600 Marshall Ent. Concepts, LLC v. City of Memphis, 05–cv–2865.

• Decision Date: 21 September 2011
• Docket Number: No. 05–cv–2865.,05–cv–2865.
• Citation: 812 F.Supp.2d 870
• Parties: 600 MARSHALL ENTERTAINMENT CONCEPTS, LLC, d/b/a The Spot, Petitioner, v. The CITY OF MEMPHIS, Permit Office of the City of Memphis, Respondent,andMemphis Medical Center, a Division of the Memphis Bio–Works Foundations, Intervenor.
• Court: U.S. District Court — Western District of Tennessee

812 F.Supp.2d 870

600 MARSHALL ENTERTAINMENT CONCEPTS, LLC, d/b/a The Spot, Petitioner,

v.The CITY OF MEMPHIS, Permit Office of the City of Memphis, Respondent,andMemphis Medical Center, a Division of the Memphis Bio–Works Foundations, Intervenor.

No. 05–cv–2865.

United States District Court, W.D. Tennessee, Western Division.

Sept. 21, 2011.

Edward M. Bearman, Memphis, TN, for Petitioner.

J. Michael Fletcher, Michael W. Hughes, City Attorney's Office, Memphis, TN, for Respondent.

Michael D. Tauer, Monica N. Wharton, Saul C. Belz, Glankler Brown, PLLC, Memphis, TN, for Intervenor.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

BERNICE B. DONALD, District Judge.

This matter came before the Court on the request of Petitioner 600 Marshall Entertainment Concepts, LLC, d/b/a The Spot (“600 Marshall”) for injunctive and declaratory relief. 600 Marshall asserts that the City of Memphis (“the City”) wrongfully denied it a Compensated Dance Permit (“CDP”) without a prohibition on adult entertainment because 600 Marshall is entitled to “grandfathering.” After a nonjury trial on June 9–10, 2008, the Court found that 600 Marshall failed to carry its burden of showing, by a preponderance of the evidence, that it was entitled to grandfathering. 600 Marshall appealed, and on April 26, 2010, the United States Court of Appeals for the Sixth Circuit remanded the case for additional factual findings and legal conclusions. Specifically, the Sixth Circuit directed the trial court to address: 1) the history of adult entertainment at 600 Marshall; 2) whether such entertainment was abandoned or discontinued; 3) the possible expansion of any prior nonconforming use; and, 4) the availability of damages for alleged constitutional violations.

I. BACKGROUND

600 Marshall is a Tennessee limited liability company doing business at 598, 600, and 616 Marshall and 631 Madison in Memphis, Tennessee. The 600 Marshall locations are within the zoning district known as the Central Business District (“CBD”). The CBD was created by ordinance in 1981. From 1981 to 1993, “adult entertainment” was permitted in the CBD provided that the facility obtained and maintained certain permits. See Memphis, Tenn., Code § 16–8–2 (defining “adult entertainment”). In 1993, the City of Memphis and Shelby County issued Joint Ordinance No. 4209 (“the 1993 Ordinance”), which prohibited adult entertainment within the CBD.

Since 1967, Memphis, Tenn., Code § 6–20–1 et seq. (“the Dance Hall Ordinance”) has regulated “Dances and Dance Halls.” Pursuant to § 6–20–4, businesses desiring to feature dancing of any kind have been required to secure a Public Dance Hall Permit.¹ Further, if these businesses wish to allow “any person to accept compensation directly or indirectly for dancing, [and] if alcoholic beverages, beer or wine are served in the same room where dancing occurs,” such businesses are required to secure a Compensated Dance Permit (“CDP”) pursuant to § 6–20–11(C). Numerous Public Dance Hall Permits have been issued for the businesses operating at the 600 Marshall locations, but there has not been a CDP issued for those properties since at least 1991.

On August 15, 2005, Charles G. Westlund (“Westlund”) entered into an agreement to purchase the 600 Marshall properties with the intention of operating adult nightclubs with compensated, adult-entertainment dancing. Prior to entering into the agreement, Westlund spoke with the manager of the City's Office of Permits and Licenses, Lilli Jackson (“Jackson”), who told him that he would be able to obtain the required permits. Westlund also spoke with individuals who knew of the past activities at 600 Marshall, including previous owners, operators, and employees. Satisfied that he would be able to open and operate an adult nightclub on the premises, Westlund closed on the property, began obtaining permits, and shortly thereafter began renovating the property. Also on August 15, 2005, Westlund applied for a CDP in the name of 600 Marshall through the Office of Permits and Licenses. On the application for a Public Dance Hall Permit, 600 Marshall stated that it would feature adult entertainment and that its dancers would receive compensation.² 600 Marshall was issued a CDP on September 16, 2005, with a restriction as to nudity.³

Just ten days later, on September 26, Jackson informed 600 Marshall by letter that her office may have acted in error when it issued the CDP and that the matter was under administrative review. On October 4, 2005, Jackson, after consulting with the City's attorneys and zoning officials, informed 600 Marshall by letter ⁴ that her office was revoking the CDP because the 600 Marshall properties were located in the Central Business Improvement District (“CBID”),⁵ within which adult entertainment was not permitted. See Memphis, Tenn., Code § 6– 20– 10.⁶

As a result of the revocation of the CDP, Westlund believed that he could not operate an adult entertainment nightclub or even a non-adult entertainment nightclub with clothed, compensated dancers. 600 Marshall therefore pursued administrative review of the revocation of the CDP. On November 2, 2005, a three-member panel designated by Larry Godwin (“Godwin”), the director of Police Services, heard 600 Marshall's appeal. The panel found that the permit was “wrongfully revoked and that the permit should be reissued immediately conditioned on prohibition of any adult entertainment or activity ... unless and until 600 Marshall receive[d] the proper approvals from the Building Official.” Dedrick Brittenum, a member of the panel, testified at trial that the panel's decision was based on its understanding that the issuance of a CDP was unrelated to the presence of adult entertainment.

Though Godwin was not present during the panel hearing and was admittedly unfamiliar with the CDP policies and procedures, he nonetheless rejected the panel's recommendation on December 15, 2005. He explained at trial that he understood the panel's purpose to be determining whether the permit was initially issued in error and that he did not believe the panel could recommend re-issuance of the permit. Stated differently, Godwin believed that the panel acted beyond its legal authority. It was this sequence of events which prompted the instant litigation.

II. ISSUES ON REMAND

The Sixth Circuit remanded this case with a directive that the Court address the following issues:

1. Whether there were adult entertainment activities at the 600 Marshall locations prior to 1993 that did not require a CDP sufficient to substantiate grandfathering;

2. Whether prior owners of 600 Marshall abandoned or discontinued adult entertainment under Memphis, Tenn., Code § 16–116–2(F) or affected a change in use under Memphis, Tenn., Code § 16–116–2(E).

3. Whether allowing adult entertainment that does require a CDP would violate Memphis, Tenn., Code § 16–116–2(C), which prohibits the expansion of a nonconforming use “in such a manner as ... to further conflict with ... any use limitation established for the district in which such use is located.”

4. Whether 600 Marshall is entitled to recover damages under 42 U.S.C. § 1983 as a result of the City's revocation of its CDP.

III. ANALYSIS

1. Whether there were adult entertainment activities at 600 Marshall prior to 1993 that did not require a CDP sufficient to substantiate grandfathering.

600 Marshall has the burden of proving “a pre-existing non-conforming use qualifying for protection.” Lamar Tennessee, LLC v. City of Hendersonville, 171 S.W.3d 831, 836 (Tenn.Ct.App.2005). To meet this burden, it must show “(1) a change in zoning restrictions, and (2) permissive operation of the business prior to the change.” Id. The parties agree that the 1993 Ordinance changed the zoning restrictions by eliminating adult entertainment as a permitted use. To satisfy the second prong, 600 Marshall must show that the businesses operating at its location provided lawful adult entertainment that became non-conforming with the enactment of the 1993 Ordinance. See Coe v. City of Sevierville, 21 S.W.3d 237, 243 (Tenn.Ct.App.2000) (explaining that grandfather clauses implicitly contemplate a lawful activity which becomes non-conforming after the passage of legislation).

The Court previously found that 600 Marshall had not satisfied the second prong because, even if prior owners of the subject properties provided adult entertainment prior to 1993, they had done so unlawfully because they had not been issued CDPs. The Sixth Circuit observed, however, that the absence of CDPs is not dispositive because it fails to account for adult entertainment of a variety that does not involve compensated dancing. The Court must therefore determine, on remand, whether there were adult entertainment activities at the 600 Marshall locations prior to 1993 that did not require a CDP sufficient to substantiate grandfathering.

600 Marshall presented affidavits and testimony of several former patrons and employees who described the activities at the 600 Marshall locations between the 1970s and the late 1990s.⁷ Several of the activities described fall within the City's definition of “adult entertainment” but would not require a CDP.⁸ For example, Grace Irene Perry, a patron, testified that she regularly observed drag shows and adult films from 1977 to 1986 and that these activities involved the exposure of breasts, buttocks, and male genitalia. Likewise, Albert Wayne Rhea (“Rhea”), a patron, stated that since well before 1982 he regularly witnessed drag shows and simulated sex-act shows that involved the touching of buttocks and other body parts. Lisa Louise McNeil, an employee in 1986 and a patron prior to that time, stated that she often observed drag shows and simulated sex-act shows. Finally, Michael Ray Lutts (“Lutts”), a former employee and patron, stated that from the late 1970s through 1986, activities at the club included adult films in booths, male strippers who often danced with...