Airbnb to America’s Big Cities: See You in Court

Airbnb is one of the most litigious startups in Silicon Valley and it has been ramping up court dates as the clock ticks on a stock market debut.

The world’s biggest home-sharing company has been fighting against short-term rental regulations in cities across the U.S., seeking to clarify its legal status and protect thousands of listings. Airbnb has filed at least 11 lawsuits against an American city or state government since its founding in 2008 and has appealed an adverse decision at least three times. Half of these legal challenges have come in the past two years alone, according to a Bloomberg analysis of state and federal cases.

At the same time, legal assaults against Airbnb have also increased. The company has been involved in some 230 cases through the end of 2019, ranging from petty disputes over refunds to secret video cameras in bedrooms, severe bedbug infestations and one guest who burned down a home by tossing a lit cigarette into the trash.

As it has grown from a San Francisco-based couch-surfing startup to a global platform with more than 7 million listings worldwide, Airbnb has found itself increasingly at odds with municipalities concerned about its impact on housing supply and rental prices. Since 2018, the company has launched legal action against Boston, Palm Beach County, Miami Beach and New York – twice. It has also been sued by cities for advertising illegal properties, not complying with subpoena orders and not paying taxes.

Airbnb spokesman Christopher Nulty said the company has been “forced to challenge laws we believed were in violation of federal, state or local statutes and did so only after attempting to collaborate with those municipalities outside of a courtroom.”

Part of the reason for Airbnb’s aggressiveness is that any outstanding disputes, including a long drawn-out battle in New York, could cast a pall on its $31 billion valuation. Investors burned by the poor performance of once-vaunted tech startups that filed to go public last year, including Uber Technologies Inc., Lyft Inc. and We Co., will give Airbnb even more scrutiny when it opens its books and will want to know whether its future market opportunity will be curtailed by a stricter regulatory environment.

Many of the startups in the sharing economy have also sparred with cities, particularly Uber, which is the lone company that has filed even more lawsuits against governmental jurisdictions than Airbnb. Others, like WeWork and electric scooter companies such as Bird Rides Inc. and Lime, don’t lean on the courts nearly as hard. But amid a climate of general backlash against tech companies, governments are being pushed to regulate the industry more, said Roberta A. Kaplan, a lawyer who has represented Airbnb and Uber against the governments in court. “As a result, the regulatory schemes end up being half-baked” and violate statutory and constitutional laws, she said. “That’s one of the reasons we are seeing increased litigation efforts by tech companies.”

Some experts say Airbnb’s size and popularity help immunize it from a crushing defeat in the courts. “Airbnb will be fighting regulatory brush fires across the world for the next decade,” said Aswath Damodaran, a professor at New York University’s Stern School of Business. “They have lots of kinks to iron out, but the kinks will get ironed out.” Still, he estimates regulation could reduce the company’s valuation by about 10%.

Unlike businesses such as Facebook Inc. or Alphabet Inc.’s Google that operate mostly online, Airbnb straddles both the digital and analog worlds, which is why it has faced “a harder regulatory and legal path than their predecessors,” said Arun Sundararajan, a professor at NYU who has written books on the sharing economy. Airbnb and Uber bill themselves as tech platforms, but their powerful and well-established rivals in the hotel and transportation industries want them to face the same regulatory squeeze and lobby hard for it.

What’s more, rules on short-term rentals are set locally and some cases have the scope to set examples elsewhere, increasing pressure on the company to get a favorable outcome. The web of regulatory woes has united Airbnb with rivals like Expedia Inc.’s HomeAway and the pair has fought together in at least four legal battles.

Airbnb is a formidable opponent for a city attorney’s office. It can draw on an in-house army of 120 lawyers and a legal budget that was about $60 million in 2018, according to a person familiar with the company’s strategy who didn’t want to be identified discussing private information.

But that war chest doesn’t guarantee success. San Francisco was the first city to introduce rules that forced Airbnb to remove listings that didn’t comply with its laws limiting hosts to renting their homes for 90 days a year. Airbnb sued the city, but wound up settling in 2017 after agreeing to comply with an amended version of the law, which prohibited the company from booking illegal listings. The case cost San Francisco about $330,000 in legal fees, according to the city, but the price for Airbnb was half of its 9,000-odd listings there. A year after these regulations took effect Airbnb says it’s listings regrew by about 22%.

“They vigorously defended their interests in court,” said Kevin Guy, director of the office of short-term rentals in San Francisco. “They understood that everything would be somewhat precedent setting.”

Thousands of listings evaporated in Boston late last year due to a similar regulatory change. In New York, city officials estimate as many as 35,000 Airbnb listings could break local laws that prohibit entire apartments from being rented out for fewer than 30 days. Last year, New York introduced an ordinance that would force Airbnb to hand over data, including names, addresses and telephone numbers, so the city could weed out illegal listings. Airbnb sued and won a temporary injunction while the case winds its way through court. In granting the stay, the judge in the case seems to have taken the company’s side initially, calling the city’s request a “breathtaking” overreach of privacy. A final ruling is expected this year.

In other fights, judges have sided with the cities. When Airbnb sued Santa Monica, California, over a law that would fine it for booking rentals that didn’t comply with regulation, the company argued that the federal Communications Decency Act prevented it from being held responsible for the content on its platform or ensuring its hosts complied with local laws. The district court and federal appeals court disagreed.

“Allowing internet companies to claim CDA immunity under these circumstances would risk exempting them from most local regulations,” according to the appellate court ruling. The judge in the case added that removing liability of illegal listings from Airbnb would be akin to creating “a lawless no-man’s-land on the internet.”

February 14, 2020: Updates with information on San Francisco market in 12th paragraph.