Judge Strikes Down L.A. Ordinance in Landmark Adult Retail Case

LOS ANGELES - It's been just over six years since the U.S. Supreme Court decided City of Los Angeles v. Alameda Books, the ground-breaking case that established an adult retailer's right to challenge alleged adverse secondary effects evidence in court. But the opinion in that case included a remand to the trial court to reconsider its previous summary judgment in light of the high court's ruling, and now, it has.

"What the judge said, as I read it," said First Amendment attorney Clyde DeWitt, for plaintiffs Alameda Books and Beverly Books, "is, remember that this was a motion for summary judgment, except now, the Supreme Court has said that for the ordinance to stand requires evidence; it's not just on the face of the ordinance and the studies underlying the ordinance when they first passed it."

The judge on the case is Dean D. Pregerson, son of Ninth Circuit Appeals Court Judge Harry Pregerson, both of whom have looked favorably on free speech issues.

In his opinion handed down July 16, Judge Pregerson goes into great detail in tracing the history of the case, from its dim beginnings dealing with the content-versus-secondary-effects issues originally raised in Renton v. Playtime Theaters, through the Supreme Court's Alameda opinion, plus the progeny of that opinion in the Ninth Circuit, including notably Center for Fair Public Policy v. Maricopa County and Tollis Inc. v. County of San Diego.

Back in 1995, Judge Pregerson had found, as he states in the current ruling, that "the City's prohibition on multiple-use adult establishments was not a content-neutral regulation of speech and subjected the ordinance to strict scrutiny. The Court granted summary judgment for Plaintiffs because it found that the evidence offered by the City did not demonstrate that its prohibition is 'necessary to serve a compelling state interest and is narrowly drawn to achieve that end.'"

The Ninth Circuit affirmed Judge Pregerson's finding for the Plaintiffs, but on different grounds: That the City had failed to present enough evidence to prove that its ordinance prohibiting multiple adult businesses under the same roof would actually reduce crime around those businesses.

The Supreme Court, in an opinion authored by Justice Sandra Day O'Connor and writing for the conservative plurality of the high court (Rehnquist, Scalia and Thomas), reversed the Ninth Circuit's holding, concluding that the City could reasonably rely on its 1977 secondary effects study to demonstrate that its ordinance's ban on multiple-use adult establishments serves the City's interest in reducing crime. However, while Justice Anthony Kennedy concurred in the outcome of the plurality's opinion, his concurrence made notable distinctions about the manner in which such ordinances could be applied when the amount of speech involved was threatened, and for the first time allowed a balancing test between a municipality's intention to reduce secondary effects and a business's right to deliver adult content to its customers.

"The municipality's evidence must fairly support the municipality's rationale for its ordinance," Justice Kennedy wrote. "If plaintiffs fail to cast direct doubt on this rationale, either by demonstrating that the municipality's evidence does not support its rationale or by furnishing evidence that disputes the municipality's factual findings, the municipality meets the standard set forth in Renton. If plaintiffs succeed in casting doubt on a municipality's rationale in either manner, the burden shifts back to the municipality to supplement the record with evidence renewing support for a theory that justifies its ordinance." However, "[t]his is not to say that a municipality can get away with shoddy data or reasoning," he added.

Of particular importance to this case is Kennedy's use of proportionality, or balancing.

"[A] city must advance some basis to show that its regulation has the purpose and effect of suppressing secondary effects, while leaving the quality and accessibility of speech substantially intact," Justice Kennedy wrote, which Judge Pregerson interpreted to mean that "the rationale of a secondary-effects ordinance must be that it will reduce the externality costs associated with the speech activity 'without substantially reducing speech' because '[i]t is no trick to reduce secondary effects by reducing speech or its audience; but a city may not attack secondary effects indirectly by attacking speech.' Turning to the instant ordinance, Justice Kennedy held that the City's claim 'must be that this ordinance will cause two businesses to split rather than one to close, that the quantity of speech will be substantially undiminished, and that total secondary effects will be significantly reduced. This must be the rationale of a dispersal statute.'" [Citations removed here and below]

It was those latter points that caused the City's case finally to collapse when it was once again brought before Judge Pregerson. After going into a lengthy discussion of whether Renton's "intermediate scrutiny" standard should be applied to the City's ordinance challenged in this case, Judge Pregerson analyzed four Ninth Circuit cases that cited the Supreme Court's Alameda decision, drawing from them a formula as to how the "rationale of a dispersal statute" should be applied to his reconsideration of the Alameda ordinance.

"[T]he Court finds that Alameda Books made three fundamental modifications to the Renton standard," Judge Pregerson stated. "First, after Alameda Books, the classification of the regulation as content neutral or content based does not determine which level of scrutiny to apply ... Second, at the point where courts review an ordinance to determine whether it is designed to further a substantial government interest, they should engage in the two-step inquiry articulated by Justice Kennedy. 'First, what proposition does a city need to advance in order to sustain a secondary effects ordinance?  Second, how much evidence is required to support the proposition?'" ...

"The third addition to the Renton structure is the burdenshifting framework articulated in Alameda Books," he continued. "The City bears the ultimate burden of showing that the ordinance it enacted passes intermediate scrutiny.  To show that the ordinance advances a substantial government interest, the City 'may rely on any evidence that is "reasonably believed to be relevant" for demonstrating a connection between speech and substantial, independent government interest.' If the Court, after reviewing the evidence presented by the authors of the regulation, finds that the evidence is sufficient to support the rationale for the law, the burden shifts to Plaintiffs 'to cast direct doubt on this rationale, either by demonstrating that the municipality's evidence does not support its rationale or by furnishing evidence that disputes the municipality's factual findings.' ... A municipality's failure to supplement the record in a satisfactory fashion means that it cannot, as a matter of law, demonstrate that the ordinance survives intermediate scrutiny, thereby entitling the plaintiff to summary judgment."

That's exactly what happened in this case. The City presented a declaration from Vanita Spaulding, who has "substantial expertise regarding financial, market, business and industry research and analysis," and serves as a consultant to "business management, investment advisors, auditors, shareholders, financial investors and potential investors for use in business and litigation." She conducted a forensic analysis of the Plaintiffs' financial information, and concluded that both the video portion and the arcade portion of the businesses brought in enough income to be viable if operated separately. Her conclusion, however, was in a sense, a sermon delivered to the birds.

"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 stated. "Consider a multiscreen (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."

"Assume that a municipality adopts a regulation requiring concession stands to operate more than 1,000 feet away from a theater complex," he continued. "Assume further that Ms. Spaulding performs her analysis, tallying the costs and revenues from both the theater and the concession stand, and determines that both components of the business are profitable.  Following the logic from her declaration, the concession stand would be a viable stand-alone business.  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."

That portion of Judge Pregerson's opinion gave DeWitt particular pride.

"That came almost verbatim from my brief, and I felt so good about that," DeWitt told AVN. "When you make an analogy and the judge quotes it almost word for word - I'm sure the judge changed it a bit so it sounds better - but it's exactly what I said. That was my idea."

"The expert testimony I had on my side was, these businesses can't function separately, so if they enforce this ordinance, the arcade will die, thus obviously reducing speech, and they had nothing to contradict that," he continued. "And that's why it was summary judgment, because all the evidence showed that what would happen if this ordinance were enforced is exactly what Justice Kennedy said couldn't happen. It's no trick to reduce secondary effects by reducing speech, and that's exactly what this would have done."

To counter Spaulding's conclusions, DeWitt presented affidavits from Rick Hinckley, who owns an arcade installation business, and William Andrus, vice-president of one of the plaintiff book/arcade stores involved in the case.

"[T]he Court finds that Mr. Hinckley and Mr. Andrus, with their decades of experience owning and operating the specific businesses at issue in this case and their knowledge of the industry, have sufficient foundation to testify that they are not aware of any stand-alone arcade ever existing, and that arcades bring in business largely through customers who are also using the retail component of a store," Judge Pregerson found. "While the City challenges Plaintiffs' experts contentions as speculation, in fact it does not contest their most important propositions: 1) no one is aware of a stand-alone arcade currently in existence or ever having existed, and  2) arcades draw significant revenue from those customers who also use the retail component of these stores.  The City contends that the fact that a stand-alone arcade has never before existed is irrelevant.  The Court disagrees."

But it is perhaps in the following analysis that Judge Pregerson's insight into both the City's motivations in passing its ordinance and the real meaning of Justice Kennedy's Alameda opinion dovetail beautifully:

"[F]inally, Defendant argues that even if the arcades close, the ordinance is constitutional because '[a]dult entertainment is readily available nearly everywhere within the City, at a cost comparable to or less than the cost of such services as provided through an adult arcade'," the judge wrote. "As evidence, the City has submitted a different declaration by Vanita Spaulding documenting the multitude of alternative avenues through which patrons can access pornography, such as the internet, blackberries, and DVDs."

"The Court finds that this reasoning comprises the heart of the City's fundamental argument:  The City, in the end, concedes that its ordinance may force the arcade businesses to close, but contends that these closures are of no consequence because patrons have many other avenues through which to view adult entertainment."

"The City's argument fails to identify the correct speaker, and this mistake is fatal to its case. If the speakers at issue were the patrons, this argument might have some force. However, the speech of the patrons - protected though it is - is not the focus of this lawsuit.  Rather, Plaintiffs have brought this lawsuit on behalf of themselves.  As the Complaint puts it, Plaintiffs' allege that 'By prohibiting the operation of traditional adult bookstores anywhere in the City of Los Angeles, the CITY has interfered with plaintiffs' First Amendment right to provide the adult media materials of its choice to its customers.' It is thus the First Amendment rights of the businessowners, not the rights of the customers, that are at issue in this litigation. There can be no doubt that the Constitution protects the business-owners' rights to their speech - disseminating the adult material of their choice - in this context." [Emphasis added by Judge Pregerson]

"So now it's back to the Ninth Circuit," DeWitt predicted, "because the City has said they're going to appeal. But we've kept this ordinance at bay for 13 years now; it's never been enforced against either of these businesses."

"I feel pretty confident about the appeal and pretty confident that the Supreme Court won't take this case, and the reason is, Judge Pregerson's opinion is wonderful. It's very, very thorough and very well reasoned, and as a practical matter, you read it and you say, 'This makes sense'," he continued. "So I feel pretty confident about the appeal and pretty confident that the Supreme Court won't take it again either because what Judge Pregerson did is exactly what the Alameda Books opinion said in this very case. The judge very carefully analyzed Alameda and its subsequent Ninth Circuit cases, and did exactly what the Supreme Court said you're supposed to do in a situation like this."

Because of the newness of the opinion, DeWitt couldn't guess at a timeline as to how the case will proceed from this point, but he hopes it won't be another 13 years before he can collect his attorney fees from the City when, after having exhausted all of its appeals, his client finally wins.