This is largely happening thanks to the Freedom From Religion Foundation, an atheist group that does NOT represent all atheists. We have many atheists here who celebrate Christmas who would likely have strong things to say about this group's tactics. They are going to battle all over the country, and have been for years. In some places, like in Texas, they are losing. In others, notably California and Michigan, they are winning. Just depends on the judge and how out of hand things have become.
I will say this: the city council in Santa Monica tried to make it fair...to a point. But as is often the case, they have better things to spend their time on and they lack the money to handle these court cases. The FFRF knows this and that is why these things end up in court so often. In fact, just by threatening lawsuits in some areas of the country they end decades-long traditions of Christmas display in a lot of places.