Rosenblatt v. City of Santa Monica

940 F.3d 439

Arlene ROSENBLATT, an individual, on behalf of herself and all others similarly situated, Plaintiff-Appellant,

v.CITY OF SANTA MONICA, a municipal corporation; The City Council of the City of Santa Monica, a governing body, Defendants-Appellees.

No. 17-55879

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 12, 2018 Pasadena, California

Filed October 3, 2019

Robert L. Esensten (argued) and Jordan S. Esensten, Esensten Law, Los Angeles, California, for Plaintiff-Appellant.

Yibin Shen (argued), Chief Deputy City Attorney; Heidi Von Tongeln and Michael R. Cobden, Deputy City Attorneys; Lane Dilg, City Attorney; Santa Monica City Attorney's Office, Santa Monica, California; for Defendants-Appellees.

Before: Mary M. Schroeder and Jacqueline H. Nguyen, Circuit Judges, and Michael H. Simon,^* District Judge.

NGUYEN, Circuit Judge:

This case involves the perennial clash between a city's exercise of traditional police powers in regulating land use and the rights of property owners to use their property as they see fit. But this familiar problem has a not-so-familiar backdrop: online marketplaces—such as Airbnb and HomeAway—where travelers can rent privately-owned residential properties as vacation rentals.

Santa Monica resident Arlene Rosenblatt used to rent out her house on Airbnb when she and her husband went on vacation. Santa Monica passed an ordinance prohibiting property rentals of 30 days or less ("vacation rentals") with an exception for rentals where a primary resident remained in the dwelling ("home sharing"). Rosenblatt brought a putative class action against the city of Santa Monica and Santa Monica's City Council (collectively, Santa Monica), arguing that the ordinance violated the dormant Commerce Clause. Rosenblatt contended that the ordinance directly and indirectly regulated and burdened interstate commerce.

The district court dismissed the amended complaint without leave to amend, concluding that Rosenblatt failed to allege a Commerce Clause violation as a matter of law. We have jurisdiction under 28 U.S.C. § 1291. Reviewing de novo, see Chinatown Neighborhood Ass'n v. Harris , 794 F.3d 1136, 1141 (9th Cir. 2015), we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Santa Monica has implicitly prohibited short-term property rentals in residential zones since at least 1988.¹ In 2015, Santa Monica explicitly codified this zoning prohibition on vacation rentals in an ordinance. See Santa Monica Ordinance 2484 (May 12, 2015) (codified as amended at Santa Monica Mun. Code §§ 6.20.010–6.20.100).² The ordinance created an exception for home sharing to allow residents to "host visitors in their homes, for compensation ..., while at least one of the dwelling unit's primary residents lives on-site, in the dwelling unit, throughout the visitors' stay." Santa Monica Mun. Code § 6.20.010(a).

The ordinance defines vacation rentals to cover situations where the unit owner or lessee rents out the property for "exclusive transient use," meaning that "none of the dwelling unit's primary residents lives on-site ... throughout any visitor's stay." Id. § 6.20.010(f). Violations of the vacation rental ordinance are punishable by a fine not exceeding $500 and up to six months in jail. Id. § 6.20.100(a).

In enacting this ordinance, the Santa Monica City Council sought to preserve the city's "available housing stock and the character and charm which result, in part, from cultural, ethnic, and economic diversity of its resident population," and "its unique sense of community which derives, in large part, from residents' active participation in civic affairs, including local government, cultural events, and educational endeavors." Santa Monica Ordinance 2484, pmbl. The city council stressed that "vacation rentals ... are detrimental to the community's welfare and are prohibited by local law, because occupants of such vacation rentals, when not hosted, do not have any connections to the Santa Monica community and to the residential neighborhoods in which they are visiting" and "the presence of such visitors within the City's residential neighborhoods can sometimes disrupt the quietude and residential character of the neighborhoods." Id.

Rosenblatt is a Santa Monica resident and homeowner who, prior to the ordinance, rented out her house on Airbnb for $350 per night when she and her husband traveled. After the city of Santa Monica enacted the ordinance, Rosenblatt sued the city and its city council to enjoin the ordinance and recover damages on behalf of herself and a class of similarly situated individuals, claiming that the ordinance violates the dormant Commerce Clause.

Rosenblatt alleges that the development of "an online marketplace to list privately-owned properties for rent on a short-term basis" allowed tourists to opt for less expensive residential rentals over "the ultra-luxurious, highly occupied, and pricey hotels in the City." According to Rosenblatt, Santa Monica's real reason for enacting the vacation rental ordinance was to prop up demand for the city's high-end hotels and thereby reverse a decline in revenue from the city's 14% transient occupancy tax, which the hotels paid but the vacation rentals did not. The district court dismissed Rosenblatt's initial complaint for failure to state a claim, and Rosenblatt filed her first amended complaint. The district court again dismissed Rosenblatt's amended dormant Commerce Clause claims under Federal Rule of Civil Procedure 12(b)(6), this time without leave to amend. Rosenblatt appeals.

II. DISCUSSION

A. The dormant Commerce Clause

The Commerce Clause affirmatively grants to Congress the power to regulate interstate commerce. In order to advance national solidarity and prosperity, the Supreme Court has given meaning to the Clause's "great silences." H.P. Hood & Sons, Inc. v. Du Mond , 336 U.S. 525, 535, 69 S.Ct. 657, 93 L.Ed. 865 (1949). The Court refers to these silences—the Clause's "negative" aspect—as the dormant Commerce Clause. See Tenn. Wine & Spirits Retailers Ass'n v. Thomas , ––– U.S. ––––, 139 S. Ct. 2449, 2459, 204 L.Ed.2d 801 (2019).

The dormant Commerce Clause "denies the States the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce." Or. Waste Sys., Inc. v. Dep't of Envtl. Quality , 511 U.S. 93, 98, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994). "The primary purpose of the dormant Commerce Clause is to prohibit ‘statutes that discriminate against interstate commerce’ by providing benefits to ‘in-state economic interests’ while ‘burdening out-of-state competitors.’ " Ass'n des Éleveurs de Canards et d'Oies du Québec v. Harris , 729 F.3d 937, 947 (9th Cir. 2013) (quoting Nat'l Ass'n of Optometrists & Opticians v. Harris , 682 F.3d 1144, 1148 (9th Cir. 2012) ); see also C & A Carbone, Inc. v. Town of Clarkstown , 511 U.S. 383, 390, 114 S.Ct. 1677, 128 L.Ed.2d 399 (1994) (explaining that the "central rationale" of the dormant Commerce Clause "is to prohibit state or municipal laws whose object is local economic protectionism, laws that would excite those jealousies and retaliatory measures the Constitution was designed to prevent").

In reviewing challenges to local regulations under the dormant Commerce Clause, we follow a two-tiered approach:

[1] 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, we have generally struck down the statute without further inquiry. [2] When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, we have examined whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits.

Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth. , 476 U.S. 573, 579, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986) (citations omitted); see also S.D. Myers, Inc. v. City & County of San Francisco , 253 F.3d 461, 466 (9th Cir. 2001). "It is well settled that a state regulation validly based on the police power does not impermissibly burden interstate commerce where the regulation neither discriminates against interstate commerce nor operates to disrupt its required uniformity." Constr. Indus. Ass'n of Sonoma Cty. v. City of Petaluma , 522 F.2d 897, 909 (9th Cir. 1975) ; see also Village of Euclid v. Ambler Realty Co. , 272 U.S. 365, 390, 47 S.Ct. 114, 71 L.Ed. 303 (1926) (upholding zoning regulations that excluded hotels from residential areas).

To succeed on her facial challenge under the dormant Commerce Clause, Rosenblatt must establish "that no set of circumstances exists under which the [Ordinance] would be valid. The fact that [the Ordinance] might operate unconstitutionally under some conceivable set of circumstances is insufficient to render it wholly invalid." S.D. Myers, Inc. , 253 F.3d at 467 (alterations in original) (quoting United States v. Salerno , 481 U.S. 739, 745, 107 S.Ct. 2095, 95 L.Ed.2d 697 (1987) ). Because of this high burden, "we construe the Ordinance narrowly and resolve any ambiguities in favor of the interpretation that most clearly supports constitutionality." Id. at 468.

B. The complaint does not allege a per se violation of the dormant Commerce Clause

1. The ordinance does not directly regulate interstate commerce

A per se violation of the dormant Commerce Clause occurs "[w]hen 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." Daniels Sharpsmart, Inc. v. Smith , 889 F.3d 608, 614 (9th Cir. 2018) (alteration in original) (quoting Brown-Forman Distillers Corp. , 476 U.S. at 579, 106 S.Ct. 2080 ). A local law directly regulates interstate commerce when it "directly affects transactions that take place across state lines or entirely outside of the state's borders." Id . (quoting S.D. Myers, Inc. , 253 F.3d at 467 ).

a. Vacation...