A King County Superior Court judge ruled on May 28 that Expedia, the world’s leading online travel booking site, pay $184 million for repeatedly breaching its contractual obligations to consumers by charging service fees under false pretenses in millions of hotel transactions. The judgment is the largest in Washington state history for a consumer class action…
A King County Superior Court judge ruled on May 28 that Expedia, the world’s leading online travel booking site, pay $184 million for repeatedly breaching its contractual obligations to consumers by charging service fees under false pretenses in millions of hotel transactions. The judgment is the largest in Washington state history for a consumer class action.
Filed in 2005 by Steve Berman, managing partner of the Seattle law firm Hagens Berman Sobol Shapiro (HBSS) on behalf of Expedia customers, the suit claimed that the travel giant paid taxes based on the wholesale price, but collected taxes from consumers based the higher retail price, pocketing the difference.
According to Andrew Volk, a partner at HBSS, the firm found that Expedia’s scheme went further, involving the addition of a ‘service fee’ to each transaction, purporting to cover the company’s expenses incurred in servicing a reservation.
According to court documents, Expedia bundled the service-fee charges with taxes into a single line item, failing to disclose the separate amounts of each to consumers.
"Because Expedia only remits taxes based on the wholesale price – which it never disclosed to consumers — the taxes appear higher to consumers than they actually are, and Expedia is able to mask the considerable size of its service fees," Volk added.
In its Terms of Use agreement, which governs every hotel transaction, Expedia promised that it would collect service fees only to "cover the costs" of servicing a given hotel reservation. The Court found that Expedia breached that promise by collecting service fees as pure profit.
Superior Court Judge Monica Benton ruled that Expedia collected a total of $184,470,452 in service fees, which she is ordering the company return to consumers who purchased hotel or travel packages including a hotel stay from Feb. 18, 2003 to Dec. 11, 2006.
"In actuality, Expedia used the service fees to sweeten the deal for the company at the direct expense of the consumer," Berman noted. "They apparently thought no one would notice if they padded each transaction by a few dollars, money that went straight to profit."
In the court’s ruling, the judge includes an excerpt from an e-mail dated Dec. 2001 between employees at Expedia explaining the additional fees, "As a company, this will add between $2-3 million in our net profit (the bottom line) next quarter."
"This case revolved on the issue of transparency and honesty," said Steve Berman, managing partner of HBSS. "Consumers deserve to know what they are paying for, and companies like Expedia have an obligation to be upfront."
The complaint also claimed that Expedia intentionally designed its invoices and Web site to de-emphasize the service-fee charges, and to lead consumers to believe the service fees are associated with legitimate expenses incurred as the result of a particular reservation.
"We are obviously very pleased with the ruling and are heartened that we were able to help millions of Expedia consumers through this action," Berman added. "This is the largest judgment in a consumer class action in Washington state history."
In her seven-page summary judgment ruling, Judge Benton ruled that Expedia breached its contract with its customers. Expedia still must defend charges it violated Washington’s Consumer Protection Act in a trial slated for July in Kent. "Our goal is to get the money in the hands of consumers as quickly as possible," Volk noted.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
