Fed. Dist. Court of Michigan Finds Plaintiffs Did Not Obtain a Vested Property Interest Because Their Nonconforming Use Did Not Comply with Prior Zoning

This post was authored by Matthew Loescher, Esq.

Plaintiffs owned homes in the City of New Buffalo, Michigan, that they used, or intended to use, as short-term rental properties. In 2019, the City passed an ordinance requiring homeowners in the City to obtain a permit before using their homes as short-term rentals. In 2020, the City adopted a resolution that suspended the issuance of such permits. Plaintiffs brought this action against the City to challenge the validity of that resolution under state and federal law.

At the outset, the court noted that Plaintiffs’ failure or inability to obtain a short-term rental permit did not prevent them from obtaining a vested property interest in the nonconforming use of their properties as short-term rentals. Here, however, they did not obtain a vested property interest because their non-conforming use did not comply with the Zoning Ordinance in effect before Ordinance 253. The first exception in Grand/Sakwa did not apply because Plaintiffs did not show that they acquired a vested property interest that was destroyed by Ordinance 253. Furthermore, to the extent “unjustified delay” was a necessary component of the bad faith exception, Plaintiffs failed to expressly address that component. Thus, Plaintiffs failed to show that they met the standard in Michigan law for enforcing a previous version of an ordinance that was amended while a lawsuit was pending. Plaintiffs’ challenges to Ordinance 237 and the Moratorium under state law in Counts I and II were therefore moot because no relief was available to them. Similarly, plaintiffs’ inability to show a vested interest in the non-conforming use of their properties as short-term rentals resulted in the failure of their taking claims.

The City sought summary judgment on Plaintiffs’ claim that the Moratorium violated the Commerce Clause of the US Constitution. Specifically, they claimed Plaintiffs failed to provide any real evidence of how much the Moratorium burdened interstate commerce, let alone an undue burden in relation to local benefits. The record reflected that the burdens identified by Plaintiffs – loss of rental income for out-of-state homeowners and a reduction in the amount of available lodging for travelers – would have had no significant impact on interstate commerce, especially if other options for lodging were available. Accordingly, the court dismissed this claim.

The City next moved for summary judgment on Count IV, which asserted that the Moratorium violated the requirements of the Open Meetings Act (“OMA”). The court found that a declaration that the Moratorium was invalid under state law would serve no purpose as the Moratorium had expired and Michigan precedent required the court to apply the state law in effect at the time of its decision. Accordingly, this claim was effectively moot because no relief was available to Plaintiffs.

Both sides sought summary judgment on Count V, which claimed violations of substantive due process under federal and state law. The record reflected that the Moratorium paused the grant of new permits for short-term rentals while the City considered “appropriate ordinance amendments” to address the City’s concerns. The City initially amended its regulatory ordinance through Ordinance 248, and later addressed its concerns about short-term rentals by limiting the total number of them through Ordinance 253. As such, both the Moratorium and Ordinance 253 were rationally related to the City’s legitimate concerns. As Plaintiffs failed to negate either of the City’s concerns and the relationship between the City’s actions and those concerns, Plaintiffs failed to show the City’s actions were arbitrary or capricious.

The plaintiffs next contended that the City deprived them of due process by failing to provide them with adequate notice of Ordinance 237 and the Moratorium. Specifically, they claimed that the City did not provide individual notice by mail of Ordinance 237, and that the City did not provide notice to the public before it adopted the Moratorium. Here, the court noted that the Moratorium was not a zoning amendment, as it did not rezone or reclassify any property. Instead, it paused the grant of permits under a regulatory scheme for short-term rentals. Additionally, the Moratorium did not single out or target a particular person, or even a relatively small number of persons, on individual grounds. Accordingly, Plaintiffs failed to show that they were entitled to notice or an opportunity to be heard before the City Council passed the Moratorium. Plaintiffs’ procedural due process claim was therefore found to be meritless.

The court next noted that as Plaintiffs did not assert that the City burdened a fundamental right or targeted a suspect class, they were required to prove that the City’s disparate treatment had no rational basis. While the City suggested that the denial may have been a mistake, a jury could infer otherwise based on the City’s repeated denial of the Nofzigers’ application. Accordingly, there was no genuine dispute that the City denied the Nofzigers’ right to equal protection because it denied their application – intentionally treating them differently from similarly situated applicants without a rational basis for doing so. Thus, the court granted summary judgment on this claim in favor of 218 S Bronson LLC.

Plaintiffs lastly claimed that the Moratorium was preempted by the MZEA, which allowed legal nonconforming uses to continue under a new zoning ordinance. Plaintiffs contended that Ordinance 253 conflicted with the MZEA because it expressly limited short-term rentals to those properties that had obtained a short-term rental permit. The court found, however, that this claim was not proper before the court because it was not part of Plaintiffs’ complaint, which asserted that “the moratorium was preempted by the MZEA.” Nevertheless, the court held that Plaintiffs’ new claim was meritless because Plaintiffs failed to show that the Zoning Ordinance was in effect before Ordinance 253 permitted short-term rentals.

Moskovic v City of New Buffalo, 2022 WL 16548948 (WD MI 10/31/2022)

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