SDJ, Inc. v. City of Houston

• Decision Date: 03 June 1986
• Docket Number: Civ. A. No. H-86-1291.
• Parties: SDJ, INC., d/b/a Sugar Babes, et al., Plaintiffs, v. The CITY OF HOUSTON, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

636 F. Supp. 1359

SDJ, INC., d/b/a Sugar Babes, et al., Plaintiffs, v. The CITY OF HOUSTON, et al., Defendants.

Civ. A. No. H-86-1291.

United States District Court, S.D. Texas, Houston Division.

June 3, 1986.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David H. Berg, Joel M. Androphy, Houston, Tex., for plaintiffs.

Jerry E. Smith, Robert J. Collins, Paul R. Bibler, Jr., Gilbert Douglas, Houston, Tex., for defendants.

MEMORANDUM OPINION AND ORDER

McDONALD, District Judge.

This is an action filed by twenty three owners of topless bars challenging the constitutionality of the City of Houston's Ordinance regulating sexually oriented businesses. In 1983, the City of Houston enacted an Ordinance providing, inter alia, for the regulation of the location of certain sexually oriented businesses and the exterior portion and signage of such businesses. The Plaintiffs were specifically exempted from the 1983 Ordinance. In 1985, the State of Texas Legislature amended the enabling statute to allow cities, including the City of Houston, to regulate these sexually oriented businesses previously exempted. The City of Houston then enacted Ordinance 86-323 to regulate those sexually oriented businesses. In this action the Plaintiffs challenge the validity of Ordinance 86-323. The challenge is two-pronged: first, a facial constitutional attack and second, a challenge that the Ordinance impermissibly exceeds the grant of authority from the enabling statute.

Plaintiffs filed an Original Complaint, Application for a Temporary Restraining Order and Applications for Preliminary and Permanent Injunctions on March 31, 1986, to enjoin the Defendants from instituting and carrying out City Ordinance No. 86-323. After a Temporary Restraining Order hearing on April 3, 1986, the Court enjoined the Defendants from enforcing Section 28-123(a)(6) of the Ordinance, denied the Temporary Restraining Order with regard to the other application requirements, and reserved its ruling on the constitutionality of the Ordinance. The Court combined Plaintiffs' Application for a Preliminary Injunction with their Application for a Permanent Injunction and proceeded with a trial on the merits.

After the receipt of numerous exhibits, the testimony of witnesses and the argument of counsel the Court concludes that Ordinance No. 86-323 is invalid with respect to Sections 28-123(a)(1)(i) + (a)(6) and 28-125(b)(8). The Court hereby permanently enjoins the Defendants from enforcing Sections 28-123(a)(1)(i) + (a)(6) and 28-125(b)(8) of Ordinance No. 86-323. However, the invalidation of the above Sections does not impede the application of the remaining portions of the Ordinance, because the Ordinance contains a severability clause and those Sections are not crucial to the operation of the Ordinance. Ordinance, ž 3, p. 28.

Plaintiffs, SDJ, INC., d/b/a SUGAR BABES: W.F.K., INC. d/b/a SUGAR'S; W.F.K., INC. SIX d/b/a SUGAR'S DEJAVU; T.D.D., GRINGO'S SALOON, INC. d/b/a FANTASIA; 747, INC. d/b/a TEXAS COWGIRLS; TWO GREEKS, INC. d/b/a CANDLELITE LOUNGE; M.B. TEX, ENTERPRISES, INC. d/b/a IMAGINATIONS; SPIROS KARMAELEGOS d/b/a TEXAS FILLIES; HI-10, INC. d/b/a HI-10 CABARET; TRUMPS, INC. d/b/a RICK'S CABARET; SOUTHWEST CLUB CO., INC. d/b/A PLAYMATES; SSD, INC. d/b/a RITZ CABARET; ARIS MYLONAS d/b/a BOGEY'S; JIMMY TSAROUHAS d/b/a CRICKET'S; M.E.F. ENTERPRISES, INC., d/b/a CHICS; MKD ENTERPRISES, INC. d/b/a CHICS; J & J, INC. d/b/a MOULIN ROUGE; NAFPAKTOS, INC. d/b/a PINK PUSSYCAT; VAT, INC. d/b/a YELLOW ROSE OF TEXAS; ALEXANDRA VIVI BARSAKIS d/b/a WHIP CLUB; Da JOHN, INC. d/b/a DREAM STREET (hereinafter referred to collectively as "Plaintiffs"), are nightclubs offering topless dancing entertainment and presently operating in Houston, Texas.

Defendant, THE CITY OF HOUSTON, is a municipal corporation situated in Harris County, Texas. Defendant, LEE BROWN, is the Chief of Police of the Houston Police Department in Houston, Harris County, Texas. As Chief of Police, Chief Brown is the Director of the Ordinance and is in charge of enforcement of the provisions of the Ordinance, including the issuance, denial and revocation of permits. He is being sued in his official capacity. Defendant, JERRY SMITH, is the City Attorney for the City of Houston, Harris County, Texas. As City Attorney, Jerry Smith is responsible for the prosecution of charges filed in municipal court in Houston, Texas, for violation of the Ordinance and the filing of any injunction pursuant thereto. Jerry Smith is sued in his official capacity as City Attorney.¹

A Committee on Sexually Oriented Businesses was established in 1982 by the City Council of the City of Houston. Councilman George Grenias was the Chairman of that Committee. The Committee drafted a report in 1983 regarding the need to regulate sexually oriented businesses. See Defendants' Exhibit No. 1, Attachment. Councilman Grenias testified that the Committee was formed because of community concern about the location of sexually oriented businesses. Following its creation, the Committee held public hearings, received public and expert testimony on the effects of sexually oriented businesses on surrounding land uses, and held committee session meetings. In 1986, after Article 2372w was amended to include sexually oriented businesses licensed under the Alcoholic Beverage Code, the Committee drafted an amended report. See Defendants' Exhibit No. 6. The City Council relied on the 1983 report and the 1986 amended report on the regulation of sexually oriented businesses in adopting the findings to Ordinance No. 86-323. See Defendants' Exhibit No. 5.

Before 1985, the Plaintiffs were specifically exempted from Article 2372w, the enabling legislature allowing home-rule cities to pass ordinances regulating "sexually oriented businesses." The 1985 Amendment to 2372w specifically included sexually oriented businesses licensed and permitted to operate under the Alcoholic Beverage Code. Each of the Plaintiffs is licensed and/or permitted to operate pursuant to the Alcoholic Beverage Code. Moreover, they all provide entertainment by "topless" dancers.

On or about March 5, 1986, the City Council of the City of Houston passed Ordinance No. 86-323 ("the Ordinance") which is the basis of this dispute. (See Appendix I). The Ordinance was passed to regulate sexually oriented businesses by requiring that their owners or operators obtain permits from the City of Houston in order to commence or to continue their operations. The Ordinance provides, as to location, that no enterprise shall operate within 750 feet of a school, church, or licensed day care center. It further provides that an enterprise shall not locate within 1000 feet of another permitted enterprise or within a residential tract that is 75% residential in character. The Ordinance also places restrictions on the signage and exteriors of the enterprises. The Ordinance provides that it shall take affect on June 3, 1986. (Ord., p. 25). The Ordinance also requires that any operator of an existing enterprise who desires to continue its operation on or after June 3, 1986, shall file a permit application with the Director, Chief Brown, or his designee on or before April 4, 1986. Ordinance No. ž 4(b). (Ord., 31). The Ordinance further provides that any enterprises, as defined therein, existing as of March 5, 1986, may continue to do business until November 30, 1986, if their permit applications are denied, provided such enterprises timely filed their application prior to April 4, 1986. The Ordinance provides that it shall be unlawful for any person to operate an enterprise without a permit and violations of the Ordinance not covered by state statute constitute a misdemeanor. ž 28-133 (Ord., p. 28). Moreover, the City Attorney is authorized to file suit to enjoin violations of the Ordinance. ž 28-124 (Ord., p. 28). The Ordinance does not expressly name "topless dancing" clubs as a type of sexually oriented business.

From the owners of the Plaintiffs who testified, the Court finds that topless bars operate from approximately eleven o'clock in the morning until two o'clock the next morning. Most of the clubs serve lunch and dinner. The majority of the profits made by the clubs come from the sale of alcohol. The primary attraction of the clubs is the offering of topless dancing. Topless clubs hire a number of employees: bartenders, disco jockeys, floor masters, doormen, security personnel, cooks, managers, and waitresses. They also hire dancers, who receive a commission based on the percentage of drinks sold and receive tips from customers ranging from five dollars to ten dollars per customer.

Section 5(b) of the Ordinance provides for a six-month grace period in which existing non-conforming businesses may discontinue their operations. Under Section 5(c), the Director "may, in his discretion, grant an extension for operation after November 30, 1986, if the owner of the existing enterprise proves that he is unable to "recoup his investment" in such existing enterprise by that date." Ordinance ž 5(c). The provision requires the applicant to file a written request for such extension on or before September 1, 1986. Ordinance ž 5(c). The request shall set forth the amount of the owner's investment in the existing enterprise through March 5, 1986; the amount of the investment that has been or will be realized through November 30, 1986; the life expectancy of the existing enterprise; and the existence or nonexistence of lease obligations, as well as any contingency clauses therein permitting termination of the lease. Ordinance ž 5(c).

The four factors set out in Section 5(c) include methods of evaluating the value of existing businesses. Real estate appraiser Edward B. Graham testified that there are three approaches to valuation of a business: the cost approach, the income approach and the market approach. Under any of these approaches, the appraiser attempts to take into account the location of the...