Posted by: Patricia Salkin | October 24, 2019

Ninth Circuit Holds Vacation Rental Ordinance Did Not Directly or Indirectly Discriminate Against or Burden Interstate Commerce

This post was authored by Matthew Loeser, Esq.

Santa Monica resident Arlene Rosenblatt had rented out her house on Airbnb when she and her husband went on vacation. Santa Monica then passed an ordinance prohibiting property rentals of 30 days or less, with an exception for rentals where a primary resident remained in the dwelling. Rosenblatt brought a putative class action against the city of Santa Monica and Santa Monica’s City Council, alleging that the ordinance violated the dormant Commerce Clause. Rosenblatt further claimed that the ordinance directly and indirectly regulated and burdened interstate commerce. The district court dismissed the amended complaint without leave to amend, and held that Rosenblatt failed to allege a Commerce Clause violation as a matter of law.
At the outset, the court noted that a per se violation of the dormant Commerce Clause occurs “when a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests.” Rosenblatt claimed that the ordinance directly regulated interstate commerce since 95% of Santa Monica vacation rentals involved an out-of-state party. The court found that the ordinance penalized only conduct in Santa Monica, regardless of whether the visitors are in-state or out-of-state. Accordingly, the court held the complaint did not sufficiently allege that the vacation rental ban itself was a direct regulation of interstate commerce.
Rosenblatt next contended that the ordinance violated the dormant Commerce Clause by directly regulating booking and payment transactions that could occur entirely out-of-state. The court rejected this contention since every out-of-state booking and payment that the ordinance regulated concerned property within Santa Monica. As such, these transactions could not be characterized as activities that were separate and entirely out-of-state. Further, uniformity was not necessary to the vacation rental market; specifically, the court found that even if numerous municipalities nationwide adopted ordinances like Santa Monica’s, the national market for vacation rental bookings and payments “would not be stifled.”
Rosenblatt also argued that the ordinance was a per se violation of the dormant Commerce Clause because it favored in-state over out-of-state interests. Here, Santa Monica’s ban on vacation rentals applied in the same manner to people nationwide, including Santa Monica residents who might be interested in renting a vacation home from another resident. Thus, the ordinance, “visits its effects equally upon both interstate and local business,” Additionally, Santa Monica’s ordinance did not prohibit out-of-state property owners from home sharing in their out-of-state homes, or prohibit these owners from allowing home sharing in their Santa Monica properties. While non-resident property owners could not personally serve as the primary resident whose presence was required during the home share, that was due to them not being similarly situated to the Santa Monica residents who could. Accordingly, the court held that the complaint failed to plausibly allege that the ordinance directly regulated or burdened interstate commerce.
Rosenblatt lastly claimed that “hotel prices in Santa Monica have increased,” which “has resulted in a decrease in tourism and a decrease in transient lodging use in the City.” The court rejected this contention as the complaint failed to allege the magnitude of this decrease, which was required. Furthermore, the complaint did not provide any rebuttal to the explanation that hotels could have recaptured most of the 81.5% of vacation rental bookings that allegedly had shifted to vacation rentals. As Rosenblatt failed to show a high burden on interstate commerce, the court held she did not sufficiently demonstrate how the alleged burden on interstate commerce would exceed the stated benefits of the ordinance.
Rosenblatt v. City of Santa Monica, 2019 WL 4867397 (9th Cir CA 10/3/2019)

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