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Shames v. Hertz Corp.

July 24, 2008

MICHAEL SHAMES; GARY GRAMKOW, ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL PERSONS SIMILARLY SITUATED, PLAINTIFFS,
v.
THE HERTZ CORPORATION, A RENTAL CAR DEFENDANTS' DELAWARE CORPORATION; DOLLAR THRIFTY AUTOMOTIVE GROUP, INC., A DELAWARE CORPORATION; AVIS BUDGET GROUP, INC., A DELAWARE CORPORATION; VANGUARD CAR RENTAL USA, INC., AN OKLAHOMA CORPORATION; ENTERPRISE RENT-ACAR COMPANY, A MISSOURI CORPORATION; FOX RENT A CAR, INC., A CALIFORNIA CORPORATION; COAST LEASING CORP., A TEXAS CORPORATION; THE CALIFORNIA TRAVEL AND TOURISM COMMISSION, DEFENDANTS.



The opinion of the court was delivered by: Marilyn L. Huff, District Judge United States District Court

ORDER: (1) GRANTING THE CTTC'S MOTION TO DISMISS THE FIRST AMENDED COMPLAINT; AND (2) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS THE FIRST AMENDED COMPLAINT [Doc. Nos. 93, 94.]

On May 1, 2008, plaintiffs Michael Shames and Gary Gramkow ("Plaintiffs") filed their First Amended Complaint ("FAC") in this putative class action against several passenger rental car companies ("the Rental Car Defendants"), and the California Travel and Tourism Commission ("CTTC" and, collectively with the Rental Car Defendants, "Defendants").*fn1 (Doc. No. 85.) The rental car defendants and the CTTC each brought motions to dismiss the FAC. (Doc. Nos. 93-94.) On May 30, 2008, Plaintiffs filed oppositions to these motions along with a request for judicial notice. (Doc. Nos. 99-100.) Defendants filed their reply briefs on July 7, 2008. (Doc. Nos. 102-03.) The Court held a hearing on these motions on July 14, 2008. Dennis Stewart, Robert Fellmeth, Donald Rez, and Jennifer Kagan appeared for Plaintiffs. Gregory Call appeared for Enterprise Rent-A-Car Company and Vanguard Car Rental USA, Inc., and argued on behalf of the Rental Car Defendants. Thadd Blizzard and Ronald Ito appeared on behalf of the CTTC. Douglas Adler appeared for Avis Budget Group, Inc. Jeff LeVee appeared for Dollar Thrifty Automotive Group, Inc. Abraham Tang appeared for Coast Leasing Corp. John Stephens appeared for Fox Rent a Car, Inc. Gerald Stein appeared for The Hertz Corporation.

For the reasons below, the Court dismisses all claims against the CTTC and dismisses only the state law claims against the Rental Car Defendants.

Background

I. Overview of the Allegations

Plaintiffs' complaint asserts four causes of action: (1) price fixing in violation of the Sherman Act, 15 U.S.C. § 1; (2) unfair competition in violation of the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq.; (3) violations of the California Consumer Legal Remedies Act ("CLRA"), Cal. Civ. Code § 1750 et seq.; and (4) violations of California's Bagley-Keene Open Meeting Act, Cal. Govt. Code § 11120 et seq. Plaintiffs assert the first three claims against all defendants and the fourth only against the CTTC.

Plaintiffs allege that the Rental Car Defendants, facilitated by the CTTC, committed a per se violation of federal antitrust law by entering into a horizontal price-fixing agreement concerning automobile rentals at certain California airports. (FAC ¶ 1.) The alleged agreement has two components. First, Defendants agreed to raise prices and avoid competition by passing on to consumers a 2.5% assessment paid by the Rental Car Defendants to fund the CTTC. (FAC ¶ 3.) Second, defendants conspired to raise and fix prices by passing on to consumers an airport concession fee of approximately 9%. (FAC ¶ 5.) The parties do not dispute that California law permits a company to pass on the CTTC assessment, if the company acts individually. Plaintiffs allege, however, that the defendants unlawfully conspired to pass on these fees and raise prices in an anticompetitive manner.

Plaintiff's allege that Defendants misled consumers about the nature of the CTTC assessment, suggesting that it is owed by consumers, not by the Rental Car Defendants. (FAC ¶¶ 4, 56, 62.) Furthermore, Plaintiffs allege that the CTTC violated the Bagley-Keene Open Meeting Act in connection with the purported conspiracy. (FAC ¶ 6, 65.) They state, for example, that the CTTC failed to provide proper notice of its meetings and conducted improper closed sessions. (See FAC ¶¶ 66-84.)

Plaintiffs assert jurisdiction for the antitrust claim under 28 U.S.C. §§ 1331, 1337. (FAC ¶ 8.) Plaintiffs assert pendent jurisdiction for the state law claims, and Class Action Fairness Act jurisdiction in general. (FAC ¶¶ 9-10.)

II. CTTC Overview

The California Tourism Marketing Act ("CTMA"), Cal. Gov't Code § 13995 et seq., created the CTTC in 1995 to expand and develop tourism spending for the benefit of the tourism industry and the state. Under the CTMA, the CTTC may receive funding from the state general fund and contributions from industry. See, e.g., Cal. Gov't Code § 13995.1 (stating general objectives of the CTMA). The CTTC is a California nonprofit mutual benefit corporation. Cal. Gov't Code § 13995.40(a). The Secretary of the California Business, Transportation and Housing Agency ("Secretary") chairs the CTTC and acts as one of thirty-seven commissioners who also serve as directors. Cal. Gov't Code § 13995.40(b). The Governor appoints twelve of the remaining commissioners, and industry selects the other twenty-four. Id.

Five segments of the tourism industry, including the "passenger car rental industry," elect the twenty-four industry commissioners, without nomination or approval by public officials. Cal. Gov't Code § 13995.40(d); see also 10 Cal. Code Reg. § 5352 (defining the industry segments). The number of commissioners from each segment is determined by the weighted percentage of assessments paid to the CTTC from that industry category, though no more than six commissioners may be from the passenger rental car industry. Cal. Gov't Code §§ 13995.40(d), 13995.40.5(a). Plaintiffs allege that approximately 79% of the CTTC's budget comes from assessments of the passenger car rental industry. (FAC ¶ 34.)

The CTTC recommends its choice of Executive Director, who must be a "tourism industry marketing professional," for approval by the Governor. Cal. Gov't Code § 13995.43. The Executive Director administers the CTTC and serves at the pleasure of the commissioners and the Governor. Id.

Plaintiffs allege that the CTTC's relevant decision-making power is ultimately controlled by industry. (See FAC ¶¶ 30-34.) They point, for example, to CTTC materials describing it as "an industry-led public/private partnership." (FAC ¶ 30, Ex. C.) The CTTC's marketing plan is subject to review and approval by the Secretary, but the commissioners may override the Secretary's decision by a three-fifths majority. Cal. Gov't Code § 13995.45(d). The Secretary oversees the CTTC's biennial process of setting assessment levels and electing industry commissioners, though the commission may exercise this power if the Secretary does not do so. See Cal. Gov't Code §§ 13995.51(a), 13995.60. The Secretary "may remove any elected commissioner following a hearing at which the commissioner is found guilty of abuse of office or moral turpitude." Cal. Gov't Code § 13995.40(e). The elected commissioners serve four-year terms, limited to two consecutive terms, which end automatically if they leave their industry segment. Cal. Gov't Code § 13995.40(f)-(g). The Secretary has a veto power over the commission in certain circumstances, such as situations involving a conflict of interest or use of state funds. Cal. Gov't Code § 13995.51(b).

III. CTTC Assessment Levels

Every two years, the CTTC engages in a referendum process to propose assessment levels for various segments of the travel and tourism industry. See Cal. Gov't Code § 13995.60. Those industry segments then vote on the proposals, and those receiving the most votes, weighted by business volume, become effective and enforceable. See Cal. Gov't Code § 13995.64(a). Businesses operating above a minimum threshold in each segment must then pay these assessments to the CTTC. See Cal. Gov't Code §§ 13995.65(e) 13995.68(a). Between referenda, California regulations allow the CTTC to modify the assessment rate, without approval by vote, to meet statutory revenue targets. See 10 Cal. Code Reg. § 5357.1. The CTTC prepares an annual marketing plan for use of its funding. Cal. Gov't Code § 13995.45.

In 2006, the Rental Car Defendants proposed changes to bill AB 2592 that allowed the CTTC to increase its budget greatly while simultaneously returning a $6.7 million contribution to the State general fund. Cal. Gov't Code § 13995.92(a); (FAC ¶ 36). The Rental Car Defendants obtained certain concessions in exchange for this increased funding. See Cal. Gov't Code § 13995.92(a) (requiring passenger car rental industry to set sufficient assessment rates, which act as a trigger for other provisions of AB 2592). The rental car industry received six seats on the CTTC. Cal. Gov't Code § 13995.40.5. In addition, the new legislation allowed the Rental Car Defendants to bill any tourism assessment separately from the base rental rate, effective July 1, 2007. Cal. Civ. Code § 1936.01(b)(2), (e). The CTMA allows assessed businesses to pass the assessments on to consumers, though they are not required to do so. Cal. Civ. Code § 13995.65(f).

After the legislature passed AB 2592 in the fall of 2006, the Defendants allegedly agreed to a 2.5% assessment on income from airport rentals, which they would pass on to consumers. (See, e.g., FAC ¶ 39.) Unlike the original complaint, the FAC provides documentation of Defendants' actions and lists specific meeting dates and individuals involved. As a result of meetings in October, 2006, the Rental Car Defendants and the CTTC entered into a written agreement to establish assessment rates that would meet the funding goals described in Cal. Gov't Code § 13995.92(a). (FAC Ex. A.) The written agreement does not refer explicitly to passing on the assessments to consumers, but Plaintiffs offer other documents to show this aspect of the agreement. CTTC Executive Committee Meeting minutes from October 3, 2006, state that "the rental car industry would like to start passing on the fees beginning January 1, 2007," and its agenda referred to the topic of "Rental Car Pass through Fees." (FAC ¶ 40, Exs. F-G.) In an October 17, 2006, e-mail, counsel for the CTTC wrote to a Hertz employee: "My recollection from the meeting is that everyone agreed to continue the funding as long as the pass-through was in place." (FAC ¶ 39, Ex. D.) Plaintiffs also offer the CTTC's November, 2006, ballot regarding the 2.5% assessment, which passed unanimously and characterized the assessment as a "a percentage of Revenue to be collected by each passenger car rental company." (FAC ¶ 40, Ex. E.)

Plaintiffs also offer alleged actions after January, 2007, as confirmation of an agreement. The CTTC's website stated that the passenger car rental industry assessment "shall be passed through to the customer." (FAC ¶ 41, Ex. H.) On January 16, 2007, an employee of defendant National Car Rental complained to the CTTC that Avis was "not charging the tourism fee" which "makes us look like our rates are higher." (FAC ¶ 41, Ex. I.) In response, the CTTC set an agenda item for its January 25, 2007, Passenger Car Rental Industry Tourism Assessment Meeting entitled "Airport locations not charging the fee -- unfair pricing advantage." (FAC ¶ 41, Ex. B.) Furthermore, in January, 2007, average national rental rates fell while those at California airports rose. (FAC ¶ 43.)

In addition to the alleged agreement, Plaintiffs assert that Defendants misrepresent the nature of the CTTC assessment. For example, Defendants have purportedly misled consumers by characterizing these fees as a "Tourist ...


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