Eliason v. City of Rapid

          ORDER

          JEFFREY L. VIKEN CHIEF JUDGE.

         INTRODUCTION

         Plaintiffs David Eliason and 1141 LLC brought this civil action under 42 U.S.C. § 1983 challenging portions of the municipal code of Rapid City, South Dakota, (“the City”) relating to the regulation of sexually oriented businesses. (Docket 1). The court granted plaintiffs a preliminary injunction and enjoined the City from denying them the necessary city permit to open a sexually oriented business, Dick & Jane's Super Spot. (Docket 24). Plaintiffs now move for summary judgment, seeking a permanent injunction, a declaration that portions of the Rapid City Municipal Code are facially unconstitutional, and damages for lost profits engendered by the City's permit denial. (Docket 33). The City opposes the motion. (Docket 45). For the reasons given below, the court grants plaintiffs' motion in part and denies it in part. The court permanently enjoins the City from enforcing certain sexually oriented business regulations as to plaintiffs, finds one regulation facially unconstitutional and denies summary judgment as to damages.

         DISCUSSION

         I. Facts

         The following recitation consists of the material facts developed from the plaintiffs' statement of undisputed material facts (Docket 38), plaintiffs' response to those facts (Docket 44), and other evidence in the record where indicated.^[1]These facts are “viewed in the light most favorable to the party opposing the motion.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quotation omitted).

         Mr. Eliason is a South Dakotan in the business of operating sexually-themed retail stores. (Docket 38 at ¶ 37). In 2017, he began the process of opening a store in Rapid City, South Dakota, now called “Dick & Jane's Super Spot (“Dick & Jane's”).^[2] (Docket 31 at ¶¶ 2 & 4). The Rapid City Municipal Code (“RCMC”) regulates businesses deemed “adult oriented businesses” and “sexually oriented businesses.” See RCMC §§ 5.70, 17.50.186. Plaintiffs intended to sell items which would render the business sexually and adult oriented, including “adult-themed novelties and sexual aids” and “DVD's [sic] and magazines with sexual themes[.]” (Docket 38 at ¶ 3). No party alleges Dick & Jane's was improperly classified as a sexually or adult oriented business.

         In April of 2017, Mr. Eliason met with Vicki Fisher, a City planning official, to express his interest in opening a sexually oriented business. Id. at ¶ 5. Ms. Fisher advised him to meet with a wider array of officials. Id. at ¶ 6. On May 9, Mr. Eliason and his attorney met with four officials, including Carla Cushman, an Assistant City Attorney. Id. at ¶ 7. At that meeting, 1141 Deadwood Avenue was identified as a location which would likely be compliant with City regulations concerning the location of sexually oriented businesses.^[3] Id. at ¶¶ 8-10. This location is a strip mall building hosting commercial tenants. (Docket 37-6 at pp. 2-4). On April 17, Mr. Eliason, on behalf of REDE LLC, sent a letter to the owners of 1141 Deadwood Avenue expressing his intent to lease a suite in that building. (Docket 31-1).

         On July 26, Mr. Eliason, through project planner Renner Associates, applied for a conditional use permit to open a sexually oriented business as required by City regulations.^[4] (Dockets 38 at ¶ 14 & 37-4). City staff members evaluated the application and recommended granting it. (Docket 37-5 at pp. 6-7). Specifically, staff concluded the proposed business complied with City regulations regarding the location of sexually oriented businesses. Id. The Rapid City Planning Commission unanimously approved the application on August 24. (Dockets 38 at ¶ 18 & 37-6 at pp. 10-12).

         On August 31, a martial arts studio serving children located less than 1, 000 feet from 1141 Deadwood Avenue, Black Hills Taekwondo LLC (“BHT”) (also known as “Karate for Kids”), appealed the Planning Commission's approval of Mr. Eliason's conditional use permit. (Dockets 38 at ¶ 21 & 37-7). BHT argued it was an “educational facility” under City regulations. (Docket 37-7 at pp. 2-6). City regulation prohibits sexually oriented businesses from operating within 1, 000 feet of an educational facility. RCMC § 17.50.186(D)(1)(b). The Planning Commission specifically considered and rejected the argument BHT would be an educational facility blocking Mr. Eliason's conditional use permit. (Docket 37-12 at pp. 14-15).

         The Rapid City Common Council, the municipal legislative body, took up BHT's appeal during its September 18 meeting. (Docket 38 at ¶ 28). Prior to the meeting, Assistant City Attorney Cushman wrote a memorandum to the Common Council concluding BHT was not an educational facility. (Docket 37-10). At the meeting, 15 members of the public-including four leaders of local Christian churches and a representative from the Family Heritage Alliance-urged the Common Council to grant BHT's appeal and deny Mr. Eliason's conditional use permit.^[5] (Docket 37-13 at pp. 18-44). No member of the public spoke in favor of denying the appeal. Following public comment, some Council members made remarks concerning their religious and moral opposition to sexually oriented businesses, in addition to the issue of whether BHT qualified as an educational facility.^[6] Id. at pp. 45-51. The Common Council voted 6-4 to grant BHT's appeal. (Docket 38 at ¶ 30).

         As president of REDE LLC, Mr. Eliason executed a five-year lease for suites 9 and 10 of 1141 Deadwood Avenue on September 11. (Docket 31-2). On September 15, Mr. Eliason, on behalf of REDE LLC, assigned the lease to 1141, LLC (“1141”).^[7] After the Common Council denied the conditional use permit, Mr. Eliason informed his new landlord via e-mail and stated the decision “would have no impact on the lease” because he would be “modifying the inventory list and operation to a level that a conditional use permit is not required[.]” (Docket 41-23).

         Mr. Eliason and 1141 brought the present suit on October 18, 2017. (Docket 1). Plaintiffs moved for a preliminary injunction enjoining the City from enforcing RCMC § 17.50.186 against them. (Dockets 14 & 17). The court held a hearing on plaintiffs' motion on January 19, 2018. (Docket 22). Two witnesses testified at the hearing and the court received 15 exhibits into evidence. (Dockets 22 & 23). On January 29, the court entered a preliminary injunction enjoining the City from continuing to deny plaintiffs a conditional use permit. (Docket 24).

         Dick & Jane's opened for business on February 14, 2018. (Dockets 31 at ¶ 35 & 44 at p. 24). Plaintiffs assert Dick & Jane's could have been open by May 14, 2017, had there been no conditional use permit requirement or had the Common Council not denied the permit on October 14, 2017. (Docket 38 at ¶¶ 38-39). The City vigorously disputes these assertions and argues Dick and Jane's could not have opened earlier than January of 2018. (Dockets 44 at ¶¶ 38-39 & 45 at pp. 10-14). Plaintiffs did not apply for the necessary adult oriented business license-which is distinct from the conditional use permit required to open a sexually oriented business-until February 9, 2018. (Dockets 42-1 & 42-2). The permits were approved on March 1. Id.

         II. Legal Standards

         A. Summary judgment

         Under Federal Rule of Civil Procedure 56(a), a movant is entitled to summary judgment if the movant can “show that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Once the moving party meets its burden, the nonmoving party may not rest on the allegations or denials in the pleadings, but rather must produce affirmative evidence setting forth specific facts showing that a genuine issue of material fact exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Only disputes over facts which might affect the outcome of the case under the governing substantive law will properly preclude summary judgment. Id. at 248. “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Id. at 247-48 (emphasis in original).

         If a dispute about a material fact is genuine, that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party, then summary judgment is not appropriate. Id. However, the moving party is entitled to judgment as a matter of law if the nonmoving party failed to “make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In such a case, “there can be ‘no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial.” Id. at 323.

         In determining whether summary judgment should issue, the facts and inferences from those facts must be viewed in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 587-88. The key inquiry is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Anderson, 477 U.S. at 251-52.

         B. Permanent injunction & types of constitutional challenges

         “The standard for issuing a preliminary or permanent injunction is essentially the same, excepting one key difference. A permanent injunction requires the moving party to show actual success on the merits[.]” Oglala Sioux Tribe v. C & W Enters., Inc., 542 F.3d 224, 229 (8th Cir. 2008). “If a court finds actual success on the merits, it then considers the following factors in deciding whether to grant a permanent injunction: (1) the threat of irreparable harm to the moving party; (2) the balance of harms with any injury an injunction might inflict on other parties; and (3) the public interest.” Id. (citing Dataphase Systems, Inc. v. C.L. Systems, Inc., 640 F.2d 109, 113 (8th Cir. 1981) (en banc)).

         A party may challenge a legislative enactment either facially or as applied to itself only. To succeed on a facial challenge, plaintiffs “would have to establish that no set of circumstances exists under which the ordinance would be valid[.]” Phelps-Roper v. City of Manchester, Mo., 697 F.3d 678, 685 (8th Cir. 2012) (en banc) (internal quotation and citation omitted). “An ordinance may also be invalidated on a facial First Amendment challenge as overbroad if a substantial number of its applications are unconstitutional, judged in relation to its plainly legitimate sweep.” Id. (internal quotation and citation omitted). “An as-applied challenge consists of a challenge to the statute's application only as-applied to the party before the court. If an as-applied challenge is successful, the statute may not be applied to the challenger, but is otherwise enforceable.” Phelps-Roper v. Ricketts, 867 F.3d 883, 896 (8th Cir. 2017) (internal quotation and citations omitted).

         III. Analysis

         Plaintiffs' motion for summary judgment has two distinct aims. First, they seek a declaration that four City regulations are unconstitutional. (Docket 34 at pp. 6-12). Second, plaintiffs seek summary judgment on the existence and amount of profits they allegedly lost due to the City's unconstitutional permit process. Id. at pp. 12-15. In response, the City argues Mr. Eliason does not have standing to bring any claim, that BHT's move from the area moots one of plaintiffs' claims, that its regulations are not facially unconstitutional, and that there are genuine questions of material fact regarding plaintiffs' damages. (Docket 45 at pp. 15-18, 23-38). The court agrees with plaintiffs on the merits in part, but concludes genuine factual disputes exist regarding damages.

         A. Eliason's standing

         The court first concludes Mr. Eliason has standing to litigate this matter. The City argues Mr. Eliason suffered no injury from the permit denial as 1141 is the entity operating Dick & Jane's. (Docket 45 at pp. 17-18). In the City's view, the general rule against shareholders asserting standing on behalf of their corporation bars his claim. Id. (citing Potthoff v. Morin, 245 F.3d 710, 716-18 (8th Cir. 2001)). It asserts Mr. Eliason has no claim independent of 1141's claims. Id. Plaintiffs respond that Mr. Eliason's injury is distinct from 1141's, establishing his separate standing. (Docket 52 at pp. 25-26).

         “[T]he irreducible constitutional minimum of standing contains three elements.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992).

First, the plaintiff must have suffered an “injury in fact”-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

Id. at 560-61 (internal quotations and citations omitted).

In the First Amendment context, two types of injuries may confer Article III standing to seek prospective relief. First, [Mr. Eliason] could establish standing by alleging an intention to engage in a course of conduct arguably affected with a constitutional interest, but proscribed by a statute, and there exists a credible threat of prosecution thereunder. Second, [Mr. Eliason] can establish standing by alleging that [he] self-censored.

Missourians for Fiscal Accountability v. Klahr, 830 F.3d 789, 794 (8th Cir. 2016) (internal citations and quotations omitted). “When a statute is challenged by a party who is a target or object of the statute's prohibitions, there is ordinarily little question that the statute has caused him injury.” St. Paul Area Chamber of Commerce v. Gaertner, 439 F.3d 481, 485 (8th Cir. 2006) (internal citation and alteration omitted).

         The City's argument does not take into account Mr. Eliason's potential exposure to criminal liability under City regulations. “It is unlawful . . . [f]or any person to own, manage or operate an adult oriented business without a valid . . . license issued by Rapid City[.]”^[8] RCMC § 5.70.030(A)(1). The general penalty for violating City regulations is “not less than $1 nor more than $500” in fines “or 30 days in jail, or both.” Id. at § 1.12.010. “Each day any violation . . . continues shall constitute a separate offense.” Id. The Supreme Court held a statute poses a credible threat of prosecution when it “on its face proscribes” the conduct at issue and where “the [City] has not disavowed any intention of invoking the criminal penalty provision[.]” Babbitt v. United Farm Workers Nat'l. Union, 442 U.S. 289, 302 (1979); see also Gaertner, 439 F.3d at 485-86 (same). Under these regulations, Mr. Eliason could be prosecuted for owning, managing or operating Dick & Jane's in the absence of the court's preliminary injunction. This “credible threat of prosecution” grants Mr. Eliason standing to pursue his First Amendment claims independently of 1141.^[9] Klahr, 830 F.3d at 794.

         B. Mootness

         The court next finds plaintiffs' claim that the definition of educational facility found in RCMC § 17.50.186(D)(1)(b) is unconstitutionally vague and has not been mooted. The City asserts BHT's move to a new location mooted the claim.^[10] (Docket 45 at pp. 34-35). Plaintiffs respond that BHT's voluntary move does not moot their constitutional claims and that, in any event, their claim for damages would keep the whole case live. (Docket 52 at pp. 2-8).

         “A case becomes moot-and therefore no longer a ‘Case' or ‘Controversy' for purposes of Article III-when the issues presented are no longer ‘live' or the parties lack a legally cognizable interest in the outcome.” Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013) (internal quotation omitted). “It is well settled that a defendant's voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 189 (2000) (internal citation omitted).

In accordance with this principle, the standard [the Supreme Court] ha[s] announced for determining whether a case has been mooted by the defendant's voluntary conduct is stringent: A case might become moot if subsequent events made it absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur. The heavy burden of persuading the court that the challenged conduct cannot reasonably be expected to start up again lies with the party asserting mootness.

Id. (internal quotations and citation omitted).

         An initial question might arise regarding whether BHT's conduct in voluntarily moving from Dick & Jane's vicinity can be imputed to the City for purposes of the mootness analysis. The court expresses no view as to whether the term “defendant” used in the Supreme Court case law on this topic encompasses a third party nonlitigant such as BHT. However, a more precise framing of the issue directs the court away from that question. The court must determine whether the City cannot reasonably be expected to apply RCMC § 17.50.186(D)(1)(b) now that BHT has moved from the area. If so, plaintiffs' claim is moot.

         The City has not carried its “heavy burden of persuading the court” it will not apply the challenged regulation to plaintiffs in future. Laidlaw, 528 U.S. at 189. The most obvious scenario in which the City could subject plaintiffs to the regulation, as they point out, is if Dick & Jane's outgrows its current location and searches for another within the City's municipal boundaries. (Docket 52 at pp. 7-8). The City may also attempt to revoke plaintiffs' conditional use permit, requiring plaintiffs to prove their compliance with the sexually oriented business regulations, including the challenged regulation. In either scenario, plaintiffs would be forced to litigate anew the question of the regulation's constitutionality. The court accordingly concludes plaintiffs' claim against § 17.50.186(D)(1)(b) and their request for a permanent injunction are not moot.^[11]

         C. First Amendment claims

         The court now turns to whether plaintiffs are entitled to a permanent injunction on their constitutional claims and, if so, whether that injunction should be facial or as-applied. Plaintiffs moved for summary judgment on three constitutional claims:

1. Whether RCMC § 17.50.186(E), which requires sexually oriented businesses to obtain a conditional use permit, is an unconstitutional prior restraint ...