MANZANITA — A property owner hit with $1.8 million in vacation rental fines has filed a federal lawsuit against Manzanita claiming the city’s enforcement is unconstitutional.
Sandra Petersen, a co-trustee of the Kingwood Trust, which owns the home on Edmund Lane, was fined by the city in October for operating a vacation rental without a license and for not paying the lodging tax.
Petersen, who lives in Washington state, said the city notified her of the citations in one document, nearly two years after the first alleged violation in January 2015.
“When I got the letter, I was in total shock,” she said. “It was very unexpected. I had no idea that I was disobeying any ordinances.”
In a lawsuit filed in U.S. District Court in Portland in June, Petersen has tried to block Manzanita from enforcing the citations, alleging the $1.8 million penalty is a violation of the Eighth Amendment, which protects against excessive fines.
The city declined to comment.
Cities on the Oregon Coast have struggled to rein in property owners who have taken advantage of the explosion in the vacation rental market but do not follow regulations or pay lodging taxes. Some property owners openly advertise homes on websites like Airbnb and VRBO, but enforcement can be more challenging when owners are less obvious about their rentals or claim to be unaware of licensing and tax responsibilities.
According to a court filing, Petersen believed she was not violating Manzanita’s vacation rental ordinance because she only allowed family, friends and current and former trustees to stay at the $395,000 property. The trust arranged reservations through a website and took guest donations of about $50 to $65 a night for upkeep, supplies and repairs, not for a profit.
“It was my belief that the use of the property by our extended family members did not constitute an event that generated either registration or a tax,” Petersen said in a court filing.
But Manzanita put Petersen on notice as far back as 2009 that the home appeared to be a vacation rental.
“Your home must be registered as a short-term rental in order for you to legally accept money for the use of the house, even if you merely intend to use the money towards taxes and maintenance on the house,” a letter from the city stated.
Kevin O’Connell, a Portland attorney representing Petersen in federal court, said Petersen explained to the city at the time that the home was only used by family. He said she did not hear from the city again until the fines arrived last October.
While the penalty was staggering, Manzanita has shown a willingness to negotiate with property owners. The city settled a similar case this year with a homeowner facing $3.7 million in fines for just under $53,000.
Christian Zupancic, a Seaside attorney for Petersen, reached an agreement with the city in February that would have required Petersen to register her home as a vacation rental, pay $7,500 and city attorney fees, and operate under a two-year probation.
But Manzanita learned of another alleged violation on Edmund Lane in April, and moved to throw out the settlement and pursue the hefty fines in the city’s Municipal Court. O’Connell said that, unbeknownst to Petersen, a friend and family member reserved the property but let a friend stay at the $65 donation rate.
“She is and was clearly aware of the city ordinances and knew compliance was a par to the settlement regardless of whether she knew what the final dollar amount would be,” Manzanita City Prosecutor Stacy Rodriguez said in a court filing.
A trial is set for August in Municipal Court, but Petersen’s attorneys are asking for a delay pending a ruling by the federal court in Portland. The Eighth Amendment — mirrored in Article I, Section 16 of the Oregon Constitution — is a check on the government’s power to impose excessive fines that are out of proportion to the offense.
“Compared to the alleged violation, we feel it’s grossly disproportionate,” Zupancic said. “Even if she did supposedly do it, is $1.8 million a fair penalty?”