Acorn Investments, Inc. v. City of Seattle

• Citation: 887 F.2d 219
• Decision Date: 05 October 1989
• Docket Number: No. 88-3657,88-3657
• Parties: ACORN INVESTMENTS, INC., Plaintiff-Appellant, v. CITY OF SEATTLE; Walter Tank; Douglas Jewett, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 219

887 F.2d 219

ACORN INVESTMENTS, INC., Plaintiff-Appellant, v. CITY OF SEATTLE; Walter Tank; Douglas Jewett, Defendants-Appellees.

No. 88-3657.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 5, 1989.

Decided Oct. 5, 1989.

Jack R. Burns, Burns and Hammerly, P.S., Seattle, Wash., for plaintiff-appellant.

R. James Pidduck, Asst. City Atty., Seattle, Wash., for defendants-appellees.

Appeal from the United States District Court for the Western District of Washington.

Before GOODWIN, Chief Judge, and WRIGHT and NORRIS, Circuit Judges.

WILLIAM A. NORRIS, Circuit Judge:

Acorn Investments, Inc. owns and operates panoram machines at four adult entertainment centers in the City of Seattle. When a customer inserts one or more quarters into a panoram, the machine exhibits a video tape or motion picture on a screen for a few minutes. ¹ A customer may also view live entertainment through a panoram. Each panoram is located in a booth that gives individual patrons some degree of privacy.

In this action, Acorn attacks as violative of the First Amendment city laws that require panoram businesses to pay various license fees and to disclose the names and addresses of shareholders. The district court awarded the City summary judgment on the shareholder disclosure issue and, after a one-day bench trial, ruled in favor of the City on the license fee issue. We reverse on both issues.

I THE CITY'S PANORAM LICENSING ORDINANCE

The Seattle ordinance licensing panorams dates back to 1955. ² As originally enacted, the ordinance required panoram businesses to obtain two separate licenses, a Panoram Location License and a Panoram Operator License. The fee in 1955 for a Panoram Location License was $25 per panoram machine per annum, and the fee for a Panoram Operator License was $300 per annum. In 1961, the City amended the ordinance to require the following three licenses and fees: Panoram Location License--$5 per machine per annum; Panoram Sub-License--$5 per machine per annum; Panoram Operator License--$500 per annum plus 5% of the total gross income of all machines operated. These three licenses have been required ever since; the current fee schedule is as follows: Panoram Location License--$30 per machine per annum; Panoram Sub-License--$30 per machine per annum; Panoram Operator License--$650 per annum, plus $25 per month per machine. Seattle Municipal Code (SMC) 6.42.030. ³

In 1987, the City collected panoram license fees of $86,715 from Acorn and the seven other businesses operating panorams in the City during that year. The cost to the City of administering the panoram licensing program for all panoram establishments in 1987 was approximately $2,040, while the cost of providing police surveillance at panoram establishments was approximately $65,068.

Acorn filed this action in 1987, claiming that the City discriminates against the owners and operators of panoram machines in violation of the First Amendment by taxing and licensing the machines differently from other coin-operated amusements. ⁴ Acorn based its claim on Minneapolis Star v. Minnesota Commissioner of Revenue, 460 U.S. 575, 103 S.Ct. 1365, 75 L.Ed.2d 295 (1983), where the Supreme Court struck down a taxation scheme which treated the press differently from other businesses because the scheme was not necessary "to achieve an overriding governmental interest." Id. at 582, 103 S.Ct. at 1370. As the Court explained, "differential treatment [of the press], unless justified by some special characteristic of the press, suggests that the goal of the regulation is not unrelated to suppression of expression, and such a goal is presumptively unconstitutional." Id. at 585, 103 S.Ct. at 1372.

The City, on the other hand, argued to the district court that Minneapolis Star was inapposite because the license fees on panorams are in fact justified by a special characteristic of the panoram booths--their privacy makes them convenient places for criminals to plan or engage in illegal activity such as dealing drugs or fencing stolen property. The City contended that the license fees are used to offset the cost of increased police surveillance required by the privacy and location of the panorams. Specifically, the City pointed to the cost of increased police surveillance and inspection of panoram booths located in a high crime area of downtown Seattle between First, Second, Pike and Pine Streets, known as "the Block." The City did not argue that panorams located off "the Block" pose any special law enforcement problems. ⁵

In arguing its case, the City relied heavily upon City of Renton v. Playtime Theatres, 475 U.S. 41, 106 S.Ct. 925, 89 L.Ed.2d 29 (1986), in which the Supreme Court upheld against First Amendment challenge a municipality's attempt to zone adult theatres to keep them away from schools, churches, residences and parks. In Renton, the Court was faced with a zoning ordinance which was "aimed not at the content of the films shown at 'adult motion picture theatres,' but rather at the secondary effects of such theatres on the surrounding community." Id. at 47, 106 S.Ct. at 929 (emphasis omitted). The Court held that the Renton ordinance was constitutional because Renton had proven that adult theatres generate specific harmful "secondary effects" on neighborhoods, and had selected a reasonable means for preventing these effects. Id. at 52, 106 S.Ct. at 931.

The district court rejected Acorn's reliance on Minneapolis Star and accepted the City's analogy to Renton. The court held that the City's panoram licensing scheme, like the zoning provision at issue in Renton, was an "attempt[ ] to control the secondary effects of panorams," and not an attempt "to regulate the content of the videos shown on the machines." Excerpts of Record ("E.R.") at 7. The district court then ruled that the license fee scheme was constitutional because it furthered a substantial government interest and allowed for reasonable alternative avenues of communication--the standard for content-neutral time, place and manner regulations the Supreme Court applied in Renton. See 475 U.S. at 50, 106 S.Ct. at 930.

In applying the Renton test, the district court found that panorams on "the Block" generate "adverse effects on the areas in which they operate" because they contribute to "the Block's" crime problem. E.R. at 8. The district court stated that "the Block" is "the City's focal point for prostitution, drug sales, robberies, assaults and other street crime[s]" and while "panorams are not the sole cause of the criminal conduct, they contribute substantially to it." E.R. at 31-34. The district court found that the City had a substantial governmental interest in trying to prevent the secondary effects created by the panorams. Thus, the district court concluded that the City had satisfied the requirement of Renton that the ordinance serve a substantial governmental interest. The district court also concluded, without elaboration, that the licensing scheme satisfied the other requirement of Renton that the ordinance allow for adequate alternative avenues of communication.

Acorn argues on appeal, as it did below, that the City's licensing ordinance should be analyzed not under the Renton standard but rather under the Minneapolis Star "necessary to achieve an overriding governmental interest" test. Whether the more stringent Minneapolis Star standard applies is a question we need not reach, however, because we find persuasive Acorn's alternative argument that the license fee scheme cannot survive scrutiny even under the Renton test for content-neutral time, place or manner regulations.

The City maintains that the licensing fees further a substantial governmental interest, because they force panoram businesses to shoulder some of the police costs incurred by the City to combat the criminal activity taking place inside the panoram establishments. Acorn does not dispute the City's contention that requiring panoram businesses to pay for these costs would be a substantial governmental interest if panorams posed a special law enforcement problem. Acorn argues, however, that the City has completely failed to prove that panorams on "the Block" are currently conducive to criminal transactions. Acorn points out that even under the Renton analysis, a city must prove the existence of the "secondary effects" it is seeking to prevent. See Renton, 475 U.S. at 50-51, 106 S.Ct. at 930-31.

We assume, without deciding, that if panorams fostered criminal activity, the City would have a substantial interest in combatting this secondary effect through a licensing scheme imposed on the panorams. We agree with Acorn, however, that the licensing scheme at issue here does not further any such interest because the City has failed to prove that panorams foster criminal activity on "the Block" or that they serve as the site for more criminal activity than other business establishments on "the Block."

We recognize that the district court explicitly found that the City's evidence established that the panorams "foster criminal activity," E.R. at 33, and that "the location and physical configuration of panorams distinguish them" from other businesses and pose a "clear potential for criminal use." E.R. at 35. We must uphold these findings unless "clearly erroneous." Fed.R.Civ.P. 52(a). We are bound to them unless we are "left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). We are left with such a conviction in this case. The record yields no evidence to support the district court's broad finding that panorams foster criminal activity on "the Block." In fact, the City focused its evidence at trial on criminal activity occurring in the panorams, rather than the secondary effects of panorams on crime on "the Block."

As to the district court's finding about the uniqueness of...