In late June 2007, Tom and Elizabeth Preston obtained a use permit from the City of Tempe to open a tattoo studio. The Prestons signed a five-year lease and invested $30,000 in the property, but then a local neighborhood group appealed to the city, arguing that this would have a negative impact on the neighborhood, lowering property values and increasing crime. (Other businesses in the same area include a liquor store, bail bondsman, lingerie shop, check cashing store, and an adult video store.)
Tempe Mayor Hallman and the City Council voted unanimously to override the zoning officials who had approved the permit on the basis that there was a "perception" that the business would contribute to neighborhood deterioriation.
The Goldwater Institute's Scharf-Norton Center for Constitutional Litigation has taken the case on behalf of the Prestons, with former Institute for Justice litigator Clint Bolick as the primary attorney for the plaintiffs.
In a previous hearing in May, the court ruled in favor of the Prestons and remanded the case back to the City Council for reconsideration. The city then asked for a new hearing on the grounds that it had found some new relevant case law, and that hearing occurred at 11 a.m. today before Maricopa County Superior Court Judge Robert Oberbillig.
The judge first stated, that the city's motion for reconsideration in today's hearing was appropriate and that the hearing would take place, setting aside the plaintiff's objections to that. He then focused most of the hearing on two issues. First, what was the appropriate level of burden of proof for the appeal to the city which revoked the permit? And second, did the city provide "credible evidence" that the Prestons' business would lead to neighborhood deterioration?
Burden of Proof
The burden of proof argument centered around two parts of the City of Tempe's Zoning and Development Code. These were Section 1-305 (D), which says:
Hearing Officer – Appeals. Any person aggrieved by a decision of the Hearing Officer under this Code may file an appeal to the Board of Adjustment, or the Redevelopment Review Commission as applicable, within fourteen (14) calendar days after the Hearing Officer has rendered its decision, in accordance with Part 6, Chapter 8, Appeals. Appeals of the decisions of the Hearing Officer shall be heard de novo by the Board of Adjustment, or the Redevelopment Review Commission as applicable.and Section 6-802(C), which says:
In the event that a decision made under this Code is appealed, the appeal does not invalidate the approval. The holder of the approval may proceed with a use or development at their own risk.The plaintiffs argued that this second section means that the permit was granted and created a vested right for the Prestons to use the property, and that in the event of an appeal the burden of proof was on the city to demonstrate a reason to revoke, rather than a completely new ("de novo") process that was as though they were applying for the permit for the first time. The city, by contrast, put emphasis on the first passage, arguing that the appeal hearing was "de novo" and had no burden of proof on the city. The city argued that the "at their own risk" phrase in the second section indicated that the permit was, in fact, conditional and did not give the Prestons any vested rights.
The plaintiffs were previously victorious on this issue on the grounds that the second section did entail a vested right for the plaintiffs. This time around, however, the city argued that case law from outside of Arizona demonstrated that there was no vested right. They agreed that the city made a botch of this case from a customer service perspective, in that the Prestons were not told that their permit was conditional and could be appealed, and they were in fact sent a letter by the city telling them to go ahead and start doing work on the property to meet other requirements of the city, such as the addition of windows.
The judge seemed amenable to the city's argument, and questioned Clint Bolick over this thoroughly. He noted that the Arizona cases presented by the plaintiffs on this issue were not in the context of a pending appeal, though Bolick disagreed with the judge, pointing to a 1939 case from Iowa City, Iowa, Crow vs. Board of Adjustment. The city responded by noting that a 1981 Iowa Supreme Court case, Grandview Baptist Church v. Davenport, argued the opposite--that a church couldn't apply a vested right during a pending appeal to keep a storage shed it had built.
The judge then pointed out that there were two arguments of equitable estoppel here--one is whether the city's actions in granting the permit shifted the burden of proof to the city and in favor of the plaintiffs for the subsequent appeal, and second regarding the potential for damages to be awarded to the plaintiff. He set the second issue aside, and then asked to continue the hearing to the question of the city's evidence of negative impact by the Prestons' business, which would become relevant if he ruled in favor of the city on this first issue.
The Credible Evidence Issue
On this issue, the city got a thorough grilling by the judge. The relevant context here was the city's use permit test criteria, part (c) of which supplies a ground for denying a use permit if a proposed use will cause:
Contribution to the deterioration of the neighborhood or to the downgrading of property values which is in conflict with the goals, objectives or policies for rehabilitation, redevelopment or conservation as set forth in the City's adopted plans, or General plan.The hearing officer for the initial permit application ruled that this was not the case, but the City Council and Mayor overturned the permit on these grounds based on complaints from neighbors.
The judge made it clear that the city had the burden of providing not just evidence, but credible evidence that this would be the case. He noted that in the city's filings, it expressed concern that the tattoo studio is a "de facto adult business" which would contribute to a clustering of adult businesses (even though there is no clustering provision in statute) and thereby would cause a deleterious effect on the neighborhood.
The city's attorneys then noted that Tempe does now have an anti-clustering ordinance, which the judge seemed to suggest was not good for the city's case, but rather evidence that they didn't have the necessary ordinances in place at the time of their decision. He asked, "why even discuss a clustering effect" at this hearing?
The city responded that it was an issue raised by the neighbors, to which the judge responded that the city should have responded as the hearing officer already did on that issue--sorry, we don't have an ordinance on that, but we need another reason, such as contravention of the city's general plan or some other plan. But the hearing officer approved the use permit, and noted that it was in furtherance of, not in detriment to, the city's general plan.
The city's attorneys noted that the city didn't object to the business in general, and that Mayor Hallman had said that he hoped the Prestons would keep their business in Tempe.
At this point, the judge noted that the Prestons have had a successful tattoo business in Mesa for 15 years with no complaints, and asked, "So on what basis was this rejected?"
The city attorneys noted that nobody from the city has objected to tattoos, but it was complaints by third parties, neighbors of the business who "want some other type of business--a Starbuck's, or a drugstore," to stop the clustering. They made reference to a study from New York City (perhaps referenced by the complaining neighbors?) arguing that clusters of adult businesses contribute to neighborhood deterioriation and crime. They admitted that a tattoo parlor is not an adult business under city code, and again, that there was no anti-clustering ordinance at the time. (I find it interesting that both of the city's examples of preferred types of businesses are in the business of drug distribution. The space, in fact, remains vacant to this day, demonstrating that the real choice is between the Preston's business or no business at all.)
The judge then asked, "Where's the credible evidence? A New York study that's apples and oranges? A real estate person who steps up to the microphone [and offers objections]? If there's no credible evidence, [then] this [decision] could be arbitrary and capricious. If we have an anti-clustering statute, the permit process should incorporate that." He offered a few specific objections to the NYC study and its applicability here, and noted that in order to have substantive due process in the permitting procedure, the applicant needs to know up front that there are rules objecting to clustering. He stated that the city seemed, in effect, to have a secret unadopted city plan that requires third party intervention to enforce requirements that are not in the city's plans or ordinances. And he noted that the city had already overruled the arguments of the third parties in its initial granting of the permit.
At this point, the judge asked Bolick if he had anything to add, and he asked permission to give another argument on the previous point, arguing that it was the city's actions that caused the defendants to engage in detrimental reliance upon their representations. The judge told Bolick that "you're still missing the first step in the analysis--that it's a person who knows the law. It must be reasonable detrimental reliance." This exchange suggests to me that the judge will rule in favor of the city on the prior point. Bolick responded that there is a factual aspect to the meaning of the statute, and that the Prestons would never have made the investment if not specifically told to go ahead and do so by the city and by a hearing officer.
Bolick then made a few remarks on the credible evidence issue. He pointed out that the City Council and the City Attorney said in deposition that the city's standard must be satisfied, but the city also admitted that the business is in furtherance of the general plan. The judge said that the city is now focusing on a prior point, that the business is "detrimental to the public." Bolick said this is a post hoc change of the city's legal position and asked how a permit applicant would know. He stated that "there's not only no credible evidence for the city's position, there's no evidence." And he also noted that "there are constitutional dimensions to 'arbitrary and capricious'--there has to be a standard."
Immunity for Damages
At this point, the judge said there were a couple other issues to discuss. If the city didn't meet its standard and so has to issue the use permit, there's an immunity for damages issue. The city has argued for immunity to damages on two grounds. First, absolute immunity on the grounds that its action was a legislative action, as per an opinion from the city attorney. Second, immunity on the grounds that the "at your own risk" clause was sufficient warning to the plaintiffs. The city added a third argument, noting that while they want the case to be decided based on the current record, they have other documents that are relevant to a decision about damages. Specifically, they argued that there are emails between Preston and his contractors which appear to make the contracts conditional upon the granting of a permit and so neither Preston nor the city should be liable for that. Bolick agreed that there should be a separate factual review on damages, but that plaintiffs should win damages if they either win on the burden of proof issue or if they win on the "arbitrary and capricious" issue and it's an administrative act.
The judge observed that the City Council has a legislative function, a judicial function, and an administrative function, and that if this was an administrative function, this was not a matter of determining fundamental government policy. Bolick cited the Reynolds case (?) and another to the effect that issuing a building permit is an administrative act. The city attorneys objected that Reynolds didn't involve a de novo appeal process, and that the city was going forward on the assumption that it was a legislative process, as argued in a position from the city attorney on which the City Council relied. The judge asked, "is it clearly not judicial?" The city said that perhaps it might be, if the judge ruled that there couldn't be a de novo review in this case (i.e., if they lost on the burden of proof claim) and were thereby acting in an appellate capacity.
After a few more exchanges, the judge indicated that he would deliberate and be back shortly to issue a ruling from the bench. A few of us gathered outside the courtroom to talk, including Bolick, the plaintiffs, a few other supporters of the plaintiffs, and a reporter from the Arizona Republic. At around 1 p.m., the bailiff summoned us back into the courtroom, to inform us that we were all dismissed and the judge would be issuing a written ruling, which is apparently what he did at the May hearing as well.
My understanding is that the plaintiffs win the case if they win on either of the above two grounds, the burden of proof issue or the credible evidence/"arbitrary and capricious" issue, and the case will not go back to the City Council this time. Of course, it may be appealed by the losing side. My best guess is that the city will prevail on the first issue and the plaintiffs on the second.
CBS Channel 5 was also filming the hearing, but you heard the details here first.
I'll update this post with information about the decision after it happens.
The Goldwater Institute's website has more on the Preston case.
(The photo of the Maricopa County Court House in downtown Phoenix, above, is a Creative Commons licensed photo (attribution, noncommercial, no derivative works) from the flickr photostream of Steve Minor, user lumierefl. Click on the photo to get to that photo in his photostream.)
UPDATE (July 9, 2009): The Prestons won their case, again, on the grounds that the city's decision to revoke their permit was "arbitrary and capricious." I haven't heard how the judge ruled on the other issue. The city has 30 days to appeal the decision; otherwise they must issue the permit and allow the business to open.