Hignell-Stark v. City of New Orleans

• Decision Date: 22 August 2022
• Docket Number: 21-30643
• Citation: 46 F.4th 317
• Parties: Samantha HIGNELL-STARK; White Spider Rental Concierge, L.L.C.; Garett Majoue; Russell Frank; Samantha McRaney; Bob McRaney; Jimmie Taylor, Plaintiffs—Appellants/Cross-Appellees, v. The CITY OF NEW ORLEANS, Defendant—Appellee/Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

46 F.4th 317

Samantha HIGNELL-STARK; White Spider Rental Concierge, L.L.C.; Garett Majoue; Russell Frank; Samantha McRaney; Bob McRaney; Jimmie Taylor, Plaintiffs—Appellants/Cross-Appellees,
v.
The CITY OF NEW ORLEANS, Defendant—Appellee/Cross-Appellant.

No. 21-30643

United States Court of Appeals, Fifth Circuit.

FILED August 22, 2022

Dawn Adams Wheelahan, Dawn Adams Wheelahan, for Plaintiffs-Appellants/Cross-Appellees.

Daniel T. Smith, City Attorney's Office for the City of New Orleans, New Orleans, LA, for Defendant-Appellee/Cross-Appellant.

Before Smith, Wiener, and Southwick, Circuit Judges.

Jerry E. Smith, Circuit Judge:

This case involves three constitutional challenges to New Orleans's regulation of short-term rentals ("STRs")—the City's term for the type of lodging offered on platforms such as Airbnb and Vrbo. The district court granted summary judgment to the City on two of those challenges but held that the third was "viable." Both sides appealed. We affirm in part, vacate in part,

46 F.4th 321

and dismiss the City's cross-appeal for lack of jurisdiction.

I.

A.

Before STRs became a major phenomenon, the City forbade property owners in residential neighborhoods from renting their homes for less than thirty days. In 2016, however, the City decided to offer licenses for such property owners to do so for shorter periods. That licensing regime went into effect on April 1, 2017.

That initial regime made clear that an STR license was "a privilege, not a right."¹ It provided only that the City "may issue" an STR license—even to someone who met all the statutory requirements for one. Id. § 26-615 (emphasis added). STR licenses also expired after one year. Id. §§ 26-613(a), 26-616. And while the City promised that "[r]enewal permits shall be issued in the same manner as initial permits," id. § 26-616, that assurance was made subject to its limitations on issuing permits in the first place.

One year into the initial regime, the City commissioned a study from its Planning Commission to reevaluate the STR policies. The study found that the rapid proliferation of STRs had brought nuisances to the City. Specifically, it discovered that STRs in residential neighborhoods had lowered residents' quality of life. Many visitors to the City who stayed in STRs were loud and did not clean up after themselves. The study also determined that the expansion of STRs into residential neighborhoods had led to a "loss of neighborhood character." And it collected "anecdotal evidence" that the booming STR market had made housing less affordable for residents.

Because of the study and other efforts to examine the STR market, the City substantially revised its STR licensing regime in 2019. Only two of those changes are relevant to this appeal.

First , the City imposed a residency requirement for STRs in residential neighborhoods. Its new policy provided that no person could obtain a license to own such an STR unless the property was also "the owner's primary residence."² At oral argument, the City explained that it enforces this restriction by requiring applicants to show that they have a homestead exemption for the property they wish to rent.³ Under Louisiana law, a homeowner may receive a homestead exemption only for his principal residence. See La. Const. art. 7, § 20.

Second , the City imposed new advertising restrictions on STR license holders. Those restrictions prohibited them from (1) advertising illegal STRs and (2) advertising legal STRs with greater capacities than permitted by their licenses. See NEW CODE § 26-618(b)(1)–(4).

B.

The plaintiffs are a group of property owners who wish to obtain STR licenses for their homes.⁴ Many acquired STR licenses

46 F.4th 322

under initial regimes that were not renewed, and several were denied STR licenses under the new regime on account of the City's new residency requirement.

In November 2019, the plaintiffs sued the City under 42 U.S.C. § 1983 for violating a litany of their constitutional rights. Three of their claims are relevant here. First , they said the City's failure to renew their STR licenses violated the Takings Clause because they had a property interest in the renewal of their licenses. Second , they maintained the residency requirement violated the dormant Commerce Clause because it discriminated against interstate commerce. Third , they contended that the advertising restrictions violated the First Amendment as a prior restraint on their protected speech. For remedies, the plaintiffs requested a declaration that the City's policies were unconstitutional and a permanent injunction against their enforcement. They also asked for attorneys' fees under 42 U.S.C. § 1988.

The plaintiffs moved for summary judgment on their Takings Clause claim. The City cross-moved for summary judgment on that claim plus the dormant Commerce Clause claim. The district court granted the City's motion in full. It held that the plaintiffs' Takings Clause claim failed because they had no property interest in the renewal of their licenses. It also rejected their dormant Commerce Clause challenge. Although it acknowledged that the residency requirement discriminated against interstate commerce, it held that the policy was constitutional because the burden it imposed was not "clearly excessive in relation to the putative local benefits." Pike v. Bruce Church, Inc. , 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970)

The district court then instructed the parties to brief the plaintiffs' prior-restraint claim. Based on that briefing, it held that the prior-restraint claim was "viable." The court reasoned that the ordinances gave the City too much discretion in approving and denying STRs—and therefore, the plaintiffs' ability to advertise STRs.

The plaintiffs appeal the summary judgment on the dormant Commerce Clause claim and the Takings Clause claim. The City cross-appeals the "holding"—its term, not ours—that the prior-restraint claim is "viable."

II.

The plaintiffs claim that the City violated the Takings Clause by refusing to renew their STR licenses. In their telling, they enjoyed property interests in the renewal of their licenses that the City took away from them without just compensation. We disagree. The district court correctly held that the plaintiffs have no such interests.⁵

The Takings Clause protects property interests but does not create them. Instead, "the existence of a property interest is determined by reference to existing rules or understandings that stem from an independent source such as state law." Phillips v. Wash. Legal Found. , 524 U.S. 156, 164, 118 S.Ct. 1925, 141 L.Ed.2d 174 (1998) (quotation omitted). Accordingly, we usually treat, as dispositive, the existence—or absence—of a property interest under state law.⁶

46 F.4th 323

The plaintiffs, however, do not claim that Louisiana law recognizes that they have a property interest in the renewal of their licenses. They maintain that they have such an interest because this court has recognized that business licenses qualify as property for purposes of procedural due process. They rely on Bowlby v. City of Aberdeen , 681 F.3d 215 (5th Cir. 2012). There, we held that "[p]rivileges, licenses, certificates, and franchises qualify as property interests for purposes of procedural due process." Id. at 220 (alteration adopted) (quoting Wells Fargo Armored Serv. Corp. v. Ga. Pub. Serv. Comm'n , 547 F.2d 938, 941 (5th Cir. 1977) ).

But there's a big difference between saying that something is property for purposes of procedural due process and saying that it is property for purposes of the Takings Clause. The former merely obligates a governmental entity to provide the "owner" with procedural protections—and only when a cost-benefit analysis shows that those procedures are worth the cost. See generally Mathews v. Eldridge , 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). But the latter means that the government must pay damages. And the test for a property interest protected by procedural due process is quite broad: "A person's interest in a benefit is a ‘property’ interest for due process purposes if there are such rules or mutually explicit understandings that support his claim of entitlement to the benefit ...." Perry v. Sindermann , 408 U.S. 593, 601, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972) ; accord Bd. of Regents of State Colls. v. Roth , 408 U.S. 564, 577–78, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972).

This court's rule of orderliness, however, requires us to recognize that some "mutually explicit understandings" can create property interests protected by the Takings Clause. The relevant case is Dennis Melancon, Inc. v. City of New Orleans , 703 F.3d 262 (5th Cir. 2012). The Melancon plaintiffs claimed that an ordinance imposing new restrictions on their taxi licenses enacted a regulatory taking. Id. at 266. The ordinance restricted the ability of cab drivers to sell their licenses and declared that those licenses were "privileges and not rights." Ibid.

Ultimately, we rejected the Melancon plaintiffs' claim that they had a property interest in their licenses for purposes of the Takings Clause. Id. at 272–75. But we also indicated that some rights recognized by custom alone could qualify as property for purposes of the Takings Clause. We acknowledged that "state law generally defines what constitutes a property interest," but we maintained that " ‘unwritten common law’ or ‘policies and practices’ also can rise to the level of creating ‘property interests.’ " Id. at 269 (quoting Perry , 408 U.S. at 602–03, 92 S.Ct. 2694 ). We thus concluded that "the Fifth Amendment protects expectations arising not just from legislation or judicial precedent, but also those springing from custom and practice." Id. (alteration adopted and quotation omitted).

Even so, Melancon did not hold that customary...