Mogan v. City of Chicago

Decision Date18 January 2022
Docket Number21 C 1846
PartiesMICHAEL MOGAN, Plaintiff, v. CITY OF CHICAGO, a municipal corporation, and ROSCOE VILLAGE LOFT CONDOMINIUM ASSOCIATION, a corporation, Defendants.
CourtU.S. District Court — Northern District of Illinois

MICHAEL MOGAN, Plaintiff,
v.

CITY OF CHICAGO, a municipal corporation, and ROSCOE VILLAGE LOFT CONDOMINIUM ASSOCIATION, a corporation, Defendants.

No. 21 C 1846

United States District Court, N.D. Illinois, Eastern Division

January 18, 2022


OPINION AND ORDER

SARA L. ELLIS, United States District Judge

Plaintiff Michael Mogan brings this lawsuit because he wishes to list his condominium unit, 1800 West Roscoe Street Unit #307 in Chicago, Illinois (the “Unit”), for rent on “home sharing” websites like Airbnb. Mogan brings eleven claims against the City of Chicago (the “City”) and one claim against the homeowners' association of the Unit, Roscoe Village Lofts Condominium Association (the “Roscoe HOA”). He first seeks a declaratory judgment against the City and the Roscoe HOA regarding his ability to lease and license the Unit on home sharing websites (Count I). He then brings ten claims against the City, challenging the constitutionality of the City's Shared Housing Ordinance (the “Ordinance”), which regulates the home sharing industry. Mogan alleges that the Ordinance: constitutes an unconstitutional taking in violation of the Fifth Amendment of the U.S. Constitution (Count II) and an inverse condemnation under Illinois law (Count III); violates his rights to substantive due process (Count IV) and equal protection (Count X); violates his First Amendment rights to free speech (Counts V through VII) and assembly (Count XI); and constitutes an excessive fine under the Eighth Amendment (Count

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VIII) and an unconstitutional license for revenue under the Illinois constitution (Count IX). The Defendants now move to dismiss Mogan's complaint.

Because Mogan seeks leave to amend his unconstitutional license for revenue claim in response to the City's motion, the Court dismisses it without prejudice. Mogan premises his Eighth Amendment excessive fines claim on uncertain and contingent events and as a result, the Court dismisses it without prejudice as unripe. Because Mogan fails to sufficiently allege all three factors to support a regulatory takings claim, the Court dismisses his takings and inverse condemnation claims without prejudice. The Court finds that the Ordinance does not implicate the First Amendment because it regulates business activity, not expressive speech or conduct, and therefore, the Court dismisses Mogan's First Amendment claims with prejudice. Mogan has pleaded himself out of court by alleging potential rational bases for the Ordinance's differential treatment between home sharing and hotels/bed-and-breakfasts and thus, the Court dismisses his equal protection claim with prejudice. Because Mogan fails to sufficiently allege that the Ordinance infringes on a fundamental liberty interest or that it is arbitrary and unreasonable, the Court also dismisses his substantive due process claim with prejudice. No. claims against the City remain and therefore, no controversy exists between Mogan and the City. Thus, the Court dismisses Mogan's request for a declaratory judgment against the City without prejudice. Finally, the Court declines to exercise supplemental jurisdiction over his declaratory judgment request against the Roscoe HOA and dismisses it without prejudice.

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BACKGROUND[1]

Home sharing, when homeowners allow guests to stay in their home, often for a fee, is a long-standing American tradition that has recently increased in popularity due to home sharing websites like Airbnb. Airbnb acts as an intermediary between hosts and guests by facilitating the rental transaction through its website. Hosts create listings that contain information about their homes, including the suggested price per night, and about themselves. Airbnb displays these listings on its website for potential guests to browse. After guests choose a listing, they request to rent the home and can make offers at or below the suggested rental price. Once the host and guest agree on a price and rental period, Airbnb confirms the booking. To effectuate the transaction, the guests pay Airbnb and Airbnb pays the host. Hosts can rent their homes on Airbnb on a short-term or long-term basis.

I. The Ordinance

In response to the increased popularity of home sharing websites, the Chicago City Council passed the Ordinance in June 2016 to regulate the home sharing industry. The Ordinance took effect on or about December 19, 2016, and enforcement against non-compliant hosts began on March 15, 2017. The Ordinance regulates both “vacation rentals” and “shared housing units.” It defines “vacation rentals” as “a dwelling unit that contains 6 or fewer sleeping rooms that are available for rent, ” excluding bed-and-breakfasts, hotels, “a dwelling unit for which a tenant has a month-to-month rental agreement and the rental payments are paid on a monthly basis, ” corporate housing, guest suites, and shared housing units. Municipal Code of

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Chicago (“MCC”) § 4-6-300(a). The Ordinance defines “shared housing unit” as “a dwelling unit containing 6 or fewer sleeping rooms that is rented, or any portion therein is rented, for transient occupancy by guests, ” excluding “(1) single-room occupancy buildings; (2) hotels; (3) corporate housing; (4) bed-and-breakfast establishments, (5) guest suites; and (6) vacation rentals.” MCC § 4-14-010.

The Ordinance regulates both hosts and home sharing intermediaries like Airbnb. It defines a “short term residential rental intermediary” as “any person who, for compensation or a fee: (1) uses a platform to connect guests with a short term residential rental provider for the purpose of renting a short term residential rental, and (2) primarily lists shared housing units on its platform.” MCC § 4-13-100. The Ordinance requires hosts to obtain a license from the City prior to renting and operating vacation rentals, MCC § 4-6-300(h)(2), (i), and requires intermediaries to register the shared housing units listed on their platform with the City prior to renting them, MCC §§ 4-13-230(a), 4-14-020(a). Intermediaries also must obtain a license from the City to operate, MCC § 4-13-200, annually renew the license, MCC § 4-13-205, and pay a fee annually, the amount of which depends on the number of rentals listed on the platform, MCC § 4-5-010(36).

The Ordinance allows a homeowners' association to notify the City that “no licensed vacation rentals or shared housing units are permitted to operate anywhere in such building.” MCC § 4-13-260(a)(9). The City then deems units within these buildings as “ineligible for listing by a provider on a licensee's platform, ” MCC § 4-13-260(a)(9), and the units cannot receive licenses to operate as vacation rentals, MCC § 4-6-300(c)(7), be rented as vacation rentals, MCC § 4-6-300(h)(4), register as shared housing units, MCC § 4-14-030(a), or be rented as shared housing units, MCC § 4-14-050(i). The City must maintain a public prohibited

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buildings list that identifies “the address(es) of all buildings whose owner(s), including any applicable homeowners' association or board of directors, have notified the commissioner, pursuant to Section 4-13-260(a)(9), that no vacation rentals or shared housing units, in any combination, are permitted to operate anywhere in such building.”[2] MCC § 4-13-270(c).

Once the City adds a building to the prohibited buildings list, it must notify, in writing, shared housing unit and vacation rental hosts within the building and intermediaries of the unit's ineligibility. MCC §§ 4-13-260(b), 4-14-030(b). The parties may then request a hearing before the commissioner to contest the unit's ineligibility, and, after such hearing, the parties can appeal the final determination. MCC §§ 4-13-260(b), 4-14-030(b). If a host rents a unit that is on the prohibited buildings list twenty-eight days after the City sent final notice of the unit's ineligibility, the host is subject to a $5, 000 fine per day that the violation continues. MCC §§ 4-6-300(h)(4), 4-14-050(i). If a host fails to remove an ineligible listing from a platform fifteen days after receiving the final ineligibility determination from the City, the host is subject to a $2, 500 to $5, 000 fine per day that the violation continues. MCC §§ 4-6-300(h)(11), 4-14-060(g).

On September 9, 2020, the Chicago City Council passed several amendments to the Ordinance that added the following provisions: vacation rentals and shared housing units are now subject to a minimum rental period of ten consecutive hours, MCC §§ 4-6-300(g)(1), 4-14-050(e), which effectively bans single-night rentals, and the maximum occupancy of vacation rentals and shared housing units is now “one person per 125 feet of floor area” of the unit, MCC §§ 4-6-300(g)(5), 4-14-050(b). A host who violates either of these provisions is subject to a $1, 500 to $3, 000 fine per day that the violation continues. MCC §§ 4-6-300(k)(1), 4-14-090(a). The City “employs code-enforcement officers who are tasked with actively identifying and

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punishing property owners who [unlawfully] rent their homes on a short-term basis.” Doc. 8 ¶ 219. In the second half of 2018 alone, the City collected over $100, 000 in penalties based on violations of the Ordinance.

II. The Unit

Mogan bought the Unit in September 2004 and began leasing it to various tenants in 2009. He “expended thousands of dollars to furnish [the Unit] . . . to generate licensing and leasing revenue, ” id. ¶ 103, and his livelihood “depends in some way” on the home sharing industry, id. ¶ 198. Mogan “has in the past or plans to in the future” list the Unit on home sharing websites to license the Unit to guests “on a nightly, weekly, monthly or annual basis, ” id. ¶ 104, and lease the Unit on a monthly and annual basis, id. ¶¶ 105-06. Before the City amended the Ordinance in 2020, Mogan made the Unit available for lease or license to more than one person per 125 square feet of floor area of the Unit and “plans to [do so] in the future.” Id. ¶¶ 107...

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