supreme Court that the OTCs were “operators” based upon that definition. Another key difference in the two casesis that whether the OTCs function as “travel agents” in OTC-Controlled Sales is a key issue in Hawai‘i, but is a non-issue in California, because the San Diego ordinance does not use the term “travel agent.” 8 Counsel has been consistentin its description of the “rent-charging” process. In both Hawai‘i and California, counsel acknowledges that the hotel owns the building and the Hotel-OTC Contracts typically set a “minimum”floorprice that the OTC must charge for the room rate to avoid the OTC undercutting the hotel on the hotel’s price. California “The hotels own the rooms and dictate the minimum rent that a customer must pay to obtain the privilege of occupying one of them.” (3) “These [OTC-Hotel] agreements contain ‘rate parity’ provisions’ establishing a minimum amountofrent that the hotels require the OTCs_ to charge customers.... These provisions ensure that the OTCs do not undercut the rental prices at which the hotels sell their rooms directly to the public.” (8- 9). Hawai‘i “So clearly the hotel in the first instance, it owns the — it owns the building. It has the right to determine who it’s going to allow to sell occupancy or not. There’s no dispute about that, but contractually between the OTC andthe hotel, the hotel parts with that right.” (Excerpt of transcript of oral argument at 31.) “[T]here’s a rate parity clause that requires — the hotels say we don’t want you to undercut us on pricing, so if the hotel’s best available rate is $100, they require the OTC to likewise charge at least $100, but the OTC can charge more.” (Excerpt of transcript of oral argumentat 113.)" The OTCs’ quotefrom the California brief that appearsin their chart at page 2 — “As owners, the hotels have the right to dictate the amount of rent that a customerwill be charged for a room”— is highly misleading because this sentence appears immediately following the heading “Rate-parity provisions establishing 4 A copy of the foregoing excerpts from the transcript of the oral argumentis attached as Exhibit B hereto. See Wolens Decl. 9 the minimum roomrate that the OTCs must charge their customers.” (Cal. OB at 13)."° The OTCs’ quote from the Hawai‘i brief that appears in their chart at page 2 — “[T]he amount the OTCs charge for a hotel room is determined exclusively by the OTCs, a fact which reflects the OTCs’ independencefrom the hotels in OTC- Controlled Sales” ~ is entirely accurate because this refers to the total amount(not the minimum amount) that the OTC chargesthe transient for the room reservation. In that regard, the evidence in Hawai‘i establishes that under the OTC-Hotel Contracts, the OTC determinesthe total price the transient pays for the reservation because the OTC alone determines (1) the amount of the “markup” and thus the amountofthe room rate, (2) the amountofthe “service” fee, and (3) the amount of tax to collect.'® Nothing in the San Diego brief contradicts this point. Alleged Inconsistency #4: Do the OTCsandhotels “divide” income? Hawai‘i counsel has consistently described the invoicing process that takes place between the OTC and the hotel following the transient’s stay as a “post- 'S Based upon the very different statutory language in California versus Hawai‘i, “rate parity” clauses are central to San Diego’s legal argument, but are not relevant to the Director’s. As such, rate-parity clauses and minimum-pricing were not addressed in the Hawai‘i briefs. In response to a question from this Court at oral argument, the Director’s counsel described rate-parity clauses in exactly the same manner as San Diego has described their operation in the California brief. See quote from the transcript of the argumentin the table above and Ex. B hereto. '® TAT OB at 14, 99 5-7 and 17, § 27. 10 occupancy transaction” involving a mere “exchange ofmoney” between a debtor (the OTC)and a creditor (the hotel). California Hawai‘i A merchant model/OTC-Controlled Sale “The Payment Transaction Between The transaction consists of three} OTC And Hotel Involves A Mere transactional steps, including “(3) the Exchange Of Money. The hotel post-occupancy exchange of money invoices the OTC for the hotelstay, between the OTC and the hotel.” (36) typically after the transient has checked-out.” TAT OB at 17, 931. The OTCs’ Motion seeks to trump up an inconsistency between the statements in the California brief that generically refer to these monies being “divvied up” between the OTC and hotel and the statements in the Hawai‘i briefs that the OTC andhotel do not “divide income” pursuant to the “income-dividing” provisions found at HRS §237D-1 of the TAT and HRS §237-18(g) of the GET. There is no inconsistency. Under the “income dividing” statutes in the GET and TAT, “divide” is a critical and undefined statutory term that is used in connection with a specific type of transaction involving travel agents “[w]here [1] transient accommodationsare furnished through arrangements [2] madeby a travel agencyor tour packager[3] at non-commissioned negotiated contract rates and [4] the gross incomeis divided [5] between the operator of transient accommodations on the one hand andthetravel 11 agency or tour packager on the other hand.”'” The Director argued and submitted voluminous evidence that when engaging in OTC-Controlled Sales the OTCsare not functioning as travel agents and the incomethey receive from transients is not “divided” with the Hotel as that term is used in HRS §237D-1 and HRS §237- 18(g). By contrast, there is no comparable “income-dividing” provision in the San Diego ordinance, and it is not an issue in that case. The OTCs’ suggestion that counsel’s generic use of the term “divvied up” in the California | brief is inconsistent with counsel’s arguments in Hawai‘i is false; the latter term had no connection to the “income-dividing” provision in Hawai‘ilaw. IV. CONCLUSION. For all the foregoing reasons, it is respectfully submitted that the OTCs’ Motion should be denied. Moreover, even if judicial notice were allowed, the noticed material is attributable only to San Diego, not Hawai‘i. Finally, San Diego’s statements are not, in fact, inconsistent with Hawai‘i’s position in this case. '7 HRS §237-18(g) (bracketed numbers and emphasis added); see also HRS §237D-1 (“gross rental”or “gross rental proceeds”definition). 12 DATED Honolulu, Hawai‘i, February 10, 2015. /s/ Warren Price III RUSSELL A. SUZUKI Attorney General HUGH R. JONES Deputy Attorney General GIRARD D. LAU Solicitor General KIMBERLY TSUMOTO GUIDRY First Deputy Solicitor General WARRENPRICEIII KENNETH T. OKAMOTO ROBERT A. MARKS GARY CRUCIANI STEVEN D. WOLENS Attorneys for Appellant/Cross-Appellee Director of Taxation, State of Hawai‘i 13 SCAP No. 13-0002896 IN THE SUPREME COURTOF THE STATE OF HAWAI'I IN THE MATTER OF THE TAX APPEAL T. A. No. 11-1-0021 AND CONSOLIDATED CASES:(11-1-0022, 11-1-0023, 11-1-0026, 11- OF 1-0027, 11-1-0029, 11-1-0030, 11-1-0031, 11-1- 0032, 11-1-0033, 12-1-0287, 12-1-0288, 12-1- TRAVELOCITY.COM,LP, 0289, 12-1-0292, 12-1-0293, 12-1-0294, 12-1- Taxpayer-Appellant-Appellee/Cross- 0295, 12-1-0297, 12-1-0299 and 12-1-0300) Appellant. APPEAL AND CROSS-APPEAL FROM And THE FINAL JUDGMENT DISPOSING OF other consolidated cases ALL ISSUES AND CLAIMS OF ALL PARTIES, FILED ON AUGUST15, 2013 (AND UNDERLYING ORDERS) TAX APPEAL COURT HONORABLE GARYW.B. CHANG DECLARATION OF STEVEN D. WOLENS I, STEVEN D. WOLENS,herebydeclare: 1. I am an attorney at law and a principal at the law firm of McKool Smith P.C. whose offices are located at 300 Crescent Court, Suite 1500, Dallas, Texas 75201, Telephone: (214) 978-4000 and Facsimile: (214) 978-4044. 2. I am oneofthe attorneys representing the City of San Diego (“San Diego”) in Jn Re Transient Occupancy Cases, Cal. Sup. Ct. No. 8218400 (“California Appeal”). My law firm is one offive firms (including the San Diego City Attorney’s Office) representing San Diego. I am also one of the attorneys representing the Director of Taxation of the State of Hawai‘i and have been admitted pro hacvice in this appeal. 3. On October 14, 2014, San Diego filed its opening brief (“Cal. OB”) in the California Appeal. The brief was filed with redactions pursuant to a Stipulated Protective Order filed with the California trial court. ' 4, Attached as Exhibit A are true and correct copies of the following pages of the Cal. OBasfiled on October 14, 2014: cover page, pages 4, 13, 20-21, 35, 45, signature page. 5. The redactions shown in Exhibit A are the redactions that were filed in the unsealed version ofthe Cal. OB filed on October 14, 2014. The yellow highlighting in Exhibit A has been added to show the text in the Cal. OB that was quoted by the OTCsin their Motion for Judicial Notice, filed in this Court on February 3, 2015. 6. This exhibit reveals that none of the Cal. OB language quoted by the OTCsin the Motion was everredacted. It also puts the quoted language into context. 7. Following the oral argumentin this appeal on October 2, 2014, the Director hired a Hawai‘i certified court reporter to prepare a transcript of the oral argument from the audio file posted on the Judiciary’s website. True and correct copies of the cover page, page 31 and 113 and the court reporter’s certification page from that transcript are attached as Exhibit B. I, Steven D. Wolens, do declare under penalty of perjury that the foregoing statements are true and correct. DATED:Dallas, Texas, February 10, 2015. STEVEN D. WOLENS Case No. 218400 IN THE SUPREME COURT OF CALIFORNIA VI E In Re TRANSIENT OCCUPANCY TAX CASES CITY OF SAN DIEGO, CALIFORNIA Petitioner, Vv. HOTELS.COM,L.P., et al. Respondents. SUSI After an Opinion by the Court of Appeal, Second Appellate District, Division Two, Case No. B243800 On Appeal from the Superior Court for the County of Los Angeles The Hon. Elihu M.Berle, Judge of the Superior Court, Department 323 Los Angeles County Superior Court Case No. JCCP 4472 SISSON [PROPOSED] ORDER GSS On requestofthe Respondents, and good cause appearing, IT IS SO ORDEREDthatthis Court takes judicial notice of the Director of | Taxation’s Memorandum in Opposition to Appellants/Appellees Motion for Judicial Notice filed on February 10, 2015, in the Supreme Court ofthe State ofHawaii. DATED: Chief Justice 758338-LACSRO2A - MSW PROOF OF SERVICE 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 300 South Grand Avenue, Suite 3400, Los Angeles, California 90071. On March 18, 2015, I served the foregoing document described as: RESPONDENTS’ REQUEST FOR JUDICIAL NOTICE; MEMORANDUMIN SUPPORT; DECLARATION OF DARRELJ. HIEBER; [PROPOSED] ORDER on the interested parties in this action addressed as follows: SEE ATTACHED SERVICE LIST [xX] (Y US MAIL)I am readily familiar with the firms' practice for the collection and processing of correspondence for mailing with the United States Postal Service and the fact that the correspondence would be deposited with the United States Postal Service that same dayin the ordinary course of business; on this date, the above-referenced correspondencewasplaced for deposit at Los Angeles, California and placed for collection and mailing following ordinary businesspractices. I declare under penalty of perjury underthe laws ofthe State of California that the aboveis true and correct. Executed on March 18, 2015, at Los Angeles, California. Nandi Berglund WorBich Type or Print Name Signature Daniel F. Bamberg Jon E. Taylor City of San Diego Office of the City Attorney 1200 Third Avenue, Suite 1100 San Diego, CA 92101 Tel.: (619) 533-5800 Fax: (619) 533-5856 Irving H. Greines, Esq. Kent L. Richland Cynthia E. Tobisman, Esq. David E. Hackett, Esq. Greines, Martin, Stein & Richland LLP 5900 Wilshire Blvd., 12" Fl. Los Angeles, CA 90036 Tel.: (310) 859-7811 Fax: (310) 276-5261 Email: ctobisman@gmsr.com William L. Larson, Esq. Paul R. Kiesel, Esq. Kiesel, Boucher & Larson, LLP 8648 Wilshire Boulevard Beverly Hills, CA 90211 Tel.: (310) 854-4444 Fax: (310) 854-0812 Email: larson@kbla.com Laura J. Baughman Thomas M.Sims, Esq. Baron & Budd, PC 3102 Oak Lawn Avenue,Suite 1100 Dallas, TX 75219 Tel: (214) 521-3605 Fax: (214) 520-1181 Email: Ibaughman@baronbudd.com Steven D. Wolens, Esq. Gary Cruciani, Esq. McKool Smith Hennigan 300 Cresecent Court, Ste. 1500 Dallas, TX 75201 Tel: 214-978-4000 Fax: 214-978-4044 Counsel for City of San Diego Brian D. Hershman, Esq. Erica L. Reilley, Esq. Jones Day 555 South Flower Street Fiftieth Floor Los Angeles, CA 90071-2300 Tel.: (213) 489-3939 Fax: (213) 243-2539 Email: bhershman@jonesday.com Expedia, Inc., Hotwire, Inc., Hotels.com, L.P., and Hotels.com GP, LLC Brian S. Stagner, Esq. Chad Arnette Kelly Hart & Hallman LLP 201 Main Street, Suite 2500 Fort Worth, TX 76102 Tel.: (817) 332-2500 Fax.: (817) 878-9280 Email: brian.stagner@khh.com chad.arnette@khh.com Nathaniel S. Currall K&L Gates 1 Park Plaza, 12" Floor Irvine, CA 92614 Email: nathaniel.currall@klgates.com Travelocity.com LP and Site59.com, LLC Jeffrey Rossman, Esq. McDermott Will & Emery LLP 227 West Monroe Street Chicago, IL 60606 Tel.: (312) 372-2000 Fax.: (312) 984-7700 Email:jrossman@mwe.com Orbitz, LLC, Trip Network,Inc. (d/b/a Cheaptickets.com), and Internetwork Publishing Corp. (d/b/a Lodging.com) The Hon. Elihu M.BerleLos Angeles Superior CourtCentral Civil West Division600 South Commonwealth Ave., Dept.323Los Angeles, CA 90005 California Courts ofAppealSecond Appellate District300 S. Spring St.Los Angeles, CA 90013