Posted by: Patricia Salkin | April 3, 2013

VA Supreme Court Finds No Vested Rights Where Operators of Entertainment Establishments Never Had a Legal Right to Serve Alcohol in the First Instance

Norfolk 102, LLC and Norfolk 302, LLC operate Bar Norfolk and Have a Nice Day Café, respectively, in Norfolk, Virginia. In 2009, the City Council of Norfolk revoked a blanket special exception allowing the Bar and Café to operate as “Entertainment Establishments” and serve alcohol, and also denied their applications for special exceptions to continue serving alcohol. Both brought action against Norfolk alleging that the city impaired their vested rights. The Supreme Court of Virginia, however, affirmed the lower court’s grant of an injunction in favor of the city because the Bar and Café could not claim vested rights under the statute because the land use was impermissible under the zoning ordinance when they opened for business. Additionally, no city official authorized the use of the premises in a manner not otherwise permitted under the zoning ordinance. Therefore, the previous judgment was affirmed.

When the Bar and Café opened for business, they were located in a business park called Waterside. Waterside was situated in the Special Public Interest District (SPI-1), which permitted food services and alcohol sales as long as the establishment obtained a “use permit.” Ordinance 32,160 (1983 Ordinance) granted Waterside’s developer such use permit. In addition to this blanket use permit, the ordinance also allowed for the issuance of sub-use permits, requiring a leasing tenant in Waterside, licensed by the Alcoholic Beverage Control [ABC] Commission, to apply to the City zoning administrator to obtain a sub-use permit to operate its business.

In 1992 the City rezoned it territory, and Waterside was placed in a new D-1 Downtown Waterfront District. Uses here including Eating and Drinking Establishments and Entertainment Establishments required to approval of the City Council. Another ordinance was enacted in 1997 which also created the permitted use, not requiring a special exception, of an “Eating Establishment;” under this definition alcoholic beverages were prohibited from being served. Then in 1998 and 1999 the Bar and Café moved into space in Waterside, describing each operation as an “Eating Place,” a characterization that did not exist under the definitions section of the 1992 ordinance. Both businesses opened in 1999 as “Entertainment Establishments” and served alcohol after obtaining ABC licenses.

Trouble ensued for the Bar and Café when a task force cited the businesses a total of four times for violating their ABC licenses. Because of these instances, the City Council sought to revoke the blanket exception granted in the 1999 Ordinance and require each business in Waterside to seek an individualized exception to operate as an “Entertainment Establishment” or an “Eating and Drinking Establishment.” Bar Norfolk and the Café then each submitted an application for an “Adult Use Special Exception” to operate an “Entertainment Establishment with alcoholic beverages.” While the city planning commission approved the applications, the City manager, after learning of each establishment’s violations, recommended that they be denied. When the City Council voted, it denied the two applications. Refusing to accept the disposition, Bar Norfolk and the Café opened for business the next day, prompting the City to seek an injunction “permanently enjoined from selling or serving alcohol or providing entertainment” in their businesses located in Waterside.

Norfolk 102 and 302 countered by arguing that “because they opened their establishments before the enactment of the 1999 Ordinance, they had vested rights under [the Virginia Zoning laws] that were unaffected by the City Council’s revocation of the special exception contained in the 1999 Ordinance.” When landowners acquire a vested right in the use of their property, such right cannot be prohibited or restricted by subsequent zoning legislation. A landowner’s rights are deemed vested when: “the landowner (i) obtains or is the beneficiary of a significant affirmative governmental act which remains in effect allowing development of a specific project, (ii) relies in good faith on the significant affirmative governmental act, and (iii) incurs extensive obligations or substantial expenses in diligent pursuit of the specific project in reliance on the significant affirmative governmental act.” The lower court sided with the City and denied any requested relief by the plaintiffs. The court found that once the 1997 Ordinance was passed, a business seeking to operate as an “Entertainment Establishment” was required to seek a special exception. Because rights only vest in permitted land uses, and since Bar Norfolk nor the Café  were never granted such exception, their use of their premises were impermissible and therefore the vested rights statute did not apply. Additionally, the court also found that no City official ever made a “specific pronouncement” that would be sufficient to entitle the businesses to operate as “Entertainment Establishments” able to serve alcohol. Concededly, city officials acquiesced to the businesses operating as “Entertainment Establishments” and providing alcoholic beverages for on-premises consumption, but this acquiescence did not rise to the requisite level of a specific pronouncement.

The Supreme Court of Virginia affirmed the lower court’s interpretation disallowing any rights to vest due to an impermissible use of the property. When Bar Norfolk and the Café opened their respective businesses, the 1997 Ordinance required a special exception to operate as either an “Eating and Drinking Establishment” or an “Entertainment Establishment” in the D–1 District. Waterside had been granted a blanket special exception, and this in turn applied to the Bar and Café as well. The right to serve alcohol never vested because serving alcohol was never a permissible use of their properties under the 1983 Ordinance.

Plaintiffs alternatively argued that the “Eating Place” designation on their business certificates by the zoning administrator permitted them to operate their businesses as Entertainment Establishments. The court rejected this argument, stating that this designation still did not allow each business to operate in a manner that it illegal under the zoning laws at that time. In other words, the certification documents did not constitute a determination that the plaintiffs could operate as “Entertainment Establishments” and provide alcoholic beverages for on-premises consumption contrary to the terms of either the 1983 or the 1997 Ordinances. For these reasons, Bar Norfolk and the Café did not acquire any vested rights to continue operating their businesses in the same manner as before the revocation of the blanket exception. Therefore the judgment of the lower court was affirmed.

Norfolk 102, LLC v. City of Norfolk, 2013 WL 749401 (2/28/2013)

The opinion can be accessed at:

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