Hamburg (IA) adult business licensing scheme preempted by state law

by Gary Taylor

Mall Real Estate, LLC v. City of Hamburg
(Iowa Supreme Court, July 27, 2012)

In 2008, the Hamburg city council passed its “Sexually Oriented Business Ordinance.” It contains provisions relating to licensing and zoning and imposes a range of regulations upon sexually oriented businesses.  Businesses subject to the terms of the ordinance include adult cabarets, which the ordinance defines, among other things, as any “business or entity that is with the emphasis on observation or viewing of nude or semi-nude performances whether the performers receive compensation or not, that regularly features persons who appear nude or semi-nude.” The ordinance requires a sexually oriented business to have a valid sexually oriented business license and an employee of a sexually oriented business to have a valid sexually oriented business employee license. Further, the ordinance regulates many aspects and activities of sexually oriented businesses, including the consumption of alcohol on the premises, exterior design aspects of the businesses including signage, hours of operation, the exhibition of sexually explicit films, live nudity, and siting. For example, the ordinance prohibits any person from intentionally or knowingly appearing in a state of nudity or from intentionally or knowingly violating Iowa Code section 728.5. The ordinance contains requirements that seminude employees remain more than six feet away from customers and on a stage at least two-feet high. It also prohibits the exchange of gratuities between customers and seminude employees and prohibits intentional contact between customers and seminude employees.  If a sexually oriented business licensee violates the ordinance or knowingly allows an employee to violate the ordinance, then the City may suspend or revoke the license of the business and the employee.

Mall Real Estate (MRE) leases space in Hamburg to the Hamburg Theatre for the Performing Arts, aka Shotgun Geniez.  Performers at the Hamburg Theatre perform nude, seminude, and fully clothed. At times during performances, performers physically contact customers, often by sitting in their laps. The performers also spend time talking to customers. The Hamburg Theatre does not have a liquor license or sell alcohol, but it does allow customers to supply their own alcohol.  Shortly after the City adopted the ordinance MRE filed a lawsuit seeking to declare the ordinance unconstitutional, and also that the ordinance is in conflict with, and is therefore preempted by state law. The district court upheld the validity of the Hamburg ordinance, and MRE appealed.  The Iowa Supreme Court decided the case on the preemption issue and did not address MRE’s constitutional claims.

MRE argued that because Iowa Code 728.5(3) creates a “theater exception” to the regulation of obscenity and the Hamburg ordinance did not, the ordinance is therefore in conflict with and preempted by state law.  The City argued that the final sentence of 728.11 – also in the state code chapter pertaining to obscenity – allows local governments to pass ordinances related to zoning and licensing of businesses dealing in obscene materials.

Iowa Code 728.5 provides in part:

1.  An owner, manager, or person who exercises direct control over a place of business required to obtain a sales tax permit shall be guilty of a serious misdemeanor under any of the following circumstances:
a.  If such person allows or permits the actual or simulated public performance of any sex act upon or in such place of business.
b.  If such person allows or permits the exposure of the genitals or buttocks or female breast of any person who acts as a waiter or waitress.
[c.  through f. contain more such circumstances]
2.  However, if such person allows or permits a minor to participate in any act included in subsection 1, paragraphs “a” through “d”, the person shall be guilty of an aggravated misdemeanor.
3.  Except for subsection 1, paragraph “f”, the provisions of this section shall not apply to a theater, concert hall, art center, museum, or similar establishment which is primarily devoted to the arts or theatrical performances and in which any of the circumstances contained in this section were permitted or allowed as part of such art exhibits or performances.
Iowa Code 728.11 is a “uniform application” (preemption) provision. It states:
In order to provide for the uniform application of the provisions of this chapter relating to obscene material applicable to minors within this state, it is intended that the sole and only regulation of obscene material shall be under the provisions of this chapter, and no municipality, county or other governmental unit within this state shall make any law, ordinance or regulation relating to the availability of obscene materials.  All such laws, ordinances or regulations shall be or become void, unenforceable and of no effect on January 1, 1978.  Nothing in this section shall restrict the zoning authority of cities and counties.
The Iowa Supreme Court looked to its previous cases construing these provisions and concluded that Hamburg’s ordinance is preempted by the Iowa Code.  In Chelsea Theater Corp v. Burlington the Court determined that chapter 728 was not limited to the dissemination of obscene materials to minors, but rather restricted local governments from enacting any local ordinances regulating obscene materials.  This led the Court to examine whether live nude dancing constituted “obscene materials” as the term is used in 728.11.  “Materials” is defined in 728.(3) as “any book, magazine, newspaper or other printed or written material or any picture, drawing, photograph, motion picture, or other pictorial representation or any statue or other figure, or any recording, transcription or mechanical, chemical or electrical reproduction or any other articles, equipment, machines or materials.”  “Obscene materials” is defined in 728.(5) as “any material depicting or describing the genitals, sex acts, masturbation, excretory functions or sadomasochistic abuse which the average person, taking the material as a whole and applying contemporary community standards with respect to what is suitable material for minors, would find appeals to the prurient interest and is patently offensive; and the material, taken as a whole, lacks serious literary, scientific, political or artistic value.” The Court looked to legislative history to conclude that the legislature intended to include live nude dancing within the meaning of obscene materials in the code.  As a result, Hamburg’s attempt to regulate live nude dancing through its licensing ordinance was preempted by chapter 728 of the Iowa Code.

The Court noted that, contrary to the City’s assertion, the last sentence of 728.11 only creates an exception to the preemption for local zoning authority, not for licensing or permitting authority.  “Accordingly, unless a local ordinance is a zoning ordinance it is preempted to the extent it regulates material regulated by chapter 728.”

Chief Justice Cady and Justice Waterman each filed separate dissenting opinions.  Chief Justice Cady took issue with the reasoning the majority followed to find that “obscene materials” included live nude dancing.  “In the judgement of the majority, ‘materials’ means a dancer to our legislature.  This conclusion not only defies common sense, it defies our accepted rules of [statutory] construction….Thus, for the majority to conclude it would be absurd for our legislature to have left nude dancing out of its preemption scheme is itself absurd.”

Justice Waterman joined in the preemption analysis of Justice Cady, and wrote further to express his opinion that not only is the Hamburg ordinance not preempted, it passes constitutional muster under well-settled precedent.

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