Ninth Circuit Chunks Another Section 230 Ruling—HomeAway v. Santa Monica (Catch-up Post)
I’m finally blogging this Airbnb/HomeAway 230 ruling from 6 weeks ago. Why so long? Honestly, I lacked the emotional fortitude to blog it. The outcome isn’t novel—it reaches the same conclusion as the Airbnb v. San Francisco ruling from 2016 (a case I ranked in my top 10 Internet Law rulings of all time)—but the opinion’s overexpansive language and tone deafness sapped my strength. I’m finally ready to blog this ruling, but feel free to send me extra tissues for the future, because I used up my inventory blogging this opinion.
In this case, Santa Monica banned short-term rentals of 30 days or less. The ordinance purports to advance the city’s goals of “preserving its housing stock and preserving the quality and character of its existing single and multi-family residential neighborhoods.” Further, “the Ordinance imposes four obligations on hosting platforms directly: (1) collecting and remitting ‘Transient Occupancy Taxes,’ (2) disclosing certain listing and booking information regularly, (3) refraining from completing any booking transaction for properties not licensed and listed on the City’s registry, and (4) refraining from collecting or receiving a fee for ‘facilitating or providing services ancillary to a vacation rental or unregistered home-share.’”
Airbnb and HomeAway challenged the ordinance on several grounds, including Section 230 and the First Amendment. The district court rejected the challenge. The appeals court affirmed.
The court says that the ordinance doesn’t regulate “publisher or speaker” activity:
It does not require the Platforms to review the content provided by the hosts of listings on their websites. Rather, the only monitoring that appears necessary in order to comply with the Ordinance relates to incoming requests to complete a booking transaction—content that, while resulting from the third-party listings, is distinct, internal, and nonpublic. As in Internet Brands, it is not enough that the third-party listings are a ‘but-for’ cause of such internal monitoring.
Hold on, what’s that? Is the court saying that Section 230 doesn’t apply to third-party content that is “distinct,” “internal,” and “nonpublic”? What do those words even mean? Distinct from what? What does “external” content look like? Note that the platforms must transmit the third-party content to others, including the lodging vendor and third-party payment services, so that doesn’t sound very “internal” to me. And what does “nonpublic” mean, and how does it differ from “internal”?
Read literally, this legal standard implies that Section 230 would not apply to private messaging functions—though we know that cannot be true, because otherwise there would have been no need to statutorily exclude ECPA claims from Section 230’s reach. So has the Ninth Circuit has adopted a stylized view of Section 230’s applicability—it applies to Yelp’s consumer reviews, but not to Facebook Messenger? That would disrupt a large swath of Section 230 jurisprudence, including in the Ninth Circuit.
The court continues that it’s not “publisher or speaker” liability to require the platforms to cross-check the city’s property registry. The court says (possibly snarkily), “the Ordinance can fairly charge parties with keeping abreast of the law without running afoul of the CDA.”
Uh…no. This line of thinking was expressly rejected in the Backpage litigation over state laws that required verification that people depicted in prostitution ads were over 18. Imposing verification obligations on publishers of third-party content is just another way of constraining their editorial decision-making, and Section 230 and the First Amendment don’t allow it.
Here’s another way to evaluate the court’s statements. Imagine a city required eBay or Amazon to verify that every marketplace seller in the city to prove it has an appropriate license from the city to conduct business before it could finalize the seller’s transactions. (Assume there is an easily-accessed online public registry of licensed businesses). The Ninth Circuit seems to be greenlighting cities across the country to impose such verification obligations on eBay and Amazon. Why wouldn’t cities deputize online services as their law enforcement operators for business licenses? That should generate net incremental revenues to the city, even if it comes at horrible transaction costs socially.
The Ninth Circuit says “the Platforms face no liability for the content of the bookings; rather, any liability arises only from unlicensed bookings.” In response, Airbnb/HomeAway argued that restricting transactions would force them to remove listings because no one wants “a website chock-full of un-bookable listings.” Indeed, this is not just about user demand; it’s a legal requirement. Advertising unavailable third-party listings is a classic bait-and-switch that should support various false advertising and unfair competition claims against the Internet service. See, e.g., Anthony v. Yahoo. So regulating the consummation of marketplace transactions necessarily forces the marketplace to push compliance upstream to the listings.
The Ninth Circuit responds “whatever”: “assuming that removing certain listings may be the Platforms’ most practical compliance option, allowing internet companies to claim CDA immunity under these circumstances would risk exempting them from most local regulations.”
This is an obviously false dichotomy. Marketplaces still have to comply with wage-and-hour laws for their employees because those laws have nothing to do with liability for third-party content. In contrast, the Santa Monica ordinance has everything to do with third-party content. It’s disingenuous to create that kind of false equivalence.
Airbnb/HomeAway also argued that Section 230 was designed to prevent national online services from being subject to geographically diverse legal rules, which is precisely what’s happening with city-level ordinances of short-term housing. The Ninth Circuit is unmoved:
while we acknowledge the Platforms’ concerns about the difficulties of complying with numerous state and local regulations, the CDA does not provide internet companies with a one-size-fits-all body of law. Like their brick-and-mortar counterparts, internet companies must also comply with any number of local regulations concerning, for example, employment, tax, or zoning. Because the Ordinance would not pose an obstacle to Congress’s aim to encourage self-monitoring of third-party content, we hold that obstacle preemption does not preclude Santa Monica from enforcing the Ordinance.
The Ninth Circuit says the First Amendment doesn’t apply because “the conduct at issue—completing booking transactions for unlawful rentals—consists only of nonspeech, nonexpressive conduct.” Among other things, the ordinance is a “housing and rental regulation.” The court misleadingly reiterates that the ordinance doesn’t reach the listings themselves:
Contrary to the Platforms’ claim, the Ordinance does not “require” that they monitor or screen advertisements. It instead leaves them to decide how best to comply with the prohibition on booking unlawful transactions.
The court says checking listings is an “incidental burden” and, citing the Pittsburgh Press case, it’s OK to ban ads for illegal commercial activity. The fact that the ordinance treats Craiglist differently is fine to the court, because Craigslist doesn’t book transactions. It’s also OK that the ordinance doesn’t have a scienter requirement.
The court reaches a lousy result. If Section 230 doesn’t protect the marketplace operator from liability for closing marketplace transactions, eventually local governments will lard up the transaction process and that will lead to the end of online marketplaces. This litigation previews how that’s going to go. Even if any online marketplace does find a way to navigate the tsunami of local legal obligations, the entry barriers will be so high as to preclude genuine competition. When we wake up in 10 years and wonder what happened to innovation among online marketplaces, we can point the finger at this opinion.
Still, this opinion was shocking for the sloppy way it reached the same result as the SF ruling. It’s almost as if the panel wanted to mess up Section 230 jurisprudence more generally, not just in the online marketplace category. In particular, the references to “distinct, internal, and nonpublic” content was nonsensical but potentially pernicious, and the approval of verification obligations will open the door for other pernicious regulatory efforts.
So even if the result doesn’t change, this opinion is a good candidate for en banc review (HomeAway and Airbnb have already requested it). Perhaps an en banc panel can clean up this opinion to reduce the unnecessary and avoidable damage it will otherwise cause.
Case citation: HomeAway v. City of Santa Monica, 918 F.3d 676 (9th Cir. March 13, 2019)