The Law

Locating Adult Establishment by Michael Blahy When retailers decide to open in new markets, they do their due diligence in selecting the appropriate site for their new store. Prior to selecting a site in the Castleton area in Indianapolis, Indiana for a new Hustler Hollywood (HH) location, the company contacted City officials in order to apprise themselves of the “adult” provisions in the updated city ordinance. The ordinance, which went into effect on April 1, 2016, established six different Commercial Zoning Districts. The C‑3 District (Neighborhood Commercial District) is for a full range of retail sales and personal, professional and business services required for a fully developed residential neighborhood. This district prohibits adult entertainment businesses, but it may obtain a variance to operate. C‑4 (Community-Regional District), C‑5 (General Commercial District) and C‑7 (High-Intensity Commercial District) all permit such businesses. The ordinance also has definitions: “adult bookstore”: An establishment having at least 25% of its: Retail floor space used for the display of adult products; or Stock in trade consisting of adult products; or Weekly revenue derived from adult products. “adult service establishment”: Any building, premises, structure or other facility, or part thereof, under common ownership or control which provides a preponderance of services involving specified sexual activities or display of specified anatomical areas. Relying on its communications with city officials, on July 14, 2016, HH signed a ten-year lease on a C‑3 district property near a bus stop frequented by school children, next to a Chuck E. Cheese. Properties across the street are zoned as C‑4. HH applied for a structural permit to remodel the store and for a sign permit to hang exterior signs. The Department of Business and Neighborhood Services (DBNS) set aside the applications for more information after noticing that the proposed signs stated “Hustler Hollywood,” and advertised things like “erotica.” HH submitted a weekly inventory and sales projection, which projected the stock and sales of adult products, a floor plan with square footage designations, and a description of the business. As written, these documents where short of classification as an “Adult” business. The DBNS reviewed the documents and described them as “imprecise and contradictory”, the DBNS citing, 32.2% of inventory and 12.8% of sales were broadly categorized as “general merchandise;” and “toys” accounted for 13.1% of inventory and 28.8% of sales. Including these items as “Adult” products would put them over the 25% threshold and into the “Adult Bookstore” classification. Instead of electing to seek a variance with the DBNS, HH appealed to the Board of Zoning Appeals (BZA), which held a hearing on December 6, 2016. HH submitted a revised inventory and sales projection, claiming that the initial projections had mistakenly included figures from nationwide-stores and online sales. The new projections were much lower than the previous, saying that they “did not intend to operate an adult bookstore or an adult service establishment, and that it would not offer any workshops or classes that are offered at other Hustler Hollywood stores”. A group of community members, property owners, and tenants opposing the store, showed photos of other stores, and advertisements from the HH website countering the claims of HH not operating as an “adult” establishment. The BZA voted unanimously, 5-0, to affirm the decision of the DBNS. On January 5, 2017, HH bypassed Indiana state court, and took the matter to the United States District Court and sued the city claiming violations under the First and Fourteenth Amendments, and Indiana administrative law. HH challenged the City's decision as arbitrary, capricious, and unsupported by substantial evidence. HH sought a preliminary injunction on the case, which after careful consideration by the court, they concluded that none of the claims had more than a negligible chance of success, therefore the injunction was denied. HH followed up with an appeal to the United State Court of Appeals. HH argued that the City’s enforcement of the Ordinance “silenced” their ability to exercise their First Amendment rights at the location of their choosing. They claimed that the City classified them as an adult entertainment business in order to “suppress” unwanted speech, in light of public outcry. The court said “A zoning measure can be consistent with the First Amendment if it is likely to cause a significant decrease in secondary effects and a trivial decrease in the quantity of speech.” HH’s speech has not been silenced or suppressed, but told that it can operate an adult entertainment business, as a right elsewhere within Indianapolis in a C‑4, C‑5, or C‑7 district. In fact, a C‑4 district lies directly north of the Property. The United State Court of Appeals summarized that “an erroneous application of a zoning ordinance is unlikely to be a First Amendment violation. Indeed, federal courts ‘are not zoning boards of appeal’ … Nothing that HH has alleged gives rise to an unconstitutional effect or First Amendment violation. … The BZA did not have to believe HH when it stated it would not offer workshops or classes, nor did it have to ignore evidence from other Hustler Hollywood stores … HH presented no evidence in the district court or on appeal that officials from the DBNS or BZA displayed any bias or censorial intent in their determinations. ”Ultimately, the question of whether the City’s determination rested on a sufficient evidentiary basis is properly suited for state court review. That evidentiary issue does not present a First Amendment violation, nor does it justify the issuance of a preliminary injunction. “ (HH-Indianapolis, LLC v. Consolidated City of Indianapolis, (US Court of Appeals for the Seventh Circuit, Docket: 17-3023)) Decided: May, 2018 Published: May 2018 Feature Articles If you have an opinion on the retailing or retail real estate industries, take this opportunity to share your thoughts. Articles should run between 400 and 800 words. Topics can, be general in nature, consumer observation or specific to retail concepts or practices. Articles will be posted for at least one week and will then be placed in the Editorial Archives. All articles submitted will be read and considered but we cannot guarantee publication. Each published article will carry the submitters byline (if desired) and is a free service to our community. Article ideas and suggestions are also always welcomed. Contact PVS@PlainVanillaShell.com