Wake County v. Hotels.com, L.P.

NO. COA13-594
NORTH CAROLINA COURT OF APPEALS
Filed: 19 August 2014
WAKE COUNTY,
Plaintiff,
v. Wake County
Master File No. 06 CVS 16256
HOTELS.COM, L.P., et al.,
Defendants.
BUNCOMBE COUNTY,
Plaintiff,
v. Buncombe County
No. 07 CVS 585
HOTELS.COM, L.P., et al.,
Defendants.
DARE COUNTY,
Plaintiff,
v. Dare County
No. 07 CVS 56
HOTELS.COM, L.P., et al.,
Defendants.
MECKLENBURG COUNTY,
Plaintiff,
v. Mecklenburg County
No. 08 CVS 741
HOTELS.COM, L.P., et al.,
Defendants.
-2-
Appeal by plaintiffs from Order and Opinion filed on 19
December 2012 by Judge Calvin E. Murphy in Special Superior
Court for Complex Business Cases. Heard in the Court of Appeals
19 November 2013.
Ward and Smith, P.A., by Gary J. Rickner and Joseph A.
Schouten; and Law Office of Michael Y. Saunders, by Michael
Y. Saunders, for plaintiff-appellants.
Williams Mullen, by Charles B. Neely, Jr., Christopher G.
Browning, Jr., Nancy S. Rendleman, Robert W. Shaw; Kelly
Hart & Hallman, LLP, by Brian S. Stagner, pro hac vice, and
Marcus G. Mungioli, pro hac vice; Skadden, Arps, Slate,
Meagher & Flom LLP, by Darrel J. Hieber, pro hac vice, and
Randolph K. Herndon, pro hac vice, for defendant-appellees.
BRYANT, Judge.
Where the trial court did not err in concluding that
defendants are not subject to plaintiffs’ occupancy tax and
where the trial court did not err in concluding that defendants
were not required to collect and remit an occupancy tax, we
affirm the trial court’s grant of summary judgment in favor of
defendants. Where the trial court dismissed plaintiffs’ claim
seeking recovery for collected but not remitted taxes on the
basis of a contractual obligation because of plaintiffs’ failure
to provide sufficient notice of the claim in their pleadings, we
affirm the dismissal. Lastly, where the trial court granted
-3-
summary judgment in favor of defendants on plaintiffs’ claims
for an accounting, conversion, and seeking to impose a
constructive trust, we affirm.
Defendants are approximately eleven online travel companies
(OTC) that operate websites which allow consumers to select and
pay for hotel rooms directly online using a credit card.
Consumers can make reservations with airlines, car rental
companies, and cruise lines in addition to hotels. Defendants
negotiate and contract with hotels to obtain rooms at discount
rates, these rooms are then sold to customers at a rate the
hotel is obligated to honor. Consumers who take advantage of
this offer never pay the hotel directly, only the OTC.
Plaintiffs are four counties—Wake, Dare, Buncombe, and
Mecklenburg—who are required by North Carolina statutes and
local ordinances to collect and remit an occupancy tax based on
a percentage of the receipts derived from the rental of hotel
rooms in their respective counties. Plaintiffs claim that
defendants charge consumers a rate higher than the discount rate
negotiated with the hotel yet only remit to plaintiffs a tax
amount based on the reduced rate. Plaintiffs contend defendants
are liable for substantial unremitted tax amounts.
Procedural History
-4-
We discuss the procedural history for the lawsuits
initially brought by each county.
Wake County
In Wake County Superior Court on 2 November 2006, Wake
County filed a verified complaint and action for declaratory
judgment against defendants Hotels.com, LP; Hotwire, Inc.; Trip
Network, Inc. (d/b/a Cheap Tickets.com); Expedia, Inc.;
Internetwork Publishing Corp. (D/B/A Lodging.com);
Lowestfare.com, Inc.; Maupin-Tour Holding, LLC1; Travelport, Inc.
(f/k/a Cendant Travel Distribution Services Group, Inc.)2;
Orbitz, LLC; Priceline.com, Inc.; Site59.com, LLC;
Travelocity.com, LP; Travelweb LLC; and Travelnow.com, Inc.3
Wake County asserted that the action was to collect occupancy
taxes and penalties due Wake County from gross receipts
defendants derived from the rental of rooms, lodging, and other
1
On 6 November 2007, Wake County filed notice of voluntary
dismissal without prejudice of its claims against defendant
Maupin-Tour Holding, LLC.
2
On 25 January 2008, Wake County filed notice of voluntary
dismissal without prejudice of its claims against defendant
Travelport, Inc. (f/k/a Cendant Travel Distribution Services
Group, Inc.).
3
On 11 December 2011, Wake County filed notice of voluntary
dismissal without prejudice of its claims against Travelnow.com,
Inc.
-5-
accommodations furnished by hotels, motels, and similar places
located in Wake County. By county ordinance, Wake County
imposed a six percent “room occupancy tax” on the gross proceeds
derived from the rental of hotel rooms and other accommodations
within the county.4 Wake County sought a declaratory judgment
and injunction declaring that defendants’ actions subjected
defendants to payment of the occupancy tax. Wake asserted the
following: violation of the room occupancy tax ordinance;
conversion; imposition of a constructive trust; a demand for
accounting; unfair and deceptive trade practices; agency; and
claim for statutory penalties pursuant to Wake County
ordinances. Wake County alleged damages in excess of
$1,000,000.00 annually.
Dare County
In Dare County Superior Court, on 26 January 2007, Dare
County filed a verified complaint and action for Declaratory
Judgment against the identical entities named in the Wake County
4
“The County of Wake hereby imposes and levies a tax of six
percent (6%) of the gross receipts derived by any person, firm,
corporation, or association from the rental of any room, lodging
or accommodation furnished by a hotel, motel, inn, tourist camp,
or similar place within the County that is subject to the State
sales tax imposed under Section 105-164.4(a)(3) of the North
Carolina General Statutes.” WAKE COUNTY, N.C., R-91-107 ' 1
(1991).
-6-
complaint.5,6,7 Dare County, like Wake County, asserted that the
action was to collect occupancy taxes and penalties due Dare
County from gross receipts defendants derived from the rental of
rooms, lodging, and other accommodations furnished by hotels,
motels, and similar places located in Dare County. Dare County
imposed a five percent “room occupancy tax” on the gross
proceeds from the rental of hotel rooms and other accommodations
within the county.8 Like Wake County, Dare County sought a
5
On 20 August 2007, Dare County filed notice of voluntary
dismissal without prejudice of its claims against Maupin-Tour
Holding, LLC.
6
On 7 December 2007, Dare County filed notice of dismissal
without prejudice of its claims against Travelnow.com, Inc.
7
On 1 February 2008, Dare County filed notice of voluntary
dismissal without prejudice of its claims against Travelport,
Inc. (f/k/a Cendant travel Distribution Services Group, Inc.).
8
“There is hereby levied in the County of Dare a room occupancy
tax of three per cent [sic] (3%) on the gross receipts derived
from the rental of any room, lodging, or similar accommodation
subject to sales tax under G.S. 105-164.4(a)(3).” DARE COUNTY,
N.C., Resolution 91-9-26 ' 1 (1992).
“There is hereby levied within Dare County a room occupancy
and tourism development tax of one per cent [sic] (1%) of the
gross receipts derived from the rental of any room, lodging, or
similar accommodation subject to sales tax under G.S. 105-
164.4(a)(3) . . . .” DARE COUNTY, N.C., Resolution 91-9-27 ' 1
(1992).
“Whereas, the General Assembly of North Carolina . . . has
authorized the Dare County Board of Commissioners to levy a
supplemental room occupancy tax of 1% of the gross receipts
-7-
declaratory judgment and injunction declaring that defendants’
actions subjected defendants to payment of the occupancy tax.
Dare asserted the following: violation of the room occupancy tax
ordinance; conversion; imposition of a constructive trust; a
demand for accounting; unfair and deceptive trade practices;
agency; and claim for statutory penalties pursuant to enabling
legislation for the Dare County ordinance enacted by the North
Carolina General Assembly. Dare County alleged damages in
excess of $1,000,000.00 annually.
Buncombe County
In Buncombe County Superior Court on 1 February 2007,
Buncombe County filed a declaratory judgment action against
Hotels.com9; Hotels.com, LP10; Hotels.com GP, LLC; Hotwire, Inc.;
derived from the rental of any room, lodging, or similar
accommodations subject to sales tax under G.S. 105-164.4(a)(3) .
. . located in Dare County . . . the Dare County Board of
Commissioners desires to levy the said 1% supplemental occupancy
tax . . . .” DARE COUNTY, N.C., Resolution implementing
supplemental occupancy tax (Dec. 3, 2001).
9
On 4 April 2007 Buncombe County filed notice of dismissal
without prejudice of its claims against Hotels.com; Orbitz.Inc.;
Priceline.com, LLC; Site59.com, LLC; Travelocity.com, Inc.;
Travelnow.com, Inc.; Cheap Tickets. Inc.; Sabre, Inc.; and
Travelweb, Inc.
10
On 10 December of 2007, Buncombe County filed notice of
dismissal without prejudice its claims against Hotels.com GP,
LLC.
-8-
Trip Network, Inc., d/b/a Cheaptickets.com; Travelport, Inc.,
(f/k/a Cendant Travel Distribution Services Group, Inc.)11;
Expedia, Inc.; Internetwork Publishing Corp., d/b/a Lodging.com;
Lowestfare.com, Inc.; Orbitz, Inc.; Orbitz, LLC; Priceline.com,
Inc.; Priceline.com LLC; Sites59.com, LLC; Travelweb, Inc.;
Travelnow.com, Inc.; Cheap Tickets, Inc.; and Sabre, Inc.
Buncombe County sought “a declaratory judgment concerning its
power, privilege, and right to audit and collect from []
defendants the North Carolina Occupancy Tax, N.C.G.S. 153A-155 .
. . .” Buncombe County alleged that its ordinances imposed a
room occupancy and tourism development tax on the gross receipts
derived from the rental of any room, lodging, or similar
accommodation furnished by any hotel, motel, inn, tourist camp,
or other similar place within the county.12 On the date the
11
On 12 February 2008 Buncombe County filed notice of dismissal
without prejudice of its claims against Travelport, Inc. (f/k/a
Cendent Travel Distribution Services Group, Inc.).
12
In its declaratory judgment action, Buncombe County asserts
that on 23 August 1983 by Resolution #17680, the Buncombe County
Board of Commissioners “enacted a two percent (2%) room
occupancy and tourism development tax on the gross receipts
derived from the rental of any room, lodging, or similar
accommodation furnished by any hotel, motel, inn, tourist camp,
or other similar place within the County”; on 26 August 1986,
“the Commissioners by Resolution #18510 enacted and adopted an
additional one percent (1%) occupancy tax”; and on 19 June 2001,
the “Commissioners enacted an additional one percent (1%) room
occupancy tax . . . .”
-9-
declaratory judgment action was filed, the room occupancy tax
was four percent.
Mecklenburg County
In Mecklenburg County Superior Court on 14 January 2008,
Mecklenburg County filed a verified complaint and action for
declaratory judgment against the same entities named in the Wake
County complaint with the exception of Maupin-Taylor Holding,
LLC, and Travelnow.com, LLC.13 Mecklenburg County asserted that
the action was to declare the rights of the parties concerning
taxes and penalties due to Mecklenburg County from receipts
realized by defendants derived from the rental of rooms, lodging
and other accommodations furnished by hotels, motels, and
similar places located in Mecklenburg County. Mecklenburg
County alleged that at the time the complaint was filed, it
imposed an eight percent “room occupancy tax” and defendants
failure to remit the tax owed deprived Mecklenburg County of
more than $1,000,000.00 annually.14 In addition to its request
13
On 4 February 2008, Mecklenburg County filed notice of
voluntary dismissal without prejudice of its claim against
Travelport Americas, LLC (f/k/a Cendant Travel Distribution
Group, Inc.).
14
“Mecklenburg County hereby levies a room occupancy tax of six
percent (6%) of the receipts, net of any taxes or discounts,
derived from the rental of any room, lodging, or accommodation
-10-
for an injunction, Mecklenburg County asserted the following
claims: violation of occupancy tax ordinances; conversion;
imposition of constructive trust; demand for accounting; unfair
and deceptive trade practices; agency; and a claim for statutory
penalties pursuant to both the Mecklenburg County tax ordinance
and North Carolina General Statutes.
All defendants filed motions to have their respective
actions designated as complex business cases. Thereafter, Chief
Justice Sarah Parker issued orders designating each action as a
complex business case.
furnished by a hotel, motel, inn, tourist camp, or similar place
within Mecklenburg County that is subject to sale tax imposed by
the State of North Carolina under Section 105-164.4(a)(3) of the
North Carolina General Statutes.” MECKLENBURG COUNTY, N.C., Amended
and Restated Mecklenburg County Ordinance to impose and levy a
room occupancy tax and a prepared food and beverage tax (Sept.
1, 1990).
“Mecklenburg County hereby levies a room occupancy tax of
two percent (2%) of receipts, net of any taxes or discounts,
derived from the rental of any room, lodging, or accommodation
furnished by a hotel, motel, inn, tourist camp, or similar place
within Mecklenburg County that is subject to sales tax imposed
by the State of North Carolina under Section 105-164.4(a)(3) of
the North Carolina General Statutes. This room occupancy tax is
. . . in addition to the six percent (6%) Room Occupancy Tax
previously levied by the Mecklenburg County Board of
Commissioners which is in effect and remains in full force and
effect.” MECKLENBURG COUNTY, N.C., Mecklenburg ordinance to impose
and levy a two percent room occupancy tax (Hall of Fame Complex
Tax) (March 21, 2006).
-11-
On 4 April 2007, Special Superior Court Judge Albert Diaz
of the North Carolina Business Court was appointed to preside
over the designated complex business cases and granted
defendants’ motions to consolidate the actions filed in Buncombe
County, Dare County, and Wake County for pretrial matters.
Thereafter, Mecklenburg County’s complaint was consolidated and
joined with the other actions.
On 1 November 2010, all parties filed motions for summary
judgment under seal; plaintiffs filed a consolidated motion as
did defendants.
On 4 February 2011, a summary judgment hearing was held
before the Honorable Calvin E. Murphy, Special Superior Court
Judge presiding in the North Carolina Business Court. After
considering the parties’ motions and briefs, including
supporting authority and arguments of counsel, the trial court
granted defendants’ motion for summary judgment and denied
plaintiffs’ motion for summary judgment. Plaintiffs appeal.
_____________________________________
On appeal, plaintiffs raise the following questions: (I)
whether the trial court erred in concluding that defendants have
no liability under the ordinances; (II) concluding that
defendants are not contractually obligated to collect and remit
-12-
the occupancy tax; (III) concluding that there was no legal
support for plaintiffs’ collected but not remitted claim; and
(IV) dismissing plaintiffs’ claims for accounting, conversion,
and constructive trust.
Standard of Review
“We review a trial court's order granting summary judgment
de novo, viewing the evidence in the light most favorable to the
nonmoving party. We are to determine whether there is any
genuine issue of material fact and whether the moving party is
entitled to a judgment as a matter of law.” Adkins v. Stanly
Cnty. Bd. of Educ., 203 N.C. App. 642, 644—45, 692 S.E.2d 470,
472 (2010) (citation and quotations omitted).
I
Plaintiffs first argue that the trial court erred in
determining defendants have no liability under the respective
ordinances of Wake, Dare, Buncombe, and Mecklenburg Counties for
failure to collect and remit an occupancy tax on the sale price
defendants impose on consumers. We disagree.
The respective ordinances of Wake, Dare, Buncombe, and
Mecklenburg Counties impose a tax on the gross receipts derived
from the rental of any room, lodging or accommodation furnished
by a hotel, motel, inn, tourist camp, or “similar place” that is
-13-
subject to the State sales tax imposed under General Statutes,
section 105-164.4(a)(3).
In its 19 December 2012 order, the trial court reasoned
that “[t]o determine whether the Defendants are obligated to pay
the Occupancy Tax under the counties’ ordinances or resolutions,
the Court must decide ‘what’ and ‘who’ is taxed.” The court
reasoned that as to the “who” is taxed, Mecklenburg and Wake
counties impose the responsibility of collection upon the
“operator of a taxable establishment.” Dare and Buncombe
counties impose the responsibility of tax collection upon the
“operator of a business subject to a room occupancy tax.” The
court concluded that defendants “can not [sic] be classified as
operators of ‘taxable establishments’ or ‘businesses subject to
a room occupancy tax’ under any of Plaintiff’s Occupancy Tax
ordinances or resolutions, and are thus, not subject to the
counties’ Occupancy Taxes.”
Plaintiffs contend the trial court violated the principle
of statutory construction that all parts of a statute must be
given effect and thereby rendered critical sections of the
ordinances meaningless. Specifically, plaintiffs contend that
as to “who” is taxed, the ordinances and enabling legislation
make clear that the tax is levied against the occupant of the
-14-
room. As to “what” is taxed, the ordinances establish that the
levy is applied to the gross receipts derived from the rental of
the accommodation.
When construing legislative provisions,
this Court looks first to the plain meaning
of the words of the statute itself:
When the language of a statute is clear
and without ambiguity, it is the duty
of this Court to give effect to the
plain meaning of the statute, and
judicial construction of legislative
intent is not required. However, when
the language of a statute is ambiguous,
this Court will determine the purpose
of the statute and the intent of the
legislature in its enactment.
State v. Ward, 364 N.C. 157, 160, 694 S.E.2d 729, 731 (2010)
(quoting Diaz v. Div. of Soc. Servs., 360 N.C. 384, 387, 628
S.E.2d 1, 3 (2006)).
“A county may impose taxes only as specifically authorized
by act of the General Assembly.” N.C. Gen. Stat. ' 153A-146
(2005). Our General Assembly has authorized Buncombe, Dare,
Mecklenburg, and Wake counties to impose room occupancy taxes
pursuant to appropriate county ordinances and resolutions. See
1991 N.C. Sess. Laws ch. 594 (Wake); 1985 N.C. Sess. Laws ch.
449 (Dare); and 1983 N.C. Sess. Laws. ch. 908, parts IV and VI
(Mecklenburg and Buncombe). The General Assembly limited the
applicability of the occupancy tax to gross receipts derived
-15-
from rental transactions also subject to our State sales tax.
See 2001 N.C. Sess. Laws ch. ' 7.1 (“The Dare County Board of
Commissioners may levy a room occupancy tax . . . [on] the gross
receipts derived from the rental of the following in Dare
County: (1) Any room, lodging, or similar accommodation subject
to sales tax under G.S. 105-164.4(a)(3)[.]” (revisions
omitted)); 2001 N.C. Sess. Laws ch. 162, ' 1 (“The Board of
Commissioners of Buncombe County may levy a room occupancy and
tourism development tax . . . [on] the gross receipts derived
from the rental of accommodations within the county that are
subject to sales tax imposed by the State under G.S.
105-164.4(a)(3).” (emphasis and revisions omitted)); 1989 N.C.
Sess. Laws ch. 821, ' 1 (“Mecklenburg County may, by resolution
of its Board of Commissioners, levy a room occupancy tax . . .
[on] the gross receipts derived from the rental of any room,
lodging, or accommodation furnished by a hotel, motel, inn,
tourist camp, or similar place within the county that is subject
to sales tax imposed by the State under G.S. 105-164.4(a)(3).”);
and 1991 N.C. Sess. Laws ch. 594, ' 4 (“The Wake County Board of
Commissioners may, by resolution, levy a room occupancy tax . .
. [on] the gross receipts derived from the rental of any room,
lodging, or accommodation furnished by a hotel, motel, inn,
-16-
tourist camp, or similar place within the county that is subject
to the State sales tax imposed under G.S. 105-164.4(a)(3).”).
To determine whether the gross receipts derived from the rentals
in which defendants engage are subject to the occupancy tax, we
must consider whether the gross receipts are subject to the
State sales tax in accordance with our General Statutes, section
105-164.4(a)(3).
Section 105-164.4 (“Tax imposed on retailers”) of the North
Carolina General Statutes, in pertinent part, states the
following:
(a) . . . A privilege tax is imposed on a
retailer . . . [on] the retailer's net
taxable sales or gross receipts, as
appropriate.
. . .
(3) Operators of hotels, motels,
tourist homes, tourist camps, and
similar type businesses . . . are
considered retailers under this
Article. A tax at the general rate of
tax is levied on the gross receipts
derived by these retailers from the
rental of any rooms, lodgings, or
accommodations furnished to transients
for a consideration.
N.C. Gen. Stat. ' 105-164.4(a)(3) (2005) (effective for sales
made on or after July 1, 2007).
Whether the gross receipts derived from the rentals in
-17-
which defendants engage are subject to the occupancy tax hinges
on whether defendants are “retailers” within the meaning of
section 105-164.4(a)(3). See id. (“A privilege tax is imposed
on . . . the retailer’s net taxable sales or gross receipts . .
. . Operators of hotels, motels, tourist homes, tourist camps,
and similar type businesses . . . are considered retailers under
this Article.”).
The trial court found that plaintiffs did not contend
defendants were operators of hotels, motels, tourist homes, or
tourist camps. Therefore, the court considered only whether
defendants were operators of “similar type businesses.”
In addressing this issue, we note with favor the reasoning
of the Fourth Circuit Court of Appeals in Pitt Cnty. v.
Hotels.com, GP, LLC, 553 F.3d 308 (4th Cir. 2009), considering
“whether the phrase ‘operators of hotels, motels, tourist homes,
tourist camps, and similar type businesses’ in § 105–164.4(a)(3)
in the North Carolina sales tax statute applies to online travel
companies.” Id. at 313. In considering whether OTC and hotels
operated “similar type businesses,” the Court found applicable
the principle of ejusdem generis, the canon of statutory
construction standing for the proposition that “where general
words follow a designation of particular subjects or things, the
-18-
meaning of the general words will ordinarily be presumed to be,
and construed as, restricted by the particular designations and
as including only things of the same kind, character and nature
as those specifically enumerated.” Id. (citing Smith v. Smith,
314 N.C. 80, 331 S.E.2d 682, 686–87 (1985)); see also State ex
rel. Utilities Comm'n v. Envtl. Def. Fund, 214 N.C. App. 364,
368, 716 S.E.2d 370, 373 (2011) (“North Carolina courts have
followed this explanation of how the doctrine of ejusdem generis
should be applied by employing the doctrine when a list of
specific terms is followed by a general term. See Liborio v.
King, 150 N.C. App. 531, 536–37, 564 S.E.2d 272, 276 (2002)
(interpreting the term “misrepresentation” to be limited to
knowing and intentional behavior, where the term followed the
words fraud and deception); [Smith, 314 N.C. at 87, 331 S.E.2d
at 687] (interpreting a provision allowing the court to consider
“any other factor which the court finds to be just and proper”
to be limited to economic factors, where the provision followed
eleven other provisions having to do with the economy of the
marriage); [State v. Lee, 277 N.C. 242, 244, 176 S.E.2d 772, 774
(1970)] (interpreting the phrase “or other like weapons” to be
limited to automatic or semiautomatic weapons, where the phrase
followed a specific list of automatic and semiautomatic
-19-
weapons).”)).
In section 105-164.4(a)(3), the phrase “similar type
businesses” follows the list: “hotels, motels, tourist homes,
[and] tourist camps[.]” N.C.G.S. ' 105-164.4(a)(3). A “hotel”
is defined as “[a]n establishment that provides lodging and usu
[sic]. Meals and other services for travelers and other paying
guests.” AMERICAN HERITAGE COLLEGE DICTIONARY 658 (3d ed. 1993). A
motel is “[a]n establishment that provides lodging for motorists
in rooms usu. having direct access to a parking area.” Id. at
890. A “tourist home” is “a house in which rooms are available
for rent to transients.” Tourist home definition, merriam-
webster.com, http://www.merriam-
webster.com/dictionary/tourist%20home (last visited August 11,
2014). We were unable to find a definition for “tourist camp,”;
however, we note that “tourist” is defined as “[o]ne who travels
for pleasure,” and “camp” is defined as “[a] place where tents,
huts, or other temporary shelters are set up . . . . [, or] [a]
place in the country that offers simple group accommodations and
organized recreation or instruction.” AMERICAN HERITAGE COLLEGE
DICTIONARY 202, 1431. A common characteristic of such
establishments is that they are physical structures with rooms
or at least physical locations. Per section 105-164.4(a)(3),
-20-
the “operator” of such an establishment is a “retailer.”
“Operator” is defined as “[t]he owner or manager of a business
or industrial enterprise.” AMERICAN HERITAGE COLLEGE DICTIONARY 957.
Plaintiffs do not contend that defendants are owners or
managers of the establishments providing accommodations; rather,
plaintiffs argue that this Court should interpret the word
“business” broadly. However, such an analysis would ignore the
requirements of section 105-164.4(a)(3), that defendants be
operators of “similar type businesses.” We hold that defendants
are not operators of hotels, motels, tourist homes, or tourist
camps within the meaning of section 105-164.4(a)(3). This
holding is consistent with the reasoning of the trial court and
the Pitt Court. See Pitt Cnty., 553 F.3d at 313 (hotels,
motels, tourist homes, and tourist camps – “all provide physical
establishments . . . where guests can stay. A business that
arranges for the rental of hotel rooms over the internet, but
that does not physically provide the rooms, is not a business
that is of a similar type to a hotel, motel, or tourist home or
camp.”). Defendants are neither operators nor retailers within
the meaning of section 105-164.4(a)(3). See N.C.G.S. ' 105-
164.4(a)(3) (“A privilege tax is imposed on . . . the retailer’s
net taxable sales or gross receipts . . . . Operators of
-21-
hotels, motels, tourist homes, tourist camps, and similar type
businesses . . . are considered retailers under this Article.”);
see also Pitt Cnty., 553 F.3d at 314 (holding that an online
travel company is not a retailer within the plain meaning of
General Statutes, section 105-164.4(a)(3)).
Applying our holding that defendants are not “retailers”
within the meaning of General Statutes, section 105-
164.4(a)(3)15, we must also conclude that defendants’ gross
15
We note that pursuant to 2009 N.C. Sess. Laws 2010-31, '
31.6(a) (effective July 1, 2010), N.C. Gen. Stat. ' 105-
164.4(a)(3) was re-written. As re-written, section 105-
164.4(a)(3) includes the following language:
Gross receipts derived from the rental of an
accommodation include the sales price of the
rental of the accommodation. . . . The
sales price of the rental of an
accommodation marketed by a facilitator
includes charges designated as facilitation
fees and any other charges necessary to
complete the rental.
A person who provides an accommodation that
is offered for rent is considered a retailer
under this Article. A facilitator must
report to the retailer with whom it has a
contract the sales price a consumer pays to
the facilitator for an accommodation rental
marketed by the facilitator. A retailer must
notify a facilitator when an accommodation
rental marketed by the facilitator is
completed and, within three business days of
receiving the notice, the facilitator must
send the retailer the portion of the sales
price the facilitator owes the retailer and
-22-
receipts are not subject to the State sales tax under section
105-164.4(a)(3) (“A tax . . . is levied on the gross receipts
derived by these retailers . . . .”). Thus, the gross receipts
defendants derive from the rentals are not subject to
plaintiffs’ room occupancy tax. See 2001 N.C. Sess. Laws ch.
439 ' 7.1; 2001 N.C. Sess. Laws ch. 162 ' 1; 1991 N.C. Sess.
Laws ch. 594, ' 4; and 1989 N.C. Sess. Laws ch. 821, ' 1.
Because the trial court did not err in determining that
defendants have no liability under the respective ordinances of
Wake, Dare, Buncombe, and Mecklenburg Counties for failure to
collect and remit an occupancy tax on the sale price defendants
impose on consumers, plaintiffs’ argument is overruled.
II
Plaintiffs next argue that the trial court erred in
the tax due on the sales price.
. . .
The following definitions apply in this
subdivision:
. . .
b. Facilitator. – A person who is not a
rental agent and who contracts with a
provider of an accommodation to market the
accommodation and to accept payment from the
consumer for the accommodation.
2009 N.C. Sess. Laws ch. 2010-31, '31.6(a).
-23-
determining that defendants are not contractually obligated to
collect and remit the occupancy tax. We disagree.
In its order, the trial court concluded that as to a
recovery based on a theory of contractual undertaking,
“Plaintiffs failed to provide sufficient notice of the events or
transactions which produced the claim to enable the adverse
party to understand the nature of it and the basis for it.” The
court went on to reason that even if it were to consider
plaintiffs’ claim for recovery under a theory of contractual
undertaking, “it would [] have to acknowledge that there is no
legal support for such a theory in North Carolina’s case law.”
For these reasons, the trial court granted defendants’ motion to
dismiss the claim.
“The grant of a motion to dismiss is reviewed de novo on
appeal.” Hayes v. Peters, 184 N.C. App. 285, 287, 645 S.E.2d
846, 847 (2007) (citation omitted).
Pursuant to General Statutes, section 1A-1, Rule 8,
[a] pleading which sets forth a claim for
relief . . . shall contain
(1) A short and plain statement of the claim
sufficiently particular to give the court
and the parties notice of the transactions,
occurrences, or series of transactions or
occurrences, intended to be proved showing
that the pleader is entitled to relief and
-24-
(2) A demand for judgment for the relief to
which he deems himself entitled.
N.C. Gen. Stat. ' 1A-1, Rule 8(a) (2013). By enacting section
1A-1, Rule 8(a), our General Assembly adopted the concept of
notice pleading. See Sutton v. Duke, 277 N.C. 94, 100, 176
S.E.2d 161, 164 (1970). Under notice pleading, “a statement of
claim is adequate if it gives sufficient notice of the claim
asserted to enable the adverse party to answer and prepare for
trial, to allow for the application of the doctrine of res
judicata, and to show the type of case brought.” Id. at 102,
176 S.E.2d at 165 (citation omitted). “Such simplified notice
pleading is made possible by the liberal opportunity for
discovery and the other pretrial procedures established by the
Rules to disclose more precisely the basis of both claim and
defense and to define more narrowly the disputed facts and
issues.” Pyco Supply Co., Inc. v. Am. Centennial Ins. Co., 321
N.C. 435, 442—43, 364 S.E.2d 380, 384 (1988) (citation omitted).
“Despite the liberal nature of the concept of notice pleading, a
complaint must nonetheless state enough to give the substantive
elements of at least some legally recognized claim . . . .”
Hayes v. Peters, 184 N.C. App. 285, 287, 645 S.E.2d 846, 847
(2007) (citation and quotations omitted).
Plaintiffs contend defendants had sufficient notice of
-25-
plaintiffs’ contractual obligation theory from the complaints
and plaintiffs’ summary judgment trial briefs.
In their brief to this Court, plaintiffs combine and point
to five allegations scattered throughout the complaint filed by
Mecklenburg County and argue the allegations are sufficient to
provide defendants with notice of plaintiffs’ contractual
obligation theory.
Mecklenburg County’s Complaint alleges that:
(1) Defendants contract with local hotels
for rooms at negotiated discounted rates and
“charge and collect the Tax from occupants
at the time of the sale based on the marked
up room rates”; (2) Defendants were
“authorized to act on behalf of the hotels”;
(3) Defendants, as “agents” for the hotels,
“were required to collect the Tax from the
consumers of the rooms”; (4) Defendants, as
agents for the hotels, have collected the
Tax but failed to pay the full amount due to
Plaintiffs; and (5) Plaintiffs are entitled
to a declaratory judgment that Defendants
are agents for taxable establishments and
“as such, are required to collect the
County’s full tax from the consumers of the
rooms.”
The referenced allegations were found in separate sections
of the complaint including: in assertions of underlying fact; in
a request for a declaratory judgment; in a claim for recovery
based on a theory of agency; and in plaintiff Mecklenburg
County’s prayer for relief. However, even reading these
statements together, we cannot interpret them as providing
-26-
notice of a cognizable claim. Plaintiffs attempt to seek
recovery for breach of contract based on a contractual
obligation to collect the occupancy tax on the gross receipts
defendants derived from the rental of accommodations. On this
record, we cannot find that plaintiffs’ contract theory has been
sufficiently pled and therefore, find no error in the trial
court’s ruling granting defendants’ motion to dismiss this
claim. Though not specifically argued, plaintiffs reference
statements in the complaints of Wake County, Buncombe County,
and Dare County. A review of these complaints reveals a
repetition of some portions of the allegations made in the
Mecklenburg County complaint, but they are likewise insufficient
to provide notice of a cognizable claim. Thus, we find
insufficient notice of a contractual obligation claim as to the
complaints of Buncombe, Dare, and Wake Counties.
Plaintiffs further contend that a claim raised during
summary judgment may provide sufficient notice to the opposing
party where the party asserting the claim did not earlier
disavow it. In support of their contention, plaintiffs cite
cases from the Sixth Circuit Federal Court interpreting Federal
Rules of Civil Procedure:
Where language in a complaint is ambiguous,
the Sixth Circuit employs a “course of the
-27-
proceedings test” to determine whether
defendants have received notice of the
plaintiff's claims, analyzing the adequacy
of notice on a case-by-case basis. Accord
Moore v. City of Harriman, 272 F.3d 769,
772, 774 (6th Cir.2001) (en banc) (plurality
opinion) (“Subsequent filings in a case may
rectify deficiencies in the initial
pleadings.” (citations omitted)). A
plaintiff may sufficiently notify a
defendant of an argument by raising it in a
response to summary judgment, provided that
the party does not disavow its intent to use
the argument earlier in the proceedings.
Copeland v. Regent Elec., Inc., 499 F. App'x 425, 435 (6th Cir.
2012) (unpublished) (citations and quotations omitted).
Interpreting our Rules of Civil Procedure as to notice
pleading, our Supreme Court has held that “notice pleading is
made possible by the liberal opportunity for discovery and the
other pretrial procedures established by the Rules to disclose
more precisely the basis of both claim and defense and to define
more narrowly the disputed facts and issues.” Pyco Supply Co.,
Inc., 321 N.C. at 442—43, 364 S.E.2d at 384. Plaintiffs raised
a claim for the first time in a motion for summary judgment and
on appeal, provide no authority from our General Statutes or
North Carolina jurisprudence to support their argument to do so.
We affirm the trial court’s dismissal of plaintiff’s claim that
defendants are contractually obligated to collect and remit the
occupancy tax.
-28-
III
Plaintiffs argue the trial court erred by dismissing their
claim that defendants collected but failed to remit taxes
charged on the sales price paid by consumers. Specifically,
plaintiffs contend Judge Murphy impermissibly overruled the
prior holding of another superior court judge, Judge Diaz. We
disagree.
“Litigants and superior court judges must remain mindful
that the power of one judge of the superior court is equal to
and coordinate with that of another.” Adkins v. Stanly Cnty.
Bd. of Educ., 203 N.C. App. 642, 651, 692 S.E.2d 470, 476 (2010)
(citation and quotations omitted).
The well established rule in North Carolina
is that no appeal lies from one Superior
Court judge to another; that one Superior
Court judge may not correct another's errors
of law; and that ordinarily one judge may
not modify, overrule, or change the judgment
of another Superior Court judge previously
made in the same action.
Calloway v. Motor Co., 281 N.C. 496, 501, 189 S.E.2d 484, 488
(1972) (citation omitted).
Here, Judge Diaz was presented with a challenge to
plaintiffs’ claim for collected but not remitted taxes in the
form of defendants’ Rule 12(b)(6) motion to dismiss. When the
motion was denied, defendants subsequently challenged the same
-29-
claim in the form of a motion for summary judgment before Judge
Murphy.
The test [for a] Rule 12(b)(6) [motion]
is whether the pleading is legally
sufficient. The test on a motion for
summary judgment made under Rule 56 and
supported by matters outside the pleadings
is whether on the basis of the materials
presented to the courts there is any genuine
issue as to any material fact and whether
the movant is entitled to judgment as a
matter of law. Therefore, the denial of a
motion to dismiss made under Rule 12(b)(6)
does not prevent the court, whether in the
person of the same or a different superior
court judge, from thereafter allowing a
subsequent motion for summary judgment made
and supported as provided in Rule 56.
Barbour v. Little, 37 N.C. App. 686, 692, 247 S.E.2d 252, 256
(1978). “[T]he Rule 12(b)(6) motion is addressed solely to the
sufficiency of the complaint . . . .” Indus., Inc. v. Constr.
Co., 42 N.C. App. 259, 263, 257 S.E.2d 50, 53 (1979) (citation
omitted).
In his 19 November 2007 order addressing defendants’ motion
to dismiss plaintiffs’ claim for failure to remit taxes, Judge
Diaz gave the following summary as to plaintiffs’ allegations:
(71) The Complaints in these cases
allege (either directly or by implication)
that Defendants are in fact charging and
collecting the Occupancy Tax from consumers,
but not remitting to Plaintiffs the full
amount collected. In fact, Plaintiffs
allege Defendants are charging and
-30-
collecting the tax on the higher retail rate
charged to consumers, but only remitting to
Plaintiffs an amount of tax based on the
lower wholesale rate paid to hotel owners,
thereby pocketing the difference. Plaintiffs
also allege Defendants are not filing
occupancy returns, as required by law. . . .
Based on these allegations, Judge Diaz concluded that
“Defendants have not complied with the plain language of the
Occupancy Tax (and the corresponding enabling acts) requiring
them to account for and remit all such taxes.” Thus, “[a]t this
stage . . . the Court need only look to Plaintiffs’ pleadings to
conclude that dismissal of the principal claims is not
appropriate.” Judge Diaz, therefore, denied defendants’ motion
to dismiss pursuant to Rule 12(b)(6).
On 4 February 2011, Judge Murphy heard arguments from
plaintiffs and defendants on cross motions for summary judgment.
Based on their briefs and arguments before the trial court,
Judge Murphy granted summary judgment in favor of defendants,
dismissing plaintiffs’ claim for collected but not remitted
taxes.
In his order, Judge Murphy discussed three cases presented
by plaintiffs in support of their motion: “City of Rome v.
Hotels.com, No.4:05-CV-249-HLM, 2006 U.S. Dist. LEXIS 56369(N.C. May 8, 2006)”; “Expedia, Inc. v. City of Columbus, 681
-31-
S.E.2d 122 (Ga. Sup. Ct. 2009)”; and “City of Gallup v.
Hotels.com, L.P., No.06-0549-JC, 2007 U.S. Dist. LEXIS 86720(January 30, 2007).” Each case dealt with similar questions of
tax liability and OTCs in other jurisdictions. Judge Murphy
observed that where an OTC had been held responsible for
remitting a tax, the conclusion was predicated upon a statutory
requirement or contractual provision imposing upon the OTC the
responsibility for collecting the tax. By comparison, Judge
Murphy noted that our North Carolina General Statutes did not
impose the same duty upon defendants, and plaintiffs provided no
authority supporting a recovery predicated on a theory of
contractual undertaking. Accordingly, Judge Murphy concluded
that “Plaintiffs’ [sic] have been unable to direct this Court to
any binding legal precedent to support a ‘collected-but-not-
remitted’ theory of recovery” and on this basis, granted
defendants’ motion to dismiss the claim.
Judge Diaz and Judge Murphy addressed motions in this case
at different stages in the action and based on different rules.
Judge Diaz concluded pursuant to Rule 12(b)(6) that the factual
allegations in plaintiffs’ complaints were legally sufficient so
as to not preclude their claims for recovery of taxes. See
Barbour, 37 N.C. App. at 692, 247 S.E.2d at 256 (“The test [for
-32-
a] Rule 12(b)(6) [motion] is whether the pleading is legally
sufficient.”). Thereafter, Judge Murphy concluded pursuant to
Rule 56 that as to the issue of whether defendants were subject
to the Occupancy Tax, plaintiffs failed to provide any authority
that defendants had a legal duty to collect taxes. See N.C. Gen.
Stat. ' 1-1A, Rule 56(c) (2013) (Summary judgment is appropriate
“if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
any party is entitled to a judgment as a matter of law.”).
Based on our jurisprudence, Judge Murphy’s ruling pursuant to
Rule 56 was proper. Therefore, plaintiffs’ argument is
overruled.
IV
Lastly, plaintiffs argue that the trial court erred in
dismissing their claims for accounting, conversion, and
constructive trust. We disagree.
Again, “[w]e review a trial court's order granting summary
judgment de novo . . . .” Stanly Cnty. Bd. of Educ., 203 N.C.
App. at 644, 692 S.E.2d at 472 (citation omitted).
Accounting
In the complaints filed by Dare County, Mecklenburg County,
-33-
and Wake County, each county’s demand for an accounting was
predicated upon the assertion that defendants were under a legal
obligation based on their respective Occupancy Tax resolution or
ordinance to collect and remit taxes to the County on the gross
receipts derived by them as compensation or consideration for
renting rooms in the county. Buncombe County’s declaratory
judgment action sought a ruling declaring “its affirmative
rights to audit and collect occupancy tax obligations owed by
these Defendants to [] Plaintiff.”
In Issue I, we held that the enabling legislation enacted
by our General Assembly as to Buncombe, Dare, Mecklenburg, and
Wake counties allowing the counties to impose an occupancy tax
by resolution did not encompass the transactions wherein
consumers rented lodging accommodations through defendants’
websites. Therefore, as plaintiffs cannot establish that
defendants were under a legal obligation based on their
individual occupancy tax resolutions to collect and remit taxes
to the respective county, plaintiffs cannot prevail on their
demands for accounting. Accordingly, we overrule plaintiffs’
argument and affirm the trial court’s ruling dismissing
plaintiffs’ demand for accounting.
Conversion
-34-
First, we note that while claims of conversion were
asserted in the complaints of Dare County, Mecklenburg County,
and Wake County, the trial court addressed only Mecklenburg
County’s conversion claim in the trial court’s summary judgment
order.
On 19 November 2007, the trial court granted defendants’
12(b)(6) motion to dismiss the conversion claims brought by
plaintiffs Buncombe County, Dare County, and Wake County. No
appeal was taken by Buncombe County, Dare County, and Wake
County from these dismissals.
On 14 January 2008, Mecklenburg County filed its complaint
asserting a claim for conversion. In its complaint, Mecklenburg
County alleged the following:
Defendants, upon information and belief,
keep the difference between the amount of
Tax charged to the public and the amount of
Tax remitted to the hotel, motel, or inn,
which then remits this lower tax amount to
the County. At all times herein mentioned,
Defendants wrongfully possessed and/or
controlled the monies which constitute this
difference between the amount of Tax charged
to the public and the amount of Tax remitted
to the County. Defendants have converted or
taken these Tax monies for their own use and
benefit, thereby permanently depriving the
County of the use and benefit thereof.
Following the assignment of Mecklenburg County’s complaint to
the business court and the consolidation of these actions, both
-35-
plaintiffs and defendants filed motions for summary judgment.
The trial court addressed only Mecklenburg County’s claim for
conversion in its summary judgment order and dismissed the
claim.
“In North Carolina, conversion is defined as an
unauthorized assumption and exercise of the right of ownership
over goods or personal chattels belonging to another, to the
alteration of their condition or the exclusion of an owner's
rights.” Myers v. Catoe Constr. Co., 80 N.C. App. 692, 695, 343
S.E.2d 281, 283 (1986) (citation omitted).
The general rule is that there is no
conversion until some act is done which is a
denial or violation of the plaintiff's
dominion over or rights in the property.
Therefore, two essential elements are
necessary in a claim for conversion: (1)
ownership in the plaintiff, and (2) a
wrongful conversion by the defendant.
Bartlett Milling Co. v. Walnut Grove Auction & Realty Co., 192
N.C. App. 74, 86, 665 S.E.2d 478, 489 (2008) (citation and
quotations omitted). “[T]he general rule is that money may be
the subject of an action for conversion only when it is capable
of being identified and described.” Variety Wholesalers, Inc. v.
Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 528, 723
S.E.2d 744, 750 (2012) (citation omitted).
The requirement that there be earmarked
-36-
money or specific money capable of
identification before there can be a
conversion has been complicated as a result
of the evolution of our economic system.
Recognizing this reality, numerous courts
around the country have adopted rules
requiring the specific identification of a
sum of money, rather than identification of
particular bills or coins.
Id. at 528—29, 723 S.E.2d at 750 (citations and quotations
omitted). “In the context of this conversion claim, we conclude
that funds transferred electronically may be sufficiently
identified through evidence of the specific source, specific
amount, and specific destination of the funds in question.” Id.
at 529, 723 S.E.2d at 750—51 (addressing a claim involving
transfers of funds in specific dollar amounts totaling
approximately $888,000.00).
Here, Mecklenburg County’s conversion claim is not one for
a specific amount of taxes alleged due, much less particular
bills and coins; rather, Mecklenburg County’s claim is for a
category of monies allegedly owed, taxes. Even reading Variety
Wholesalers, Inc., broadly to presume that in the context of any
conversion claim where funds are transferred electronically the
establishment of the funds’ specific source, specific amount,
and specific destination is sufficient to connote
identification, Mecklenburg County’s complaint fails to allege
-37-
such requirements. See id.; see also State ex rel. Pilard v.
Berninger, 154 N.C. App. 45, 57, 571 S.E.2d 836, 844 (2002)
(holding the evidence supported the conversion claim where the
spouse of the decedent, acting as an administratix, failed to
properly distribute the decedent’s share of three $75,000.00
certificates of deposit as a portion of his estate). Therefore,
we see no error in the trial court’s dismissal of Mecklenburg
County’s conversion claim.
Constructive Trust
A constructive trust is a duty, or
relationship, imposed by courts of equity to
prevent the unjust enrichment of the holder
of title to, or of an interest in, property
which such holder acquired through fraud,
breach of duty or some other circumstance
making it inequitable for him to retain it
against the claim of the beneficiary of the
constructive trust.
Variety Wholesalers, Inc., 365 N.C. at 530, 723 S.E.2d at 751(citation omitted).
Here, plaintiffs have been unable to establish any genuine
issue of material fact as to whether defendants have retained
monies collected from the rental of accommodations in the
respective counties which were “acquired through fraud, breach
of duty or some other circumstance making it inequitable for
[defendants] to retain it[.]” Id. As such, summary judgment
-38-
was appropriate. Accordingly, we affirm the trial court’s
dismissal of plaintiffs’ claims seeking imposition of a
constructive trust.
Affirmed.
Judges McGEE and STROUD concur.