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Airbnb and Homeaway challenge Santa Monica ordinance regulating home-share rentals

Airbnb and Homeaway challenge Santa Monica ordinance regulating home-share rentals

In this week’s travel law article we examine the case of Airbnb, Inc. v. City of Santa Monica, Case N: 2:16-cv-06645-ODW (AFM)(June 14, 2018) wherein the “Plaintiffs HomeAway.com, Inc. and Airbnb, Inc., initiated separate actions to challenge an ordinance (the Ordinance) passed by the City of Santa Monica, California (the City) regulating home-share rentals (and) seeking injunctive relief under 42 U.S.C. 1983 due to violations of (1) the First, Fourth and Fourteenth Amendments of the U.S. Constitution; (2) the Communications Decency Act (CDA), 47 U.S.C. 230 and (3) the Stored Communications Act (SCA), 18 U.S.C. 2701 (the federal claims). Plaintiffs also alleged that the Ordinance violated the California Coastal Act…The City moves to dismiss Plaintiffs’ federal-law claims and request that the Court decline supplemental jurisdiction over the remaining state-law claim… the Court grants the City’s motion”.

In the Airbnb, Inc. case the Court noted that “Airbnb and Homeaway operate with different business models. Airbnb provides payment processing services that permit hosts to receive payments electronically. Airbnb receives a fee from the guest and host, which covers its listing services, calculated as a percentage of the booking fee. Homeaway hosts pay for services in one of two ways: a pay-per-booking option based on a percentage of the amount charged by the host. Or buying a subscription to advertise properties for a set period. Travelers using Homeaway pay hosts directly or through third-party payment processors”.

The Ordinance

“In May 2015, the City adopted Ordinance (Original Ordinance)(which) prohibited ‘Vacation Rentals’ which were defined as rentals of residential property for thirty consecutive days or less, where residents do not remain within their units to host guests…The Original Ordinance permitted residents to host visitors for compensation for a period of less than thirty-one days, so long as residents obtained a business license and remained on-site throughout the visitor’s stay. The City claims that the Original Ordinance expressly adopted and reaffirmed the City’s longstanding prohibition on short-term rentals. Plaintiffs argue that the Original Ordinance made a change in the law, because before it was passed, the City never directly banned short-term rentals”.

Regulating Hosting Platforms

“The Original Ordinance also regulated ‘Hosting Platforms’ like Plaintiffs, by barring them from ‘advertis[ing]’ or ‘facilitat[ing]’ rentals that violated the City’s short-term rental laws. It also required them to (1) collect and remit to the City applicable Transient Occupancy Tax revenue and (2) disclose certain information about listings to the City, including the names of the persons responsible for each listing, the address, the length of stay and the price paid for each day. The City issued Plaintiffs several citations pursuant to the Original Ordinance, which Plaintiffs paid under protest”.

Ordinance Amended

“On January 24, 2017, the City adopted the Ordinance, which amended the Original Ordinance. The Ordinance does not prohibit publication, or require the removal of, content provided to Plaintiffs by hosts, not does it require Plaintiffs to verify content provided by hosts to ensure that short-term rental hosts comply with the law. Rather the Ordinance prohibits Hosting Platforms from ‘complet[ing] any booking transaction for any residential property or unit unless it is listed on the City’s registry [of licensed home-sharing hosts] at the time the hosting platform receives a fee for the booking transaction’. A ‘booking transaction’ is ‘[a]ny reservation or [payment service provided by a person who facilitates a home-sharing or vacation rental transaction between a prospective transient user and a host’. Further, the Ordinance permits the City to ;issue ad serve administrative subpoenas as necessary to obtain specific information regarding home-sharing and vacation rental listing located in the City…Each violation of the Ordinance in an infraction, punishable by a fine of up to $250, or a misdemeanor, punishable by a fine up to $500, imprisonment for six months or both”.

Communications Decency Act

“Plaintiffs argue that he Ordinance violates the CDA…because te Ordinance treats Plaintiffs as the publisher or speaker of information provided by the hosts, who are third-party content providers…Plaintiffs argue that, by requiring them to verify whether a listing is included on the City’s registry before completing a booking transaction, the Ordinance imposes liability on them based on content supplied by third parties. The City argues that Plaintiff’s CDA claims must be dismissed because the Ordinance targets unlawful conduct that is unrelated to publishing activities…In the Court’s (earlier) Order denying the preliminary injunction, the Court agreed with the City, finding that the Ordinance does not penalize Plaintiffs’ publishing activities; rather it seeks to keep them from facilitating business transactions on their sires that violate the law. In reaching this decision, the Court followed a decision in a similar case from the Northern District of California in Airbnb, Inc. v. County of San Francisco, 217 F. Supp. 3d 1066 (N.D. Cal. 2016)(the ‘San Francisco Decision’). The Court finds no reason to alter its previous reasoning on Plaintiffs’ CDA claim”.

First Amendment

“Plaintiffs allege that the Ordinance is a content-based restriction that burdens and impermissibly chills their protected commercial speech and, therefore, violates the First Amendment…In the (earlier) Order denying Plaintiffs’ Motion for Preliminary Injunction, the Court found that the Ordinance regulates conduct, not speech, and that the conduct banned by the Ordinance-booking transactions for residential properties not listed on the City’s registry-does not have such a ‘significant expressive element’ as to draw First Amendment protection. The Court sees no reason to revisit the reasoning set out in its previous order”.

Fourteenth Amendment

“Plaintiffs allege that the Ordinance violates the Fourteenth Amendment because it imposes strict criminal liability without proof of mens rea or scienter…The City also argue that the absence of a specified mens rea does not invalidate a criminal statute; instead scienter is an implied element from proving criminal liability…the Court agrees”.

Stored Communications Act

“Plaintiffs allege that the Ordinance’s requirement that they regularly disclose private user information to the City, without subpoena…violates the Stored Communications Act (SCA) and the Fourth Amendment. The Ordinance provides that ‘[s]ubject to applicable laws, hosting platforms shall disclose to the City on a regular basis each home-sharing and vacation rental located in the City, the names of the persons responsible for each such listing. The address of each such listing, he length of stay for each such listing and the price paid for each stay’. The City argues that the ‘applicable laws’ provisions mens that the Ordinance must comply with the SCA, the Fourth Amendment and SMMC 6.20.100(e) which outlines an administrative subpoena process for the City to obtain information described above…Therefore, the Court finds that the Ordinance does not violate the SCA or the Fourth Amendment on its face”.

Conclusion

“Because the Court had dismissed all of the Plaintiffs’ pending federal claims, the Court declines to exercise supplemental jurisdiction over the remaining state-law claims under the California Coastal Act…the Court grants the City’s Motion to Dismiss”.

Patricia and Tom Dickerson

The author, Thomas A. Dickerson, passed away on July 26, 2018 at the age of 74. Through the graciousness of his family, eTurboNews is being allowed to share his articles that we have on file which he sent to us for future weekly publication.

The Hon. Dickerson retired as an Associate Justice of the Appellate Division, Second Department of the New York State Supreme Court and wrote about Travel Law for 42 years including his annually-updated law books, Travel Law, Law Journal Press (2018), Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2018), Class Actions: The Law of 50 States, Law Journal Press (2018), and over 500 legal articles many of which are available here. For additional travel law news and developments, especially in the member states of the EU, click here.

Read many of Justice Dickerson’s articles here.

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