Airbnb had a bad day too: court rejects 230, First Amendment challenges to SF rental ordinance

Airbnb, Inc. v. City and County of San Francisco, 16-cv-03615 (N.D. Cal. Nov. 8, 2016)

Airbnb and HomeAway sought to enjoin SF’s ordinance making it a misdemeanor to provide booking services for unregistered rental units.  The court denied a preliminary injunction.

Airbnb and HomeAway make money by charging hosts and guests a service fee based on the cost of the rental.  Their posting process is automated and requires the host to fill in some required fields, but the sites don’t verify, review or edit the information provided by the host, and do not contribute content of their own to the listing.

In 2015, San Francisco banned its effective ban on “tourist or transient” rentals, but required that a host register a residence with San Francisco before making it available as a short-term rental.  Registration has various prerequisites.  Plaintiffs agreed that a residential unit must be lawfully registered before being rented on a short-term basis, but compliance with the registration requirement has been spotty:

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.  By March 2016, the ratio was 1,647 registered out of 7,046 listed -- a registration rate of approximately 25%. 

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.”  An August 2016 ordinance made it a misdemeanor to collect a fee for providing booking services for the rental of an unregistered unit.  A“Booking Service” is defined in relevant 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.” A “Hosting Platform” is a “person or entity that participates in the short-term rental business by providing, and collecting or receiving a fee for, Booking Services,”  but doesn’t need to be “an online platform” and encompasses non-Internet based services as well.  The Ordinance permits a Hosting Platform to “provide, and collect a fee for, Booking Services in connection with short-term rentals” only when the units rented are lawfully registered on the Short Term Residential Rental Registry at the time of rental.  “Lawfully registered” means that a host has obtained a registration number from the San Francisco’s administrative office, the OSTR.  A violation is a misdemeanor punishable by a fine of up to $1,000 and imprisonment for up to six months.

Plaintiffs argued that the Ordinance was preempted by § 230 of the CDA.  Plaintiffs argued that the threat of a criminal penalty for providing and receiving a fee for Booking Services for an unregistered unit required them to actively monitor and police listings by third parties to verify registration.  This was, they argued, tantamount to treating them as a publisher because it involved the traditional publication functions of “reviewing, editing, and deciding whether to publish or to withdraw from publication third-party content.” 

But, the court concluded, the Ordinance didn’t treat them as publishers or speakers of the rental listings.  It didn’t regulate what the listings could or couldn’t say. It created no monitoring or blocking obligation.  Plaintiffs were perfectly free to publish any listing they get from a host and to collect fees for doing so, whether the unit was lawfully registered or not. The only thing that could create liability was plaintiffs’ own conduct: providing and collecting a fee for booking services in connection with an unregistered unit.  This didn’t depend on who was the publisher or who was the speaker.  Section 230(c) does not create “a general immunity from liability deriving from third-party content.”

 “[T]he challenged Ordinance regulates plaintiffs’ own conduct as Booking Service providers and cares not a whit about what is or is not featured on their websites.” Plaintiffs argued that the ordinance would still have the practical effect of requiring them to monitor listings and remove posts for unregistered rentals.  But the ordinance didn’t compel that result.  Plaintiffs could post a notice to users that they could provide Booking Services in San Francisco only for units that are lawfully registered and verified as such. Or they could charge fees for publishing listings, rather than for facilitating transactions, which would be perfectly lawful.  [Interesting result, not entirely surprising.  If Airbnb provided its ISP services via a negative option billing plan and a state banned negative option billing, I would think 230 would not preclude that regulation either.]

Likewise, there was no First Amendment barrier to the ordinance.  The First Amendment doesn’t prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech.  The conduct at issue doesn’t have a significant expressive element, nor did the ordinance have the inevitable effect of “‘singling out those engaged in expressive activity.’”   The law wasn’t limited to internet platforms and there was no indication that there was any speech-suppressive motivation.  The Ordinance was supposed to help enforce compliance with the registration requirement: it was directed at specific business transactions and practices, and “not to any message the businesses express.”

Sorrell didn’t require a different outcome, nor did Simon & Schuster, Inc. v. Members of N.Y. State Crime Victims Bd., 502 U.S. 105 (1991).  Sorrell on its face “disfavor[ed] marketing, that is, speech with a particular content,” and “[m]ore than that, . . . disfavor[ed] specific speakers, namely pharmaceutical manufacturers.”  Simon & Schuster also featured a “content-based statute” because it singled out income derived from “expression[s] of [an] accused or convicted person’s thoughts, feelings, opinions or emotions” about the crime.  That wasn’t similar to the ordinance, nor was the ordinance in Reed v. Town of Gilbert.  None of those laws were “restrictions directed at commerce or conduct,” as the ordinance was here, with only an incidental impact on speech. 

Even if the Ordinance was reviewed as a restriction on commercial speech, it survived scrutiny.  The speech affected was commercial speech.   A “threshold requirement” for protection for such speech is that it must be related to lawful activity.  If it is related to unlawful activity, the commercial speech at issue isn’t protected by the First Amendment and no further analysis would be required.  And such was the case here: the speech at issue proposed an illegal transaction, because it is illegal in San Francisco to rent a unit that is not lawfully registered. 

However, the court did accept SF’s concession that the ordinance didn’t impose criminal liability without proof of scienter.  There was no reason to think that SF intended to dispense with the standard mens rea requirement for criminal liability.  As for potential vagueness, SF bound itself to the interpretations that “lawfully registered” meant having a registration certificate (not necessarily complying with all the underlying requirements ranging from insurance to tax reports) and that “at the time it is rented” meant when the booking transaction occurred. 

Finally, plaintiffs pointed out that SF’s enforcement agency OSTR wasn’t able to provide prompt and effective registration verification.  SF wouldn’t enforce the ordinance while this issue was being litigated.