Herrera Statement on Homeaway's Challenge to Short Term Rental
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City Attorney Dennis Herrera Statement For Immediate Release: November 3, 2014 Contact: Matt Dorsey (415) 554‐4662 Herrera statement on HomeAway’s challenge to short term rental ordinance Federal lawsuit pushes ‘dubious legal theory’ that the U.S. Constitution’s Commerce Clause prohibits local jurisdictions from making local land use decisions SAN FRANCISCO (Nov. 3, 2014)—HomeAway, Inc., an online platform for tourist rentals, filed suit against the City and County of San Francisco in federal court today, alleging that a newly enacted local ordinance that allows San Francisco residents to rent their homes on an occasional basis violates the Commerce Clause of the U.S. Constitution. In response, City Attorney Dennis Herrera issued the following statement: I intend to vigorously defend a law that offers San Francisco residents reasonable flexibility to rent their homes on an occasional basis. HomeAway’s challenge pushes a dubious legal theory that the U.S. Constitution’s Commerce Clause somehow prohibits local jurisdictions from making local land use decisions. San Francisco is well within its authority to ensure that scarce housing resources are used primarily for housing. HomeAway’s lawsuit is without merit, and I’m confident the City will prevail. The case is: HomeAway, Inc. v. City and County of San Francisco, U.S. District Court for the Northern District of California, case no. 3:14‐cv‐04859, filed Nov. 3, 2014. # # # Case3:14-cv-04859 Document1 Filed11/03/14 Page1 of 20 1 AKIN GUMP STRAUSS HAUER & FELD LLP REX S. HEINKE (SBN 066163) 2 [email protected] MICHAEL C. SMALL (SBN 222768) 3 [email protected] 2029 Century Park East, Suite 2400 4 Los Angeles, CA 90067-3010 Telephone: 310.229.1000 5 Facsimile: 310.229.1001 6 STEPHEN A. MANSFIELD (SBN 129666) 7 [email protected] 580 California Street, Suite 1500 8 San Francisco, CA 94104-1036 Telephone: 415.765.9500 9 Facsimile: 415.765.9501 10 MICHAEL SIMONS (Motion for Admission Pro Hac Vice Pending) [email protected] 11 600 Congress Avenue, Suite 1350 Austin, TX 78701 12 Telephone: 512.499.6200 Facsimile: 512.499.6290 13 Attorneys for Plaintiffs HomeAway, Inc., 14 HomeAway.com, Inc. 15 16 UNITED STATES DISTRICT COURT 17 NORTHERN DISTRICT OF CALIFORNIA 18 19 HOMEAWAY, INC., Case No. __________ HOMEAWAY.COM, INC., Delaware 20 corporations, COMPLAINT FOR DECLARATORY AND 21 Plaintiffs, INJUNCTIVE RELIEF FOR CONSTITUTIONAL VIOLATIONS 22 v. 23 CITY AND COUNTY OF SAN FRANCISCO, a municipal 24 corporation, JOHN RAHAIM in his official capacity, DOES 1-10, 25 Defendants. 26 27 28 COMPLAINT Case3:14-cv-04859 Document1 Filed11/03/14 Page2 of 20 1 Plaintiffs HomeAway, Inc. and HomeAway.com, Inc. (collectively “Plaintiffs or 2 “HomeAway”), allege the following facts in support of this action. 3 NATURE OF THE ACTION 4 1. Plaintiffs seek a declaratory judgment that Defendant City and County of 5 San Francisco’s (“San Francisco” or the “City”) Ordinance No. 140381 (the 6 “Ordinance”) violates the Commerce Clause of the United States Constitution, art. I, § 7 8, cl. 3. Plaintiffs also seek an injunction preliminarily and permanently enjoining 8 Defendants from enforcing the Ordinance. 9 2. The Ordinance violates the Commerce Clause because it discriminates 10 against interstate commerce through differential treatment of San Francisco-based and 11 non-San Francisco-based interests that benefits the former and burdens the latter. This 12 unconstitutional discrimination takes two forms. First, by its express terms, the 13 Ordinance allows only permanent San Francisco residents to rent out on a short-term 14 basis (which the Ordinance defines as thirty days or less) residential property they own 15 or lease in San Francisco. Non-permanent residents of San Francisco who own or lease 16 property in San Francisco are barred on the face of the Ordinance from renting out their 17 property on a short-term basis. Second, the Ordinance requires entities that provide 18 “Hosting Platforms,” on which owners and lessees of property may advertise their 19 property for short-term rentals, to conform their business operations in San Francisco to 20 one particular model, and no other, under pain of monetary penalties. This anti- 21 competitive measure forces those seeking to rent property to turn over control of 22 selecting short-term tenants to entities that operate the type of Hosting Platform model 23 sanctioned by the Ordinance and to pay whatever fees those entities might charge today 24 or in the future. While facially neutral, the Ordinance’s Hosting Platform rules have the 25 purpose and effect of discriminating against non-San Francisco-based interests. 26 27 28 1 COMPLAINT Case3:14-cv-04859 Document1 Filed11/03/14 Page3 of 20 1 3. The Ordinance also violates the Commerce Clause because both the 2 residency restriction and Hosting Platform rules impose substantial burdens on interstate 3 commerce in excess of any asserted local benefit. 4 4. HomeAway is based in Austin, Texas. HomeAway, Inc., through 5 HomeAway.com, Inc. and its other subsidiaries, operates the largest national online 6 marketplace in the vacation rental industry. HomeAway allows an owner or lessee of an 7 individual residential property, or that owner or lessee’s designated and legal agent 8 (each referred to herein as a “Listing Owner”), to advertise that property for rental on 9 HomeAway’s websites. HomeAway websites have approximately 1,000,000 listings 10 worldwide. Persons seeking to rent residential properties (“Travelers”) can access 11 HomeAway’s websites to look for a desired rental property. When a Traveler is 12 interested in renting a property, the Traveler contacts that Listing Owner directly and 13 makes an agreement directly with the Listing Owner to arrange the rental. Listing 14 Owners control the transaction and choose to whom they will rent, when they wish to 15 rent, and how and when they wish to be paid before the Traveler occupies the property. 16 The majority of Listing Owners on HomeAway websites require full payment in 17 advance of the Traveler taking occupancy. 18 5. The market for online travel and short-term rental services is highly 19 competitive. Airbnb, Inc. (“Airbnb”), a San Francisco-based company, is a more recent 20 entrant into this market and uses an “Agency” business model. An Agency business 21 model allows Listing Owners to post their properties on the Agency’s website, but 22 requires the Agency to be the merchant of record for the payment of the rental. The 23 Agency also controls all communications between the Traveler and the Listing Owner 24 and makes the Listing Owner come to an agreement with the Traveler only through the 25 Agency, and sets policies to be followed by the Listing Owner and the Traveler. 26 Furthermore, under the Agency model, the Agent, and not the Listing Owner, collects 27 and holds the rental payment, deducts the Agency fees, and remits the net proceeds to 28 2 COMPLAINT Case3:14-cv-04859 Document1 Filed11/03/14 Page4 of 20 1 the Listing Owner only after the Traveler has taken occupancy of the property. In its 2 use of the Agency model, Airbnb also charges the Traveler a fee. 3 6. Airbnb was actively involved in drafting the Ordinance and lobbied 4 extensively for its passage. Indeed, two members of Airbnb’s Board of Directors made 5 financial contributions totaling $674,000 benefitting at least one member of the San 6 Francisco Board of Supervisors (the member who sponsored the Ordinance) through 7 contributions to a political action group that attacked his opponent in the November 8 2014 election. 9 7. The Ordinance essentially adopts the Agency business model as the sole 10 business model available to Listing Owners in San Francisco. It makes illegal any 11 competing business model, such as HomeAway’s, that does not require the Listing 12 Owner to act as an agent in the collection and holding of Listing Owner information, 13 fees, and taxes and allows the Traveler to contract directly with the Listing Owner, who 14 sets his or her own policies and leases the property to the Traveler. 15 8. The Ordinance’s permanent residency restriction excludes from the San 16 Francisco short-term rental market current and potential HomeAway customers who 17 own or lease property in San Francisco but who do not reside there for 275 days per 18 year, which is an arbitrary definition of permanent resident. 19 9. The Ordinance’s Hosting Platform rules prevent HomeAway from doing 20 business in San Francisco altogether, even with permanent San Francisco residents, 21 because the Ordinance allows rentals by permanent San Francisco residents only 22 through Hosting Platforms that use an Agency business model. 23 10. The asserted goal of the Ordinance is to increase the availability of 24 affordable residential rental housing in San Francisco by limiting short-term rentals. 25 Defendants have failed, however, to explain why the facially discriminatory permanent 26 residency restriction, which allows some short-term rentals but impairs the rights of 27 potential HomeAway customers who are not permanent San Francisco residents under 28 3 COMPLAINT Case3:14-cv-04859 Document1 Filed11/03/14 Page5 of 20 1 the Ordinance and who own or lease residential housing in San Francisco that they wish 2 to rent out on a short-term basis, is necessary to achieve that purported objective. This 3 renders the restriction unconstitutional under the Commerce Clause. 4 11. The asserted goal of the Ordinance’s regulation of Hosting Platforms is to 5 promote sound business practices in the short-term rental market. Defendants have 6 failed, however, to explain why the Ordinance’s rigid Hosting Platform rules, which 7 have the purpose and effect of discriminating against non-San Francisco based interests 8 and reflect naked economic protectionism for San Francisco-based Airbnb by effectively 9 granting its Agency business model a local monopoly, are necessary to achieve that 10 objective.