This case involved three challenges to New Orleans’s regulation of short-term rentals offered by Airbnb and Vrbo. The plaintiffs are a group of property owners who wish to obtain short-term rental licenses for their homes. They made three claims under 42 U.S.C. § 1983 for violating a litany of the property owners’ constitutional rights. First, the plaintiffs said that New Orleans’s failure to renew the short-term rental licenses violated the Takings Clause because they had a property interest in the renewal of their licenses. Second, they maintained the residency requirement violated the dormant Commerce Clause because it discriminated against interstate commerce. Third, they argue that the advertising restrictions violated the First Amendment as a prior restraint on their protected speech.

Challenges to the Regulation of STRs and the Fifth Circuit’s Decision

The Fifth Circuit in New Orleans reviewed a summary judgment granted by the United States District Court for the Eastern District of Louisiana on two of the challenges and held that the third was “viable.” On the first challenge, the plaintiffs claimed that New Orleans violated the Takings Clause by refusing to renew their licenses. In particular, the property owners maintained that they have such an interest because the Fifth Circuit has recognized that business licenses qualify as property for purposes of procedural due process.[1] However, the Fifth Circuit disagreed in two ways. First, the short-term rental licenses are a privilege, and thus the plaintiffs lack the sort of ownership in the short-term rental licenses that could support a “legitimate claim of entitlement.” Dennis Melancon, Inc. v. City of Orleans, 703 F. 3d 262 (5th Cir. 2012). Second, the plaintiffs’ interests in the short-term rental licenses were not so longstanding that they can plausibly claim custom had elevated them to property interests.[2] The Fifth Circuit held that the district court correctly ruled that the plaintiffs have no such property interests.

On the second challenge to the district court’s granting summary judgment to the city of New Orleans, the plaintiffs set forth that the district court erred because the requirement violates the dormant Commerce Clause for discriminating against the interstate commerce. The dormant Commerce Clause places a restriction on state authority to regulate commerce.[3] The Fifth Circuit determined that the district court held the residency requirement discriminated against interstate commerce, but the district court applied the wrong standard.[4] The residency requirement required property owners to file homestead exemptions on the properties where they wanted short-term rental licenses. The Fifth Circuit found that the residency requirement discriminates against interstate commerce for purposes of the dormant Commerce Clause because it essentially allows only residents of the city of New Orleans to enter the market for short-term rentals in residential neighborhoods.[5] The Fifth Circuit found that the city of New Orleans has other options to address the problems the residency requirement was meant to address.

Finally, the Fifth Circuit found that the court lacked jurisdiction to review the city of New Orleans’s cross-appeal because it was not a final judgment. It was only a finding that the claim was viable. Therefore, the Fifth Circuit affirmed the judgment in part and vacated in part. The cross-appeal was dismissed.

Conclusion

The case provides the legal framework for the city of New Orleans to issue new regulations on short-term rentals if it deems it necessary. Currently, there is a temporary moratorium on new residential short-term rental permits, and the city of New Orleans is seeking to re-write the regulations. This will be the third time that the city has had to re-address the regulations and write new ones.

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[1] Plaintiffs rely on Bowlby v. City of Aberdeen, 681 F. 3d 215 (5th Cir. 2012).

[2] Phillips v. Wash. Legal Found., 524 U.S. 156, 164 (1998).

[3] United Haulers Ass’n v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007); see also Tenn. Wine & Spirits Retailers Ass’n v. Thomas, 139 S. Ct. 2449, 2461 (2019) (“reiterat[ing] that the Commerce Clause by its own force restricts state protectionism”).

[4] The district court applied the test under Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).

[5] The Fifth Circuit found that the city of New Orleans’s residency requirement can “survive only if it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” Dep’t of Revenue v. Davis, 553 U.S. 328, 338 (2008)