It wasn't directed at religious institutions because the church whose building the school wanted to use still operates there.
Reading the 6th Circuit decision it appears that the school should be directing their ire against Brighton Nazarene Church. In order for the school in the church to function in the church building a special use permit would need to be modified. Brighton Nazarene Church apparently has had a history of not complying with previous special use permits so the township board decided against giving them another modification.
The basic matter under consideration by the courts was whether denying the permit created an substantial burden as defined by the Religious Land Use and Institutionalized Persons Act. Apparently it didn't. Religious Land Use and Institutionalized Persons Act