How can anyone resist reading a decision on a motion to dismiss with the line “[t]he argument attributes to consumers a level of stupidity that the Court cannot countenance…?”  Judge McMahon’s decision in Chiste v., 2010 WL 4630317 (S.D.N.Y.), of course, is worth reading for other reasons as well.

Defendants are online travel companies. Plaintiffs are consumers who used Defendants’ websites to purchase a night or multiple nights’ stay in a New York City hotel room.

The plaintiffs alleged consumer fraud claims under New York General Business Law (“GBL”) § 349 and related theories because Defendants (1) don’t disclose that they pocket a tax differential earned on the mark up when they resell rooms online that they acquired at a discount; (2) retain the mark up without disclosing its amount; (3) bundle tax charges and service fees so that consumers do not know the amount of each of the service fee or taxes, and (4) deceive consumers into believing that Defendants offer the lowest possible rate on hotel rooms.

Judge McMahon first addressed the issue of a choice of forum selection clause in the defendants’ respective user agreements. She noted that it is an “open question in this Circuit” whether a case should be dismissed on venue grounds where venue and jurisdiction exist but the parties have agreed by contract to litigate in another forum.  She determined that the better view is that dismissal for lack of venue in that circumstance would be “misleading.” Instead, Judge McMahon held that the issue of venue should be analyzed under the discretionary venue standard set forth in 28 U.S.C. § 1404(a), which generally balances the convenience of the witnesses and parties. In that circumstance, Judge McMahon found that the presence of a forum selection clause strongly militated in favor of transfer to the district selected by the parties.

The court kept one of the claims brought by an instate consumer, but rejected “out of hand” the assertion that the online travel agency deceived consumers into believing that it was always cheaper to book through an online travel agent than directly with a hotel, noting that consumers were given complete information by the online agency and could easily “shop around.”

She also showed little patience for the claim that the online agencies don’t disclose that they are profit making, noting that consumers are not so “stupid” that they don’t recognize that businesses are in business to make a profit. She did, however, deny a motion to dismiss premised on the ground that the online agencies did not disclose that the amount of tax they collected from consumers was “always” greater than what they were charged by the hotel whose rooms the online agency resold. The court found that the fact that the defendants “always” pocketed this difference could be material to a consumer. 

The opinion includes a useful discussion of the GBL consumer claims, including a finding that the GBL does not generally apply to out of state plaintiffs who were not deceived “in the state.”