Mogan v. City of Chicago
| Decision Date | 12 September 2022 |
| Docket Number | 21 C 1846 |
| Parties | MICHAEL MOGAN, Plaintiff, v. CITY OF CHICAGO, a municipal corporation, and ROSCOE VILLAGE LOFTS CONDOMINIUM ASSOCIATION, a corporation, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
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. The Court dismissed Mogan's first amended complaint. Doc. 43. In his second amended complaint, Mogan brings three 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”). Mogan 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 two 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). The City now moves to dismiss Mogan's second amended complaint.
Because Mogan again fails to sufficiently allege all three factors to support a regulatory takings claim, the Court dismisses his takings and inverse condemnation claims 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 with prejudice. Finally, the Court declines to exercise supplemental jurisdiction over his declaratory judgment request against the Roscoe HOA and dismisses it without prejudice.
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.
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 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 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 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).
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,” Doc. 46 ¶ 99, and his ability to rent the Unit on a short-term and long-term basis “was a major part of his decision to purchase” the Unit, id. ¶¶ 119, 121. 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. ¶¶ 100-02, 132, and use it as a vacation home, id. ¶ 140. 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. ¶ 103.
Property Solutions Chicago Inc. manages the building that houses the Unit, the Roscoe Village Lofts (“Roscoe”). Pamela Chianelli is the secretary and shareholder of Property Solutions Chicago Inc. According to the Roscoe HOA's Declarations (the “Declarations”), the Roscoe HOA exercises its authority through its board of directors. The Declarations state that “no Unit shall be leased, subleased or assigned for transient or hotel purposes, which are hereby defined as being for a period of less than thirty (30) days where hotel services normally furnished by a hotel (such as room service and maid service) are furnished.” Id. ¶ 24. Mogan “has not in the past nor intends to in the future offer licensees, lessees, sublessees or assignees” of the Unit services normally furnished by a hotel. Id. ¶ 35. In August 2016, the Roscoe HOA board of directors and Chianelli sought inclusion of Roscoe on the City's prohibited buildings list and the City added the building to the list that same month. The Roscoe HOA did not hold a vote of its members prior to placing the building on the prohibited buildings list. Chianelli has accused Mogan of placing the Unit on Airbnb in violation of the Declarations and has threatened him with the possibility of the City fining him or the Roscoe HOA board taking adverse action against him for listing the Unit on Airbnb. At no time prior to Chianelli's threats did she or a Roscoe HOA board member inform Mogan that Roscoe was on the prohibited buildings list. Instead, “Chianelli and the 2016 [Roscoe] Board waited to inform [Mogan] that the Roscoe Village Lofts at 1800 W. Roscoe St. had been added to the City of Chicago's Prohibited Building List” until after the Shared Housing Ordinance took effect. Id. ¶¶ 93-94.
Renting the Unit on home sharing websites “can serve as a good source of supplemental income” for Mogan, id. ¶ 113, and “enhances the value” of the Unit id. ¶ 120. Because the “[d]emand for short-term rentals in Roscoe Village is strong,” a unit that can be used for short-term rentals “can be sold for more money, and be sold faster, than one that cannot be used for short-term rentals.” Id. ¶ 125. As a result, the Unit is worth $270,000 but would be worth $400,000 if it could be rented on home sharing websites like Airbnb. Id. ¶ 130. Moreover, Mogan's inability to rent the Unit on a...
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