HomeMy WebLinkAbout10/17/2007 - STAFF REPORTS - 2.P. pALM S,p
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Cq��FpO Ra�P CITY COUNCIL STAFF REPORT
DATE: OCTOBER 17, 2007 CONSENT CALENDAR
SUBJECT: APPROVE AND AUTHORIZE A LEGAL SERVICES AGREEMENT WITH
KIESEL BOUCHER LARSON, LLP AND BARON & BUDD, P.C., FOR
REPRESENTATION IN ADMINISTRATIVE PROCEEDINGS AND
LITIGATION AGAINST ONLINE TRAVEL COMPANIES FOR THE NON-
PAYMENT OR UNDERPAYMENT OF TRANSIENT OCCUPANCY
TAXES.
FROM: David Ready, City Manager
BY: Douglas Holland, City Attorney
SUMMARY
The City of Los Angeles filed a class action lawsuit on behalf of all California cities with
a Transient Occupancy Tax ordinance against several online hotel booking companies
for failure to remit Transient Occupancy Tax ("TOT") due. The judge ruled that the cities
must first exhaust their administrative remedies and stayed the case without ruling on
whether the case may go forward as a class action. Kiesel Boucher Larson, LLP and
Baron & Budd, P.C. have offered to represent the City on a contingency fee basis in
administrative proceedings and subsequent litigation for the recovery of TOT.
RECOMMENDATION:
1. Approve a legal services agreement with Kiesel Boucher Larson, LLP and Baron
& Budd, P.C., for representation in administrative proceedings and litigation
against online hotel booking companies for the non-payment or underpayment of
TOT to the City.
2. Authorize the City Attorney to execute the agreement on behalf of the City.
STAFF ANALYSIS:
The City of Los Angeles has filed a class action lawsuit against several online travel
companies alleging that the companies have failed to remit TOT. The class action was
filed on behalf of all California cities with a TOT ordinance. The Defendants in the case
include Hotels.com, Expedia.com, Priceline.com, Travelocity.com, and several other
online travel companies.
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ITEM NO.
City Council Staff Report
October 17,2007—Page 2
Transient Occupancy Tax Legal Services Agreement
The City of Los Angeles alleges that the online travel companies (OTCs) have collected
TOT from members of the public, but have not remitted to the cities the entire amount of
TOT collected. Our understanding of how the OTCs have been keeping TOT due is as
follows: OTCs contract with hotels for rooms at negotiated discounted room rates.
OTCs then mark up their inventory of rooms and sell them to the members of the public,
who actually occupy the rooms. Occupants are charged taxes based on the marked up
room rates, but OTCs only remit to the cities tax amounts based on the lower,
negotiated room rates and pocket the difference.
For example, if a consumer pays Hotels.com $100.00 for a room in a hotel located in
Palm Springs, Hotels.com calculates the tax rate the consumer pays on that "gross"
amount ($100.00). Hotels.com, however, obtains that room at a lower "net" rate, for
instance $70.00. The amount due to the City of Palm Springs is $12.50 (based on a
12.5% TOT). However, the amount the Defendants have remitted to the City has been
based on the lower "net" rate. In this illustration, Hotels.com would remit $8.75 (12.5%
of $70.00), instead of the $12.50 (12.5% of $100.00) that was collected from the
consumer and is actually owed to the City.
The judge in this case recently ruled that the City of Los Angeles must exhaust its
administrative remedies before pursuing its case in court, and stayed the case until it
has done so. The judge did not rule on whether the case could go forward as a class
action once the administrative process has been completed. It is possible that the class
could still be certified, and if so, the class will likely consist of those California cities with
a TOT ordinance that have exhausted their administrative remedies. In order to be
included as a member of the class should the class action go forward, it would be
necessary for the City to initiate administrative proceedings against the OTCs.
Kiesel Boucher Larson, LLP and Baron & Budd, P.C. have offered to represent the City
in the administrative proceedings and any subsequent litigation on a contingency fee
basis. These firms filed the class action lawsuit on behalf of the City of Los Angeles,
and have also been retained by other cities, including Anaheim and West Hollywood.
The proposed agreement provides that the City would pay 30% of the total amount
recovered as attorneys' fees, plus costs not to exceed 7.5% of the total recovery. In
proceeding forward with these firms there would be little risk to the City, as the City
would not be required to pay attorney's fees or costs if there is no recovery. The only
upfront expense to the City would be in committing resources to gather the necessary
information to assist in the calculation of the tax amount due from each OTC.
i
7ouglag Holland, City Attorney 'David City M ger
Attachment: Proposed Legal Services Agreement �( (�
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LEGAL SERVICES AGREEMENT
1 . Parties. This "Agreement" is made and entered this _"' day of
2007, by and among Kiesel Boucher Larson, LLP and
Baron & Budd, P.C. (collectively "Special Counsel") and the City of Palm
Springs, a California Charter City.
2. Retention of Firms Rather Than Particular Attorney, City is retaining the
law firms, and attorney services to be provided to City will not necessarily be
performed by any particular attorney.
3. Term. This Agreement, which is intended to fulfill the requirements of
California Business and Professions Code section 6147, will begin on the date
indicated above and will continue until the completion of the Litigation
(defined below).
4. Scope. City hereby retains Special Counsel to represent it in
administrative proceedings, including administrative proceedings under the
City's transient occupancy tax ordinances and other applicable ordinances of
the City, and litigation seeking damages, attorneys" fees, costs, and all other
appropriate relief for the non-payment or underpayment to the City of
transient occupancy taxes by online booking companies such as Hotels.com,
Expedia.com, Travelocity and others. The Scope will include all writ of
administrative mandamus in the Superior Court, as well as all subsequent
appeals (collectively, the "Litigation").
As provided herein, Special Counsel is authorized to take appropriate
legal steps to prosecute the Litigation as it pertains to liability, damages, civil
penalties, injunctive relief, interest, and restitution/disgorgement of profits and
to participate in any settlement negotiations. City will be truthful and
cooperative with Special Counsel, disclose to Special Counsel all facts
relevant to the Litigation, keep Special Counsel reasonably informed of
developments, and be reasonably available to attend any necessary
meetings, depositions, preparation sessions, hearings and trial.
The City designates City Attorney or his designee as the authorized
representative to direct Special Counsel and to be the primary individual to
communicate with Special Counsel regarding the subject matter of Special
Counsel's representation of the City under this agreement, This designation is
intended to establish a clear line of authority and to minimize potential
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uncertainty, but not to preclude communication between Special Counsel
and other representatives of the City.
Special Counsel will obtain prior approval from the City concerning all
substantive matters related to the Litigation including diapositive motions,
selection of consultants and experts, and resolution of the Litigation. The City
agrees to consult in good faith with Special Counsel prior to making a
recommendation regarding any such substantive matter.
5. Resources. Special Counsel and the City Attorney will provide sufficient
resources, including attorney time, to prosecute the Litigation faithfully and
with due diligence. Legal services under this Agreement will be performed
only by competent personnel under the supervision and in the employment of
Special Counsel and City, or retained by Special Counsel as consultants. To
assist in the prosecution of the case, City will provide sufficient resources to
calculate damages and gather other necessary information on the transient
occupancy tax.
b. Conflicts. The City may be joined in a class action. Therefore, the City
might be representing its own interests in the Litigation and serve as
representative of a class of government entities seeking similar relief.
The City and Special Counsel acknowledge that other individual
government entities may seek to become named parties in the Litigation and
be represented in the Litigation by Special Counsel. The City recognizes that
there may be potential conflicts or actual conflicts of interest if Special
Counsel represents other cities within the case. The City understands that it
would be to its benefit for other parties to become named parties as it may
enhance the case and lower expenses for the City, Accordingly, the City has
conferred with the City Attorney and has determined that it is in its own best
interests to waive any and all potential or actual conflicts of interest which may
occur as a result of Special Counsel representing other government entities in
this or similar litigation. The City therefore waives all such potential or actual
conflicts of interest.
7. Representation of Related Interests. Special Counsel shall have the right
to represent other individuals, business entities, municipalities, governmental
agencies or governmental subdivisions in other transient occupancy tax
actions or similar litigation without the consent of the City, subject to the Rules
of Professional Conduct relating to conflicts of interest.
8. Compensation. The employment of Special Counsel will be on a
contingency fee basis. Specifically, if Special Counsel is successful in
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obtaining and collecting a recovery for the City -- whether by settlement,
arbitration award, Court judgment or otherwise -- Special Counsel will receive
attorneys' fees in the amount of Thirty percent (30 %) of the Gross Recovery
(defined below), This fee is not set by low but is negotiable between the City
and Special Counsel. The sole contingency upon which the City will pay
compensation to Special Counsel is a recovery and collection on behalf of
the City, whether by settlement, arbitration award, Court judgment or
otherwise.
The City and Special Counsel intend to seek an order for payment by
defendants of the City's attorneys' fees and Costs (as defined in paragraph 10
below), if the City prevails, in whole or in part, in the Litigation. The City agrees
to use its best efforts to support any such application. If the amount of the
statutory fee awarded as reimbursement for Special Counsel's time and effort,
and collected from the defendants, exceeds the amount called for under the
contingency fee calculation, Special Counsel shall retain all of the statutory
fee awarded and collected as a reasonable fee, in lieu of the contingency
fee. If the amount of the statutory fee awarded as reimbursement for Special
Counsel's time and effort, and collected from the defendants, is less than the
amount called for under the contingency fee calculation, Special Counsel
shall receive as a reasonable fee the amount called for under the
contingency fee calculation in lieu of the statutory fee.
9. The term "Gross Recovery" shall include, without limitation, the then
present value of any monetary payments agreed or ordered to be made and
the fair market value of any property or services agreed or ordered to be
transferred or rendered for the benefit of the City by the adverse parties to the
Litigation or their insurance carrier(s), whether by settlement, arbitration award,
court judgment, or otherwise, without reduction for recovery of Costs as
defined in paragraph 10. Gross Recovery shall also include any statutory
attorneys' fees paid by the defendants.
If payment of any part of the relief received by the City will be in the
form of property or services ("in Kind"), the value of such properly and services
for purposes of calculating the Gross Recovery shall be calculated based on
the present value, as of the time of the seflement, the final arbitration award,
or final Court judgment, of the In Kind relief to be received thereafter. The
attorneys' fees for the value of the In Kind relief shall be paid out of any initial
lump-sum payment by the defendants. If the initial lump-sum payment is
insufficient to pay the attorneys' fees in full, the balance will be paid from
subsequent payments on the recovery before any distribution to the City.
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If the parties disagree with respect to the value of any In Kind relief, they
will proceed as follows: Within thirty (30) days each party will select an
appraiser qualified to conduct an appraisal of the value of the In Kind relief.
Each party's selected appraiser will thereafter meet and confer. If resolution of
the dispute is not reached within sixty (60) days of the initial meet and confer,
the appraisers will select a third qualified appraiser within fifteen (15) days.
The third appraiser's valuation will be final and binding on the parties.
Notwithstanding the foregoing, it there is no money recovery and the
City receives In Kind relief, attorneys' fees will be based on the value of the In
Kind relief, which will be determined through the mutual agreement of the
parties. If the parties disagree with respect to the value of any In Kind relief,
they will proceed with an appraisal process as set forth above. If there is no
money recovery, and only in kind relief all attorneys' fees and Costs due
Special Counsel under this Agreement shall be paid from City funds at the
time of recovery and collection.
10. Costs. It will be necessary for Special Counsel to incur and advance
certain court costs and other types of expenses for the City. These Costs and
other expenses may include, but are not limited to, the following: filing and
service fees; costs for investigative services; travel expenses (including air fare,
ground transportation, vehicle mileage, lodging and meals); deposition
expenses and court reporter fees; outside trial services providers; trial
equipment rental and operation fees; preparation of exhibits and graphics;
the costs of briefs and transcripts on appeal, and miscellaneous copying,
postage, shipping, and courier expenses. In addition, it will be necessary to
employ expert witnesses. City agrees that Special Counsel may, in its
discretion, employ and pay these expert witnesses, and that such
expenditures shall be included within Costs. Special Counsel agree that the
costs to the City shall not exceed 7.5 (seven point five) percent of the total
recovery. Any costs in excess of 7.5 percent will be Special Counsel's
responsibility.
City agrees to reimburse Special Counsel for all reasonable Costs, not
to exceed 7.5 percent, out of its share of the Gross Recovery, after the
attorneys' fee specified in paragraph 8 has been calculated and deducted.
City understands that Special Counsel may incur certain expenses,
including, for example, expenses for travel, experts, and copying that jointly
benefit multiple clients. City agrees that Special Counsel may divide such
expenses among such clients on a reasonable basis, and deduct the City's
portion of those expenses from the City's share of any recovery. Special
Counsel may, in its discretion, allocate the expenses equally among the
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relevant clients, pro rata based on each client's share of the relief obtained,
or on any other reasonable basis of which all affected clients are fully
informed.
In some instances, it may be necessary for Special Counsel to retain
special outside counsel to assist on matters other than prosecuting the City's
claims as described in paragraph 4 above. (Examples of such instances
include the following; a defendant may seek bankruptcy protection; a
defendant may attempt to fraudulently transfer some of its assets to avoid
paying the City's claim; a complex, multi-party sefflement may require an
ethics opinion from outside counsel; or a separate lawsuit may need to be
filed against a defendant's insurance company). City agrees that Special
Counsel, with written permission of the City, may retain such special outside
counsel to represent the City when Special Counsel deems such assistance to
be reasonably necessary. In such an instance, the fees of such special
outside counsel shall be advanced by Special Counsel, shall be deemed a
part of Costs, and as such shall be reimbursed to Special Counsel by the City
from its share of the Gross Recovery. If there is no recovery, Special Counsel
will be solely responsible for payment of the Costs.
11 . Reasonableness. The City and Special Counsel have discussed the
reasonableness of the contingency fee provided for in this Agreement, as
opposed to use of an hourly rate, a fixed fee, quantum meruit, or some other
possible basis for calculating the afforneys' fees to be paid to Special
Counsel. The City and Special Counsel agree that under all the
circumstances a contingency fee is the most reasonable and equitable way
to compensate Special Counsel in light of the effort required and the risks to
be undertaken in the Litigation. The City and Special Counsel further
understand that the substantial effort required to prosecute the action and the
substantial Costs to be incurred by Special Counsel may not be compensated
for or reimbursed if there is no recovery. Therefore, the City agrees that it will
not contest the reasonableness or fairness of this contingency fee contract.
12. Possible Efforts by Defendants to Invalidate Agreement. The City and
Special Counsel are aware that in the past defendants in litigation involving
public entities have challenged and sought to invalidate contingency fee
arrangements between public entities and outside counsel. The City and
Special Counsel believe that any such challenges to this Agreement lack merit
and that this contingency fee arrangement is valid and in the public interest.
The City Attorney agrees to join Special Counsel in opposing any such
challenge. However, in the event that this contingency fee Agreement is
found to be invalid, Special Counsel agrees to continue to represent the City
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in the Litigation with the understanding that, if there is no recovery, the City will
owe nothing for attorneys' fees or Costs.
It there is a recovery (including collection of the recovery), and this
contingency fee Agreement is found to be invalid, the City shall pay a
reasonable fee for the services rendered, plus Costs. If the parties are unable
to agree on the reasonable fee for the services rendered, or for any other
disputes arising under this agreement, such disputes shall be determined by
arbitration proceedings before the Judicial Arbitration and Mediation Services
(JAMS).
13. Division of Attorneys' Fees. Special Counsel may divide the attorneys'
fees received for the legal services provided under this Agreement with other
attorneys or law firms retained as associate counsel and approved by the City
Attorney in writing. The terms of the division, if any, will be disclosed to the
City. The City is informed that, under the Rules of Professional Conduct of the
State Bar of California, such a division may be made only with the City's written
consent after a full disclosure to the City in writing that a division of fees will be
made and of the terms of such division. The City will not unreasonably
withhold approval of associate counsel retained by Special Counsel or
unreasonably refuse to consent to a proposed division of fees among counsel.
14. Legal Services Specifically Excluded. Special Counsel does not agree
to provide any representation beyond that described in paragraph 4. In
particular, the City agrees that Special Counsel has no obligation or
responsibility to provide representation in defending any legal action against
the City commenced by any person in connection with claims brought
against the City related to the Litigation.
If the City wishes to retain Special Counsel to provide any legal services
not provided under this Agreement, a separate written agreement between
Special Counsel and the City will be required, following negotiation of and
agreement on the additional compensation to be paid by City for that
representation.
15. Power of Attorney: City gives Special Counsel a power of attorney to
execute all reasonable and necessary documents connected with the
handling of the Litigation, including pleadings, contracts, checks or drafts,
dismissals and orders, and all other documents that the City could properly
execute. The City's claims will not be settled without obtaining the City's
consent.
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16. Assignment. This Agreement may not be assigned by Special Counsel.
Special Counsel is expressly employed because of its unique skills, ability and
experience and, therefore, it is understood that no substitution or assignment
may be made unless the City Attorney expressly approves such substitution or
assignment in writing.
17. Attorneys' Lien. Special Counsel will have a lien to the fullest extent of
California law for attorneys' fees and Costs on all claims and causes of action
that are the subject of its representation of the City under this Agreement and
on all proceeds of any recovery collected (whether by settlement, arbitration
award, Court judgment, or otherwise).
18. Withdrawal of Attorney. Special Counsel may withdraw as permitted
under the Rules of Professional Conduct of the State Bar of California. The
circumstances under which the Rules permit such withdrawal include, but are
not limited to, the following: (a) the City consents, (b) the City's conduct
renders it unreasonably difficult for Special Counsel to carry out the
employment effectively, or (c) the City fails to pay attorneys' fees or Costs as
required by this Agreement. If Special Counsel properly withdraws from
representing the City because it is required to do so by the Rules of
Professional Conduct, the City agrees to compensate Special Counsel for the
reasonable value of the legal services provided, plus reimbursement for Costs.
In such a situation, both attorneys' fees and reimbursement of Costs will be
paid by the City to Special Counsel at the time of recovery and collection by
the City; provided, however, City is only obligated to compensate Special
Counsel if there is a recovery and collection of the recovery.
City may discharge Special Counsel at any time, with or without cause.
If the City discharges Special Counsel, City agrees to compensate Special
Counsel for the reasonable value of the legal services provided plus
reimbursement for Costs. Both payment of otforneys' fees and reimbursement
of Costs will be paid by the City to Special Counsel at the time of discharge.
19. Settlement. Special Counsel will not settle the City's claims without the
approval of the City, which will have the absolute right to accept or reject any
settlement. Special Counsel will notify the City promptly of the terms of any
settlement offer received by Special Counsel.
20, Confidentiality. This Agreement establishes the relation of attorney-
client among the parties hereto. Special Counsel is to hold all money and
properly of the City in trust for the City's benefit, is not to divulge its
confidences, and is entitled to the candid cooperation of City employees in
all matters related to the Litigation.
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21 . Disclaimer of Guarantee. Although Special Counsel may offer an
opinion about possible results regarding the subject matter of this Agreement,
Special Counsel cannot guarantee any particular result. The City
acknowledges that Special Counsel has made no promises about the
outcome and that any opinion offered by Special Counsel in the future will not
constitute a guarantee.
22, Execution. This Agreement is executed in duplicate copies, and a copy
signed by Special Counsel and the City is being provided to the City at the
time of execution.
23. Entire Agreement, This Agreement fully expresses all understandings of
the parties concerning all matters related to their agreement for specialized
legal services, and this Agreement constitutes the entire agreement and
understanding between the City and Special Counsel for the services to be
performed.
SPECIAL COUNSEL: CITY:
Kiesel Boucher Larson LLP City of Palm Springs, a Municipal
Corporation
By: By:
Paul R. Kiesel
[Print name]
Baron & Budd, P.C.
Title
By:
Russell Budd
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