U.S. judge declines to block new provision of city law regulating short-term rental services

SAN FRANCISCO (BCN) A federal judge in San Francisco today refused a bid by Airbnb
Inc. and Homeaway Inc. for a preliminary injunction blocking the most recent addition to a city law regulating short-term rentals.

The new provision, enacted by the city's Board of Supervisors in August, makes it a misdemeanor with a fine of up to $1,000 for a rental booking service to collect a fee if the unit being rented has not been
registered with the city.

It was challenged in a federal lawsuit by online booking services Airbnb Inc., based in San Francisco, and HomeAway Inc., headquartered in Austin, Tex.

U.S. District Judge James Donato rejected the companies' main arguments against the measure, including a claim that it violated their constitutional First Amendment right of free speech.

"A booking service as defined and targeted by the ordinance is a business transaction to secure a rental, not conduct with a significant expressive element," the judge wrote.

But while denying a preliminary injunction, Donato asked the city to keep a voluntary stay of enforcement of the law in place while he considers one remaining issue in the case.

That issue is whether the city has an effective system that would enable the online services to determine whether an owner has registered a short-term rental unit. Donato will hold a status conference Nov. 17 to determine future filing and hearing dates on the issue, unless the companies tell him they do not wish to pursue that question.

The judge also rejected the two services' claim that the measure violated the federal Communications Decency Act by making them liable for content provided by the rental hosts.

Donato wrote that the city's measure does not treat the companies as publishers of the rental listings provided by hosts. Instead, he said, it holds the services responsible for their conduct.

"The ordinance holds plaintiffs liable only for their own conduct, namely for providing, and collecting a fee for, booking services in connection with an unregistered unit," the judge wrote.

The two companies did not challenge an earlier provision of the city law enacted in 2015 that requires short-term rental owners to register with the city, obtain a business license and observe limits on the number of
days a unit can be rented.

The new provision prohibiting the services from collecting fees for rentals of unregistered short-term housing was enacted in response to a failure by some owners to register their units, Donato said.

The judge noted that as of March 2016, only 1,647 of 7,046 San Francisco rentals listed in Airbnb, or about 25 percent, were registered.

City Attorney Dennis Herrera, whose office defended the law, said, "I am grateful for Judge Donato's thoughtful ruling recognizing that just because Airbnb and HomeAway conduct their business online, they are not
exempt from any regulation of their commercial transactions.

"Online businesses don't get a free pass from the types of regulations that apply to other businesses in San Francisco. They have to play by the rules, just like everybody else," Herrera said.

The city attorney said San Francisco will continue its voluntary stay of enforcement until the final issue is ironed out.

Airbnb said in a statement, "While we appreciate that the judge has acknowledged our concerns about the inadequacy of the screening obligations in the new law and has continued to postpone enforcement of these
rules as a result, we respectfully disagree with the remainder of his ruling."

"No matter what happens in this case, we want to work with the city to fix the broken system long before the legal process runs its course," the company said.

Supervisor David Campos, who co-sponsored the measure, said, "Today's decision is an important victory in our efforts to regulate companies like Airbnb and Homeaway to protect housing for residents.

"While no one in San Francisco's city government wants to see a homegrown company like Airbnb go out of business, it's our job to protect the housing stock of our citizens," he said.

Airbnb, founded in 2008, has become one of the world's largest rental booking companies.

Sharebetter SF, a coalition of housing advocacy groups, welcomed
the ruling.

Sharebetter co-founder Doug Engmann, a former chairman of the Pacific Stock Exchange, said the decision could be "a game changer" nationally.

"If other American cities follow San Francisco's lead, barring Airbnb's ability to charge booking fees for renting illegal units, it could have a material impact on the company's revenue and $30 billion valuation,"
he said.