No Rational Basis to Exclude Business Entities From STR Permits: Fifth Circuit Partly Invalidates New Orleans’s Short‑Term Rental Regime and Narrows “Operator Residency” to Presence Only

Case: Hignell‑Stark v. City of New Orleans, No. 24‑30160 (5th Cir. Oct. 7, 2025)

Court: United States Court of Appeals for the Fifth Circuit (Elrod, C.J., Jones & Stewart, JJ.; opinion by Jones, J.)

Disposition: Affirmed in part; Reversed in part; Remanded.

Introduction

This appeal is the latest chapter in New Orleans’s efforts to regulate short‑term rentals (STRs) amid the proliferation of lodging arranged through digital platforms such as Airbnb and Vrbo. After the Fifth Circuit’s 2022 decision in Hignell‑Stark v. City of New Orleans (Hignell‑Stark I) invalidated New Orleans’s owner residency requirement under the dormant Commerce Clause, the City retooled its code and zoning ordinance. The revised regime requires both STR owners and “operators” to obtain permits; limits permits to “natural persons”; mandates that operators “reside on” the STR property; and imposes detailed advertising rules including a one‑listing‑per‑advertisement limit and various required disclosures.

The plaintiffs—homeowners, a property management company, and LLC owners—brought federal and state‑law challenges to the revised scheme. The district court largely upheld the regulations. On appeal, the Fifth Circuit draws important constitutional lines: it sustains much of the City’s regulatory framework but strikes down the categorical exclusion of business entities from owner and operator permits under the Equal Protection Clause and invalidates the one‑listing‑per‑advertisement rule under the First Amendment. The court also adopts a narrowing construction of the operator “residency” requirement—interpreting it to require operator presence only while guests are present—to avoid a dormant Commerce Clause violation.

Summary of the Opinion

State-law authority: Louisiana law authorizes municipalities to regulate the use of residential property, including by duration of occupancy; New Orleans has power to regulate STRs. La. R.S. § 33:4721; Chaumont v. City of New Orleans.
Due Process: Plaintiffs failed to show a protected property interest under Louisiana law in operating an STR. STRs are treated as a commercial use distinct from residential leasing; operating an STR is a privilege, not a right.
Equal Protection: The City’s ban on permits for “business entities” (limiting both owners and operators to “natural persons”) is irrational under the Equal Protection Clause. The corporate form bears no rational relationship to the City’s legitimate interests (livability, quality of life, oversight, proliferation control).
First Amendment (advertising):
- Upholds: Prohibitions on ads for illegal/unpermitted STRs and ads that would exceed legal density/bedroom/occupancy limits (no protection for speech proposing unlawful activity). Also upholds compelled disclosure items (permit numbers, accessibility, bedrooms, occupancy) under Zauderer.
- Strikes down: The “one dwelling unit per advertisement” restriction fails Central Hudson—City offered no evidence or argument that it directly advances a substantial interest and is appropriately tailored.
Dormant Commerce Clause: By accepting the City’s narrowing construction, the court reads the operator “reside on the property” language to require presence only while guests are present. So construed, the requirement does not discriminate against out‑of‑state operators and does not violate the dormant Commerce Clause.
Judgment: Affirmed in part; reversed in part as to (i) the “natural person” limitation for owner and operator permits (Code §§ 26‑617(a) & 26‑619(a)), and (ii) the “one dwelling unit per listing” advertising requirement (Code § 26‑618(a)(3)); remanded.

Analysis

Precedents and Authorities Shaping the Decision

Hignell‑Stark I, 46 F.4th 317 (5th Cir. 2022): The Fifth Circuit previously held New Orleans’s owner‑residency requirement facially discriminated against out‑of‑state owners under the dormant Commerce Clause, especially in light of reasonable, nondiscriminatory alternatives. That backdrop matters: the City’s 2018 study associated “corporate ownership” with out‑of‑state ownership and homestead exemptions, linking “corporate bans” to the unconstitutional residency approach.
Louisiana statutory and case law:
- La. R.S. § 33:4721 grants broad zoning authority, including regulation of “use” of residences; Deslonde v. St. Tammany Parish recognizes STRs as a strictly commercial use; Chaumont confirms municipal authority and that operating an STR is a “privilege, not a right.”
- Louisiana law distinguishes natural and juridical persons (La. Civ. Code art. 24; Ogea v. Merritt), and treats entities as distinct legal “persons”—a premise central to the Equal Protection analysis.
Property-interest jurisprudence (Due Process): Property interests arise from state law, not the Constitution (Roth; Schaper; Simi). Louisiana’s treatment of STRs (Edwards; Craig) as commercial, combined with the City’s historic ban on sub‑30‑day rentals and the CZO’s non‑vesting clause, defeats claims of a vested right to operate STRs.
Equal Protection rational‑basis framework: The Fifth Circuit leans on decisions insisting that “rational” means actually rational and not conjectural: St. Joseph Abbey v. Castille (no deference to economic protectionism; examine setting and history), Hines v. Quillivan (rational cannot be fiction), Greater Houston Small Taxicab and Heller v. Doe (attentuation can render distinctions arbitrary), Mikeska (need something in the record to suggest rational relationship), Stefanoff (arbitrary or irrational distinctions cannot stand). Comparator analysis is guided by Stratta and Mahone.
First Amendment—commercial speech:
- No protection for speech proposing unlawful activity (Cocroft v. Graham).
- Compelled disclosures are tested under Zauderer (purely factual, uncontroversial, legitimate interest, not unduly burdensome), as applied and refined in R.J. Reynolds v. FDA.
- Restrictions on commercial speech are tested under Central Hudson and Edenfield (government must show a substantial interest, direct advancement, and reasonable fit; courts will not invent justifications).
- The opinion also cites Free Speech Coalition v. Paxton on proportional tailoring (affirmed 2025).
Dormant Commerce Clause and constitutional avoidance:
- The court invokes constitutional avoidance principles (City of El Cenizo v. Texas; Jennings v. Rodriguez) and Louisiana’s openness to narrowing constructions (State v. Interiano), accepting the City’s representation that “reside” means being present while guests are present.
- Had the ordinance demanded permanent residency, it would likely implicate the dormant Commerce Clause (the court cites Nat’l Pork Producers Council v. Ross to flag discrimination concerns).

Legal Reasoning

1) State-Law Authority to Regulate STRs

The court makes quick work of the state‑law challenge: La. R.S. § 33:4721 authorizes municipalities to regulate “the location and use” of residences, and nothing in that statute forbids defining a regulated “use” by the duration of guest stay. Louisiana appellate decisions (Deslonde; Chaumont) confirm that STR regulation sits well within municipal zoning power. Thus, the City’s STR overlay is a permissible exercise of state‑delegated authority.

2) Due Process: No Protected Property Interest in Operating STRs

To invoke substantive or procedural due process, plaintiffs must identify a state‑law property interest. They offered “the fundamental right to lease their private homes,” but the court distinguishes residential leasing from commercial STR operations: Louisiana treats short‑term rentals—nights and weekends, not months—as commercial lodging analogous to hotels (Deslonde; Craig; Edwards). Historically, New Orleans prohibited sub‑30‑day rentals in residential areas; and the current CZO disclaims any vested right to continue STR use if regulations change. Operating an STR, Louisiana courts have said, is “a privilege, not a right” (Chaumont). On this record and legal landscape, plaintiffs failed to show a cognizable property interest. Their due‑process challenges therefore fail at the threshold.

3) Equal Protection: Blanket Exclusion of Business Entities Is Irrational

The Code restricts both owner and operator permits to “natural persons,” expressly prohibiting “ownership, in whole or in part, by a business entity” from qualifying for an STR owner permit and limiting operator permits to natural persons. The court proceeds through three steps.

a) Similarly situated comparators. Under Hines and Stratta, the court asks whether the City is treating similarly situated groups differently. It concludes that business‑entity homeowners (e.g., an LLC with two human members) are similarly situated to two individuals jointly owning a home. Likewise, a management company and an individual operator are similarly situated with respect to the duties the ordinance imposes (on‑site presence, complaint response times, telephone accessibility). The legal identity of the permitholder does not change the regulatory relationship to the ordinance.

b) Rational‑basis scrutiny that is actually rational. The City’s proffered interests—livability, quality of life, neighborhood character, and oversight—are legitimate (Nordlinger). But the means chosen (categorically excluding entities) must be rationally related to those ends. Here, the court emphasizes the Fifth Circuit’s robust rational‑basis line: courts will not accept “fiction,” pretext, or mere speculation (Castille; Hines; Stefanoff; Mikeska). The record contains nothing suggesting that the corporate form of ownership or operation causes, exacerbates, or fails to mitigate the guest‑behavior harms the City identified (noise, trash, parties)—harms tied to guests, not the owner’s or operator’s juridical status.

c) Attenuation and internal inconsistency. The City’s own scheme already limits proliferation: one STR per block; one STR property per “person”; and one operator per “person.” Those targeted constraints directly address the City’s concentration concerns. By contrast, excluding business entities is “so attenuated” from the City’s goals that it is arbitrary. The court also notes real‑world considerations: many homeowners use an entity for liability shielding; compliance still occurs through real people, whether the permit is issued to an individual or to an entity. The district court’s alternative rationales—that natural persons have more incentive or that corporate changes might cause administrative burdens—are rejected as speculative and unsupported. Result: the “natural‑person only” rule for both owners and operators violates the Equal Protection Clause.

Note: The panel observes that the district court also found irrational the exclusion of certain individual ownership interests (usufructuaries and trust beneficiaries), and the City did not cross‑appeal that determination.

4) First Amendment: Illegal-Use Ads and Factual Disclosures Survive; One-Listing-Per-Ad Fails

The City’s advertising code has three relevant components:

Bans on ads for illegal activity. Sections 26‑618(b)(1)–(4) prohibit advertising for unpermitted STRs and ads that would exceed legal density, bedrooms, or occupancy. Because commercial speech proposing unlawful activity is unprotected (Cocroft), those bans survive.
Compelled factual disclosures. Section 26‑618(a)(3) requires permit numbers, ADA compliance/wheelchair accessibility, number of guest bedrooms, and maximum occupancy. Applying Zauderer (as elaborated in R.J. Reynolds), the court finds the disclosures purely factual, uncontroversial, supported by a legitimate interest in preventing consumer deception and ensuring guests engage only with legitimate, compliant listings, and not unduly burdensome. They are valid.
The one‑listing‑per‑advertisement rule. The same section’s requirement that each listing “advertises only one dwelling unit” is a restriction on lawful commercial speech. Under Central Hudson and Edenfield, the City must show a substantial interest, that the rule directly advances that interest, and that it is not more extensive than necessary. The City offered no justification specific to this limit beyond generalized enforcement goals. Courts will not supply post hoc suppositions. Without evidence or argument demonstrating direct advancement and a reasonable fit, the rule fails intermediate scrutiny and is unconstitutional.

5) Dormant Commerce Clause: Narrowing “Reside” to Presence While Guests Are Present

After Hignell‑Stark I invalidated an owner‑residency requirement, the City shifted to an operator presence requirement. The code uses “reside on the property” language in §§ 26‑619 and 26‑620(a)(1)(e). The parties disputed whether “reside” imposed a permanent residency obligation. Invoking constitutional avoidance, and noting Louisiana’s readiness to adopt narrowing constructions consistent with statutory purpose, the court accepts the City’s representation that “reside” means the operator must be on‑site while the STR is in active guest use—akin to hotel front‑desk coverage—not that the operator must permanently reside there or maintain in‑state domicile.

So construed, the provisions are non‑discriminatory and do not burden interstate commerce by excluding out‑of‑state operators. The court flags that a permanent residency reading might implicate the dormant Commerce Clause (citing Nat’l Pork Producers), but the text is “readily susceptible” to the narrower, constitutional interpretation, which the court adopts.

Impact and Forward-Looking Implications

A. For Municipalities Regulating STRs

Corporate-form exclusions are constitutionally precarious. A blanket ban on business‑entity permits—either for owners or operators—cannot be justified simply by invoking livability and neighborhood character. Unless a city can demonstrate a non‑speculative, evidence‑based linkage between juridical status and the harms it targets, the ban is likely irrational under Equal Protection in the Fifth Circuit.
Use targeted, behavior‑based tools. The court explicitly approves of direct measures that match harms: caps per block, per owner, per operator; on‑site presence requirements keyed to guest occupancy; response‑time and accessibility obligations; occupancy and bedroom limits; and ad bans targeting unlawful operations.
Advertising restrictions must be justified and tailored. Compelled factual disclosures are viable under Zauderer if they are uncontroversial, factual, and not burdensome. But speech restrictions—like limiting the number of units per ad—require evidence that they directly advance a substantial interest and are no broader than necessary. Legislative findings and an evidentiary record matter.
Draft “presence” with clarity. If the policy goal is oversight, draft “operator presence” requirements to say plainly that on‑site presence is required during guest occupancy, not permanent residency. The court’s avoidance construction shows how careful drafting can preserve constitutionality and enforceability.

B. For Owners, Operators, and Platforms

Entities may hold permits. After this decision, LLCs and other juridical persons cannot be categorically excluded from owner and operator permits in New Orleans. Expect the City to revise its code accordingly.
Operational obligations remain robust. The Fifth Circuit left intact many compliance features: one STR per block, one property per person, one operator per person, on‑site presence while guests are present, complaint response within one hour, accessibility by phone, occupancy and bedroom limits, tax/fee compliance, and most advertising disclosures.
Advertising practices. Platforms and hosts may advertise multiple units in a single listing (the one‑listing‑per‑ad rule falls), but ads must still include required factual disclosures and cannot promote unpermitted or over‑capacity use.

C. For Litigators and Courts

Rational-basis in the Fifth Circuit has bite. Following Castille, Hines, and Mikeska, courts will scrutinize whether a governmental distinction is actually connected to the asserted interests and grounded in record evidence and common sense; mere speculation or administrative convenience will not do.
Commercial speech doctrine is two‑track. Government may mandate factual, uncontroversial disclosures to prevent deception (Zauderer), but must justify suppressive limits on truthful, lawful advertising with evidence under Central Hudson.
Constitutional avoidance remains a powerful tool. Where text is “readily susceptible” to a narrowing construction consistent with purpose, courts will accept it to avoid dormant Commerce Clause or other constitutional problems—especially when the government offers a limiting interpretation as a judicial admission.

Complex Concepts Simplified

Natural vs. juridical person: A “natural person” is a human being. A “juridical person” is a legally recognized entity (LLC, corporation, partnership, trust) that the law treats as a “person” for many purposes (contracts, property ownership). Equal Protection protects both; government cannot discriminate between them without a rational reason tied to legitimate goals.
Rational-basis review: The most deferential constitutional test. A law survives if there is any rational connection between the classification and a legitimate government interest. But in the Fifth Circuit, “rational” must be real, not speculative or pretextual; courts look to the record and common sense.
Zauderer disclosures: The government may require businesses to include purely factual, uncontroversial information in advertising if it helps prevent deception and is not unduly burdensome (e.g., permit numbers, occupancy, accessibility).
Central Hudson test: Restrictions on truthful, lawful commercial speech must further a substantial government interest, directly advance that interest, and be no more extensive than necessary. The government must show more than conjecture.
Dormant Commerce Clause: Even if Congress has not legislated, states and cities cannot discriminate against or unduly burden interstate commerce. Residency requirements that favor in‑state actors are suspect. Narrowing constructions that transform “residency” into “presence during operations” can cure potential violations.
Constitutional avoidance: If statutory language can be reasonably read in a way that avoids constitutional problems and aligns with legislative purpose, courts will adopt that reading rather than strike the law.
Property interest (Due Process): You must have a state‑law entitlement to assert due process protections. Where state law treats a use (like STR operation) as a revocable privilege, not a vested right, due process claims often fail.

Conclusion

Hignell‑Stark (2025) meaningfully calibrates the constitutional boundaries for municipal STR regimes in the Fifth Circuit. The court affirms New Orleans’s broad authority to regulate STRs and upholds substantial parts of the City’s framework—particularly its targeted operational rules and advertising disclosures. But it also draws two bright lines:

Equal Protection: A city may not categorically exclude business entities from STR owner or operator permits where the harms to be addressed stem from guest behavior and proliferation—factors that do not rationally turn on the permittee’s corporate form, especially when more direct tools already exist.
First Amendment: The government cannot restrict lawful, truthful STR advertising by limiting a listing to a single unit absent evidence that the restriction directly advances a substantial interest and is properly tailored. Compelled factual disclosures, by contrast, remain permissible under Zauderer.

Finally, by accepting a narrowing construction of “operator residency” as requiring on‑site presence only while guests are present, the court avoids a dormant Commerce Clause conflict and preserves a core oversight mechanism. The opinion’s practical message to regulators is clear: target conduct and impacts directly, build a record that ties means to ends, and avoid broad identity‑based exclusions that lack an evidence‑backed rationale.