Court Rules Customer May Pursue Direct Recovery From Hotel that Added Nonexistent Local Taxes to Bills

Rather Than Suing City/County In Whose Name Bogus Tax Was Collected

Volbers-Klarich v. Middletown Mgt., Inc., Slip Opinion No. 2010-Ohio-2057.
Butler App. No. CA2008-07-160, 2009-Ohio-1651. Judgment of the court of appeals affirmed in part and reversed in part, and cause remanded to the trial court.
Pfeifer, Lundberg Stratton, O'Connor, O’Donnell, Lanzinger, and Cupp, JJ., concur.
Brown, C.J., not participating.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2010/2010-Ohio-2057.pdf

(May 18, 2010) The Supreme Court of Ohio ruled today that when a vendor charges its customer a nonexistent tax, the funds collected are not a tax collected for the benefit of the taxing authority and the customer may seek recovery of those payments by filing a civil action directly against the vendor. The Court’s 6-0 decision was authored by Justice Evelyn Lundberg Stratton.

In August of 2002, Julie Volbers-Klarich and members of her family stayed at a Hampton Inn hotel in Fairfield, Ohio that was owned by Middletown Management Inc. When she paid for the room, Volbers-Klarich alleges that in addition to state sales tax, her bill included an additional 6.5 percent charge that was identified as being for Butler County and City of Fairfield excise taxes. Volbers-Klarich subsequently learned that Butler County did not begin charging its current 3 percent excise tax on hotel rooms until Oct. 1, 2003, and that the City of Fairfield has never imposed an excise tax on hotel rooms.

Volbers-Klarich filed suit against Middletown Management in the Butler County Court of Common Pleas. Her complaint sought direct recovery from the hotel owners of the amounts she paid for the fictitious taxes, and also alleged additional damages based on claims of civil fraud, breach of statutory duty, negligence, breach of contract, conversion, and violations of the Ohio Corrupt Practices Act and Ohio Consumer Sales Practices Act (OCSPA). She also sought certification of a class action on behalf of other Hampton Inn customers who had been charged the non-existent local taxes.

Middletown Management filed a motion for summary judgment dismissing Volbers-Klarich’s complaint on the basis that it failed to state a claim for which relief could be granted. In a ruling granting the summary judgment motion, the trial court cited prior Ohio court decisions holding that persons seeking to recover alleged improper or excessive tax payments that were collected by a vendor do not have a direct cause of action against the vendor, but must instead seek recovery from the taxing entity in whose name the tax was collected. The trial court also held that Volbers-Klarich’s complaint had not asserted her fraud claim with the required degree of particularity, and had not met the evidentiary criteria required to support a class action claim under the OCSPA.

Volbers-Klarich appealed. On review, the 12th District Court of Appeals affirmed the action of the trial court, holding that “when a customer seeks a refund of taxes, even when they are nonexistent taxes, the customer must apply to the taxing authority for a refund.” Volbers-Klarich sought and was granted Supreme Court review of the lower courts’ rulings.

In today’s decision, which partially reversed the 12th District, Justice Stratton pointed out that three prior court decisions cited by the court of appeals, Décor Carpet Mills v. Lindley (1980), Parker v. Giant Eagle (2002), and Bergmoser v. Smart Document Solutions (2007), are distinguishable from this case because they involved the wrongful collection of an existing tax, while the “taxes” added to Volbers-Klarich’s hotel bill had never been authorized by law.

She wrote: “When a vendor charges its customer a nonexistent tax, the funds collected are not a tax collected for the benefit of the taxing authority. Consequently, under these limited circumstances, the customer need not seek a refund from the government entity that purportedly imposed the tax, but may file suit directly against the vendor to recover those funds.”

The court also affirmed the dismissal of the appellant's class action claim alleging a violation of the OCSPA for failing to state a claim upon which relief could be granted. However, the court reversed the dismissal of appellant's claim alleging fraud finding that appellant's complaint pleaded fraud with sufficient particularity to satisfy Civ. R. 9(B).

Because the trial court granted summary judgment against Volbers-Klarich based on limited legal issues, Justice Stratton noted, “(T)he trial court never specifically addressed the claims seeking certification of a class action alleging a breach of statutory duty to collect taxes, negligence, breach of contract, conversion, and violation of the Ohio Corrupt Practices Act. In light of this reversal, these claims must now be addressed on remand, as well as her claim alleging fraud and her individual claim alleging a violation of the OCSPA.”

Justice Stratton’s opinion was joined by Justices Paul E. Pfeifer, Maureen O’Connor, Terrence O’Donnell, Judith Ann Lanzinger and Robert R. Cupp.

Chief Justice Eric Brown did not participate in the Court’s deliberations or decision in the case.

Contacts
Kenneth J. Ignozzi, 937.223.8888, for Judy Volbers-Klarich.

James C. Frooman, 513.651.6800, for Middletown Management Inc. & Middletown Innkeepers Inc.

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