Posted by: Patricia Salkin | April 22, 2019

Fed. Court in NY Enjoins Enforcement of Short-Term Rental Regulations on Fourth Amendment Grounds

This post was authored by Edward J. Sullivan, Esq.

            Airbnb, Inc. v. City of New York, Nos. 18 Civ. 7712 (PAE), 18 Civ. 7742 (PAE) (Order on Motions for Preliminary Injunction, January 3, 2019) resulted in the issuance of a preliminary injunction in the enforcement of a New York City ordinance that required home-sharing “platforms” to provide on a monthly basis “voluminous data regarding customers who use their platforms to advertise short-term rentals (‘hosts’)”.  Plaintiffs claimed they do not engage in short-term rentals themselves, but rather act as brokers, receiving commissions for transactions made in their platforms.

Both Airbnb and Homeaway, Inc. have similar operations.  Potential short-term renters are told that their personal information would be made available only in response to valid legal requests, including those from government agencies. Potential hosts have been given similar representations.  State law and New York City Ordinance prohibit short-term rentals of units in certain multi-family buildings.  In order to enhance enforcement, the City amended its ordinance to require “booking services” (a term that included both Plaintiffs) that, for a fee, provide “one or more online, computer or application-based platforms that individually or collectively can be used to (i) list or advertise offers for short-term rentals, and (ii) either accept such offers, or reserve pay for such rentals,” will be required to submit, on a monthly basis, a report of transactions for which they receive fees.  The information required would demonstrate whether the statutory or ordinance prohibitions were violated and required the booking service to secure the consent of the host and imposed penalties for violations.  Plaintiff Airbnb estimated that it had approximately 20,000 listings in 2015.

Plaintiffs filed similar complaints, alleging, inter alia, violation of the First and Fourth Amendments and requested preliminary injunctions. Defendant argued that requiring the information by ordinance, in lieu of issuing individual subpoenas, was a more efficient way to enforce the prohibitions.  Airbnb complied with the 10 subpoenas issued by the City, although objecting to portions of some of them, while Homeaway responded without difficulty.  The Court found the standard for a preliminary injunction was the likelihood of success (i.e., better than 50%) on the merits of this facial challenge.

The Court noted the Ordinance compels each home-sharing platform operating in New York City every month to produce a transaction report that effectively will replicate much of the platform’s user database for all New York City rentals does not restrict the City’s use of the booking service’s data or its ability to share it with criminal enforcement and other governmental authorities.  It also noted that the ordinance was not a typical search and seizure, but a required production of data by a local legislature (as opposed to a law enforcement officer demand).  However a series of Supreme Court cases has extended the reach of the Fourth Amendment to accounting and other business records.  Moreover, that Court has held the Amendment to apply to record inspections generated under a local ordinance in which a party other than the platform (i.e., hosts) had a privacy interest. City of Los Angeles v. Patel, 135 S. Ct. 2443 (2015).  In the Ninth Circuit decision affirmed by the Supreme Court, that Court said:

The business records covered by [the challenged ordinance] are the hotel’s private property, and the hotel therefore has both a possessory and an ownership interest in the records. By virtue of those property-based interests, the hotel has the right to exclude others from prying into the contents of its records, which is also the source of its expectation of privacy in the records.

Patel v. City of Los Angeles, 738 F.3d 1058, 1061 (9th Cir. 2013) (en banc) (Watford, J.)

aff’d, 135 S. Ct. 2443.

Plaintiffs claimed that, as part of the hospitality industry, they had both reasons in competition and customer relations for keeping this information secure (and emphasized that public records laws could make that information public, further adding to their anxiety).  Moreover by placing a provision in their terms of service that their information may be given to regulatory agencies, Plaintiffs have not forfeited their rights to challenge the wholesale transmission of all of their information at all times, especially after a showing that subpoenas could achieve the same result, albeit more cumbersomely.  And while record inspections in certain closely regulated industries (e.g. firearms and liquor sales) may be more extensive, Patel declined to extend that level of inspection to the hospitality industry.  Thus, the Fourth Amendment applies to these cases.

The Court then turned to the issue of whether the search were “reasonable” under the Fourth Amendment, noting that the permissibility of any governmental search scheme balances its intrusion on the individual’s Fourth Amendment interests against its promotion of legitimate governmental interests.  For criminal matters, a warrant before a neutral magistrate is normally required for a nonconsensual search and must be justified in terms of probable cause.  Outside the criminal context, the Fourth Amendment applies agency investigative subpoenas and similar processes.  Its reasonableness component requires an agency subpoena to be sufficiently limited in scope, relevant in purpose, and specific in directive so that compliance will not be unreasonably burdensome.

Administrative searches are also authorized for various types of inspections; however, these must be done pursuant to a warrant with relaxed probable cause standards, i.e., where “reasonable legislative or administrative standards for conducting an area inspection are satisfied with respect to a particular dwelling”. Camara v.

Municipal Court of the City and County of San Francisco, 387 U.S. 523, 538 (1967).  See also See v. City of Seattle, 387 U.S. 541 (1967).  In Patel, the ordinance at issue required hotel operators to record specific information about guests—including the guest’s name and address, the number of people in the guest’s party, the length of stay, the rate charged, and the make, model, and license plate number of the guest’s vehicle parked on the hotel property—and to maintain this information on the premises for a 90-day period.  The Court invalidated that portion of the Ordinance authorizing warrantless inspections on demand, because the Ordinance failed to provide hotel operators with an opportunity for precompliance review.  The party must be allowed to challenge the reasonableness of the warrant before a neutral decision maker by seeking to quash the same before being subject to penalties.

Applying this precedent to the instant case, the Court found no discretion given to the enforcement agency in receipt of data, no specific neutral criteria to direct its review and without any basis for a specific need — only an untailored requirement for all data (in 2016, Airbnb facilitated over 700,000 transactions on its platform).  The precedent, however, required a limited, specific scope of demand and relevant purpose to demonstrate its demand is not unreasonably burdensome.  Referring to that precedent, the District Judge observed:

As the Court has repeatedly emphasized, while the Fourth Amendment’s reasonableness command must adapt to changing times and technology, the test of reasonableness is not whether an investigative practice maximizes law enforcement efficacy. Other factors, including the extent of the intrusion on protected privacy interests, weigh heavily, often decisively, in the balance.

See especially Carpenter v. United States, 138 S. Ct. 2206, 2213–14 (2018)  (cell tower records), United States v. Jones, 565 U.S. 400, 404 (2012) (gps tracking device) and Patel. While disclosure of records would maximize enforcement, that disclosure must also meet Fourth Amendment standards.

The Court denied a preliminary injunction based on the Stored Communications Act, which prohibits disclosure of the record of a user or subscriber without consent, as the terms of service for both Plaintiffs provide that the platform may disclose host information to government agencies.  However the Court declined to deal with Plaintiffs’ First Amendment claims, in view of its holding that the Fourth Amendment could justify issuance of a preliminary injunction.

The Court then considered other issues related to issuance of a preliminary injunction, beginning with the claim of irreparable harm pending a decision on the merits.  It found such harm in the violation of the Fourth Amendment in that period and the possibility that confidential, private information must be turned over to the government at the risk of payment of huge fines, and found that prospect not compensable by money damages.  Moreover, there was a risk that this information was subject to public records and freedom of information requests.  Although the City said it would attempt to defend such disclosure, there was no guarantee it would be successful, nor that such information would not be disclosed during enforcement or other litigation.  Regarding a second factor, the potential loss of Plaintiffs’ Fourth Amendment and privacy interests during the pendency of litigation tipped the balance in their favor. A final factor – the public interest – also supported the issuance of the preliminary injunction, given the Fourth Amendment violation that would occur under the ordinance.  The Court thus issued the preliminary injunction pending conclusion of the litigation.

The decision on this motion is 52 pages long and deals with the issues raised, especially those relating to privacy and the Fourth Amendment in a well-reasoned way.  Short-term rental platforms have constructed a defensible position as to why then need not share their sharing data with affected local governments.  While that position is not impregnable, it does present a formidable response to state and local governments that may wish to require these platforms to turn over data generally in lieu of responding to subpoenas or administrative search warrants.  While this may not be the beginning of the end of these confrontations, this case may mark the end of the beginning.

Airbnb, Inc. v. City of New York, Nos. 18 Civ. 7712 (PAE), 18 Civ. 7742 (PAE) (Order on Motions for Preliminary Injunction, January 3, 2019).

 


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