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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. 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).