Airbnb, Inc. v. City & Cnty. of S.F.

• Decision Date: 08 November 2016
• Docket Number: Case No. 3:16–cv–03615–JD
• Court: U.S. District Court — Northern District of California
• Parties: AIRBNB, INC., et al., Plaintiffs, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant.

217 F.Supp.3d 1066

AIRBNB, INC., et al., Plaintiffs,

v.CITY AND COUNTY OF SAN FRANCISCO, Defendant.

Case No. 3:16–cv–03615–JD

United States District Court, N.D. California.

Signed November 8, 2016

Ellen Medlin Devereux Richmond, Joshua Patashnik, John B. Major, Munger, Tolles and Olson LLP, Jonathan Hugh Blavin, Attorney at Law, Sanjay Mohan Nangia, Davis Wright Tremaine LLP, San Francisco, CA, John Willson Spiegel, Munger Tolles & Olson, Los Angeles, CA, Ambika Kumar Doran, James C. Grant, Thomas John Wyrwich, Davis Wright Tremaine LLP, Seattle, WA, for Plaintiffs.

Tara M. Steeley, James Moxon Emery, San Francisco City Attorney's Office, San Francisco, CA, for Defendant.

ORDER RE PRELIMINARY INJUNCTION

JAMES DONATO, United States District Judge

Plaintiffs Airbnb, Inc. ("Airbnb") and HomeAway, Inc. ("HomeAway") seek a preliminary injunction barring enforcement of a City and County of San Francisco ordinance that makes it a misdemeanor to provide booking services for unregistered rental units. The parties agreed that an evidentiary hearing was not necessary and the Court took oral argument on the motion on October 6, 2016. The injunction is denied on the primary grounds urged by plaintiffs, but further proceedings are warranted on an issue relating to fair enforcement.

BACKGROUND

This case arises out of San Francisco's effort to regulate aspects of the "sharing economy" for accommodation rentals. Airbnb is a San Francisco-based company that operates an Internet website through which "guests" can connect with "hosts" to enter into agreements to rent accommodations on a short-or long-term basis. Dkt. No. 50 at 3; Dkt. No. 52 ¶¶ 1, 2. Airbnb does not own, manage or operate any of the host properties, and is not a party to the rental agreements. Dkt. No. 50 at 3; Dkt. No. 52 ¶ 4. It does not charge an upfront fee for hosts to post a listing on its website, and does not run banner ads or other forms of advertising next to the listings. Dkt. No. 52 ¶ 9; Dkt. No. 72 at 18:5–6. Airbnb makes money by charging hosts and guests a service fee that is a percentage based on the cost of the rental. Dkt. No. 52 ¶ 8. Airbnb has been phenomenally successful nationally and internationally since its inception in 2008. HomeAway also features an Internet website that operates in part on the same business model. Dkt. No. 72 at 4:11–14.

An important feature of plaintiffs' websites is that content for the rental listings is driven entirely by hosts. Dkt. No. 52 ¶ 7; Dkt. No. 72 at 18:13–15. The posting process is automated and requires the host to fill in some required fields, but plaintiffs do not verify, review or edit the information provided by the host, and do not contribute content of their own to the listing. Dkt. No. 52 ¶ 7; Dkt. No. 72 at 17:2–25.

The ordinance plaintiffs challenge is San Francisco's most recent approach to regulating short-term rentals. Between 1981 and 2014, San Francisco effectively banned "tourist or transient" rentals out of concerns over losing affordable permanent housing stock. Dkt. No. 57 at 2. In 2015, San Francisco changed course and enacted Ordinance 218–14, which lifted the ban and provides "an exception for permanent residents to the prohibition on short-term residential rentals under certain conditions." Id. One of the main conditions is that a host register a residence with San Francisco before making it available as a short-term rental. Id. ; Dkt. No. 60–1 Exh. A. Registration requires proof of liability insurance and compliance with municipal codes, usage reporting, tax payments and other conditions. Dkt. No. 49 ¶¶ 30, 31. San Francisco also enacted Ordinance 130–15 to create the Office of Short-Term Residential Rental Administration and Enforcement ("OSTR"), which administers the registration and other requirements. Dkt. No. 57 at 3; Dkt. No. 60 ¶ 6.

Taken together, these ordinances broke new ground in San Francisco by legalizing short-term rentals of properties that are registered with the OSTR. Plaintiffs do not challenge Ordinance 218–14 or Ordinance 130–15 in any way, and they agree that a residential unit must be lawfully registered before being rented on a short-term basis. Dkt. No. 72 at 14:21–15:1; see generally Dkt. Nos. 50, 64.

According to San Francisco, compliance with the registration requirement has been spotty. Dkt. No. 57 at 4. As of November 2015, for example, San Francisco had received only 1,082 short-term rental registration applications while Airbnb listed 5,378 unique short-term rental hosts in San Francisco, which points to a registration rate of just 20% even without including HomeAway and other similar services. Id. ; Dkt. No. 51–7 at 14. By March 2016, the ratio was 1,647 registered out of 7,046 listed—a registration rate of approximately 25%. Dkt. No. 57 at 4; Dkt. No. 51–7 at 14. In April 2016, San Francisco's Budget and Legislative Analyst's Office reported that enforcement of the registration requirement was "hampered by the City's lack of information" because short-term rentals "operate in private residences without any commercial signage posted" and because hosting platforms "do not disclose addresses or booking information about their hosts." Dkt. No. 51–7 at 7.

In an apparent response to this situation, San Francisco enacted Ordinance 104–16 (the "Original Ordinance"), which amended Chapter 41A of the Administrative Code. Dkt. No. 51–1. As San Francisco acknowledges, this ordinance directly touched upon content posted on the Internet by imposing requirements designed to prevent the publication of listings for rentals that were not lawfully registered. Dkt. No. 57 at 4. In effect, this ordinance would have required companies like plaintiffs to actively monitor and verify content provided by third-party hosts before publication, at the peril of being held criminally and civilly liable if a listing for an unregistered unit was published on their websites. See Dkt. No. 51–1 at 3–5.

Promptly after the Original Ordinance was enacted in June 2016, Airbnb filed this lawsuit and moved for a preliminary injunction. Dkt. Nos. 1, 3. HomeAway was granted leave to intervene as a plaintiff. Dkt. No. 35. But as the Court prepared to launch the injunction proceedings, San Francisco requested a stay to allow the Board of Supervisors to consider proposed amendments that might "significantly alter plaintiffs' obligations under San Francisco law." Dkt. No. 31–1; Dkt. No. 36.

On August 2, 2016, the Board of Supervisors passed Ordinance 178–16 (the "Ordinance"), which is the law at issue in this lawsuit. Dkt. No. 57 at 4–5; Dkt. No. 58–1 Exh. C. Although styled as an amendment of the Original Ordinance, the Ordinance is significantly different from its predecessor and in practical measure amounts to a new law. Of particular import here, it abandons any requirements or restrictions on the publication of a rental listing. Compare Dkt. No. 51–1 at 4 with Dkt. No. 50–2 at 3–4. The Ordinance makes it a misdemeanor to collect a fee for providing booking services for the rental of an unregistered unit. Dkt. No. 50–2 at 3–4. It became law without the Mayor's signature on August 11, 2016. Dkt. No. 40 at 1.

The operative terms and definitions of the Ordinance are critical to the resolution of the injunction motion, and deserve close attention. As an initial matter, the Ordinance defines a "Booking Service" in pertinent part as "any reservation and/or payment service provided by a person or entity that facilitates a short-term rental transaction between an Owner...and a prospective tourist or transient user...for which the person or entity collects or receives...a fee in connection with the reservation and/or payment services." Dkt. No. 50–2 at 2. It defines a "Hosting Platform" as a "person or entity that participates in the short-term rental business by providing, and collecting or receiving a fee for, Booking Services." Id. The Ordinance expressly states that a Hosting Platform includes more than just "an online platform" and encompasses non-Internet based services as well. Id. Drawing these elements together, the Ordinance permits a Hosting Platform to "provide, and collect a fee for, Booking Services in connection with short-term rentals for Residential Units located in the City and County of San Francisco only when those Residential Units are lawfully registered on the Short Term Residential Rental Registry" at the time of rental. Id. at 3–4. The OSTR interprets "lawfully registered" to mean that a host has obtained a registration number from the OSTR. Dkt. No. 60 ¶ 12. A violation constitutes a misdemeanor punishable by a fine of up to $1,000 and imprisonment for up to six months. Dkt. No. 50–2 at 2–3. The Ordinance also imposes reporting and other requirements, but the Booking Service terms and provisions are at the heart of plaintiffs' lawsuit.

On August 17, 2016, San Francisco filed a "Notice of Completion of Amendment Process" and took the position that the litigation should proceed. Dkt. No. 40. At a status conference on August 22, 2016, San Francisco agreed to stay enforcement of the Ordinance pending the Court's disposition of plaintiffs' renewed preliminary injunction motion. Dkt. No. 44. Plaintiffs jointly filed the renewed motion on September 6, 2016. Dkt. No. 50.

Plaintiffs challenge the Ordinance on three main grounds: (1) "preemption" under the Communications Decency Act, 47 U.S.C. § 230 ("CDA"); (2) content-based speech restriction under the First Amendment to the United States Constitution; and (3) imposition of criminal strict liability. See generally Dkt. Nos. 49, 50.

DISCUSSION

I. Preliminary Injunction Standards

A "preliminary injunction is an extraordinary remedy never awarded as of right."

Winter v. Natural Res. Def. Council, Inc. , 555 U.S. 7, 24, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). "A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the...