Michael Mogan v. City of Chicago

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 22-2801

MICHAEL MOGAN,

Plaintiff-Appellant,

v.

CITY OF CHICAGO, a Municipal Corporation, and

ROSCOE VILLAGE LOFTS CONDOMINIUM ASSOCIATION,

a Corporation,

Defendants-Appellees.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:21-cv-01846 — Sara L. Ellis, Judge.

____________________

ARGUED NOVEMBER 8, 2023 — DECIDED SEPTEMBER 20, 2024

____________________

Before ROVNER, JACKSON-AKIWUMI, and PRYOR, Circuit

Judges.

ROVNER, Circuit Judge. This case involves a challenge to the

application of Chicago’s Shared Housing Ordinance (the

“Ordinance”). Michael Mogan, the owner of a condominium,

brought claims against the City of Chicago and the

homeowners association for his condominium unit, the

2 No. 22-2801

Roscoe Village Lofts Association (“the Roscoe Association”).

He argued that he purchased and renovated his

condominium unit, #307, with the intention of renting it

through the shared-housing rental platform Airbnb, and that

the Ordinance prevented him from listing it on Airbnb or

other short term residential intermediary platforms. Mogan

alleged that application of the Ordinance to Unit 307

constituted an unconstitutional taking and similarly was an

inverse condemnation in violation of Illinois law. He also

sought a declaratory judgment against the City and the

Roscoe Association establishing that Roscoe Village Lofts and

the City have a duty to allow him to lease Unit 307 on a

weekly, monthly or annual basis on Airbnb, HomeAway or

other home sharing websites. The district court dismissed the

takings and inverse condemnation claims and declined to

exercise jurisdiction over any remaining state law claim, and

he now appeals. We hold that the district court properly

dismissed the case and did not abuse its discretion in

declining to exercise supplemental jurisdiction over

remaining state law claims.

The Ordinance at issue in this case provides, in relevant

part, that condominium homeowners associations may

determine that no licensed vacation rentals or shared housing

units (defined as short term rentals) are permitted to operate

anywhere within the building, and the association may notify

the Commissioner of Business Affairs and Consumer

Protection of that decision. Municipal Code of Chicago (MCC)

§ 4-13-260(a)(9). When that occurs, the building is added to

the “prohibited buildings list,” and units in the building may

not be registered with the City as shared housing units or

vacation rentals or listed on intermediary platforms such as

Airbnb. Id. at §§ 4-14-050(i), 4-6-300(h)(4), 4-13-260(a)(9). A

No. 22-2801 3

party can request a hearing to contest a unit’s ineligibility and

can appeal the final determination. Id. at § 4-13-260(b). If a

host rents a unit that is on the prohibited buildings list 28 days

after the final notice of ineligibility, the host can be subjected

to a $5,000 fine per day that the violation continues. Id. at

§§ 4-14-050(i), 4-6-300(h)(4). And if a host fails to remove an

ineligible listing from a platform such as Airbnb after

receiving the final ineligibility determination from the City,

the host can be fined $5,000 per day that the violation

continues. Id. at §§ 4-6-300(h)(4), 4-14-030(c). The City

amended the Ordinance in 2020, adding a prohibition on

rentals of less than ten hours, severely restricting single-night

rentals, and limiting the maximum occupancy of shared

housing units to two adults per guest room and one person

per 125 feet of floor area of the unit. Id. at §§ 4-6-300(g)(5), 4-

14-050(b).

The Roscoe Village Loft condominiums are managed by

Property Solutions Chicago, and Pamela Chianelli is the sec-

retary and shareholder of Property Solutions. In August 2016,

the Roscoe Association and Chianelli sought the inclusion of

the Roscoe Lofts on the City’s prohibited buildings list, and

the City added the building to the list that same month.

Mogan argues that there was never a vote held by the Roscoe

Association to authorize the placement of the building on that

prohibited list.

By definition, “vacation rentals” and “shared housing

units” under the Ordinance are units which are rented to

transient guests, which in turn are defined as guests who rent

the unit for less than 31 days. Id. at §§ 4-14-010, 4-6-300(a), 4-

6-290(a). The Ordinance therefore applies to short term

rentals of a month or less. Mogan argues that he purchased

4 No. 22-2801

the unit with the intent to lease it, and that he painted and

carpeted his condominium unit, and spent thousands of

dollars to furnish it, in order to generate leasing revenue. He

contends that he rented his unit in the past, and that he

intends to list his unit on Airbnb or other home sharing sites

in the future so that he can lease or license his entire unit to

guests on a nightly, weekly, monthly or annual basis. He also

maintains that the value of the condominium on the sales

market is significantly lower if it cannot be used as a short-

term rental. In addition, he argues that prior to passage of the

Ordinance and the placement of the building on the

Prohibited Building List, he was able to conduct short term

rentals of the unit, and that ability was a major part of his

decision to purchase the property. Mogan further asserts that

Chianelli has told him in the past that placing his unit on

Airbnb is not permitted under the declarations and bylaws,

and has threatened him with the possibility of fines being

imposed by the City of Chicago for running ads on Airbnb's

website.

Mogan brought claims against the City arguing that its

Ordinance violates the takings clause of the Fifth Amendment

and constitutes an inverse condemnation under the Illinois

Constitution. He argues that the City’s actions in prohibiting

short-term rentals constituted a regulatory taking. The City

contends that Mogan lacks standing for his claims against it,

and in the alternative that the court properly found that he

failed to state a valid claim.

In support of its claim that Mogan lacks standing to

challenge the Ordinance, the City points to our decision in

Keep Chicago Livable v. City of Chicago, 913 F.3d 618 (7th Cir.

2019), in which we held that each of the plaintiffs challenging

No. 22-2801 5

that same Ordinance lacked standing. In order to establish the

“’irreducible constitutional minimum’” of standing, “[t]he

plaintiff must have (1) suffered an injury in fact, (2) that is

fairly traceable to the challenged conduct of the defendant,

and (3) that is likely to be redressed by a favorable judicial

decision.” Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016),

quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992);

Keep Chicago Livable, 913 F.3d at 622. At the pleading stage,

such as in this case, the plaintiff has the burden of clearly

alleging facts that are sufficient to demonstrate each of those

elements. Keep Chicago Livable, 913 F.3d at 623; Spokeo, 578 U.S.

at 338. “To establish injury in fact, a plaintiff must show that

he or she suffered ‘an invasion of a legally protected interest’

that is ‘concrete and particularized,’ and ‘actual or imminent,

not conjectural or hypothetical.’” Spokeo, 578 U.S. at 339,

quoting Lujan, 504 U.S. at 560.

In Keep Chicago Livable, we noted that standing must be

present at all points in litigation, and the individual plaintiffs

in that case failed to meet that standard. 913 F.3d at 622. One

of the plaintiffs in that case, who had used Airbnb to rent his

home, had then moved out of state and sold that home. Id. at

623. Other individual plaintiffs provided only a conclusory

allegation that because of the Ordinance, they had ceased

participating in home-sharing activities on Airbnb. Id. at 623–

24. We held that the claim by the first person was moot, and

the claims of the others failed to allege with any particularity

how the Ordinance, and not some other factor, prevented

their own home-sharing activities. Id.

In contrast, Mogan’s allegations in his Second Amended

Complaint include far more detail as to the adverse impact

the Ordinance has had on him in the past and continues to

6 No. 22-2801

have on him presently. In that complaint, Mogan alleged an

infringement on his ability to profitably rent his unit as a

short-term rental and that he would rent his unit through

home-sharing websites such as Airbnb absent the excessive

fines imposed by the Ordinance. Mogan alleged that he pur-

chased the unit to rent it, including on a short-term basis, and

that he had already engaged in profitable short-term rentals

at Unit 307 on a limited basis and would have continued to do

so but for the Ordinance. In fact, he alleged that the ability to

list Unit 307 on all available online platforms was a major part

of his decision to purchase the property, and that he had re-

lied on rental income to pay for Unit 307 in the past. He al-

leged that using Unit 307 as a short-term rental on online plat-

forms such as Airbnb benefitted him by allowing him to use

Unit 307 as a second, vacation, home while collecting short-

term rental income to pay for the unit.

He asserted that the property had lost significant value

because the ability to rent short-term on online platforms such

as Airbnb enabled him to obtain a premium price.

Specifically, he noted that in the past, for rental terms of one

month, six months, or a year, on websites such as Craigslist

he could only rent Unit 307 for $1600 per month, whereas the

average monthly rental for a similar unit on Airbnb’s website

was $3200 and the average nightly rate was $120.

Accordingly, he alleged that he lost approximately $1600 a

month between December 2019 and January 2022, or $41,600,

because the City would not permit him to rent on online

platforms such as Airbnb, and that the lost profits continue

daily and monthly. He also alleged that the possible rental of

Unit 307 on other online platforms for the lower amount

would not justify the price he paid for Unit 307, whereas

rental through Airbnb is a profitable venture. He stated that

No. 22-2801 7

his fixed mortgage was scheduled to be paid off in 26 years,

but that if permitted to earn the higher daily and monthly

rental income used by Airbnb users, he would have been able

to pay off the principal balance in less than seven years, with

substantial savings in interest paid. Furthermore, he asserted

that the ability to list a rental on Airbnb increases the property

value of a unit, and the City’s prohibition of short-term

leasing on online platforms such as Airbnb decreased the

value of Unit 307. He stated that the fair market value of Unit

307 is approximately 50% higher if short-term rentals are

permitted on online platforms such as Airbnb, and specified

that Unit 307 is worth $270,000 and would be worth $400,000

based on the ability to rent Unit 307 on a short-term basis on

Airbnb.

He also detailed the impact of the fines imposed by the

Ordinance. He explained that the Ordinance requires the

owner of a shared housing unit to register annually with the

City and that the registration is a prerequisite to the ability of

the person to establish and maintain a listing of a “Shared

Housing Unit” on internet platforms such as Airbnb and

HomeAway. Any person who fails to list a registration

number in his short term rental listing online is at risk of being

deemed ineligible to be a shared housing host and is subject

to fines from a minimum of $1500 to $3000 for each offense—

where each day of a violation constitutes a separate offense.

Moreover, he noted that the failure to remove a listing for a

unit in a building on a prohibited building list can subject an

owner to inordinate fines of up to $5000 per day for each day

that the listing is online, even if the condominium instruments

allow such activity. He noted that the risk of the fine is real,

and that Chianelli threatened him with the possibilities of

fines being imposed by the City for allegedly running ads on

8 No. 22-2801

Airbnb’s website. Finally, he alleged that, but for the City’s

prohibition on short-term rentals and extremely high fines, he

would conduct short-term rentals at Unit 307.

Those allegations demonstrate standing to challenge the

Ordinance. Mogan establishes that he rented his unit in the

past and will do so in the future, that the profitability of short-

term renting is directly impacted by the ability to list on

platforms such as Airbnb, that the excessive fines provided

for in the Ordinance have deterred him from listing his unit

currently, and that he would conduct short-term rentals of his

unit on platforms such as Airbnb absent that Ordinance. He

also demonstrates that the inability to list his unit on Airbnb

under the Ordinance has an impact on the market value of his

unit. Those allegations are sufficient to allege an injury in fact

fairly traceable to the challenged conduct of the defendant

and likely to be redressed by a favorable judicial decision.

We turn, then, to the merits of the claims asserted in his

Second Amended Complaint, which included claims against

the City alleging a taking in violation of the Fifth Amendment

and inverse condemnation under Illinois law, and a claim for

declaratory judgment against the City and the Roscoe

Association. Mogan argues that the district court erred in

holding that prohibiting short term rentals denied only one

bundle of property rights and did not rise to the level of a

regulatory taking, and in rejecting his takings and inverse

condemnation claims on that basis. He then reasons that

because the court erred in dismissing those claims, it also

improperly determined that there was no basis remaining for

a declaratory judgment against the City and declined to

exercise supplemental jurisdiction over the remaining state

law claims.

No. 22-2801 9

Mogan argues that he cannot afford Unit 307 without

short term rental income because it is impossible to

sustainably lease Unit 307 under long-term leases and long-

term rental income is much lower than short-term rental

income. He describes the property right at stake here as

including his right to use and rent Unit 307 for less than 30

days, and challenges the City’s authority to interfere with or

restrict that right when, according to Mogan, such rentals are

permitted under the Roscoe Village Lofts bylaws and

Declaration and the City had not regulated short term rentals

for over 180 years. He contends that the City’s restrictions on

short-term rentals and its penalties for such rentals constitute

an unlawful regulatory taking.

The Takings Clause of the Fifth Amendment, made

applicable to the States through the Fourteenth Amendment,

ensures that private property not be taken for public use

without just compensation. Murr v. Wisconsin, 582 U.S. 383,

392 (2017). That language does not directly address the

situation in which property is not directly taken but where

significant regulatory burdens are imposed on private

property that impede its use. Id. The Supreme Court has long

recognized, however, that “’while property may be regulated

to a certain extent, if regulation goes too far it will be

recognized as a taking.’” Id. at 393, quoting Pennsylvania Coal

Co. v. Mahon, 260 U.S. 393, 415 (1922). Accordingly, subject to

certain exceptions, “a regulation which denies all

economically beneficial or productive use of land will require

compensation under the Takings Clause.” Id. at 393 (internal

quotations marks omitted). Moreover, “when a regulation

impedes the use of property without depriving the owner of

all economically beneficial use, a taking still may be found

based on ‘a complex of factors,’ including (1) the economic

10 No. 22-2801

impact of the regulation on the claimant; (2) the extent to

which the regulation has interfered with distinct investment-

backed expectations; and (3) the character of the

governmental action.” Id. That test for regulatory taking

necessarily requires a comparison of the value that has been

taken from the property with the value that remains in it, and

therefore a critical question is to define the unit of property

and the extent that a portion has been taken. Id. at 395.

Before addressing the legal issues, there is a factual issue

that needs to be highlighted because it is important to the

resolution of the claims. When Mogan purchased his

condominium unit in the building in 2004, his rights with

respect to the unit were subject to the Declaration of

Condominium Ownership (“Declaration”) and by-laws of the

Roscoe Association, which were recorded with the Cook

County Recorder of Deeds in 1993. Therefore, from the time

of his purchase of that property, his ability to rent out his unit

was subject to any restrictions in those documents. Mogan’s

original complaint, First Amended Complaint, and Second

Amended Complaint, all misrepresented the language in the

Declaration, and the district court used that inaccurate

language in its Opinion and Order. Mogan attached the actual

Declaration to his original complaint, and the difference in the

language is apparent when comparing that with the quote in

the complaint. Mogan in his complaints set forth the relevant

section from the Declaration, entitled “Lease of Units or

Sublease or Assignment of Lease thereof,” quoting it in

whole, but misquoting the controlling sentence. The

Declaration begins by stating that “[a]ny Unit Owner shall

have the right to lease … his Unit, upon such terms and

conditions as the Unit Owner may deem acceptable,” but then

No. 22-2801 11

qualifies that right with an exception. Mogan quoted the

Declaration’s exception as follows:

except 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 nor-

mally furnished by a hotel (such as room service

and maid service) are furnished.

Mogan then argued to the district court that he never

provided room service or maid service, and therefore that

under the terms of the Declaration he had an expectation that

he would be allowed to pursue short-term rentals of his unit.

But the actual language in the Declaration is materially

different, and eviscerates his claim of an expectation of

engaging in short-term rentals. The Declaration, which was

attached as an exhibit to his original complaint, sets forth the

leasing exception as follows:

except 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 or for a period of more

than thirty (30) days where hotels services nor-

mally furnished by a hotel (such as room service

and maid service) are furnished.

(emphasis added).

The bolded language is missing from the body of the

complaints, and no ellipsis is used to indicate its omission.

The district court’s order then tracked the erroneous language

in the complaints, but that omitted language changes the

meaning significantly. Under Mogan’s versions, leases for

12 No. 22-2801

less than 30 days are allowed unless hotel services are

provided. He then alleged in the complaints that he had not

provided in the past such services normally provided by

hotels, nor did he intend to do so in the future.

But the actual language of the Declaration provides that

no leases of less than 30 days are allowed, and no leases for

more than 30 days are allowed where hotel services are

furnished. The “hotel services” language clearly modifies

only the leases of more than 30 days, because otherwise the

distinction between leases of less than 30 days and more than

30 days would have no meaning. Transient leases and hotel

leases are prohibited, and that includes: (a) any leases of less

than 30 days; and (b) any leases of more than 30 days where

hotel services are provided. “Transient” rentals are similarly

defined in the Ordinance in this case as rentals for less than a

month. Based on the plain language of the Declaration, which

controlled the rights and expectations of persons purchasing

a condominium unit in that building, Mogan was aware from

the time that he purchased Unit 307 that he had no right to

lease the unit for periods of less than 30 days, and in fact was

prohibited from doing so.

And that defeats his claims under the takings clause or

inverse condemnation. Considering the factors for a

regulatory taking, in light of the language in the Declaration

prohibiting short-term rentals of less than 30 days, Mogan

cannot demonstrate any economic impact of the Ordinance on

him, nor can he demonstrate that the Ordinance has

interfered with any reasonable investment-backed

expectations. In fact, not only did he lack any such reasonable

expectation, he would have been on actual notice before

purchasing the property that leases of less than 30 days are

No. 22-2801 13

not allowed. And the Ordinance challenged here, and the

prohibited buildings list, applies only to short-term leases of

less than 31 days.

Mogan argues that he in fact rented the unit on a short-

term basis, but that does not change the nature of the property

interest he possessed. We need not consider whether the

Roscoe Association “allowed” such short-term rentals to

occur because of ignorance, indifference, incompetence, or

tacit acceptance. Even if Mogan was able to pursue such

short-term rentals of Unit 307 for a time, the Declaration at the

time of the purchase made clear that the unit could not be

rented for periods of less than 30 days. Therefore, the

property interest that he obtained in the unit never included

the right of short-term rentals, and in fact expressly excluded

that right. Because the property was restricted in that manner

from the outset and the Declaration was never changed, he

never experienced any adverse economic impact from the

Ordinance, nor any interference with distinct investment-

backed expectation because he never had any reasonable

expectation that the property could be used for short-term

rentals. Accordingly, the district court properly dismissed his

takings clause claim. Mogan raises no independent argument

as to the inverse condemnation claim, conceding that the

inverse condemnation claim applies the same standard as the

takings clause claim and therefore that claim was properly

dismissed as well. The district court did not abuse its

discretion in declining to exercise supplemental jurisdiction

over the remaining state law claim, given its dismissal of the

federal claims. See Carlsbad Technology, Inc. v. HIF Bio, Inc., 556

U.S. 635, 639–40 (2009) (recognizing that a district court’s

14 No. 22-2801

decision as to whether to exercise supplemental jurisdiction is

purely discretionary and is reviewed for abuse of discretion).

The decision of the district court is AFFIRMED.