Mutschler v. City of Phoenix

• Court: Arizona Court of Appeals
• Writing for the Court: Hall
• Citation: Mutschler v. City of Phoenix, 129 P.3d 71, 212 Ariz. 160 (Ariz. App. 2006)
• Decision Date: 14 February 2006
• Docket Number: No. 1 CA-CV 04-0203.,1 CA-CV 04-0203.
• Parties: G. Robert MUTSCHLER, Jr., a single man; Willian ("Billie") Markus, a single woman; Guys & Dolls, LLC, an Arizona limited liability company, Plaintiffs-Appellants, v. CITY OF PHOENIX, a municipality, Defendant-Appellee.

Page 71

129 P.3d 71

212 Ariz. 160

G. Robert MUTSCHLER, Jr., a single man; Willian ("Billie") Markus, a single woman; Guys & Dolls, LLC, an Arizona limited liability company, Plaintiffs-Appellants, v. CITY OF PHOENIX, a municipality, Defendant-Appellee.

No. 1 CA-CV 04-0203.

Court of Appeals of Arizona, Division 1, Department E.

February 14, 2006.

Berens, Kozub, Lord & Kloberdanz, PLC by Daniel L. Kloberdanz, Scottsdale, Attorneys for Appellant.

Peter Van Haren, Phoenix City Attorney by James H. Hays, Phoenix, Attorneys for Appellee.

OPINION

HALL, Presiding Judge.

¶ 1 Appellants Robert G. Mutschler, Jr. and Willian Markus appeal from the order entered by the superior court in favor of the City of Phoenix (City) granting the City's motion to dismiss appellants' regulatory taking claim. Concluding that no Fifth Amendment "taking" of property occurred when the City raided appellants' live sex act business and effectively closed it, we affirm.

FACTS AND PROCEDURAL HISTORY

¶ 2 In 1998 the Phoenix City Council adopted an Ordinance that made the operation of a live sex act business illegal in the City. See Phoenix Ariz., Ordinance No. G-4145 (Dec. 9, 1998) (the Ordinance). The Ordinance amended the Phoenix City Code (P.C.C.) by adding the following language:

The operation of a business for purposes of providing the opportunity to engage in, or the opportunity to view, live sex acts is declared to be a disorderly house and a public nuisance per se which should be prohibited_[.]

P.C.C. § 23-54(A)(1) (1998).

¶ 3 Appellants own a business known as "Guys & Dolls," a social or "swingers" club that is located in the City. Appellants and members and owners of other clubs brought a pre-enforcement challenge to the constitutionality of the Ordinance in federal district court on various grounds, including a claim that the Ordinance constituted an unconstitutional regulatory taking in violation of the Fifth Amendment to the United States Constitution.¹ The court denied the challengers' request for a preliminary injunction preventing enforcement of the Ordinance, finding that they had not met their burden of establishing that § 23-54 failed to substantially advance a legitimate public purpose. Recreational Devs. of Phoenix, Inc. v. City of Phoenix (Recreational Devs. I), 83 F.Supp.2d 1072, 1101 (D.Ariz.1999). Subsequently, the court determined that the challengers "failed to refute [the City's] plainly legitimate justification for the Ordinance — curbing the spread of sexually transmitted diseases" and granted summary judgment to the City. Recreational Devs. of Phoenix, Inc. v. City of Phoenix (Recreational Devs. II), 220 F.Supp.2d 1054, 1069 (D.Ariz.2002).

¶ 4 On September 21, 2002, the Phoenix Police Department executed a "raid" called "Operation Social Night Out" on several swingers clubs, including Guys & Dolls, and arrested appellant Markus. Appellants contend that as a result of the raid and arrest of Markus,² Guys & Dolls experienced a "huge economic downturn" because of the continued threat of arrest for operating the club. Appellants closed Guys & Dolls on September 22, 2002. It remained closed until the property was leased in March 2003. Appellants claim, however, that the revenue derived from leasing the property is significantly less than the revenue generated by the club before the raid.

¶ 5 Appellants thereafter filed a complaint alleging that the City's actions denied appellants the economically viable use of their property and that the selective enforcement of the Ordinance constituted a permanent taking entitling appellants to just compensation under the United States and Arizona Constitutions. The City moved to dismiss the complaint arguing: 1) appellants failed to properly and timely serve the City with a notice of the inverse condemnation claim; 2) some or all of the claims were barred by res judicata, collateral estoppel, or the rule against splitting a cause of action; 3) all claims were barred by the statute of limitations; 4) the court lacked jurisdiction; and 5) the complaint failed to state a claim upon which relief may be granted. After oral argument the court ordered the parties to file supplemental briefs regarding appellants' inverse condemnation claims.

¶ 6 In their supplemental briefing, appellants argued that the enactment of the Ordinance constituted an "as-applied" taking pursuant to the three-pronged test derived from Penn Central Transportation Company v. City of New York, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978).³

¶ 7 Treating the City's motion as one for summary judgment because both parties presented materials beyond the pleadings, see Blanchard v. Show Low Planning & Zoning Comm'n, 196 Ariz. 114, 117, ¶ 11, 993 P.2d 1078, 1081 (App.1999); Ariz. R. Civ. P. 12(b), the trial court granted the City summary judgment on two separate grounds. First, it found that the content of the notice of claim was insufficient to put the City on reasonable notice of the inverse condemnation claim. Second, applying the Penn Central three-prong test for an "as-applied" taking, it held that appellants had not met their prima facie burden of establishing that the government action resulted in a loss to appellants of "all reasonable use or value of the entirety of the property." We have jurisdiction pursuant to Arizona Revised Statutes (A.R.S.) section 12-2101(B) (2003).

DISCUSSION

¶ 8 We review the trial court's grant of summary judgment de novo and view the evidence and reasonable inferences in a light most favorable to the non-moving party. Aranki v. RKP Inv., Inc., 194 Ariz. 206, 208, ¶ 6, 979 P.2d 534, 536 (App.1999). We will affirm the trial court's ruling if the court was correct for any reason. Glaze v. Marcus, 151 Ariz. 538, 540, 729 P.2d 342, 344 (App.1986).

¶ 9 Appellants claim that the judgment below cannot be upheld on either of the bases relied upon by the trial court. The City, while asserting that the trial court properly dismissed the complaint for the reasons cited in its ruling,⁴ renews the argument it made in the trial court that the Ordinance is a regulatory action taken to prevent harmful or noxious use of property akin to a public nuisance, and that permitting live sex acts is not a use the loss of which entitles appellants to be compensated under the Fifth Amendment "Takings Clause." Therefore, according to the City, the trial court's Penn Central analysis was unnecessary because, even if the regulation substantially affected the property's value, no taking occurred.

¶ 10 The City's argument is based on a line of United States Supreme Court cases dating back to Mugler v. Kansas, 123 U.S. 623, 668-69, 8 S.Ct. 273, 31 L.Ed. 205 (1887), in which the Court held that a law prohibiting the use or sale of alcohol was not a taking:

A prohibition simply upon the use of property for purposes that are declared, by valid legislation, to be injurious to the health, morals, or safety of the community, cannot, in any just sense, be deemed a taking or appropriation of property. . . . The power which the states have of prohibiting such use by individuals of their property, as will be prejudicial to the health, the morals, or the safety of the public, is not, and, consistently with the existence and safety of organized society cannot be, burdened with the condition that the state must compensate such individual owners for pecuniary losses they may sustain, by reason of their not being permitted, by a noxious use of their property, to inflict injury upon the community.

Over the next 100 years, the Supreme Court consistently held that regulations prohibiting the noxious use of land that effectively closed existing businesses or other actions by governments against nuisance-type activity resulting in the destruction of private property were a legitimate exercise of police powers that did not give rise to Fifth Amendment takings claims. See, e.g., Hadacheck v. Sebastian, 239 U.S. 394, 36 S.Ct. 143, 60 L.Ed. 348 (1915) (ordinance prohibiting the manufacture of bricks in residential areas of the city); Miller v. Schoene, 276 U.S. 272, 48 S.Ct. 246, 72 L.Ed. 568 (1928) (state action ordering certain property owners to destroy diseased cedar trees to prevent the infection of apple orchards); and Goldblatt v. Town of Hempstead, 369 U.S. 590, 82 S.Ct. 987, 8 L.Ed.2d 130 (1962) (ordinance prohibiting excavation to extract gravel below the water table). See also Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 491 n. 20, 107 S.Ct. 1232, 94 L.Ed.2d 472 (1987) ("[S]ince no individual has a right to use his property so as to create a nuisance or otherwise harm others, the State has not `taken' anything when it asserts its power to enjoin the nuisance-like activity.").

¶ 11 Based on this line of authority, the City claims that its regulatory prohibition of live sex act clubs as public nuisances is not a constitutional taking of property for which appellants are entitled to receive "just compensation." Appellants, however, claim that the noxious-use justification has been substantially limited by Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992).

¶ 12 In Lucas, the claimant paid just under one million dollars for beach-front property in South Carolina on which he intended to build single-family homes, a legal use under the then-existing land use regulations. 505 U.S. at 1006-08, 112 S.Ct. 2886. Two years later, however, the South Carolina legislature enacted the Beachfront Management Act, which had the effect of barring the owner from building any permanent habitable structures on his property and rendering his property "valueless." Id. at 1007, 112 S.Ct. 2886. He filed suit arguing that the Act effected a taking of his property without just compensation. Id. at 1009, 112 S.Ct. 2886. Citing Mugler v. Kansas, amongst other cases, the South Carolina Supreme Court ruled that Lucas was not entitled to any compensation because the Act was...