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Paul Zimmerman
pzimmerman@mrllp.com
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San Diego Tourism Surcharge Lawsuit Moves Forward

A judge recently ruled that the nonprofit group San Diegans for Open Government (“SDFOG”) has standing to challenge the City of San Diego’s practice of charging hotels a fee used to promote the City’s tourism industry. While the case has yet to  be decided on the merits, the lawsuit could have wide-ranging impact as it concerns a practice that stands to generate more than $1 billion over the next forty years.

In 2007, the San Diego City Council adopted an ordinance that allowed the City to levy a 2% hotel room surcharge and created the San Diego Tourism Marketing District (“SDTMD”) as a private organization. Those fees were then channeled to the hotelier-run SDTMD that used the money to promote tourism in the City. In November 2012, the City Council renewed the SDTMD and fee assessment for nearly 40 years, prompting the SDFOG to file a civil lawsuit claiming that the surcharge constituted a tax that should have been left to voters to approve. In that regard, the lawsuit seeks to invalidate the ordinance and stop assessing hotel owners the 2% fees. The City and the SDTMD argued for dismissal, claiming that the plaintiff lacked standing to sue.

In this recent ruling, San Diego Superior Court Judge Joel Wohfell refused to toss the lawsuit in favor of the City and the SDTMD. Rather, he held that the SDFOG – a nonprofit group – had demonstrated that it had a member who was in fact assessed the fee and, therefore, had standing to bring the action. In addition, the Court rejected the defendants’ assertion that the nonprofit group lacked standing because it was merely the alter ego of plaintiffs’ counsel.

The City and the SDTMD have already spent more than $2.2 million in attorney fees to defend this high stakes litigation. Indeed, the outcome will impact the tourism and hospitality industries, how funding in support of those industries is generated, and who may bring suit to challenge fund-raising activities. M&R will continue to follow this lawsuit and provide updates as the case proceeds.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.