Expedia 2011 Annual Report Download - page 111

Legal Proceedings
In the ordinary course of business, we are a party to various lawsuits. Management does not expect these
lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Expedia. We
also evaluate other potential contingent matters, including value-added tax, federal excise tax, transient
occupancy or accommodation tax and similar matters. We do not believe that the aggregate amount of liability
that could be reasonably possible with respect to these matters would have a material adverse effect on our
financial results.
Litigation Relating to Hotel Occupancy Taxes. Seventy-nine lawsuits have been filed by cities, counties and
states involving hotel occupancy taxes. These lawsuits are in various stages and we continue to defend against
the claims made in them vigorously. With respect to the principal claims in these matters, we believe that the
ordinances at issue do not apply to the services we provide, namely the facilitation of hotel reservations, and,
therefore, that we do not owe the taxes that are claimed to be owed. We believe that the ordinances at issue
generally impose occupancy and other taxes on entities that own, operate or control hotels (or similar businesses)
or furnish or provide hotel rooms or similar accommodations. To date, twenty-five of these lawsuits have been
dismissed. Some of these dismissals have been without prejudice and, generally, allow the governmental entity or
entities to seek administrative remedies prior to pursuing further litigation. Thirteen dismissals were based on a
finding that we and the other defendants were not subject to the local hotel occupancy tax ordinance or that the
local government lacked standing to pursue their claims. As a result of this litigation and other attempts by
certain jurisdictions to levy such taxes, we have established a reserve for the potential settlement of issues related
to hotel occupancy taxes, consistent with applicable accounting principles and in light of all current facts and
circumstances, in the amount of $32 million as of December 31, 2011 and $24 million as of December 31, 2010.
This reserve is based on our best estimate and the ultimate resolution of these contingencies may be greater or
less than the liabilities recorded. In addition, as of December 31, 2011 and December 31, 2010, we had accruals
totaling $10 million and $13 million related to court decisions and final settlements. Changes to these settlement
reserves and accruals are included within legal reserves, occupancy tax and other in the consolidated statements
of operations.
In connection with various occupancy tax audits and assessments, certain jurisdictions may assert that
taxpayers are required to pay any assessed taxes prior to being allowed to contest or litigate the applicability of
the ordinances, which is referred to as “pay-to-play.” These jurisdictions may attempt to require that we pay any
assessed taxes prior to being allowed to contest or litigate the applicability of the tax ordinance. Payment of these
amounts is not an admission that we believe we are subject to such taxes and, even when such payments are
made, we continue to defend our position vigorously. During 2009, we expensed and paid approximately $48
million to the City of San Francisco for amounts assessed for hotel occupancy tax, including penalties and
interest, from January 2000 to March 2009. During 2010, we expensed and paid approximately $3 million to the
City of Santa Monica for amounts assessed for hotel occupancy tax. In each case, we paid such amounts in order
to be allowed to pursue litigation challenging whether we are required to pay hotel occupancy tax on the portion
of the customer payment we retain as compensation and, if so, the actual amounts owed. We do not believe that
the amounts we retain as compensation are subject to the cities’ hotel occupancy tax ordinances. If we prevail in
the litigation (including any appeal), the cities will be required to repay these amounts, plus interest. In December
2011, the city of Santa Monica returned the $3 million in exchange for a letter of credit.
Class Action Lawsuit. We were a defendant in a class action lawsuit filed in Seattle, Washington alleging
that certain practices related to our service fees breached our Terms of Use and violated Washington’s Consumer
Protection Act from 2001 through 2008. In May 2009, the court granted the plaintiffs’ motion for summary
judgment on their breach of contract claim, without the benefit of an actual trial on the merits, and denied the
plaintiffs’ motion for summary judgment on their Consumer Protection Act claim. We entered into a Settlement
Agreement, initially estimated at a cost of $19 million, providing for the settlement of all claims alleged in the
lawsuit, which was approved by the court on December 1, 2009. The court’s order approving the Settlement
Agreement was appealed by third parties but dismissed by the court on April 14, 2010. We denied and continue
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