$42 million in damages available for violation of rental rate unbundling law without reliance

Sobel v. Hertz Corp., 2013 WL 1182209 (D. Nev.)

This putative class action was filed on behalf of consumers who rented cars at the Reno and Las Vegas airports from Hertz.  In return for the right to operate on-site, rental car companies (RACs) are required to pay a percentage of gross revenues to the airports as concession fees.  These fees are passed on to consumers as surcharges.  At the relevant times, Hertz “unbundled” the surcharges from the base rental rate, so that the base rate quoted to customers didn’t include the concession recovery fee, which was itemized separately.  (Sobel paid a fee of 10% for Las Vegas, while co-plaintiff Dugan paid 11.54% for Reno.) The court previously determined that this violated a Nevada statute governing car rentals, though not the general Nevada Deceptive Trade Practices Act.  The court subsequently denied a proposed coupon settlement, but in this opinion granted class certification for consumers who rented from Hertz at Nevada airports over a 6-year period, representing over $42 million in separately itemized concession recovery fees.

Hertz objected to various pieces of evidence, including legislative history memorializing Hertz’s lobbying activity, but that was admissible under the public records exception to the hearsay rule, and it wasn’t subject to Noerr-Pennington because its liability here wasn’t premised on any protected lobbying activity.  The evidence was probative as to material facts, including whether Hertz viewed price unbundling as a profitable activity.

The court reaffirmed its interpretation of the rate statute to require RACs to bundle the airport concession recovery fee with the base price in advertising, quoting, and charging rental rates.  The remedial statute provided that a customer could sue a RAC “for the recovery of damages and appropriate equitable relief” for any violation, as well as costs and attorneys’ fees.

Hertz’s main argument was that plaintiffs needed to show reliance—that they would have done something different if the fee had been bundled.  Hertz argued that, even if not separately required, reliance was inherent in the requirements of actual injury and causation. Plaintiffs rejoined that they were entitled to restitution without showing reliance.  The court determined that the text of the rate statute was ambiguous, and the remedial provision of the statute was silent as to reliance.  Looking to legislative history and public policy, neither the rate nor the remedial provisions imposed a reliance requirement.  Hertz argued that the plain meaning of “damages” was compensation for loss or injury, so that plaintiffs needed to show loss by showing that they would’ve switched from Hertz and obtained a lower price elsewhere had Hertz complied with the rate statute.

The court found that this argument ignored the availability of “appropriate equitable relief,” including restitution, which is measured by the defendant's gain and not the plaintiff's loss. Plus, a reliance requirement would make no sense, because some of the causes of action covered by the remedial statute were “antagonistic” to reliance-type requirements. For example, the statute provides a cause of action for consumers charged above a certain price for damage waivers.  Under Hertz’s view, to recover under that provision, consumers would have to show that a rental agency charged more than the statutory price, and that had it not done so the consumer would have engaged in a different or less expensive transaction: thus, the consumer would nonsensically have to show that she would have behaved differently if she’d been given a cheaper price.  (It seems to me that in that case, causation of damage could be shown by having paid the too-high price, even without a distinct reliance requirement, which is not necessarily the case here.)

Hertz also argued that the absence of statutory damages meant that plaintiffs had to show actual injury to recover, but again statutory damages would be a poor fit given the many types of violations covered.  The RAC statute provides a remedy for unlawful rate unbundling as well as unlawful damage waiver rates, and it wasn’t clear that a single statutory damages provision would compensate appropriately for both violations.  Anyway, statutory damages are generally available when injuries are hard to value, and a ready measure of damages was available here: the amount paid in unlawful unbundled charges.  Indeed, the failure of the statute here to use the term “actual damages” in contrast to “statutory damages” suggested that “actual damages” were not required.

Hertz then argued that there was a causation requirement akin to reliance, based on the legislative history that the statute was designed to protect consumers and make them aware of expected costs in advance. Given that it was designed to target deception, Hertz contended, the statute should be understood to incorporate a reliance requirement like other deceptive practices statutes.  Even assuming that this were true (which the court had already rejected), “the legislative history suggests the rate statute was as much about limiting competition as it was about limiting deception.”  The language referring to unfair/deceptive practices only appeared in sections regulating other practices, not in the section about rates and unbundling, and the legislative statements about deception only referred to damage waivers and the like. 

While mandatory bundling was consistent with an attempt to prevent deception, the exception for “fees paid to airports,” at least as interpreted by Hertz, was also “consistent with an attempt by large car rental companies to limit competition from small car rental companies.” The legislation’s sponsor indicated that it was sought by the major car rental companies—Avis, Hertz, and National—and was not based on any reported abuses.  “In the quest for legislative intent, such [statements] raise judicial eyebrows.” The court noted that the rental industry at the time was “embroiled in an intense price war, a war in which ‘[car rental] companies ha[d] been springing traps of additional charges on unsuspecting renters and have used the various advertising media to do so.’”  The California AG tried to shut down these bait-and-switch practices, and the result was a California law on which the Nevada law was modeled.  The California law only excepted taxes and mileage charges from mandatory bundling, while Nevada added “fees paid to airports.”  Under Hertz’s interpretation, the contrast suggested that the exception “was designed to allow a practice prohibited by California law: advertising non-[airport concession recovery fee] rates and charging ACRF rates.”  Mandatory bundling of non-ACRF fees benefited the major RACs over smaller competitors.  On-airport RAC locations are expensive, and larger RACs can better afford them. If smaller, off-airport RACs had to bundle all mandatory fees while larger, on-airport RACs could unbundle one significant fee they paid and off-airport RACs didn’t, the on-airport RACs could advertise (but not charge) lower base prices.  Indeed, one Nevada senator expressed concern about the disparate impact of the law. 

So, large RACs wrote and supported this exception because they thought it would give them an advantage.  Thus, the court declined to treat the rate statute as a pure deceptive practices ban, and there was no reason to impose an independent reliance requirement or treat causation as “reliance in disguise.”  (As it happened, the court found that the large RACs were mistaken in thinking that the statute authorized this behavior, but the legislative history still suggested that the “fees paid to airports” exception “may have been an interest-group driven exception to a generally public-regarding provision.”  It also turned out that airport authorities sometimes prevented unbundling through contractual provisions, presumably fearing that unbundling would make the fees look like an additional tax.)

The court agreed that reliance isn’t a general limit on civil recovery in tort, but rather a specialized requirement for common-law fraud. The gravamen of the rate statute wasn’t fraud or deception, so it was inappropriate to admit reliance “through the back door” using causation.  Plus, Hertz’s theory would prevent recovery under the rate statute as long as all the RACs were breaking the law. This would render the law toothless.  So, the plaintiffs were only required to show that Hertz violated the rate statute, and that this caused an unlawful payment to pass from them to Hertz.  They undisputedly satisfied those requirements.

Hertz argued that it shouldn’t be penalized under an ambiguous statute, because that will deter firms by causing them costs investigating legality, and those costs will be passed on to customers as increased prices.  “These are persuasive arguments, but they should be directed at a legislature, not a court. Legislatures write ambiguous laws all the time; Hertz cannot plausibly maintain that these laws must all be construed against plaintiffs ….” Plus, plaintiffs had policy arguments on their side: “courts should ensure that interest groups are not rewarded for antisocial legislation, like legislation that tries to reduce marketplace competition. Or, alternatively, courts should avoid filling in the legislature's gaps (with things like reliance requirements, for instance) so that voters can hold legislators accountable for poorly drafted laws.”

Plaintiffs asked for restitution of unlawful payments to Hertz, over $42 million.  Hertz wanted that unavailable absent a showing of actual injury or reliance, but again the court disagreed.  In Nevada, restitution has at least two bases, unjust enrichment and statutory purpose.  “Nevada courts have awarded restitution where the award was necessary to effectuate the purpose of some regulatory regime, even absent a showing of unjust enrichment. Nevada courts have approved restitutionary awards without showings of actual injury.” The remedial statute here expressly provided for restitution by way of “equitable relief,” and it also didn’t provide civil or criminal penalties, but rather consigned enforcement to private parties.  Hertz’s argument that restitution required reliance and that reliance would be impossible because all the RACs acted the same way undermined the statute. Restitution was the best way to effectuate the statute.

The court also found that Hertz had been unjustly enriched by charging an unlawful fee, and that allowing it to retain the fees would encourage noncompliance with the statute and give Hertz a windfall, but that a monetary remedy was inappropriate because of the duplicative remedy for Hertz’s violation of the rate statute.

Given these findings, it was no surprise that the court granted the class certification motion.  Hertz’s objections centered on reliance arguments, which had already failed.  So arguments that the named plaintiffs weren’t typical because they weren’t misled were unavailing.

Hertz also argued that the named plaintiffs weren’t adequate because they had business relationships with class counsel or former class counsel, including consulting fees paid by one class counsel in four other cases, one netting plaintiff Dugan $425,000.  Plaintiff Sobol received paid work from former class counsel since becoming a class representative, but these were long ago and modest.  The court found these not disqualifying; these were not close personal relationships, only business relationships, and they didn’t involve ex ante incentive agreements between class counsel and named plaintiffs.  “Professional plaintiffs” are okay because they may be better in class actions at monitoring counsel, and such professional plaintiffs have “at least as strong a business relationship with class counsel as do the named plaintiffs here.” Especially as to Sobel, there was no reason to disqualify them.

Without reliance, common questions predominated, including whether class members were charged the unbundled fees and whether this was unlawful (yes). Likewise as to unjust enrichment: any putative class members who were overcharged were in the same position.  Hertz argued that a class action wasn’t superior because it wasn’t manageable, given the supposed necessity of conducting mini-trials on damages and causation; not so.

Also, plaintiffs were entitled to prejudgment interest at the statutory rate, since restitution wasn’t aimed at deterrence but rather at vindicating plaintiffs’ legal rights.