City of New York v. Dezer Properties, Inc.

OPINION OF THE COURT Lerner, J. This appeal results from one of the recent cases which arose following amendment of the New York City Zoning Resolution in 1995 with regard to adult establishments. At issue here is whether the “60%-40% substantial portion analysis” (hereinafter 60-40 rule) of section 12-10 of the New York City Zoning Resolution (hereinafter ZR § 12-10) should apply to single-use adult eating or drinking establishments and theaters, and if so, whether defendant’s modifications to the subject establishment complied with the 60-40 rule. In order to isolate adult entertainment in an effort to protect residential areas and retail districts from the pervasively negative effects of such establishments, section-12-10 was one of various provisions added to the Zoning Resolution. The provisions of the ZR § 12-10 (adult establishment) relevant herein are as follows: “An ‘adult establishment’ is a commercial establishment where a ‘substantial portion’ of the establishment includes an adult book store, adult eating or drinking establishment, adult theater, or other adult commercial establishment, or any combination thereof; as defined below * * * [118] “(b) An adult eating or drinking establishment is an eating or drinking establishment which regularly features (, in relevant part, live performances emphasizing sexual activities or erogenous anatomical areas, or employees whose job includes regular exposure of such areas] * * * “For the purpose of determining whether a ‘substantial portion’ of an establishment includes an adult bookstore, adult eating or drinking establishment, adult theater, or other adult commercial establishment, or combination thereof, the following factors shall be considered (1) the amount of floor area and cellar space accessible to customers and allocated to such uses; and (2) the amount of floor area and cellar space accessible to customers and allocated to such uses as compared to the total floor area and cellar space accessible to customers in the establishment.” (Emphases added.) On July 22,1998, the Department of Buildings issued Operations Policy and Procedure Notice number 4/98 (hereinafter OPPN 4/98) in an attempt to provide guidance to inspectors and others charged with enforcing the Zoning Resolution. With regard to adult eating or drinking establishments, OPPN 4/98 provided if an adult eating or drinking establishment has at least 40 percent of the floor and cellar areas that are accessible to customers available for adult use or performance and viewing, then a “substantial portion” of the establishment is devoted to adult use and it must conform with the Zoning Resolution. Three weeks later, the Department of Buildings issued OPPN 6/98 which advised that the 60-40 rule should not be applied to any establishment that consisted entirely of an eating or drinking establishment, a theater or another adult establishment or combination thereof. In the summer of 1998, a number of City investigators visited defendant club and determined that it featured topless dancing and table dancing. As a result, in September of 1998, the City brought an action pursuant to the Nuisance Abatement Law (Administrative Code of City of NY § 7-701 et seq.), seeking an injunction of adult entertainment at defendant club. The motion court denied TRO relief. At a hearing, eight municipal witnesses detailed their observations of topless and table dancing at defendant club. It was stipulated that the club is in an area regulated by ZR § 12-10, which restricts the locations at which “adult” establishments can be maintained or sited. On the first floor, topless dancing took place on stages in a large bar area. There were also private rooms behind the bar and on a second-floor mezr [119] zanine. The entertainment on the lower floor could be viewed from the mezzanine. However, during the hearing, the club attempted alterations to comply with the 60-40 rule. Defendants put a tinted plexiglass divider around the mezzanine, which took up about 700 of the club’s 4,000 square feet, or 28% of total floor space. Allegedly, altered lighting made the plexiglass opaque from the outside. No adult entertainment was offered in the second-floor balcony area. Customers on the balcony could see through the smoked plexiglass to the main area below. The court found that conduct specified in ZR § 12-10 was taking place in the club and that defendant was an “adult eating or drinking establishment”. The court went on to hold that the VIP Club could not be analyzed from the floor area ratio standpoint because it is a single use establishment. The preliminary injunction was entered; however, a stay was granted to allow defendant to seek a stay pending appeal. This Court entered an interim stay and Supreme Court proceeded with the trial on the merits. Before the trial court ruled on the evidence, defendant adopted a policy of admitting minors (obviously influenced by the trial court’s ruling in City of New York v Stringfellow’s of N. Y., index No. 403724/98, revd 253 AD2d 110, lv dismissed 93 NY2d 916). Thereafter, this Court vacated the stay of the preliminary injunction and the VIP Club was closed on November 9, 1998. Defendant brought a motion to vacate the preliminary injunction on the ground that the club admitted minors. The motion was denied on the ground that the VIP Club could not be considered as having customarily admitted minors inasmuch as the admission policy was instituted a few days prior to the motion. Nonetheless, the trial court vacated the preliminary injunction the next day. In a decision issued over two months later, to wit, January 28, 1999, the trial court reasoned that there was no proof introduced at trial that defendant club excluded minors by reason of age and therefore, plaintiff City failed to establish that the VIP Club was an adult eating or drinking establishment. Shortly after this Court’s February 4, 1999 decision in City of New York v Stringfellow’s of N Y. (253 AD2d 110, supra), rejecting the minors’ admission policy as a basis to circumvent adult establishment modifications, the trial court vacated its January 28, 1999 decision, reinstated the complaint and granted judgment for plaintiff. The court also indicated that [120] defendants should have an opportunity to comply with the 60-40 rule. A judgment in favor of the City was signed on February 10, 1999 with the proviso that defendants could move to modify or vacate the judgment upon proof the nuisance had been abated and that the Department of Buildings was satisfied with such proof. After further proceedings, the parties stipulated to the club reopening as a strictly nonadult establishment, with no dance performances, no stage and no private booths. About a week later, defendants obtained a $50,000 bond, and moved for further modification to allow adult entertainment in less than 40% of the space. It was proposed that adult entertainment be confined to the mezzanine, which would be separated from the main area by solid sheetrock walls. The downstairs area would be converted to discotheque-style patron dancing, with restaurant seating, and with wide-screen TV showing sports, music videos and the like. The mezzanine area would have no additional entrance fee, but customers would not be allowed to bring food and drink from downstairs, and such commodities would cost more when obtained upstairs. On or about February 22, 1999, defendants moved for an order vacating or modifying the injunction pursuant to subdivision (c) of section 7-714 of the Administrative Code of the City of New York on the ground that the nuisance had been abated because defendant club had been brought into compliance with the 60-40 rule and was no longer an adult establishment within ZR § 12-10. Opposing, the City qsserted that the 60-40 rule did not apply to an adult eating and drinking establishment, and that if it applied, defendants had not demonstrated that the newly redesigned club would be in compliance with it. On March 2, 1999, the court issued a memo order applying the 60-40 rule to eating and drinking establishments, but denied the defense motion on a finding that there were still fire safety problems and unrelated New York City Department of Buildings objections. In oral argument in March of 1999, the City conceded that there was no longer any reason to oppose the motion other than the application of the 60-40 rule. The court ruled in favor of defendants. The Zoning Resolution defines “adult establishment” to include any “commercial establishment where a ‘substantial portion’ of the establishment includes an * * * adult eating or drinking establishment”. There is no exemption for an eating and drinking establishment. There is no restriction for an [121] establishment that, content aside, is solely an eating or drinking establishment or theater. Clearly, the City’s argument, that any single use establishment with an adult component is outside the 60-40 rule, is without merit. Such an erroneous interpretation does not give meaning and effect to the words “substantial portion” in the statute’s definition of “adult establishment” (McKinney’s Cons Laws of NY, Book 1, Statutes § 231). Nonetheless, defendants have failed to prove compliance with the 60-40 rule and instead show only an attempt “to skirt its prohibition by means of superficial measures leaving the essentially non-conforming nature of their business intact” (City of New York v Les Hommes, 258 AD2d 284, 285, lv granted 93 NY2d 811). Even though the mezzanine occupies approximately 28% of the club’s total floor space, the VIP Club is still essentially a topless bar. The front area requires a cover charge. There is no separate entrance or cover charge for the topless-dancing area. A two-tier price schedule makes clear that the defendants do not regard food and drink downstairs as a significant money maker. Even without performers, the downstairs area cannot reasonably be seen as anything but a staging area used in the course of attracting customers to the upstairs performances. There is still no conceivable reason why anyone uninterested in topless dancing would choose defendants’ club over the many other nightclubs, bars and restaurants in the Flatiron district, many of which have no cover charge. Defendants’ establishment is still clearly an integrated adult enterprise and of the type that was intended, under ZR § 12-10, to be removed from residential City areas (see, Stringfellow’s of N. Y. v City of New York, 91 NY2d 382, 391-392), and their attempt to comply with the 60-40 rule is, as a matter of law, a sham. Accordingly, the order of the Supreme Court, New York County (Stephen Crane, J.) entered March 18, 1999, which "granted defendants’ application to reopen, should be reversed, on the law, without costs, defendants’ application pursuant to section 7-714 of the Administrative Code of the City of New York denied, and plaintiff granted a permanent injunction barring the use of the premises for any adult use.