By Lauren Berg

Law360 (November 6, 2020, 7:05 PM EST) -- Airbnb Inc. hasn't kept its dual promises to refund guests for bookings canceled because of the coronavirus pandemic and to pay affected hosts a portion of the canceled bookings, and has instead pocketed the money, according to a proposed class action filed Thursday in California federal court.

When the pandemic hit and Airbnb guests decided to cancel their bookings, the company said it would offer full refunds to those guests who booked on or before March 14, according to the complaint filed by Anthony Farmer, but in many cases, the refunds that Airbnb promised came directly out of hosts' pockets.

The guests and hosts had previously agreed on a cancellation policy and Airbnb was overriding those terms with its pandemic promise, Farmer said. When hosts complained that they were being stiffed, Airbnb apologized and said it would set aside $250 million to help pay hosts for canceled bookings, according to the suit.

Under the fund, hosts could receive up to 25% of what they would have made from a guest under the previous cancellation policy, according to Farmer. But Airbnb hasn't lived up to its promises, he said.

Instead of issuing full refunds to guests who canceled bookings, Airbnb is giving guests travel credits, issuing partial refunds or denying guests any compensation, according to the suit. Guests have been complaining about the refund process, Farmer said, which often requires making multiple calls to customer service, navigating a confusing web interface and uploading a variety of supporting documents to support their refund claim.

And if guests try to take advantage of the pandemic refund, Airbnb requires them to justify why they can't travel due to COVID-19, even though the company's public promise didn't include any such limitation, according to the suit.

At the same time, Airbnb is making hosts accept just 25% of the amount called for by the previous cancellation policies or nothing at all, the suit states.

"By shortchanging both hosts and guests, Airbnb has been able to retain large sums of money that Airbnb Payments [Inc.] was holding in escrow when the pandemic started," Farmer said. "This money doesn't belong to Airbnb."

Farmer is one such host who regularly used Airbnb to list vacation rentals, which was a large percentage of his income, according to the suit. But as a result of the company's pandemic practices and its failure to remit payment for canceled reservations, Farmer said he is out at least $655.

In one instance, a guest booked two nights in Farmer's vacation property, with check-in scheduled for March 27, and agreed to a strict cancellation policy under which Farmer would retain 50% of the nightly rate if the guest canceled. When the guest canceled the booking on March 12, Farmer was entitled to 50% of the nightly rate from Airbnb, according to the suit.

Airbnb initially paid Farmer about $99 in cancellation fees but then reversed the transaction two weeks later, according to the complaint. Farmer said he wasn't even allowed to keep 25% of the fees as Airbnb had publicly said would happen under the $250 million host relief fund.

When Farmer complained to Airbnb and said it was a "devastating blow" to lose the money, the company refused to reverse course, according to the suit. Farmer said he contacted Airbnb multiple times, but the company refused to give him any of the cancellation fees.

Collectively, Airbnb has paid Farmer just $185 for six bookings that were canceled by guests in March or April, according to the suit. If the previous cancellation policies were still in effect, Farmer would have been paid at least $840 for those six bookings, he said.

Farmer wants to represent a national class of people who accepted rental bookings through Airbnb that were subsequently canceled by the booking party and who were not paid the amount owed to them under the booking's cancellation policy.

The suit claims breach of contract, breach of fiduciary duty and a violation of California's Unfair Competition Law. It seeks statutory, treble and punitive damages, as well as injunctive relief and attorney fees.

Before filing his lawsuit, Farmer said he filed claims with the American Arbitration Association in July. The AAA sent an initiation letter to the parties in August, which required Airbnb to pay the AAA $1,800 before the arbitration could proceed, according to the suit. But Airbnb didn't pay the fee on time, Farmer said, so the arbitration couldn't proceed.

Farmer said Airbnb's failure to pay constitutes a waiver of the company's right to compel arbitration under the terms of service that Farmer agreed to as a host. He said he has elected to withdraw his claims from arbitration and proceed in court.

In a statement to Law360 on Friday, Airbnb said that in the wake of the pandemic it made the decision to provide full refunds to eligible guests as public health and safety was a priority.

"While we know it had a significant impact on bookings and revenue for our host community, we still believe firmly that it was the right thing to do," the company said. "The allegations in this complaint are completely frivolous and without merit."

Counsel for Farmer did not immediately respond to a request for comment.

Last month, Airbnb chose the Nasdaq exchange for its expected initial public offering, moving one step closer toward completing one of the most highly anticipated public market debuts of 2020.

Airbnb is reportedly planning to raise about $3 billion, according to reports earlier this month. The company in August submitted confidential plans to go public with the U.S. Securities and Exchange Commission, a first step in the filing process that could result in a public debut before year's end, based on a typical IPO timetable.

Airbnb's expected debut would come amid a booming year for the IPO market, which has taken off along with broader financial markets that have benefited from interest-rate slashing and other rescues by the Federal Reserve, plus various stimulus packages approved by Congress.

Airbnb has been the subject of IPO talk for more than a year. The vacation and online rental marketplace said in September 2019 it was planning to go public this year, and CEO Brian Chesky reportedly said in June such a move was still on the table despite the effects of the coronavirus pandemic.

Pandemic-related travel restrictions strained Airbnb's finances earlier this year, resulting in layoffs, although the company's financial outlook has reportedly improved recently, as more consumers have scaled back their travel plans and opt to take vacations closer to home.

Airbnb also turned to private capital earlier this year to improve its cash balance. The company announced $1 billion in debt and equity financing from Silver Lake and Sixth Street Partners in early April. About a week later, the company announced another $1 billion in funds, this time through a syndicated term loan from institutional investors.

Airbnb is valued at $18 billion, according to venture capital database CB Insights. The valuation puts Airbnb in an elite category of private companies called unicorns, meaning they are valued at at least $1 billion.

Farmer is represented by Michael L. Schrag, Geoffrey A. Munroe and Joshua J. Bloomfield of Gibbs Law Group LLP and Enrico Schaefer and Adrianos Facchetti of Traverse Legal PLC.

Counsel information for Airbnb was not immediately available.

The case is Farmer v. Airbnb Inc. et al., case number 3:20-cv-07842, in the U.S. District Court for the Northern District of California.

--Additional reporting by Tom Zanki, Benjamin Horney, Elise Hansen and Darcy Reddan. Editing by Jay Jackson Jr.

For a reprint of this article, please contact reprints@law360.com.