CINCINNATI (CN) — The City of New Buffalo, Michigan violated property owners' constitutional rights when it required permits to rent their homes on a short-term basis, and then passed a moratorium on issuing those permits before it ultimately banned the rentals outright, homeowners argued Thursday at the Sixth Circuit.
Attorney Barrett Young from the Detroit-based Butzel Long law represented 26 homeowners who purchased properties in New Buffalo for the explicit purpose of renovating and renting them to vacationers.
He told the court the city "tried to destroy [plaintiffs'] non-conforming use property rights" when it passed a zoning law to prohibit short-term rentals.
The city's involvement began in April 2019 when its city council passed Regulatory Ordinance 237, which required homeowners to obtain a short-term rental permit.
Permits were issued automatically once homeowners submitted certain information to the zoning board, but a moratorium was put into place in May 2020 and extended for over 18 months until November 2021, when the council passed Zoning Ordinance 253 and banned the rentals entirely.
The property owners filed a federal lawsuit against the city for due process violations and unconstitutional takings, but a federal judge dismissed the majority of the claims in October 2022.
Chief U.S. District Judge Hala Jarbou, an appointee of Donald Trump, disagreed with the owners' assertion that short-term rentals were permissible before the city's passage of the ordinances at issue in the case and ruled they had no protected property interest in a non-conforming use.
The owners disputed Jarbou's assessment in their brief to the Sixth Circuit and pointed out New Buffalo issued at least 93 short-term rental permits under its previous zoning laws and that its city attorney admitted zoning laws allowed for such rentals.
Young told the panel Jarbou made a "critical" error in ruling that first-time applicants cannot have a property interest in a non-conforming use.
As the owners' attorney emphasized, case law from the Sixth Circuit establishes that when a government agency lacks discretion whether to accept or deny a permit application — as was the case here — first-time applicants can establish a protected interest in that use.
Attorney Matthew Zalewski of Rosati, Schultz, Joppich, and Amtsbuechler PC in Farmington Hills, Michigan argued on behalf of the City of New Buffalo and sought to clarify the difference between New Buffalo's regulatory scheme and zoning laws.
"A regulatory ordinance does not create a use," he told the court. "It is not zoning."
Zalewski said Ordinance 237 and the moratorium were put in place to allow time for the city to determine appropriate steps for dealing with a surge in short-term rentals — but permit issues before that time did not signify a change in zoning laws.
"Short-term rental is a commercial activity ... not expressly permitted in a single-family zone," he said.
Young disagreed and again cited the number of permits issued by the city before the moratorium.
"The city understood short-term rentals were lawful [under previous zoning laws] and confirmed that understanding through its actions," he said.
U.S. Circuit Judge Julia Gibbons, an appointee of George W. Bush, interjected with questions about the popularity of New Buffalo, a city with fewer than 2,000 residents.
"I'm just puzzled," she said. "Why are people coming to such a small city?"
Zalewski called the area "very desirable" and pointed out its proximity to Lake Michigan and Chicago.
"We Michiganders know," U.S. Circuit Judge Stephanie Davis remarked.
Davis, a Biden appointee, served as both a magistrate judge and a U.S. district judge for the Eastern District of Michigan from 2016 to 2022.
During Young's rebuttal, Davis asked the homeowners' attorney how the city's actions could be considered "arbitrary and capricious," a requirement for his clients' due process claims.
"It shocks the conscience in the sense that the municipality is attempting to override the legislature," Young answered.
U.S. Circuit Judge John Bush, a Trump appointee, rounded out the panel.
The court did not set a timetable for its decision.
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