Thomas A. Dickerson

Airbnb has been extraordinarily successful at bringing together nearly 3,000,000 hosts worldwide in 191 countries and 34,000 cities with more than “140 million ‘guest arrivals’ since inception” in 2008. Gallagher, “the Airbnb story,” (Houghton Mifflin Harcourt 2017), p. 41 (“As of this writing, the company was said to be adding 1.4 million (guests) a week, and those 140 million ‘guest arrivals’ were projected to grow to 160 million by early 2017.”). Airbnb is now “in its ninth year of so-called hypergrowth … when revenues essentially double … every year.” Id. at p. 205.

At the same time, Airbnb has disrupted the hotel industry and ruffled the feathers of governmental officials in New York, San Francisco and Santa Monica among other cities in the United States (see Dickerson & Hinds-Radix, “Ramping Up the Penalties for Apartment Sharing in New York City,” N.Y.L.J. (Nov. 22, 2016); Dickerson, “A Look At Airbnb’s Legal Battles Across the US,” Law360 (May 9, 2017)) and may be facilitating profiteering by rent stabilized tenants (see Goldstein v. Lipetz, 2017 N.Y. App. Dev. LEXIS 4006 (1st Dept. 2017) (tenant evicted for “profiteering’ and “[t]urnig her rent-stabilized apartment into a single-unit tourist hotel [enabling tenant] to earn substantial profits [of] 72 percent from her subletting”); Dickerson, “How Airbnb Facilitates Profiteering in New York City,” Law360 (June 5, 2017)).

Unfair Competition?

The hotel industry in the United States is of the view that Airbnb competes for the same customer (vacation and business travelers) and does so unfairly. “‘Airbnb is operating a lodging industry, but is not playing by the same rules, Troy Flanagan, the American Hotel and Lodging Association’s vice president for state and local government affairs said … The main prongs of the association’s plan is to constrain Airbnb include lobbying politicians and state attorneys general to reduce the number of Airbnb hosts, funding studies to show Airbnb is filled with people who are quietly running hotels out of residential buildings and highlighting how Airbnb hosts (do not)) collect hotel taxes and are not subject to (the) same safety and security regulations that hotel operators must follow.” Benner, “Inside the Hotel Industry’s Plan to combat Airbnb,” New York Times (April 16, 2017); see also Parker Madison Partners v. Airbnb, case no. 1:2016cv08939 (S.D.N.Y. Sept. 29, 2017) (complaint alleging that Airbnb acts as an unlicensed real estate broker dismissed for lack of actual injury).

Are They Actually Competitors?

To analyze the charge of unfair competition, we need to determine whether and to what extent U.S. hotels and Airbnb are actually competitors. After all, U.S. hotels are quasi public institutions regulated by common law-based statutory duties, while Airbnb is an Internet app and its hosts are merely home or condo owners and apartment dwellers renting out a spare room. A comparison of the common law duties and regulatory obligations of hotels with the absence of similar obligations imposed on Airbnb and its hosts is instructive.

Quasi Public Institutions

To understand why hotels in the United States are expensive to operate (putting aside the cost of downtown real estate and the property taxes that go along with it) we need only look at the history of innkeepers and the common law duties (and their modern statutory analogues) imposed upon them. Dickerson, “Travel Law,” Law Journal Press (2017), §4.04(1)(a); Loucks, “Travelers Beware: Tort Liability in the Sharing Economy,” 10 Wash. J.L. Tech. & Arts 329, 331 (2015). Modern hotels and resorts are wedded to the part in terms of the law which defines their duties and obligations to guests. The origin of hotel law goes back several hundred years. Darby v. Compagnie Nationale Air France, 96 N.Y. 2d 343 (2001) (“The duties of innkeepers have developed over centuries. By Chaucer’s time, English law recognized the responsibilities of innkeepers to their customers … . At common law, the innkeeper was required, among other things, to provide food, lodging and safe harbor for its guests … . These principals were carried across the Atlantic and by and large, helped shape our formulations of innkeepers’ duties.”).

Duty to Accommodate

Hotels are under a common law duty to provide accommodations to travelers. As long as there is a room available, the innkeeper cannot discriminate between travelers but must accept those who properly apply. Pattered v. Four Season Motor Inn, 101 N.M. 723 (1984) (a hotel has an elevated standard of care towards its guests). There have been instances of discrimination by hotels based upon racial and ethnic background. Today, as applied to hotels, the federal Civil Rights Act of 1964 is a codification of the common law to provide accommodations to all travelers. In addition, the Americans With Disabilities Act (ADA) applies to hotels. Brown v. Showboat Atlantic City Propco, 2010 WL 5237855 (D.N.J. 2010) (disabled person alleges discriminatory barriers at the Showboat hotel and casino including improper ramps, walkways, restrooms, guestrooms and gaming tables).

Hosts Have No Such Duties

However, Airbnb and its hosts are under no such duties. Gallagher at p. 103 (“Hotels have to abide by civil rights law, but Airbnb operates as a platform … . It places the burden of compliance with local laws on individuals, but the Civil Rights Act of 1964 does not apply to people renting out fewer than five rooms in their own home. So under federal law … hosts are legally able to reject someone not just for hateful personal beliefs but for all kinds of reasons”). Compare Selden v. Airbnb, 2016 WL 6476934 (D.C.D.C. 2016) (“Plaintiff Gergory Selden, who is African American … filed suit against Airbnb for racial discrimination … . Likening Airbnb to a hotel and its hosts to rental agents or hotel employees, Selden seeks to hold the company responsible under federal civil rights laws for the discriminatory conduct of those who offer accommodations on its website”; arbitration clause enforced); “Airbnb host to pay $5,000 for racist tirade, last-minute cancellation,” www.eturbonews.com (July 14, 2017) (”An Airbnb host who cancelled a reservation at the last minute during a snowstorm while racially abusing the scheduled guest has agreed to pay a $5,000 fine as part of her punishment for the incident which breached California civil rights law.”).

Safe Accommodations

Hotels, under a common law duty to provide safe accommodations, are governed by a standard of reasonable care which may depend upon to whom it is owed, e.g., whether the hotel had notice and/or caused the conditions the resulted in the accident, whether the guest was contributorily negligent, whether the accident was foreseeable, whether there are industry or statutory standards or hotel policies, whether the hotel assumed a duty to prevent the spread of diseases such as norovirus and Legionella, whether the hotel negligently failed to summon emergency medical services, whether the hotel failed to adequately exterminate bedbugs, whether a hotel should provide a lifeguard for its pool and so on. “Travel Law,” §4.04(1) (a)(iv)).

Airbnb as an app is not under any of these duties while its hosts are under no statutory or regulatory obligations. Nonetheless, Airbnb hosts should be under a duty of reasonable care to business invitees. Airbnb, however, insulates its hosts and protects their guests by providing insurance coverage to hosts in many countries. Gallagher at p. 54; www.airbnb.com (“$1,000,000 Host Guarantee. The Host Guarantee protects your home and stuff from accidental damage … at no additional charge … Host Protection Insurance is designed to protect you from liability in case your guests get hurt or causes property damage. It’s automatically included as part of your Airbnb account.”). Equally important is Airbnb’s “two-way rating system mechanism that prompts both hosts and guests to review one another after a stay,” which encourages hosts to make their accommodations safe and pleasant. Gallagher at pp. 71-72. In addition, Airbnb’s webpage makes safety suggestions to hosts such as “Hospitality Standards” and “Responsible Hosting in the United States.” www.airbnb.com; Gallagher at p. 72.

Protecting Guests

Hotels must protect guests from assaults from intruders and other guests. More recently, the liability of hotels to guests who have been raped or assaulted has increased. In addition, hotels and resorts have become favored targets of terrorists. For example, in 2008 in India “[c]oordinated terrorist attacks struck the heart of Mumbai … killing dozens in machine gun and grenade assaults on at least two five star hotels.” Sengupta, “At Least 100 Dead in India Terror Attacks,” New York Times (Nov. 27, 2008).

Hotels must provide the quality of security procedures commensurate with the level of crime in the local environment. Shadday v. Omni Hotels Management, 477 F. 3d 511 (7th Cir. 2007) (guest raped in hotel elevator; “We can get a better sense of a hotel’s duty’s to protect guests against crimes by observing that the hotel has much better access to information about the danger than its guests do”); Dickerson, “How to Avoid Dangerous Vacations” (2016). Hotels must respond to escalating noise levels, continuing threatening behavior of intoxicated patrons and the presence of guns. Hotels should prevent unauthorized persons from having access to room keys. Hotels have a duty to use reasonable care in hiring, training and supervising employees and concessionaires. Airbnb and its hosts are under none of these duties. As noted, however, Airbnb does provide insurance for property damage and guest injuries.

Food Fit to Eat

Hotels that have restaurants and/or provide room service are bound by an implied warranty to service food and beverages which is fit to eat and drink. Punitive damages have been awarded in cases in which the hotel dispenser of the contaminated food or water either knew or should have known of the presence of contamination. Averitt v. Southland Motor Inn of Oklahoma, 720 F. 2d 1178 (10th Cir. 1983) (food poisoning; punitive damages); Young v. Crookham, 290 Ore. 61 (1980) (water contamination; punitive damages).

Airbnb is under no such duty and its hosts may or may not offer food and drink to guests. Although hosts may be under a duty of reasonable care in entertaining guests, they are not under the strict liability obligations of the warranty of merchantability of food and drink.

Comparing Costs

In addition to the obvious costs of complying with common law-based statutory duties, hotels and hotel chains have significantly higher operational costs than Airbnb or its hosts. For example, hotels are labor intensive. In 2016, Marriott Corporation was the largest hotel chain with approximately 1.2 million rooms, approximately 6,000 total franchised hotels, and many thousands of employees (www.news.marriott.com (January 2017)), while Airbnb had approximately 3,000,000 rooms, no hotels and 3,100 employees. In addition, Airbnb incurred no labor costs from the work of its 3,000,000 hosts. Hotels have substantial marketing, administrative and infrastructure costs, while Airbnb uses the Amazon Cloud for all computing work (Gallagher at p. 45) and relies upon hosts to provide and maintain accommodations and related services. Hotels may be more likely to pay all appropriate property, sales and value added taxes. Although Airbnb recommends that its hosts do the same (www.airbnb.com) there is no enforcement by Airbnb.

Conclusion

It is clear that hotels in the United States have significant operational costs dictated by common law based statutory obligations and by the practicalities of marketing and maintaining large buildings in urban environments which Airbnb and its hosts do not bear. Can it be said that Airbnb and its hosts actually compete, let alone unfairly, with these quasi public institutions?

Thomas A. Dickerson is a retired Associate Justice of the Appellate Division, Second Department and the author of “Travel Law,” Law Journal Press (2017).