Challenge to Santa Monica's Home-Sharing Law Reaches Court of Appeals

By Jorge Casuso

October 15, 2018 -- The Ninth Circuit Court of Appeals on Friday began hearing arguments in a lawsuit filed by Airbnb and HomeAway that seeks to invalidate key sections of Santa Monica's pioneering homesharing law.

Attorneys for the two online companies are seeking to invalidate portions of the City's law that penalize online platforms for booking short-term rentals of unlicensed properties.

On Friday, the plaintiffs argued that the local ordinance is upending their business model by forcing them to remove illegal listings and poses an economic threat to the growing industry if other cities follow suit, according to a report in courthousenews.com.

Customers don’t want to visit a website "if it’s cluttered with potentially illegal listings they can’t book," an attorney for Airbnb told the panel.

Judges on the panel suggested the companies could screen the postings for compliance or add a notice alerting customers that a listing may not comply, according to the report.

Airbnb attorney Donald Verrilli of Munger Tolles & Olson told the judges that Santa Monica should “enlist the cooperation” of the sites, according to the report.

City attorneys countered that they would consider sharing data from a public registry of home-sharing hosts required under a 2017 amendment to the law, which was approved in 2015.

City officials argue that the ordinance strikes a sensible balance that protects Santa Monica's limited housing stock, while allowing residents to share their homes for a fee.

"The City’s ordinance creates a legal path for members of the community to supplement income through licensed home shares," City Attorney Jane Dilg said in a statement Friday.

"But it maintains the City's longstanding prohibition against widespread conversion of residential units into vacation rentals that incentivize evictions and reduce available housing," Dilg said.

Approved in April 2015, Santa Monica's homesharing law allows residents to rent to visitors for less than 31 days, as long as the resident and visitor are both present in the home.

It also requires home-sharing sites to remove individual listings that fail to comply with the law ("Santa Monica Moves to Ban Short-term Vacation Rentals," April 30, 2015).

In March, a U.S. District Court in the the Central District of California denied a motion by AirBnB and HomeAway for a preliminary injunction against the law ("Efforts to Temporarily Halt Santa Monica's Home-Sharing Law Fails in Court," March 14, 218).

In the ruling, the court held that the platforms are "not likely to prevail on their claims that the City’s ordinance is unlawful" under the federal Communications Decency Act (“CDA”), the First Amendment and the California Coastal Act, City officials said.

In June, Judge Otis D. Wright II, U.S. District Judge for the Central District of California, dismissed the lawsuit.

In the ruling, the court found Santa Monica's law does not penalize publishing activities in violation of the Communications Decency Act, but instead prevents unlawful business transactions on their websites.

It also does not violate the First Amendment because it regulates conduct and not speech ("Federal Court Tosses Challenge to Santa Monica's Home-Sharing Law," June 18, 2018).

"As determined by two federal district courts, this reasonable local law regulates commercial transactions -- not speech or publication -- and is consistent with the Communications Decency Act and the First Amendment," Dilg said in her statement.

"Online platforms violate the ordinance only when they directly engage in unlawful booking transactions for unlicensed short-term rentals within the City."

In approving the ordinance, City officials argued that Santa Monica's housing crunch was exacerbated by landlords removing regular rental units -- even entire apartment complexes -- from the market to make way for more profitable short-term rentals for tourists.

In September 2017, Airbnb filed a lawsuit alleging the local ordinance was "clumsily-written" and included multiple violations of federal law ("Santa Monica Sued by Airbnb," September 7, 2016).