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Holding v. Municipality of Anchorage (1/31/2003) sp-5659
Holding v. Municipality of Anchorage (1/31/2003) sp-5659
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
ALFRED W. HOLDING, )
) Supreme Court No. S-10401
Appellant, )
) Superior Court No.
v. ) 3AN-00-3765 CI
)
MUNICIPALITY OF ANCHORAGE, ) O P I N I O N
)
Appellee. ) [No. 5659 - January 31,
2003]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Fred Torrisi, Judge.
Appearances: Lawrence A. Pederson, Paul J.
Nangle & Associates, Anchorage, for
Appellant. Linda J. Johnson, Deputy
Municipal Attorney, and William A. Greene,
Municipal Attorney, Anchorage, for Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
The Municipality of Anchorage licenses the operation of
"adult-oriented establishments." By ordinance it forbids persons
from advertising adult-oriented establishments unless they are
licensed to operate or maintain the business. The municipality
issued Alfred Holding five citations for violating this ordinance
by advertising for adult-oriented establishments he was not
licensed to operate or maintain. Holding challenged the
ordinance on its face and as applied to him. A hearing officer
found against him and the superior court affirmed. We affirm,
because Holding had no vested property right to advertise that
somehow would have given him "grandfather rights" to advertise
the establishments notwithstanding the prohibition. We also
reject his claim that the ordinance unconstitutionally interfered
with his rights of commercial free speech, because we conclude
that the restriction directly advances a substantial government
interest and is no more restrictive than necessary to advance
that interest.
II. FACTS AND PROCEEDINGS
Alfred Holding owns real properties within the
Municipality of Anchorage on which five adult-oriented businesses
are operated: Fantasy's Escort Service, Toyko Club, Alaskan
Trapline, Playmates, and Oasis. Holding is not licensed to
operate adult-oriented businesses. He leases the properties to
third persons who obtain the proper licenses and operate the
businesses. He visits the businesses at least once a day to
ensure that there are no drugs or alcohol, and removes persons
running the businesses from the premises if they break the law.
He has only an oral lease with each of the business operators.
Holding places and pays for the businesses' telephone lines and
advertising.
The Municipality of Anchorage issued Holding five
citations for violating a code subsection forbidding persons from
advertising adult-oriented businesses unless they are licensed to
operate those businesses.1 He was fined $75 for each violation.
Holding admitted to the officers who issued the citations and in
his request for a hearing that he had paid for the businesses'
advertising. He claimed that enforcement of the code subsection
violated his "grandfather rights" to advertise the businesses and
unconstitutionally impaired his rights of free speech.
A municipal hearing officer ruled that even though
Holding had been providing telephone service and advertising to
the leased businesses before the code section was adopted,
Holding had "failed to provide any evidence" that he had
grandfather rights that would preclude applying the license
requirement. The hearing officer, relying on Central Hudson Gas
& Electric v. Public Services Commission,2 also held that
Holding's First Amendment commercial free speech rights were not
violated because "there is no prohibition of advertising, only a
requirement that a license be obtained before the advertisement
is purchased." The hearing officer therefore ordered Holding to
pay the $375 fine for the five violations of AMC 10.40.050.
Holding appealed to the superior court, which affirmed.
It held that the code provision Holding cited in support of his
claim of grandfather rights - AMC 21.55.030 - applied only to
nonconforming land uses and did not entitle Holding to the relief
he sought. The superior court found that Holding owned the five
businesses, and that Holding did not present evidence sufficient
to prove that the licensing code subsection AMC 10.40.050, which
"promote[s] the public health and welfare," abridged Holding's
livelihood. It held that, at most, the code subsection
challenged by Holding requires him to obtain a license. It held
that the code does not take his property or impede his
businesses.
Finally, the superior court held that Holding's First
Amendment commercial speech rights were not violated because
Holding was not prohibited from advertising; he was only
prohibited from advertising without a license. It held that
Holding did not have an interest in advertising for a business he
claimed he did not own and that, even if he did have an interest,
it would not be enough to overcome the municipality's interest in
keeping track of who owns and runs adult-oriented businesses by
requiring licenses.
Holding appeals.
III. DISCUSSION
A. Standard of Review
We review questions of law, including matters of
statutory interpretation, by employing our independent judgment
where the questions of law do not involve agency expertise.3
When the question does implicate agency expertise, we apply the
reasonable basis standard in which " `a reviewing court . . .
consider[s] factors of agency expertise, policy, and efficiency.'
"4 We independently review questions of constitutional law.5 We
review an administrative agency's findings of fact for clear
error, "reversing them only if they are not supported by
substantial evidence on the whole record."6
B. Holding's Claim of a Grandfather Right To Advertise
Holding argues that enforcing AMC 10.40.050(B)(5)
against him reduces the value of businesses that existed before
passage of the code subsection. He asserts that he has a vested
right in the advertising he provides to the five businesses
operating on his properties, and that his practice of advertising
is protected against enforcement because it is a "nonconforming
use." He argues that the value of his property interest would be
diminished if he is unable to provide his tenants with the
valuable business attributes of continuity in established
business names, telephone numbers, and advertising. The code
subsection's restriction on his ability to offer continuous
advertising - which he asserts is available only if he contracts
and pays for it - thus allegedly violates Holding's grandfather
rights.
We perceive no right to pursue a preexisting
"nonconforming use" in this case. The municipality's code
provision expressly addressing the issue protects only
nonconforming uses of land.7 It does not apply to off-site
advertising of business names and telephone numbers. And, as the
municipality argues, AMC 10.40.050 granted no grandfather rights.
The municipality notes the seeming tension between
Holding's contentions that he does not own, operate, or control
the businesses and his claim of vested property rights in the
telephone numbers and in advertising the businesses.
Holding's assertion that he does not own or operate the
businesses is fatal to his claim that he has a vested interest in
being able to advertise them personally. Holding's valid
interest in maximizing the rental value and profitability of his
properties does not mean that he has a protectable property
right that frees him from any governmental regulation whatsoever.
The cases Holding relies on do not justify reversal.
Holding quotes Bidwell v. Scheele8 to support his argument that
vested rights are protected against state action by the
Fourteenth Amendment of the United States Constitution and
article I, section 7 of the Alaska Constitution. But Holding has
no vested rights here. Holding also relies on Frontier Saloon,
Inc. v. Alcoholic Beverage Control Board.9 We there recognized
that due process protects an interest in a lawful business. The
business in that case was a bar whose alcohol distribution was
regulated by the Alcoholic Beverage Control Board. We held that
due process protected the license to sell alcohol, in part
because of the economic loss that would result from suspending
the license.10
Bidwell and Frontier Saloon do not stand for the
proposition that enforcing AMC 10.40.050(B)(5) against Holding
deprives him of a vested interest in advertising businesses that
he is not licensed to operate or maintain.
Holding seems to suggest that enforcement of the
advertising prohibition by the municipality would result in a
compensable governmental taking of his property. In Balough v.
Fairbanks North Star Borough,11 we held that the borough's
rezoning and subsequent denial of grandfather rights to a
landowner who used her property as a junkyard did not constitute
an unconstitutional taking. First, we held that there was no per
se taking12 because "[w]hile the . . . decision to deny Balough
grandfather rights would terminate her right to use her property
as a junkyard, the decision did leave her with economically
feasible use[s] of her property."13 Second, we held that the
government's action did not amount to a taking because it was a
legitimate response to residents' concerns about safety and
aesthetics, because the rezoning did not create the costs Balough
incurred, and because the rezoning did not interfere with
reasonable investment-backed expectations.14
In this case, there was no per se taking because the
subsection does not interfere with Holding's ability to lease his
properties. The enforcement of the subsection also does not
constitute a taking under the three-step analysis. The
government's interest in regulating adult-oriented businesses by
knowing who owns and operates them is legitimate. The subsection
has no legally significant economic impact on Holding because he
may continue to lease his property, even though it may be on
somewhat less valuable terms. There is no unavoidable economic
loss to the businesses: if Holding is not allowed to advertise
without a license, he can either obtain a license to operate and
then continue to advertise, or the tenant can take on the
advertising expenses. Lastly, it does not interfere with
reasonable investment-backed expectations.
We conclude that there is no merit to Holding's claim
that enforcing the prohibition violated his grandfather rights.
Holding's interest in preserving continuity of telephone numbers
and advertising accounts did not vest rights in him that rendered
the subsection unenforceable as to him.
C. Holding's Commercial Free Speech Rights
Holding next argues that restricting his ability to
advertise interferes with his rights of commercial free speech as
protected by article I, section 5 of the Alaska Constitution, and
the First Amendment of the United States Constitution. He
discusses the Anchorage regulation in the context of the four-
prong test described in Alaska Transportation Commission v.
AIRPAC, Inc.15 First, he asserts that the activities - including
his lessees' acts in operating adult-oriented businesses and his
acts in placing and paying for the advertising - are legal, and
that because the advertisements do not say who placed the ads,
they are not misleading. Second, Holding concedes the
substantiality of the governmental interests in protecting the
general welfare, minimizing a decline in property values,
minimizing criminal activity, and protecting families. Holding
challenges the third prong by arguing that the subsection does
not advance the governmental purposes because regulating who
places ads "does not serve to protect property values, minimize
crime, or protect families." Finally, Holding claims that it is
difficult to determine whether the ordinance is more restrictive
than necessary to advance the governmental interests because, he
argues, it does not further a legitimate governmental interest.
He therefore concludes that the subsection is unconstitutional.
The hearing officer ruled that the subsection did not
violate Holding's free speech rights because it only required
Holding to get a license before he advertises; the subsection did
not altogether prohibit him from advertising. The superior court
wondered whether Holding meant to assert that his free speech
rights entitled him to advertise for any business he does not
own. It concluded that the restriction, as part of a larger
regulatory scheme, promotes responsibility and discourages
misleading information.
In Barber v. Municipality of Anchorage,16 we recognized
that commercial speech commands less protection than
noncommercial speech. We said that the First Amendment does not
impede the state from ensuring that commercial information is not
misleading. We held that a content-neutral restriction on sign-
posting was not an unconstitutional restriction on commercial
speech because "the questioned ordinance is narrowly tailored to
achieve the Municipality's aesthetic goal of eliminating visual
blight, and . . . alternative means of communication remain
available to Barber."17
The ordinance here does not restrict what the
advertisements can say; it only restricts who can place the
advertisements. But just because the law does not restrict what
can go into the advertisement does not necessarily mean the law
is a content-neutral regulation. The Anchorage Municipal Code
contains no general requirement that a person must have a license
to operate a business before he or she can advertise for that
business. Instead, the code only prohibits persons from
advertising for adult-oriented entertainment establishments,18
masseuses,19 private detectives,20 and public concerts21 without
having municipal licenses to conduct those activities.
The situation is similar to one addressed by the United
States Supreme Court in Carey v. Brown.22 In that case, the Court
struck down a state statute that prohibited picketing of
residences or dwellings but exempted "the peaceful picketing of a
place of employment involved in a labor dispute."23 Although the
law did not in any way regulate what the picketers could say, the
Court nonetheless observed that the regulation was a content-
based restriction on speech: "It is, of course, no answer to
assert that the . . . statute does not discriminate on the basis
of the speaker's viewpoint, but only on the basis of the subject
matter of his message."24
The Anchorage ordinance does not limit what an
advertisement for an adult-oriented entertainment establishment
may contain. It does, however, limit the topics about which a
party may advertise without a license to operate the subject of
the advertisement. For example, under the Anchorage Municipal
Code persons are free to advertise for validly-licensed used
automobile display lots even if they do not have the license to
operate them.25 Similarly, a person who does not have the license
to operate a licensed carnival may advertise for it.26 But under
the AMC, only the licensed operator may advertise for an adult-
oriented entertainment establishment or a public concert.
Despite the nature of the ordinance, we have conducted
a Central Hudson analysis27 and we conclude that AMC
10.40.050(B)(5) does not impermissibly interfere with Holding's
commercial free speech rights.
First, the subsection regulates commercial speech
concerning a lawful activity - adult-oriented entertainment - and
the advertisements are not misleading.
Second, as Holding concedes, the municipality's
interest in regulating adult-oriented businesses is substantial.
The preamble to the ordinance explains that regulating and
licensing adult-oriented establishments protect the general
welfare, health, and safety of residents, maintains property
values, reduces the level of criminal activity, and enforces
community standards of morality.28
Third, limiting the ability to advertise for adult-
oriented businesses to those persons licensed to operate those
businesses directly advances the municipality's interests. The
subsection closed a significant loophole in the regulation.
Holding invokes the lack of operator continuity as his
justification for placing advertisements to achieve business-name
and telephone continuity. But Holding's justification for
advertising is the very reason for closing the loophole. By
forcing Holding to become licensed, or by forcing the license-
holders to place their own advertisements, the subsection
encourages compliance with municipal regulation. It also
encourages owners like Holding to lease to reliable operators.
And it may discourage unscrupulous owners from tacitly permitting
and profiting from improper on-premises activities while
periodically replacing lessees to avoid complete closure. The
municipality argues that the ordinance prevents those who
advertise adult-oriented entertainment establishments from
operating without a license. The municipality further asserts
that regulation of these establishments "prevent[s] them from
degenerating into prostitution houses and [prevents] other
criminal activity from occurring on the premises. . . ." We find
this a plausible explanation that is consistent with the
legislative purposes expressed in the ordinance.
Operator turnover diminishes the ability to regulate on-
site activities. But given this lack of operator continuity, it
is reasonable for the municipality to regulate an activity,
perhaps the only activity - the placing and paying for
advertising - that has continuity.
Fourth, the subsection is no more restrictive than
necessary to advance the state's interests. The only
precondition for advertising the business - a license - is also a
precondition for operating or maintaining the business. It does
not irrevocably prohibit Holding from advertising. He does not
claim that he is ineligible to become a license holder. We
therefore assume that the subsection as applied to Holding is
narrowly tailored and allows him to advertise if he submits
himself to the valid regulatory scheme by becoming licensed.
Holding's free speech rights are not unconstitutionally
infringed by AMC 10.40.050(B)(5).
IV. CONCLUSION
For these reasons we AFFIRM the superior court's
decision on appeal and the findings of fact, conclusions of law,
and final decision of the hearing officer.
_______________________________
1 See Anchorage Municipal Code (AMC) 10.40.050 (1994). AMC
10.40.050(B)(1) states: "Except as provided in subsection B.4 of
this section, from and after May 1, 1994, no adult-oriented
establishment shall be operated or maintained in the municipality
without first obtaining a license to operate issued by the
municipal clerk." AMC 10.40.050(B)(5) states: "No person shall
advertise or offer services regulated by this chapter unless they
are licensed to provide such services pursuant to this chapter."
2 447 U.S. 557 (1980).
3 Alaska Transp. Comm'n v. AIRPAC, Inc., 685 P.2d 1248,1252
(Alaska 1984).
4 Id. at 1251.
5 Tlingit-Haida Reg'l Elec. Auth. v. State, 15 P.3d 754, 761
(Alaska 2001).
6 Id. (internal quotation marks omitted).
7 AMC 21.55.030 provides in pertinent part:
Where, at the time of the original passage of
applicable regulations, lawful use of land
existed which would not be permitted by the
regulations thereafter imposed by chapters
21.35 through 21.50, and where such use
involves no individual structure other than
small or minor accessory buildings, the use
may be continued so long as it remains
otherwise lawful . . . .
8 355 P.2d 584, 586 (Alaska 1960).
9 524 P.2d 657 (Alaska 1974).
10 Id. at 659-60.
11 995 P.2d 245 (Alaska 2000).
12 The two categories of per se takings are: "(1) cases of
physical invasion and (2) cases where a regulation denies a
landowner of all economically feasible use of the property." Id.
at 265.
13 Id. at 266.
14 The three factors that the court considers in deciding if
the government's actions resulted in a taking are: "(1) the
character of the governmental action; (2) its economic impact;
and (3) its interference with reasonable investment-backed
expectations." Id. at 265.
15 685 P.2d 1248 (Alaska 1984). In that case we adopted the
test first articulated in Central Hudson v. Public Services
Commission., 447 U.S. 557, 564 (1980), and reiterated in Bolger
v. Youngs Drug Products Co., 463 U.S. 60, 68 (1983):
First, we determine whether the expression is
constitutionally protected. For commercial
speech to receive such protection, it at
least must concern lawful activity and not be
misleading. Second, we ask whether the
governmental interest is substantial. If so,
we must then determine whether the regulation
directly advances the governmental interest
asserted, and whether it is not more
extensive than necessary to serve that
interest.
AIRPAC, 685 P.2d at 1253 (internal quotation marks and citation
omitted).
16 776 P.2d 1035, 1037 (Alaska 1989).
17 Id. at 1038.
18 AMC 10.40.050(B)(5).
19 AMC 10.40.010(B).
20 AMC 10.40.020(A).
21 AMC 10.45.010(A).
22 447 U.S. 455 (1980).
23 Id. at 457.
24 Id. at 462 n.6; see, e.g., City of Cincinnati v. Discovery
Network, Inc., 507 U.S. 410, 429 (1993). In Discovery Network,
the Court characterized as content-based a city ordinance that
prohibited the distribution of commercial handbills on public
property but allowed the distribution of newspapers. Even though
there was no evidence that the ordinance was motivated by animus
toward any particular messages in the commercial handbills, the
Court noted that the law was content-based because "whether any
particular newsrack falls within the ban is determined by the
content of the publication resting inside that newsrack."
25 AMC 10.20.043.
26 AMC 10.45.030.
27 We recognize that some debate exists over the proper level
of scrutiny for content-based restrictions on commercial speech.
The debate began with the United States Supreme Court's decision
in R.A.V. v. City of St. Paul, 505 U.S. 377 (1992). The Court
there struck down a city bias-motivated crime ordinance that
prohibited the display of symbols "which one knows or should know
"arouses anger, alarm, or resentment in others on the basis of
race, color, creed, religion or gender. . . ." The Court applied
strict scrutiny to what it recognized was a content-based
restriction on proscribable speech. After R.A.V., some lower
courts reasoned that if content-based restrictions on the
"fighting words" at issue in R.A.V. received strict scrutiny,
content-based restrictions on commercial speech should also
receive strict scrutiny, because commercial speech has
historically received more protection than fighting words. See
Citizens United for Free Speech II v. Long Beach Township Bd. of
Comm'rs., 802 F. Supp. 1223, 1243 (D.N.J. 1992) (applying strict
scrutiny to content-based restriction on commercial speech).
Several courts examined the issue without deciding which level of
scrutiny to apply. See Valley Broad. Co. v. United States, 107
F.3d 1328, 1331 n.3 (9th Cir. 1997); MD II Entm't, Inc. v. City
of Dallas, 28 F.3d 492, 495 (5th Cir. 1994); Hornell Brewing Co.
v. Brady, 819 F. Supp. 1227, 1232 (E.D.N.Y. 1993). The Supreme
Court has not directly addressed this issue, but decisions since
R.A.V. suggest that the Central Hudson test remains the proper
standard for regulations of commercial speech. In Greater New
Orleans Broadcasting Ass'n v. United States, 527 U.S. 173 (1999),
the Court applied the Central Hudson test to a federal law that
prohibited some broadcasters from carrying advertisements for
private casino gambling. This was the same statute the Ninth
Circuit examined in Valley Broadcasting when it discussed the
debate over the proper level of scrutiny for content-based
restrictions on commercial speech. 107 F.3d at 1331 n.3. See
also United States v. Edge Broad. Co., 509 U.S. 418 (1993).
28 Anchorage, Alaska Ordinance No. 94-145(S) (Aug. 23, 1994).
