Posted by: Patricia Salkin | January 20, 2014

Fed. Dist. Court in CT Holds Sexually Oriented Business Regulation Did Not Constitute a Taking

The City of Milford, Connecticut (City), was on the defensive as plaintiff Keepers, a Connecticut corporation operating a semi-nude cabaret-style nightclub, and plaintiff After Dark LLC, a retail adult entertainment establishment selling erotic magazines and videos, sued to challenge the constitutionality of an ordinance regulating sexually oriented businesses in Milford. In addition to bringing First and Fourteenth Amendment claims, the plaintiffs argued that the City ordinance violated the Takings Clause of the Fifth Amendment.

The ordinance in controversy had two iterations. The first, in 2003, made it a violation for a person in an adult establishment to appear in a semi-nude condition, unless the person was an employee who was at least six (6) feet away from any patron or customer, and at least eighteen (18) inches from the floor. This distance requirement was designed to create a “buffer zone” between employees and patrons–a regulation to discourage illicit illegal contact. The 2007 amendment to the ordinance then placed even more stringent requirements on operators of video booths, requiring brighter illumination in viewing booths and mandating that every area of such premises be unobstructed and in view of an operator.

The City moved for summary judgment on the plaintiffs’ Takings claim, arguing that no taking had occurred. The plaintiffs contended that the buffer zone and reconfiguration requirements would “essentially put them out of business” and therefore result in an unconstitutional taking. To address the motion, the court considered the scope of the Fifth Amendment.

The Takings Clause of the Fifth Amendment provides that no “private property shall be taken for public use, without just compensation.” The law recognizes both physical takings and regulatory takings, which do not involve a categorical assumption of property but result from a state regulation that goes too far and effects a taking in essence.

While the plaintiffs could have presented a case for a regulatory taking, they failed to identify a specific property interest affected by the ordinances. Further, the plaintiffs failed to even advance an argument as to why their interests were protectable pursuant to the Fifth Amendment. Nevertheless, the court assumed arguendo that the plaintiffs did have a protectable property interest in the continued economic viability of their respective properties, in order to complete a Takings analysis.

The court took three factors into consideration for its Fifth Amendment Takings analysis: (1) the economic impact of the regulation on plaintiffs; (2) the extent to which the regulation has interfered with investment-backed expectations; and (3) the character of the governmental action. The court was clear in stating that a regulatory taking would not be found where a plaintiff retained some economically viable use of his/her property. The court also relied on the seminal Penn Central case to illustrate the circumstances required to constitute a compensable taking and the factors that should be considered.

While the plaintiffs presented evidence that the cost of compliance with the City regulation was prohibitive and that reduced usable space would result in a loss of profits, they failed to hurdle the Penn Central barrier. Because the plaintiffs could not establish that they had been deprived of all economically viable use of their land, the City ordinance did not constitute a compensable taking. The mere fact that the plaintiffs would not profit as much as they would have otherwise was of no consequence to the court, in its analysis.

Thus, the court granted the City’s motion for summary judgment on the Takings claim and on all other claims as well, except with respect to a public posting requirement for which the plaintiffs were granted summary judgment. The corollary here, although the Constitution vouchsafes many individual rights and protections, local governments retain and readily use their broad police powers to regulate local land uses. Business owners should always take heed of local winds before setting up shop and must factor local regulatory changes into their costs of doing business.

Keepers, Inc. v. City of Milford, 944 F. Supp. 2d 129 (D. Conn. 3/30/2013)

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