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SAN FRANCISCO — Airbnb can't be sued under a California state escrow law, because while the online short term home rental company may invest customer fees before paying them to their "hosts," it doesn't act as an escrow agent, a California state appeals court has ruled.
On Oct. 30, a three-justice panel of the California First District Court of Appeal agreed a San Francisco County Superior Court judge was correct to toss a lawsuit seeking to block Airbnb from continuing its practice of investing and earning interest on user fees.
In the decision, the First District justices said the plaintiffs in the case failed to prove Airbnb's practices should subject it to California's laws intended to regulate companies holding themselves out as "escrow agents" online.
And the justices said Airbnb's investment and interest earning practices do not fall into that category.
The justices said they could find no evidence showing California state lawmakers intended to "sweep the type of transactions at issue in this case into Escrow Law."
The lawsuit dates to 2023, when attorneys from the firm of Zimmerman Reed, of Los Angeles, filed suit against Airbnb in San Francisco County Superior Court on behalf of named plaintiff Jamie Reed.
The lawsuit accused Airbnb of allegedly violating California unfair competition laws by earning interest on customer fees the company invested between the time a customer paid fees for lodging and when Airbnb disbursed those funds to the vacation home "hosts" who had provided the lodging.
While guests may pay at least a portion of the lodging costs weeks or even months in advance, Airbnb holds those funds until the guest actually checks into the short-term rental property. Airbnb typically releases the funds about 24 hours after check-in.
According to court documents, Airbnb discloses those investment and interest-earning practices in its terms of service, telling customers and hosts alike that the company "may combine and invest money paid by guests prior to disbursing those funds to hosts and ... will retain any interest earned on those investments."
According to court documents, Airbnb had more than 150 million "active monthly users" in 2025.
According to published reports, Airbnb financial reports indicate the company earned $818 million in interest in 2024 and another $705 million in 2025, or nearly a third of its annual income.
The plaintiffs asserted this investment practice amounted to holding the funds in escrow. As such, they said, Airbnb violated the law by allegedly improperly commingling one customers' paid fees with others' to invest and then keeping interest earned from those investments.
Judges, however, said Edson's lawsuit falls short of demonstrating Airbnb either held itself out as an escrow agent; that its terms of service would leave anyone with that impression; or that guests would somehow be entitled to interest the company may earn from investing their paid fees.
"Indeed, the Terms that Edson and all other guests (as well as hosts) agree to expressly disclaim any such possibility. They explicitly state defendants act as an agent solely for the hosts and solely for the limited purpose of accepting and processing payments from guests," the justices wrote.
Further, they noted, the terms of service explicitly contain "numerous provisions" under which Airbnb is obligated to refund paid fees following "unilateral cancellations by either guests, hosts, or defendants (Airbnb.)"
"This is fundamentally inconsistent with an escrow transaction," they wrote.
"... We can think of numerous reasons why a guest may want to cancel a booking and get his or her money back, or why a host might need to use the listed property during the reserved time. However, we need not conjure up such possibilities; it is enough that, when making a reservation on Airbnb, guests and hosts plainly understand that they are not entering into an irrevocable contract subject to the strict regulations of the Escrow Law."
The decision was authored by Justice Ioana Petrou. Justices Carin Fujisaki and Victor Rodriguez concurred.
San Francisco County Superior Court Judge Charles Haines presided over the case at the trial court level.
Airbnb was represented in the case by attorneys from the firm of Wilmer Cutler Pickering Hale and Dorr, of San Francisco.
