Ninth Circuit Decision on Santa Monica Short-Term Rental Ordinance is Win for Cities, Defeat for Airbnb
On March 13, the Ninth Circuit issued its highly anticipated opinion in HomeAway.com v. City of Santa Monica, upholding the City's ordinance restricting short-term home rentals on popular websites like Airbnb.com.
In light of the severe housing crisis currently afflicting California, concerns have arisen over the impact of short-term home rentals on the supply of long-term housing. Against this backdrop, in 2017 the City of Santa Monica passed an ordinance limiting short-term rentals on online platforms to those licensed and registered on the City's registry. The City had found that the proliferation of short-term rentals had negatively impacted the quality and character of its neighborhoods by increasing commercial activity while removing housing stock from the market.
Santa Monica's 2017 Ordinance 2535 (the "Ordinance"), which revised a prior version, imposed four obligations on hosting platforms like Airbnb: (1) collecting and remitting Transient Occupancy Taxes, (2) regularly disclosing listings and booking information to the City, (3) refraining from booking properties not licensed and listed on the City's registry, and (4) refraining from collecting a fee for ancillary services.
Airbnb and HomeAway.com ("Plaintiffs" or "Platforms") challenged the Ordinance as violating the Communications Decency Act of 1996 ("CDA") and the First Amendment. After the case was dismissed by the district court, Plaintiffs appealed to the Ninth Circuit.
Communications Decency Act
The CDA provides internet companies with immunity for certain claims in order to "promote the continued development of the Internet and other interactive computer services." Plaintiffs argued the Ordinance violates the CDA by interfering with federal policy protecting internet companies from liability for posting third-party content.
The critical question before the court was "whether the Ordinance treats the Platforms as a 'publisher or speaker' in a manner that is barred by the CDA." Plaintiffs argued that it does, because the Ordinance requires platforms to monitor the content of third-party listings and ensure their compliance with the City's short-term rental registry. The court rejected this argument, stating that the Ordinance merely prohibits processing transactions for unregistered properties and does not require Plaintiffs to monitor the content of listings.
The court also rejected Plaintiffs' contention that the Ordinance violates the CDA by forcing them to remove third-party content. Even if removal is Plaintiffs' most practical compliance option, the Ordinance does not require revision or removal in a manner that implicates the CDA. The court noted that holding otherwise could risk exempting internet companies from most local regulations, leading to "a lawless no-man's land on the Internet."
The court dispensed with Plaintiffs' free speech arguments by finding that the Ordinance is "plainly a housing and rental regulation" and does not target conduct with "a significant expressive element." Accordingly, it is a restriction directed at commerce or conduct whose incidental restrictions on speech do not run afoul of the First Amendment.
The court also noted that websites such as Craigslist.com advertise the same properties but are not subject to the Ordinance because they do not process transactions—which underscores the true aim of the Ordinance.
Conclusion and Implications
The HomeAway.com decision signals a judicial reluctance to distinguish between traditional housing regulations and those restricting online housing platforms. A primary takeaway for municipalities seeking to regulate the online housing market is to ensure that such regulations apply primarily to conduct and place only incidental restrictions on speech. As HomeAway.com demonstrates, the involvement of internet-based platforms does not necessarily implicate either the CDA or the First Amendment.
For California cities and counties seeking to address the state’s housing crisis, the decision may prove significant going forward. For questions regarding this case or local housing regulations generally, please contact our land use attorneys.
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