Rentberry case moves forward to a possible quick conclusion

In June, Rentberry filed for a preliminary injunction to block the City of Seattle’s prohibition on rent-bidding platforms. But last month, the company and the city agreed to set  that motion aside and proceed directly to cross-motions for summary judgment. Rentberry’s new motion was filed last Friday.

The heart of Rentberry’s case continues to be that the City’s ordinance is an unconstitutional infringement on the company’s right to commercial free speech. That turns out to be a very interesting legal question: is regulating an auction site a restraint on conduct (i.e. a price control), or a restraint on speech? The Rentberry brief cites a slightly simpler case that asks the same question, but for a law prohibiting merchants from adding a surcharge when a customer pays by credit card instead of cash. Here’s what the Supreme Court had to say:

The law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer. Instead, it regulates how sellers may communicate their prices. In regulating the communication of prices rather than prices themselves, [the law] regulates speech.

On its face, that seems like a straightforward precedent for interpreting a rent bidding site regulation (or in Seattle’s case, prohibition) as a restraint of commercial speech: Seattle’s ordinance doesn’t set prices; it prohibits potential tenants and a landlord from communicating about them through an auction process. There is, of course, much more process to an auction than simply communicating the seller’s prices, so there is potentially room for courts to find a different interpretation here, but they would probably need to invent a threshold that draws a line somewhere between the credit-card surcharge and a bidding site.

Assuming this case is binding precedent and rent-bidding sites are found to be commercial speech, there is a well-established four-part test (from this Supreme Court case) for whether a restraint on commercial speech is allowed:

In commercial speech cases, then, a four-part analysis has developed. At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.

We’ve already discussed the first part: whether it is protected speech. Rentberry asserts that its rent bidding site is lawful and not misleading or deceptive. The City of Seattle, in the preamble to the ordinance, did not make any findings that the rent bidding sites are either; rather, it said that it wishes to study the issue. It did suggest that rent bidding might violate the city’s First-in-Time Tenant ordinance (it almost certainly does), but that ordinance was struck down by a judge in March (the case has been appealed, but the judge’s ruling  is still in force). But without evidence that rent-bidding sites are either illegal or misleading, they qualify as protected speech and the burden shifts to the city to meet the other three parts of the test as to whether its restraint on that speech is allowable.

That brings us to the city’s interest in passing the ordinance and whether it is substantial. Here’s what the ordinance says:

WHEREAS, the City of Seattle is committed to ensuring equitable access to rental housing, and platforms that require use of a computer and internet in order to access rental housing may hinder the ability for certain communities to meaningfully identify and obtain needed housing; and

WHEREAS, the Council wishes to understand new technologies and innovation that may have impacts on communities throughout Seattle prior to these new technologies and innovations becoming entrenched without regard to whether their impacts are in line with Seattle’s values of equity and Seattle’s work toward expanding access to rental housing; and

WHEREAS, the Council wishes to know more about how these services function and the impact they may have on Seattle’s rental housing market before allowing landlords and tenants to use them within the City;

In its brief, Rentberry makes no attempt to prove whether the city’s interest is or isn’t substantial — the burden is on the city to show that it is. But the city must still show that the ordinance advances its interest. Rentberry argues that it doesn’t for the simple reason that it would be far easier to study rent bidding sites’ impact if they were actually allowed to run; otherwise the city must study how they work in other jurisdictions. Of course, the City of Seattle argues in the preamble to the ordinance (and will surely argue in its brief) that it wants to avoid what happened with Uber, Lyft and AirBnB: that by the time governments realized the unintended consequences of these kinds of services, they were too entrenched to regulate or constrain. That argument, however, is highly speculative, and suggesting that commercial speech must be constrained because it might cause problems in the future (but even then, might not break the law) will be a difficult sell.

The final part of the test is whether the prohibition is tailored appropriately to meet the goal. Rentberry argues that it misses the mark in several ways. First, it only prohibits rental auctions on web sites; it doesn’t prohibit other forms of competitive bidding for tenancy.

Second, Rentberry argues that it overreaches because it prohibits an entire platform if that platform includes rent-bidding. This is more of a war of words than anything else, though Rentberry is claiming that the rent-bidding functionality is integral to its site (suggesting it can’t be removed) while also listing a litany of other features of its platform that have nothing to do with rent-bidding and could easily be offered separately. It’s a strange path to go down — reminiscent of Microsoft’s argument that Internet Explorer couldn’t be removed from Windows — and the only evidence the company gives to support it is a declaration by its CEO that “the bidding feature is an integral component of the site.” That’s likely to be self-defeating, since summary judgment can only be granted if no material facts are in dispute; it’s very much in dispute whether Rentberry could strip out the rent-bidding feature and still have a viable site.

Third, the company argues that the city had alternative means that don’t restrict speech to accomplish its goal — i.e. to lower the cost of housing. It suggests offering subsidies and other incentives to developers and subsidizing low-income renters, noting that the city is already engaged in both these activities.

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The city now gets a turn to make a case for summary judgment in its favor. Its deadline for filing its motion is September 13th. The case schedule calls for all the reply briefs to be completed by the middle of October, so we may get a ruling by the judge before the end of the year.