Ruling on wide-ranging issues in three separate cases filed by the same business, the Fourth District Court of Appeal has upheld a Newport Beach adult business ordinance as constitutional and concluded that the city did not violate the business's constitutional rights by denying some permits and revoking others. As the court stated in its decision, the case is about "appropriate ways in which to distinguish a theater from a restaurant - something with which the general public seems to have absolutely no difficulty, but which regularly defies the best efforts of courts and counsel." The cases were filed by the family of An Nguyen, which sought to convert a vacant restaurant into an adult entertainment establishment known as "The Mermaid". The restaurant was purchased with a pre-existing conditional use permit, but the city required the Nguyens to amend the permit to offer entertainment. In February of 1994, the City Council denied the amended permit application, concluding that the business was a theater in which food was an "ancillary service", rather than a restaurant. The city applied an unwritten "principal use" test to the situation, noting that 32% of the net public area would be used for entertainment, that the Nguyen's admitted that food would be "incidental to the entertainment," and that the Nguyens described their business as "adult theater[s]" on their liquor license application. The Nguyens sued, and in response the city altered its zoning code to define a restaurant as a business whose primary purpose is selling food and beverages for on-site consumption. The ordinance placed a 20% limit on the net public area devoted to entertainment. At the same time, the city also adopted a requirement that an entertainment permit be required for any business that would provide both entertainment and food and beverages. The Nguyens subsequently applied for an entertainment permit, but the ordinance as it was then written included no time frame for acting on such applications and the Nguyens' application was neither approved nor denied. Subsequently - again in response to the Nguyens' plans - the city amended its entertainment permit ordinance and the Nguyens submitted a second application. The application was denied by both the city manager and the City Council - again because they concluded the Mermaid was a theater seeking permission to operate in a location zoned for a restaurant. After the second episode, the city also adopted an adult-oriented business ordinance requiring an adult entertainment permit and placing certain limitations on adult entertainment activities, including a "no-touching rule" and a prohibition on nude dancing (known as the "pasties-and-g-string ordinance". The Nguyens redesigned the Mermaid to comply with the city's definition of a restaurant and also successfully obtained entertainment and adult business permits as well. The Mermaid opened in February 1996. From the beginning, the Nguyens admit, the restaurant did not comply with the requirements of the ordinances. The city manager revoked the Mermaid's entertainment permit and refused to renew its adult business permit. The Mermaid appealed to the city council, which eventually affirmed the city manager's action. However, the Mermaid remained opened. In November of 1996, the city sued the Nguyens, the Mermaid, and its employees. The Nguyens filed several lawsuits against the city. They challenged the city's initial decision to deny their permit as a violation of their constitutional rights. They challenged the constitutionality of the pasties-and-g-string ordinance. And when the city sued the Nguyens to enforce its ordinances, the Nguyens cross-complained that their constitutional rights were violated when the later-issue permits were revoked. A series of trial court judges ruled in favor of the city in these various causes of action, and the Fourth District affirmed the trial court in all cases. Regarding the definition of a restaurant, the Nguyens claimed that the original ordinance gave the city too much discretion in making a determination. On that count, the appellate court agreed. By permitting the city to use an informal "primary use" test, the ordinance gave city officials "impermissible unbridled discretion" to deny a permit. However, the court concluded that the revised ordinance, with a 20% limit on entertainment space, "provides precisely the objective standard previously missing." The Nguyens also claimed that the entertainment permit represented a prior restraint on its First Amendment rights because the city manager has too much discretion. But, the court said, "there is nothing impermissible in authorizing the city manager to 'conduct an investigation' ... It would be preposterous to do otherwise." On the pasties-and-g-string ordinance, the appellate court concluded it was constitutional by relying heavily on the U.S. Supreme Court ruling in Barnes v. Glen Theater Inc., 501 U.S. 560, which concluded that protecting public decency is within the government's power. The appellate court also specifically rejected the Nguyens' argument that the pasties-and-g-string ordinance was pre-empted by various state statutes regulating sexual activity, saying that no state law specifically overrides local nude dancing prohibitions. The Nguyens also argued that the requirements of the adult business permit, which placed restrictions on touching and tipping among other things, was unconstitutional. But the appellate court disagreed. The court found three of the six requirements to be invalid - because they require managers and employees to exert control over patrons and performers - but nevertheless found the city to be within its discretion in revoking the permits. The Cases: Tily B. Inc. v. City of Newport Beach, Nos. G016950 and G019250, and City of Newport Beach v. An Nguyen, No. G022132, 99 C.D.O.S. 62 (issued December 30, 1998). The Lawyers: For An Nguyen: Ronald Talmo, (714) 738-1000 For City of Newport Beach: Jeff Goldfarb, Rutan & Tucker, (714) 641-5100.