The lawyer for the four people who challenged the law said the ruling might force other western cities within the 9th US Circuit Court of Appeals' territory to amend statutes that outlaw sleeping in vehicles.
"People living in their vehicles is one of the great unidentified homeless groups in this country formerly middle-class people who lost everything during the recession and are trying to maintain the appearance of stability so they can go to work," Carol Sobel said.
The court said the law was unconstitutional because its ambiguous wording does not make clear what conduct would constitute a violation and "criminalises innocent behaviour."
The decision came in a case brought on behalf of four people who were cited and arrested by Los Angeles police officers who concluded the numerous belongings in their RVs and cars meant they were violating the law.
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"Is it impermissible to eat food in a vehicle? Is it illegal to keep a sleeping bag? Canned food? Books? What about speaking on a cellphone? Or staying in the car to get out of the rain?" Judge Harry Pregerson wrote for the panel.
The officers were part of a police homelessness task force charged with enforcing the ordinance in response from community complaints about people living in their cars.
Los Angeles City Attorney Mike Feuer, whose office defended the law before the 9th Circuit, said the city would not appeal. Instead, Feuer said he would work with other officials to write a replacement ordinance "that respects both the rights and needs of homeless individuals and protects the quality of life in our neighbourhoods."