Fed. Dist Court in NC Holds “Gentleman’s Club” was a Sexually Orientated Business, Rather than a Bikini Bar

American Entertainers, L.L.C. operated an adult club named Gentlemen’s Playground (“GP”) in Rocky Mount, and filed a claim against the City regarding the City’s ordinances regulating “Sexually Oriented Businesses.” Specifically, American contended that: GP did not fall within the definition of a Sexually Oriented Business as defined by the City’s ordinances; the City agreed to allow American to operate GP using its current format; the City’s licensing requirements for Sexually Oriented Businesses create an unconstitutional prior restraint on free speech; the City’s licensing requirements unreasonably burdened free speech and infringe on the right of anonymity; the City’s ordinances regulating Sexually Oriented Businesses were unconstitutionally overbroad; the City’s prohibition of persons under the age of 21 from owning or operating a Sexually Oriented Business unconstitutionally restricted free speech; the ordinance prohibiting performances for only one customer imposed an unconstitutional burden on free speech; and, the prohibition against an adult entertainer touching a patron imposed an unconstitutional burden on free speech.

In Counts II, III, and IV, American sought declaratory and equitable relief, arguing that it had an agreement with the City that allowed it to operate in its current format. Despite this, American failed to produce writing that constituted an enforceable settlement agreement. While American stated that the 2003 lawsuit “was settled through an exchange of letters,” American’s only written evidence of an agreement was a single email sent over eight months before the 2003 lawsuit ended. However, the email did not mention the 2003 lawsuit which American purported to have settled through this agreement.

In Count I, American sought a declaration stating that it was not a Sexually Oriented Business under the Sexually Oriented Business Ordinance contained in Rocky Mount, N.C, Code art. VII ch. 13 (2015), but a bikini bar. The record showed uncontroverted testimony and video evidence which demonstrated that performers at GP regularly displayed “specified anatomical areas,” making their performances “adult live entertainment” which, when regularly provided, rendered GP an “adult cabaret” which could not operate without the requisite Sexually Oriented Business License (“SOBL”). Even viewing the evidence in the light most favorable to American, the court found GP was a Sexually Oriented Business and lacked a SOBL.

In Count VII, American facially challenged the Sexually Oriented Business Ordinance’s (“SOBO”) licensing provisions as an unconstitutional prior restraint of free speech and sought a judgment declaring the provisions unconstitutional and a permanent injunction preventing the City from enforcing the licensing provisions. Under the SOBO, a business that regularly provides exotic dancing such as GP could not operate without a Sexually Oriented Business License (“SOBL”). The SOBO, however, provided no appeal or review for an applicant whose application had been neither approved nor denied after fifteen business days had passed. As such, the SOBO unconstitutionally permitted the City to effectively deny a SOBL to businesses like GP by failing to act on the application. This discretion effectively gave the chief of police unreviewable power to deny an applicant the ability to open a business and engage in protected expression. As to severability, because the portion of SOBO § 13-273(e) that impermissibly allowed city officials to indefinitely forestall granting or denying a license was limited to the language “unless and until the chief of police notifies the applicant of a denial and states the reason(s) for denial,” the court found only this language was unenforceable.

American next claimed that Rocky Mount Land Development Code § 503(C)(3)(a) was invalid under North Carolina law and violates due process. Section 503(C)(3)(a) required that adult businesses be separated from each other by at least 500 feet. The North Carolina Court of Appeals held that a North Carolina municipality may not regulate “the distance that must be kept between adult and sexually oriented businesses” because N.C. Gen. Stat. § 14-202.11 pre-empted such municipal regulation. American claimed that the SOBO’s prohibition against providing adult live entertainment for only one customer was unconstitutional. The court determined that the City’s goal of reducing opportunities for illegal activity would “be achieved less effectively” if the city did not ban private adult live entertainment. Moreover, the regulation did not “burden substantially more speech than is necessary,” but instead prohibited only private dances. Therefore, because the provision was narrowly tailored to the City’s substantial interest in regulating the manner of exotic dancing, it was held to have passed constitutional muster.

Accordingly, the court granted summary judgment to American and denied summary judgment to the City only as to American’s challenge to the 500-foot spacing provision in section 503(C)(3)(a) of the Rocky Mount Land Development Code, which violated North Carolina law, and as to the constitutionality of the procedural timing requirements in SOBO § 13-273(e), which violated the First Amendment and was severed from the SOBO.

Am. Entertainers, L.L.C. v. City of Rocky Mt., N. Carolina, 5:14-CV-438-D, 2016 WL 4728077 (E.D.N.C. Sept. 8, 2016)