City of Oakland v. hotels.comlp

Citation: Not availableDocket: 07-17258

Court: Court of Appeals for the Ninth Circuit; August 20, 2009; Federal Appellate Court

Original Court Document: View Document

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The City of Oakland filed a lawsuit against multiple Internet travel companies, alleging they failed to properly calculate and remit occupancy taxes as mandated by the Transient Occupancy Tax Ordinance. The district court dismissed the case with prejudice, citing the City’s failure to assess or impose the tax, which is a prerequisite for enforcement. Although the City argued for collection of unpaid taxes, the court determined that without an official tax assessment, there are no enforceable claims. The judges agreed that a mandatory exhaustion of administrative remedies is necessary, but concluded that dismissal should be without prejudice to allow the City to pursue the appropriate administrative channels. The case underscores that Oakland’s authority to levy the tax stems from its status as a Charter City, as referenced in California law and relevant case law. The Transient Occupancy Tax Ordinance imposes an eleven percent tax on the rent charged by hotel operators for transient occupancy.

An operator is defined as any person owning or possessing a hotel, including various roles such as owner, lessee, or licensee. The operator is responsible for collecting a tax from transients, remitting it to the City, and faces penalties for non-compliance. The Ordinance mandates an administrative process for tax assessment, requiring the Tax Administrator to assess the tax, interest, and penalties and provide notice. If the operator does not contest the assessment, it becomes final; however, the operator can appeal, prompting a justification and hearing by the Tax Administrator, with further appeal options available to the Oakland Taxation and Assessment Board of Review.

The district court dismissed the case with prejudice due to a lack of subject matter jurisdiction, stating that the City failed to exhaust administrative remedies before claiming tax liability against the travel companies. The court noted that no assessment had been initiated against the companies. Related claims, such as conversion and unjust enrichment, were also dismissed for the same reason. Under California law, exhausting administrative remedies is a jurisdictional requirement, and courts will not intervene until these remedies are fully utilized. Previous cases involving similar hotel tax disputes in California also concluded that cities must initiate tax assessment processes before filing suit. Other courts have consistently upheld this requirement, agreeing that the tax Ordinance provides for administrative remedies that must be exhausted.

Oakland contends that its Ordinance allows for enforcement actions without requiring a tax assessment beforehand, arguing that administrative remedies apply only to operators and not to the taxing authority. However, the Ordinance’s mandatory language clearly establishes that the Tax Administrator must assess the tax and provide notice of the assessment, which contradicts Oakland's interpretation. The City cannot claim to be exempt from this process; without an assessment, there is no basis for enforcement. Previous court rulings, including one from Los Angeles, have rejected similar arguments. 

Oakland also claims that it should be excused from exhausting administrative remedies due to inadequacy and futility. While some flexibility exists in exhaustion requirements, the court finds that the City is integral to the administrative process, which begins with an audit and assessment. Without an assessment, there are no unpaid taxes to enforce. The City’s claims for torts and contracts hinge on the existence of a tax liability, which necessitates an assessment before pursuing federal court action. 

The court further dismisses Oakland's assertion that exhaustion would be futile, emphasizing that the key issue is the actual tax liability rather than the parties’ positions. Consequently, the court concludes that unexhausted claims should be dismissed without prejudice, allowing for potential amendment, as failure to exhaust is a curable defect. The district court’s dismissal was affirmed for lack of subject matter jurisdiction but reversed to ensure that it is without prejudice. Costs on appeal are awarded to the Appellees.