After 9th Circuit Loss, Alameda Books Will Go Back To Court

PASADENA, Calif.—One of the longest-running sex-related cases in U.S. history had yet another chapter written into it last Friday, when a three-judge panel of the Ninth Circuit Court of Appeals threw out the summary judgment granted to adult retailers Alameda Books, Inc. and Highland Books. Inc.

As the opinion authored by Judge Richard D. Cudahy recounts, the case of Alameda Books et al v. City of Los Angeles began on November 16, 1995, after a city inspector informed the businesses, both of which sold adult merchandise and contained arcade booths for viewing adult videos, that the stores were in violation of a 1983 city ordinance prohibiting such "combination stores," based on an unscientific "secondary effects" study which the city had conducted in 1977.

The original lawsuit was based on 42 U.S.C. §1983, and argued that enforcing the city's ordinance would violate the plaintiffs' First Amendment rights to sell legal sexually-oriented materials. The District Court granted summary judgment to the plaintiffs, ruling that the city had had "no basis for believing that the operation of combined (as opposed to neighboring) adult businesses led to harmful secondary effects," largely because the 1977 study had not dealt with that possibility.

"The court further asserted that '[t]he classification of certain adult entertainment activities as separate businesses ... is subject to a [heightened] standard of review because the City applies these definitions only to businesses that engage in protected speech'," Judge Cudahy wrote for the unanimous panel. "The district court determined that the Ordinance failed to survive strict scrutiny, because the City had not demonstrated that the ordinance was necessary to support a compelling government interest. Therefore, it was unconstitutional under the First and Fourteenth Amendments." [Citations omitted here and below]

However, when the city's appeal from that ruling reached the Ninth Circuit for the first time in 2000, that court affirmed the district court's decision, albeit on slightly different grounds.

"[W]e held that the question whether [Los Angeles Municipal Code] §12.70(C) is content-based or content-neutral need not be reached, because the Ordinance fails to meet even the more permissive intermediate scrutiny that would apply to a content-neutral regulation," Judge Cudahy wrote. "Although the City had a 'substantial ... interest' in reducing crime, the City had failed to show that the Ordinance was 'designed to serve' this interest. This was true because the 1977 Study focused only on the effect of establishments concentrated within a particular area, and had nothing to say about the effects of businesses within the same establishment."

Not discussed by this court (nor any court even to this day) is the fact that the 1977 study failed to meet even minimal standards of scientific acceptability, as required by the U.S. Supreme Court's decision in Daubert v. Merrell-Dow Pharmaceuticals. Specifically, the Los Angeles study failed to include a control area that was equivalent to the area being studied; failed to use a time frame for the study that would rule out a possible erratic pattern of activity that would affect the study's results; failed to use comparable measures for the crime rates in both the study areas and the control areas; and in general, was not a professionally-conducted study. All of this was pointed out in a meta-study conducted by sociologist Dr. Daniel Linz in 2000.

In any case, the city once again appealed the Alameda decision, this time to the U.S. Supreme Court, which according to the present opinion ruled in 2002 that "after a municipality satisfies its burden of supplying evidence supporting its rationale for passing an ordinance, the plaintiffs may attempt to 'cast doubt' on the municipality's evidence and rationale, after which the municipality may attempt to rehabilitate its rationale."

But that wasn't all. Justice Anthony Kennedy (an alumnus of the Ninth Circuit) filed a concurring opinion to Justice Sandra Day O'Connor's plurality opinion, and the caveats that Justice Kennedy noted regarding the plurality's opinion are binding on all lower court cases to which the Alameda opinion applies.

"Most important for our purposes, Justice Kennedy's concurrence provided that 'a city must advance some basis to show that its regulation has the purpose and effect of suppressing secondary effects, while leaving the quantity and accessibility of speech substantially intact'," Justice Cudahy noted. "Put another way, '[a] city may not assert that it will reduce secondary effects by reducing speech in the same proportion.' Justice Kennedy reasoned that '[i]t is no trick to reduce secondary effects by reducing speech or its audience.' Applying that principle to the present facts, the concurrence explained that, 'the premise [underlying the Ordinance] must be that businesses — even those that have always been under one roof — will for the most part disperse rather than shut down.' Taken as a whole, then, the Supreme Court's Alameda Books opinion requires courts to employ the new burden-shifting framework when applying the traditional Renton [v. Playtime Theatres] analysis, and provides that a municipality's justification must not be that its regulation will reduce secondary effects simply by reducing speech proportionately. However, the application of such a principle is not as simple as might appear."

The Supreme Court then remanded the case to the Ninth Circuit for reconsideration in light of the high court ruling, and the Ninth Circuit, in turn, remanded it to the district court—notably to Judge Dean D. Pregerson, son of Ninth Circuit Judge Harry Pregerson.

As recounted here, Judge Pregerson once again granted summary judgment to the adult businesses, but the Ninth Circuit in the current opinion found several flaws in Judge Pregerson's ruling.

The question of crucial interest, based on Justice Kennedy's dicta, was whether the arcade portion of the two businesses could survive on its own in a separate building if it were forced to "divorce" itself from the adult video/book/novelty portion of the store. To that end, the city submitted two affidavits from its expert witness, Vanita Spaulding, a "business valuation professional," who analyzed the financial records of the two businesses and concluded from them that it would be possible to split the two uses and for each to remain viable individually.

Judge Pregerson disagreed, and rejected the second of Ms. Spaulding's declarations.

"The following analogy from a more familiar industry, offered by Plaintiffs, is useful in explaining why Ms. Spaulding's conclusion does not follow from her testimony," Judge Pregerson wrote in his July, 2008 opinion. "Consider a multi-screen (non-adult) motion picture theater, the typical multi-cinema in a building containing a half-dozen screens, with a central area containing concessions. Nobody would dispute that the concession stands at these theaters sell extremely expensive popcorn, candy, soda, hot dogs, and other goods..."

"Following the logic from her declaration, the concession stand would be a viable stand-alone business," the judge continued. "However, customers generally buy concessions immediately before entering a film. The cinema and concession elements have, in effect, a symbiotic relationship. People are willing to pay exorbitant prices for popcorn because, at least in part, the convenience of being able to buy an item within feet of the theater entrance outweighs the increased cost of that item. It does not logically follow that customers would continue to purchase a $7 bag of popcorn if they had to go to an inconvenient location down the block to do so. It may be possible that a stand-alone concession stand would be an economically viable business, but Ms. Spaulding's analysis of the financials of the combined business simply does not provide a foundation upon which to so opine."

The Ninth Circuit, however, ignored that part of Judge Pregerson's opinion, concentrating instead solely on Spaulding's financial analysis.

"Nevertheless, the district court did not find Spaulding’s statistics to be incredible," Judge Cudahy wrote. "Rather, the court described her review of the costs and expenses of the retail and arcade components of the combined stores, as 'an analysis with which no one disagrees.' Therefore, despite striking Spaulding’s declaration, the court accepted that the arcade components of the plaintiffs' businesses as presently operated are quite profitable, accounting for approximately one-half of the revenues of the combined businesses and the majority of the stores' net income. Thus, even if this evidence is not admissible for the immediate purpose intended, it may be useful in a more extended analysis."

However, oddly, the Ninth Circuit agreed that Spaulding's testimony should not come into the record of the case.

"As a threshold issue, we do not upset the district court’s decision to strike Vanita Spaulding’s declaration pursuant to Federal Rule of Evidence 403, Exclusion of Relevant Evidence on Grounds of Prejudice, Confusion, or Waste of Time, and Federal Rule of Evidence 702, Testimony by Experts, because the court did not abuse its discretion in doing so." the court ruled.

However, the Ninth Circuit dismissed the testimony of William Andrus, vice-president of Beverly Books, which owns the two plaintiff businesses, as well as that of Rick Hinckley, president of arcade booth manufacturer Video Simplex, both of whom testified that stand-alone arcade businesses haven't existed for at least half a century, and that if such businesses did exist, they "would be viewed to be 'seedy' like adult movie theaters, most of which went out of business when prerecorded adult videos became available," the panel recounted.

But the Ninth Circuit decided that that testimony was not credible, both because the two witnesses allegedly had too great a stake in the outcome of the case, and also because "certain important passages" in their written declarations were identical.

"Although we have interpreted the Supreme Court's Alameda Books decision on several occasions, we have yet to hold that a plaintiff has succeeded in 'casting doubt' on the city's evidence or rationale," the panel tellingly admitted. "It emerges from these cases that to succeed in 'casting doubt' on a city's evidence or rationale, a plaintiff must do more than point to a municipality's lack of empirical evidence, or challenge the methodology of the municipality's evidence, When a municipality offers multiple rationales in support of an ordinance, the plaintiff must address each one... An important common element in these cases with respect to the second step of Alameda Books is that to successfully 'cast doubt' on a municipality's rationale, a plaintiff must offer not merely evidence, but 'actual and convincing' evidence. Such evidence 'must do more than challenge the government's rationale; it must convincingly discredit the foundation upon which the government's justification rests.'"

"We are not satisfied that the plaintiffs' evidence in this case was 'actual and convincing' enough to justify summary judgment—and we emphasize that the procedural posture here was summary judgment. The district court did not explicitly reach a contrary conclusion. Rather, the court dismissed the lack of specific factual foundation in the declarations, did not mention that they contain lengthy passages of identical text and did not discuss at all the facial bias of the declarants. Rather, the district court seemed to opine that no evidence must yield to some evidence—no matter how superficially frail and unexamined—to support a summary judgment."

The Ninth Circuit ruling deals at length with both the identical passages and the alleged bias of the plaintiffs' witnesses, calling the district court's "failure to take [them] into account" "a significant oversight." It also faulted those witnesses' failure to offer any empirical data (such as a scientific study) to support their position.

"Their testimony amounts to a conclusory assertion that they work in the industry, and we should take them at their word that adult arcades could not survive as stand-alone businesses because they would be perceived as too 'seedy'," the Ninth Circuit panel concluded. "We do not see any support, other than the ipse dixit of the declarants, for the asserted relationship between the seediness of an adult entertainment venue and its ability to stay in business. This lack of substantiation is more problematic when viewed in the context of the arcades’ profitability, as demonstrated in Vanita Spaulding’s financial analysis."

So saying, the Ninth Circuit remanded the case to the district court for further consideration in light of the current opinion—but that may not actually be the case's next stop.

"Suffice it to say that we were disappointed with the opinion in several respects, and we are seeking both a rehearing and a rehearing en banc," said plaintiffs' attorney Clyde DeWitt. "The latter in most circuits means review by the entire panel of active judges. However, because the Ninth Circuit has so many judges, the rule there is that it is reviewed by a panel consisting of the Chief Judge of the Circuit, which is Judge Alex Kozinski, along with ten other active-service judges that are randomly selected. Expect the petition for rehearing to be filed within the next five or six weeks."

"Because this is ongoing litigation in which I am directly involved, it would be inappropriate for me to comment on any aspect of the merits," he added.