Where are Lionel Hutz & Shelbyville?

I don't think it has as much to do with the legal side as the decision they made nearly 20 years ago. They retired all of Phil Hartman's characters as a sign of respect after his passing, and I think that includes in the game as well.

That said, they did bring back one of his minor characters (sort of) during the monorail event. We didn't get to keep him, but he did make a cameo, so there's no telling.