ORDER RE PRELIMINARY INJUNCTION
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.
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
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 misdemean- or 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. Coun
II. Likelihood of Success on the Merits
A. CDA Section 230(c)
Plaintiffs’ lead argument is that the Ordinance is preempted by the CDA. Dkt. No. 50 at 10. Section 230(c)(1) of the CDA states that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” The CDA includes an express preemption clause, which provides that “[n]o cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.” 47 U.S.C. § 230(e)(3).
Our circuit holds that Section 230(c)(1) precludes liability for claims involving “(1) a provider or user of an interactive computer service (2) whom a plaintiff seeks to treat, under a state law cause of action, as a publisher or speaker (3) of information provided by another information content provider.” Doe v. Internet Brands, Inc.,
Plaintiffs’ argument is straightforward. In their view, the threat of a criminal penalty for providing and receiving a fee for Booking Services for an unregistered unit requires that they actively monitor and police listings by third parties to verify registration. Plaintiffs contend that is tantamount to treating them as a publisher because it involves the traditional publication functions of “reviewing, editing, and deciding whether to publish or to withdraw from publication third-party content.” Id.; see also Fair Housing Council of San Fernando Valley v. Roommates.com, LLC,
But the Ordinance does not threaten the liability plaintiffs fear. As the text and plain meaning of the Ordinance demonstrate, it in no way treats plaintiffs as the publishers or speakers of the rental listings provided by hosts. It does not regulate what can or cannot be said or posted in the listings. It creates no obligation on plaintiffs’ part to monitor, edit, withdraw or block the content supplied by hosts. To
Plaintiffs recognize that the Ordinance is not, on its face, directed to content or speech. Dkt. No. 72 at 8:25-9:11. In an effort to surmount that hurdle, plaintiffs reel off a long list of federal and state cases that have broadly applied Section 230(c). Dkt. No. 50 at 10-18. While it is certainly true that these cases found preemption, they are all readily distinguishable from the facts here. The cases plaintiffs rely on involved claims and regulations that would have imposed liability on the service provider as a publisher or speaker of content supplied by a third party. In Backpage.com, LLC v. McKenna,
Plaintiffs’ other case citations are inapposite for the same reason—they all turned on facts showing that the service provider would necessarily be held liable as the publisher or speaker of online content provided by another. Much more germane, and of course controlling, are the Ninth Circuit’s recent decisions denying preemption under Section 230(c). These cases acknowledge Congress’s goals in
The correct test, then, is not whether a challenged activity merely bears some connection to online content. It is whether a regulation or claim “inherently requires the court to treat” the “interactive computer service” as a publisher or speaker of information provided by another. Barnes,
Plaintiffs’ other main CDA argument draws on a preemption decision far removed from the CDA and Section 230(c). Plaintiffs argue that a 2012 Supreme Court opinion, National Meat Association v. Harris,
Plaintiffs argue that this same reasoning applies here. While they acknowledge that the Ordinance does not on its face treat them as publishers or speakers of third party content, Dkt. No. 72 at 8:25-9:11, they insist that it will have the practical effect of compelling them to monitor listings and remove postings for unregistered
This argument is not well taken. As an initial matter, plaintiffs raised National Meat for the first time in a reply brief, and a case can be made that the Court should decline to consider it for that reason alone. United States v. Romm,
Plaintiffs’ problem is that they have failed to submit evidence showing that the Ordinance will in fact inevitably or perforce require them to monitor, remove or do anything at all to the content that hosts post. Airbnb says the Ordinance will make screening listings for registration status “very likely” but stops short of saying that it would be a necessity. Dkt. No. 52 ¶ 25. Plaintiffs might indeed voluntarily choose to screen listings, and the facts show that Airbnb already reviews and “discretionarily removes listings” for other reasons. Id. ¶ 14. But the Ordinance does not compel that result. It may be equally likely that plaintiffs will consider other measures unrelated to editing user content, such as posting a notice to users that they can provide Booking Services in San Francisco only for units that are lawfully registered and verified as such. See Internet Brands,
Plaintiffs also slight the fact that preemption under the FMIA is different from and potentially much broader than under Section 230(c). Compare CDA, 47 U.S.C. § 230(e)(3) (“No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.”) (emphasis added) with FMIA, 21 U.S.C. § 678 (barring a state.from imposing requirements “in addition to, . or different than.. .requirements within the scope” of the FMIA—even if the requirements do not conflict). It is the scope of Section 230(c) that governs here, and the Ninth Circuit has expressly cautioned against applying it “beyond its narrow language and its purpose.” Internet Brands,
Other factors also counsel against plaintiffs’ reading of National Meat. Cases that have construed National Meat in contexts outside the FMIA have limited it to its particular facts. The Second Circuit, for example, declined to apply it to find pre
Plaintiffs have not demonstrated a likelihood of success or a serious question on preemption under Section 230(c). Consequently, an injunction is denied on that ground.
B. First Amendment
' Plaintiffs also challenge the Ordinance under the First Amendment. Plaintiffs say the Ordinance triggers First Amendment scrutiny because its practical effect will be to burden speech, and that it is subject to “heightened” scrutiny because it restricts particular content, namely advertisements for unlawfully registered rentals. Dkt. No. 50 at 20-22; Dkt. No. 72 at 18:22-25. These contentions are unavailing.
The initial inquiry under the First Amendment is whether the Ordinance primarily targets speech or speakers, or is better construed as an economic regulation. “[Restrictions on protected expression are distinct from restrictions on economic activity or, more generally, on nonexpressive conduct,” and “the First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech.” Sorrell v. IMS Health Inc.,
Plaintiffs have not demonstrated that the Ordinance meets either of these threshold conditions. 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. See Int’l Franchise Ass’n,
Plaintiffs contend that two Supreme Court cases require a different outcome: Sorrell,
Plaintiffs’ other citations are similarly inapposite. Reed v. Town of Gilbert, Arizona, — U.S. -,
Plaintiffs’ fallback position is that the Ordinance is a restriction on speech in the “disguise” of a conduct regulation. Dkt. No. 50 at 21; Dkt. No. 64 at 10-11. But this argument is little more than an expression of the widely recognized condition that speech and conduct fall on a continuum, and a law that affects one will often affect the other. “Every civil and criminal
This is enough to end plaintiffs’ First Amendment challenge, but even if the Ordinance is reviewed as a restriction on commercial speech, it survives scrutiny. To the extent the Ordinance can be said to affect speech at all, it involves speech that “does no more than propose a commercial transaction” and consequently is “commercial speech.” Lone Star Security and Video, Inc. v. City of Los Angeles,
As a preliminary matter to the commercial speech discussion, the parties dispute the appropriate level of scrutiny. Our circuit recently resolved this issue by reaffirming after publication of Reed and Sorrell that commercial speech, even if content-based, need only withstand intermediate scrutiny under Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of New York,
Central Hudson’s legality requirement has “traditionally focused on the content of the affected speech—i.e., whether the speech proposes an illegal transaction.” Valle Del Sol,
These well-established principles forestall plaintiffs’ argument. As plaintiffs expressly agree, it is illegal in San Francisco to rent a unit that is not lawfully registered. Dkt. No. 72 at 14:21-15:1. They cannot seek, then, to set aside on First Amendment grounds an ordinance that they contend would restrict their ability to communicate offers to rent unregistered units. Plaintiffs’ reply arguments do not point to a different outcome. For example, plaintiffs quote McKenna,
Plaintiffs also make a cursory argument in their reply brief that the Ordinance offends the First Amendment because it requires Hosting Platforms to file a monthly declaration of compliance with the Ordinance and to keep records of facilitated transactions. Dkt. No. 50 at 21. This is unpersuasive. The filing and records requirements relate solely to business transactions. They do not regulate or restrict any speech (e.g., there is no requirement that Hosting Platforms keep records of listings they publish) or any speaker based on the content or views expressed, and so do not trigger any First Amendment concerns.
Plaintiffs have not demonstrated a likelihood of success or a serious question under the First Amendment. Consequently, an injunction is denied on that ground.
C. Imposition of Criminal Strict Liability
Plaintiffs’ final attack on the Ordinance is that it purportedly imposes criminal liability without proof of scienter. Dkt. No. 50 at 25-26. In plaintiffs’ view, the imposition of strict liability for the dissemi
Plaintiffs also contend the Ordinance is fatally ambiguous. Dkt. No. 50 at 26-27. They say, for example, that “lawfully registered” is unclear because registration involves a “multitude” of requirements ranging from insurance to tax reports. Id. And that “at the time it is rented” is unclear because it does not specify clearly enough the moment in time that is covered. Id. at 27. But San Francisco again has solved plaintiffs’ concerns by declaring that “lawfully registered” means the host has a registration certificate, and that “at the time it is rented” means when the booking transaction occurs. Dkt. No. 60 ¶¶ 12-13. Those constructions also bind San Francisco and are enough at this stage to alleviate the concern that the Ordinance might fail “to give adequate notice to people of ordinary intelligence concerning the conduct it prescribes” or invite “arbitrary and discriminatory enforcement.” United States v. Doremus,
III. Further Proceedings
The CDA, the First Amendment, and scienter are the three main grounds on which plaintiffs moved for an injunction. They have not demonstrated the “irreducible minimum” of a likelihood of success on the merits of these arguments or questions serious enough to require litigation, and so the injunction is properly denied without consideration of the other Winter factors. Pimentel,
Plaintiffs have, however, arguably raised another possible ground for an injunction. Liability and penalties under the Ordinance turn on whether a rental is lawfully registered, but as plaintiffs point out, and San Francisco forthrightly concedes, OSTR currently does not have in place a procedure or mechanism for prompt and effective registration verification. At most, San Francisco mentions several possibilities along with the representation that OSTR “is willing to engage with Hosting Platforms as partners to develop a mechanism.” Dkt. No. 60 ¶ 11.
Plaintiffs have understandably expressed concerns about the lack of a functional verification system while they face potential criminal sanctions under the Ordinance. The issue came up at oral argument and was referenced in the briefs, but the Court has not yet had the benefit of a full discussion of the merits. Consequently, the Court defers determination of whether a preliminary injunction should issue on this ground pending submission of supplemental briefs by the parties. A status conference is set for Thursday, November 17, 2016, at 10:00 a.m. The parties should be prepared to set a briefing schedule and should try to work out a joint proposal before the conference. If plaintiffs would prefer not to pursue this issue, they should advise the Court promptly.
The Court anticipates that San Francisco will continue to abide by the stay of
IT IS SO ORDERED.