Combs v. Texas Entertainment Ass'n, Inc., 03-08-00213-CV.

• Decision Date: 05 June 2009
• Docket Number: No. 03-08-00213-CV.,03-08-00213-CV.
• Citation: 287 S.W.3d 852
• Parties: Susan COMBS, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Appellants v. TEXAS ENTERTAINMENT ASSOCIATION, INC. and Karpod, Inc., Appellees.
• Court: Texas Court of Appeals

287 S.W.3d 852

Susan COMBS, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Appellants v. TEXAS ENTERTAINMENT ASSOCIATION, INC. and Karpod, Inc., Appellees.

No. 03-08-00213-CV.

Court of Appeals of Texas, Austin.

June 5, 2009.

James C. Ho (argued), Danica L. Milios, James C. Todd, Christine Monzingo, for Susan Combs, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas.

Craig T. Enoch (argued), G. Stewart Whitehead, Peter A. Nolan, Elliot Clark, Randall D. Chapman, Douglas M. Becker, Antoinette D. "Toni" Hunter, L. Monique Gonzalez, for Texas Entertainment Association, Inc. and Karpod, Inc.

Before Chief Justice JONES, Justices PURYEAR and HENSON.

OPINION

DIANE M. HENSON, Justice.

The Comptroller of Public Accounts and the Attorney General of the State of Texas¹ appeal the trial court's judgment in a suit for declaratory and injunctive relief brought by Texas Entertainment Association, Inc. ("TEA"), and Karpod, Inc. The trial court's judgment declared subchapter B of chapter 47 of the business and commerce code unconstitutional and permanently enjoined the Comptroller from assessing or collecting the tax imposed by that subchapter.² See Tex. Bus. & Com. Code Ann. §§ 47.051-.056 (West Supp. 2008). Because we hold that subchapter B violates the First Amendment to the United States Constitution, we affirm the trial court's judgment.³ See U.S. Const. amend. I.

BACKGROUND

In 2007, the Texas Legislature enacted chapter 47, subchapter B, of the business and commerce code, which imposes a tax "on a sexually oriented business in an amount equal to $5 for each entry by each customer admitted to the business." Tex. Bus. & Com.Code Ann. § 47.052(a). The statute further defines a sexually oriented business ("SOB") as:

a nightclub, bar, restaurant, or similar commercial enterprise that:

(A) provides for an audience of two or more individuals live nude entertainment or live nude performances; and (B) authorizes on-premises consumption of alcoholic beverages, regardless of whether the consumption of alcoholic beverages is under a license or permit issued under the Alcoholic Beverage Code.

Id. § 47.051(2). As a result, the tax applies only to businesses that permit alcohol consumption in the presence of live, nude entertainment. "Nude" is defined as "entirely unclothed" or "unclothed in a manner that leaves uncovered or visible through less than fully opaque clothing any portion of the breasts below the top of the areola of the breasts, if the person is female, or any portion of the genitals or buttocks." Id. § 47.051(1). A business subject to the tax is not required to impose the tax on its customers, but may use its discretion in determining how it will derive the money required to pay the tax. Id. § 47.052(c). The legislature allocated the first $25 million in revenue received from the SOB tax to the State's sexual assault program fund and the remaining revenue to the Texas health opportunity pool to fund health insurance for low-income Texans. Id. §§ 47.054-.055. The SOB tax went into effect on January 1, 2008.⁴

In response to the enactment of subchapter B, Karpod, a sexually oriented business, and TEA, an association representing the interests of sexually oriented businesses in Texas, filed suit for declaratory and injunctive relief against the Comptroller, asserting that the tax violated the state and federal constitutions. After a bench trial, the trial court issued a declaratory judgment that the statute violated the First Amendment to the United States Constitution, permanently enjoined the Comptroller from collecting or assessing the tax, and awarded attorneys' fees in favor of TEA and Karpod.⁵ This appeal followed.

DISCUSSION

On appeal, the Comptroller argues (1) that the SOB tax does not violate the First Amendment, (2) that the SOB tax does not violate the Texas Constitution, (3) that sovereign immunity bars suit by TEA, and (4) that the trial court erred in awarding attorneys' fees.

The First Amendment

We note at the outset that "the fact that protected speech may be offensive to some does not justify its suppression." Carey v. Population Servs. Int'l, 431 U.S. 678, 701, 97 S.Ct. 2010, 52 L.Ed.2d 675 (1977). In fact, "it is in those instances where protected speech grates most unpleasantly against the sensibilities that judicial vigilance must be at its height." Young v. American Mini Theatres, Inc., 427 U.S. 50, 87, 96 S.Ct. 2440, 49 L.Ed.2d 310 (1976) (plurality opinion) (Stewart, J., dissenting).

In conducting our First Amendment analysis, we must first determine whether the SOB tax is subject to strict or intermediate scrutiny. Content-based restrictions on speech are presumptively invalid and subject to strict scrutiny. See, e.g., City of Los Angeles v. Alameda Books, Inc., 535 U.S. 425, 434, 122 S.Ct. 1728, 152 L.Ed.2d 670 (2002) (plurality opinion). In order to withstand strict scrutiny, a statute must be narrowly tailored to promote a compelling government interest. See, e.g., United States v. Playboy Entm't Group, Inc., 529 U.S. 803, 813, 120 S.Ct. 1878, 146 L.Ed.2d 865 (2000). The Comptroller concedes that the SOB tax cannot survive a strict scrutiny analysis, arguing instead that the tax is content-neutral and therefore subject to intermediate scrutiny. A content-neutral restriction on speech withstands intermediate scrutiny "if the conduct itself may constitutionally be regulated, if the regulation is narrowly drawn to further a substantial governmental interest, and if the interest is unrelated to the suppression of free speech." Clark v. Community for Creative Non-Violence, 468 U.S. 288, 294, 104 S.Ct. 3065, 82 L.Ed.2d 221 (1984) (citing United States v. O'Brien, 391 U.S. 367, 376, 88 S.Ct. 1673, 20 L.Ed.2d 672 (1968)).

"As a general rule, laws that by their terms distinguish favored speech from disfavored speech on the basis of the ideas or views expressed are content-based," while "laws that confer benefits or impose burdens on speech without reference to the ideas or views expressed are in most instances content-neutral." Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 643, 114 S.Ct. 2445, 129 L.Ed.2d 497 (1994). The principal inquiry in determining content neutrality "is whether the government has adopted a regulation of speech because of disagreement with the message it conveys." Ward v. Rock Against Racism, 491 U.S. 781, 791, 109 S.Ct. 2746, 105 L.Ed.2d 661 (1989). Rules are generally considered content-based when the regulating party must examine the speech to determine if the restriction applies. See, e.g., Forsyth County v. Nationalist Movement, 505 U.S. 123, 134, 112 S.Ct. 2395, 120 L.Ed.2d 101 (1992); Arkansas Writers' Project, Inc. v. Ragland, 481 U.S. 221, 230, 107 S.Ct. 1722, 95 L.Ed.2d 209 (1987); FCC v. League of Women Voters of Cal., 468 U.S. 364, 383, 104 S.Ct. 3106, 82 L.Ed.2d 278 (1984).

While nude dancing "falls only within the outer ambit of the First Amendment's protection," it is nevertheless protected as expressive conduct. City of Erie v. Pap's A.M., 529 U.S. 277, 289, 120 S.Ct. 1382, 146 L.Ed.2d 265 (2000) (plurality opinion). In arguing that the SOB tax is subject to intermediate scrutiny, the Comptroller points to cases in which the U.S. Supreme Court has applied intermediate scrutiny to zoning restrictions aimed at the secondary effects of businesses offering adult entertainment. See Alameda Books, 535 U.S. at 434, 122 S.Ct. 1728 (plurality opinion) (zoning ordinance prohibiting more than one "adult entertainment business" in single building); Renton v. Playtime Theatres, Inc., 475 U.S. 41, 48, 106 S.Ct. 925, 89 L.Ed.2d 29 (1986) (zoning ordinance restricting location of adult movie theaters); Young, 427 U.S. at 71-72, 96 S.Ct. 2440 (plurality opinion) (same).

Unlike the restrictions at issue in Alameda Books, Renton, and Young, the SOB tax is not a zoning restriction, but a tax on businesses that offer live, nude entertainment in the presence of alcohol.⁶ The U.S. Supreme Court has suggested that zoning restrictions directed to secondary effects of speech are inherently different from other types of restrictions on speech. See Alameda Books, 535 U.S. at 449, 122 S.Ct. 1728 (plurality opinion) (Kennedy, J., concurring)⁷ ("[Z]oning regulations do not automatically raise the specter of impermissible content discrimination ... because they have a prima facie legitimate purpose: to limit the negative externalities of land use. ... [T]hese sorts of ordinances are more like a zoning restriction on slaughterhouses and less like a tax on unpopular newspapers.") (emphasis added); Young, 427 U.S. at 62, 73 n. 35, 96 S.Ct. 2440 (plurality opinion) (stating that the zoning ordinance's restrictions are so minimal that "the market for this commodity is essentially unrestrained" and that "[t]he situation would be quite different if the ordinance had the effect of suppressing, or greatly restricting access to, lawful speech"). Because zoning ordinances are distinguishable from other restrictions on speech, we do not find the First Amendment analyses applied in zoning cases to be particularly relevant to the present case. See Alameda Books, 535 U.S. at 445, 122 S.Ct. 1728 (plurality opinion) (Kennedy, J., concurring) (stating that city could regulate secondary effects of adult entertainment businesses with zoning ordinance, but could not suppress the speech itself by, "for example, imposing a content-based fee or tax").

Furthermore, while the Supreme Court has held that bans on public nudity should be reviewed with intermediate scrutiny as content-neutral restrictions, the public-nudity bans at issue in those cases did not single out a specific class of First Amendment speakers, as the SOB tax does. See Pap's A.M., 529 U.S. at 290, 120 S.Ct. 1382 (plurality opinion) ("By its terms, the ordinance regulates conduct alone. It does not target...