This is a real law in Evanston, IL, the site of Northwestern's campus. This article is dated, as I think they may have changed the law by now. The term "brothelgate" is used to refer to the controversy, but apparently ther are a number of brothelgates.
http://www.dailynorthwestern.com/city/in-focus-evanston-will-enforce-brothel-rule-starting-in-july-nu-administration-won-t-fight-it-1.2446387