LOS ANGELES (CN) — A federal judge rejected a constitutional attack on a Santa Monica ordinance that bans most Airbnb-style short-term vacation rentals, but allowed frustrated homeowners to continue their class action against the city’ under California’s sweeping Coastal Act.
The March 30 ruling from U.S. District Judge Otis D. Wright II came one day after Santa Monica scored a victory against one of the most prolific short-term rental companies in the area.
In that case, a Los Angeles Superior Court judge affirmed city prosecutors’ charges that Globe Homes LLC, which acts as property manager and broker between homeowners and vacationers, had violated Santa Monica’s ordinance 35 times. The city accused Globe of hiding its activities from investigators through subterfuge, which according to news reports included creating phony Airbnb profiles for owners. Globe is appealing.
Considered one of the nation’s toughest laws against short-term rentals, Santa Monica’s ordinance, enacted in 2015, prohibits “vacation rentals” of residential property, defined as “leasing an entire property on a short-term basis,” according to Wright’s ruling. It allows “home sharing,” or “renting a private room within a host’s home, with the host present in other portions of the home during the stay.” Those hosts must register with the city and pay hotel taxes.
The City Council made the law even tougher in January, when it required home-sharing hosts to be listed on a public registry.
In the case before Judge Wright, 81-year-old retired teacher Arlene Rosenblatt sued Santa Monica in June last year, for the right to rent out her apartment while she traveled to New York and Seattle to visit her children. She and her husband live off their Social Security benefits and need the extra income from the rentals, she wrote in a 2015 letter to the editor of a newspaper.
Her class action said the city’s prohibition of vacation rentals violates the Constitution’s dormant Commerce Clause because it “substantially burdens interstate commerce and discriminates in favor of Santa Monica businesses and interests at the expense of non-Santa Monica residents and interests” and “constitutes an unreasonable restriction on the use of privately owned property.”
She said the city was favoring local hotels at the expense of out-of-state travelers.
Wright rejected those arguments. First, he held that the city’s ordinance does not directly affect interstate commerce, even though vacationers from outside California do use internet sites such as Airbnb to rent Santa Monica residences.
“Simply because Internet payments, advertising, and communications for these vacation rental transactions extend over state lines or between residents of different states does not bring them within the definition of interstate commerce,” Wright wrote in the 10-page order. Rather, “courts finding direct regulation of interstate commerce consistently require restraint or control over wholly extra-territorial transactions and/or conduct.”
Second, he held the ordinance does not discriminate against out-of-state businesses or customers. “It treats them exactly the same as in-state interests: neither may operate short-term vacation rentals within the City.”
Non-Californians who want to visit Santa Monica’s beaches can stay in hotels in the city or share space in homes alongside their hosts. “There is only one set of rules, and it applies to all regardless of the origin of the interest,” Wright wrote.
He dismissed Rosenblatt’s Commerce Clause causes of action without leave to amend.
But he allowed her to proceed with the claim that the city is violating the California Coastal Act, which regulates development within 1,000 feet of the ocean.
Santa Monica has not filed a required “Local Coastal Program” with the Coastal Commission, outlining its compliance with the Act, Wright said. “As such, defendants cannot show that plaintiff has stated no claim on which relief can be granted under the California Coastal Act.”
According to Rosenblatt’s attorney, Jordan Esensten of Los Angeles, that missing local coastal program means the ordinance was illegal from the beginning. “They are not allowed to implement the ordinance under the Coastal Act,” he said.
Santa Monica Deputy City Attorney Michael Cobden said he and his colleagues were pleased with Wright’s ruling on the Commerce Clause, but “we have a little bit of trouble understanding” Rosenblatt’s claim under the Coastal Act. Even so, “We feel very confident of our chances on the merits,” he said.
He said the city has been preparing a local coastal program for some time and will file it soon.
Airbnb and a competing short-term rental platform, HomeAway, also have sued Santa Monica over its ordinance, separately. A representative of Airbnb was unable to respond to a query about the lawsuit late Monday.
Cobden said that litigation is paused while Airbnb is in settlement talks in a nearly identical lawsuit against San Francisco. In both, the rental platforms are challenging local ordinances under Section 230 of the federal Communications Decency Act, which protects online platforms that post or republish information or speech.
Stephen R. Miller, a land-use professor at the University of Idaho College of Law, who tracks litigation involving short-term rental platforms, said Airbnb has brought similar Section 230 suits against New York and Anaheim, California. The suit against Anaheim was dismissed after the city changed its ordinance, he said.
Other litigation around the country focuses on whether a state or city has the authority to regulate short-term rentals, according to Miller. For instance, property owners are fighting an Austin, Texas, ordinance on the ground it violates the state constitution.
Would-be hosts in Nashville opposed that city’s ordinance as violating their property rights, and a judge recently struck it down as unconstitutionally vague, according to Chance Weldon, one of the attorneys at the Texas Public Policy Foundation challenging the Austin law.