Mayor of Baltimore v. Dembo, Inc.

ADKINS, Judge. This case arises out of Baltimore City’s efforts to regulate the operation of adult entertainment businesses, and presents two questions involving the application of such regulations to a business qualifying as a nonconforming use. The City of ⁵³⁰ Baltimore (the City) appeals from a decision of the Circuit Court for Baltimore City holding that 1) Dembo, Inc. (Dembo), appellee, did not abandon its nonconforming use by faffing for two years to apply for a license to operate an adult entertainment business, and 2) the City’s licensing requirements were not applicable to Dembo because it qualified as a nonconforming use. Dembo acquired nonconforming use status because it operated a business involving partially nude dancing prior to the enactment of an ordinance prohibiting such business activity in a B-8 zone and requiring the licensing of all such businesses.

We hold that the circuit court was correct in concluding that Dembo did not abandon its nonconforming use by failing to apply for a license, but erred in its order that Dembo was exempt from the licensing provisions of the ordinance. 1 LEGAL AND FACTUAL BACKGROUND Baltimore City Ordinance No. 443 (the Ordinance), enacted on December 15, 1994, regulates the use of “adult entertainment” businesses, “where persons appear in a state of total or partial nudity.” 2 The Mayor and City Council, in the Ordinance, expressed concern for the secondary effects upon citizens’ health and safety which have been found to flow from the operation of adult entertainment businesses. Dembo’s business, known as the “Gentlemen’s Gold Club” (the Gold Club), is located in leased premises at 5801 Pulaski Highway, in a B-3 zoning district. Prior to enactment of the Ordinance, there was no use known as “adult entertainment,” ⁵³¹ and Dembo’s operations, which included partially nude dancing, were a permitted use in a B-3 district as a “tavern, including live entertainment and dancing.” Dembo operated the Gold Club under a use and occupancy permit issued July 29, 1992. The Ordinance defines “adult entertainment” and “adult entertainment business” and makes the operation of an adult entertainment business in a B-3 district unlawful, except as a nonconforming use. 3 See Baltimore City Code, Art. 30, §§ 13.0-2, 8.0-6(L).

A lawful nonconforming use is established if a property owner can demonstrate that before and at the time of adoption of the zoning ordinance, he was using his land in a then-lawful manner for a use which by later legislation became non-permitted. See Lone v. Montgomery County, 85 Md.App. 477, 496 , 584 A.2d 142 (1991). Dembo’s business qualified as a nonconforming use upon enactment of the Ordinance. The Ordinance also required that all existing adult entertainment businesses obtain a permit to operate as such, and that such permits “shall be issued upon payment of fees, and shall expire on June 30, 1995.” Baltimore City Code, Art. 30, § 11.0-8.

By Ordinance 443, the permit requirement was modified to be a requirement for a “license.” Id. at § 11.0-8(a). On January 16, 1995, the Commissioner of the Baltimore City Department of Housing and Community Development (the DHCD) sent a letter to owners of adult entertainment businesses, including Dembo, which explained the licensing requirements of the new Ordinance. He advised that under the Ordinance, owners of businesses, including those qualifying as nonconforming uses, were required to apply to the DHCD for a license to operate an adult entertainment business. Businesses qualifying as nonconforming uses were given until June 1995 to comply with the Ordinance.

Dembo, ⁵³² although aware of the requirement, did not apply for such license. At a meeting between adult entertainment establishment operators and the DHCD, other operators questioned why Dembo did not have a license. In response, the Baltimore City Zoning Administrator immediately sent inspectors to the Gold Club, and on December 4, 1996, issued a violation notice that required adult entertainment activities be discontinued. 4 Two days later, Dembo filed a Notice of Appeal to the Baltimore Board of Municipal and Zoning Appeals (the Board) requesting a permit to use the premises as a tavern with live entertainment and dancing, including adult entertainment. The Zoning Administrator considered the appeal to be a request by Dembo for a license, 5 but denied its request on grounds that it was no longer eligible for a license as a nonconforming adult entertainment business in a B-3 zone.

The Zoning Administrator reasoned that Dembo’s failure to apply for a license for over a year rendered its adult entertainment business illegal, and the illegal operation constituted an abandonment of its lawful nonconforming use status. At the hearing before the Board, there was testimony from several witnesses that from 1989 to 1995 there had been adult entertainment 6 at the Gold Club. The Board impliedly found that prior to the enactment of the Ordinance, Dembo was engaged in an adult entertainment business. On appeal, the parties agree that Dembo was engaged in an adult entertainment business prior to the enactment date of the Ordinance.

The Board also found that Dembo knew about the provisions of the Ordinance, and knew that it was operating an ⁵³³ adult entertainment business for which it should have obtained a license. It found that no lawful nonconforming use existed for operation of an adult entertainment business, apparently because it considered that, without a license, Dembo’s operations were illegal. It denied Dembo’s request to use the premises for adult entertainment because it “would be injurious and affect the general welfare and morals of the community.” The circuit court reversed the Board in an oral opinion, followed by a written order. It found that Dembo “has established a valid, lawful, non-conforming use,” which was not terminated by Dembo’s failure to obtain a permit for adult entertainment.

The court directed the City to issue a certificate of occupancy to Dembo “to use the premises for a tavern with live entertainment, dancing, and adult entertainment.” It further ordered that the Ordinance requirement that a license be obtained to operate an adult entertainment business was unenforceable as to Dembo because of its prior nonconforming use. DISCUSSION In our review of this administrative decision, our role is “essentially to repeat the task of the circuit court----” Mortimer v. Howard Research and Dev. Corp., 83 Md.App. 432, 442 , 575 A.2d 750 (1990). “In reviewing a decision of an administrative agency, both circuit courts and appellate courts employ the substantial evidence test.” Kade v. Charles H. Hickey Sch., 80 Md.App. 721, 725 , 566 A.2d 148 (1989). “The scope of review is limited to whether a reasoning mind reasonably could have reached the factual conclusion the agency reached.” Id. (quoting Baltimore Lutheran High Sch.

Ass’n, Inc. v. Employment Security Admin., 302 Md. 649, 662 , 490 A.2d 701 (1985)). “A reviewing court, however, always has the right to determine if the administrative body made an error of law.” Id. (quoting Baltimore Lutheran, 302 Md. at 662 , 490 A.2d 701 ). In this case, as we discuss below, it was an error of law that marred the decision of the Board. ⁵³⁴ We find that appellant, appellee, and the Board all failed to recognize the distinction between the municipal power to zone and the separate municipal power to license. The parties improperly merge these separate concepts in their analysis of the rules pertaining to nonconforming uses.

We consider the distinction between these concepts to be critical, and hold that a property owner will not lose its nonconforming use status accorded under zoning laws simply by its failure to comply with a licensing law. We agree, however, with appellant’s contention that even if a property owner retains its right to a nonconforming use, it is nonetheless required to comply with subsequently enacted licensing provisions regulating such use. Zoning and Licensing: Different Municipal Functions As indicated, the distinction between the municipal powers to zone and to license is critical to our analysis. The underlying nature and purpose of these two distinct types of regulation were well delineated by the Supreme Court of Nevada in Primm v. City of Reno, 70 Nev. 7 , 252 P.2d 835 (1953), which explained: Regulation of land use through zoning has become desirable in urban communities in order that a reasonable and orderly segregation of residential, commercial and industrial areas be had.

Such regulation is primarily concerned with uniformity of land use and stability of community growth. It is general and comprehensive in scope and the considerations which govern it are, accordingly, general and comprehensive. Regulation of certain types of businesses through discretionary licensing is made necessary by the fact that the inherent character of those businesses is such that without regulation they might be so operated as to become nuisances. Such regulation is primarily concerned with proper operation or with limitation or distribution or outright suppression of operation.

It is special and limited in scope and governed by consideration of the circumstances applying, at the time application is made, to the particular ⁵³⁵ business under consideration, the person applying and the location proposed. Id. at 839 (citations omitted). The difference between zoning and licensing has also been explained by characterizing a zoning ordinance as one which involves “a comprehensive or master plan for dividing the community into zones where specified uses are permitted,” as compared with licensing law which “is directed at one particular activity no matter where in the town it is carried out.” Maybee v. Town of Newfield, 789 F.Supp. 86, 89-90 (N.D.N.Y.1992). Put more simply, licensing “regulates establishments based on the type of business they conduct,” and zoning regulates them “based on their location.” City of Batavia v. Allen, 218 Ill.App.3d 545 , 161 Ill.Dec. 239 , 578 N.E.2d 597, 599 (1991).

As we turn our attention to the Ordinance in question, it becomes clear that the portion that provides that adult entertainment businesses can only be located in a B-5 district, excluding such businesses in a B-3 district, constitutes an exercise of the City’s zoning power because it defines where adult entertainment businesses can be located. On the other hand, the sections that set up a licensing requirement for the operation of adult entertainment are not zoning in nature; rather they exercise a different aspect of the City’s police power to regulate the health, safety, and welfare of its population. 7 The preliminary recitals, which are revealing as to the non-zoning aspects of the Ordinance, include the following: WHEREAS, There are in the City of Baltimore certain adult entertainment businesses that require special supervision and regulation in order to protect the health, safety, and welfare of the customers of the businesses and the citizens of the City of Baltimore; and ⁵³⁶ WHEREAS, the Mayor and City Council of Baltimore finds that these adult entertainment businesses are frequently used for unlawful sexual activities which can result in sexually transmitted diseases that threaten the health and, in the case, of the AIDS virus, the lives of citizens; and WHEREAS, a reasonable permitting scheme is a valid and legitimate means of insuring that operators of adult entertainment businesses do not allow their establishments to be used as places detrimental to the health and welfare of the citizens of the City of Baltimore____ Baltimore City Ordinance No. 258. The Ordinance then proceeds to create the classification of “adult entertainment business,” which includes a business “where persons appear in a state of total or partial nudity.” Baltimore City Code, Art. 30, § 13.0-2. Even those businesses qualifying as nonconforming uses are required under section 11.0-8 of the Ordinance to obtain a license to conduct such business.

This section provides that those businesses with nonconforming use status “shall be issued” a license that is valid until June 30, 1995, upon payment of the licensing fee. See id. at § 11.0 — 8(b)(1). With respect to new businesses seeking to operate with adult entertainment, the Commissioner of the DHCD is directed to “investigate the character and qualifications” of the applicant for such license, and limit licenses to those persons ascertained to be of “good moral character.” Id. at § 11.0-8(b)(2). In making the determination of “good moral character,” the Commissioner “shall consider (1) all criminal convictions of the applicant, and (2) the business history of the applicant.” Id.

The recited purposes of the Ordinance set forth above, as well as the substance of the licensing provisions for adult entertainment businesses, clearly demonstrate that these licensing provisions are not in the nature of a zoning law, which is primarily concerned with uniformity of land use and stability of location. See Maybee, 789 F.Supp. at 89-90 ; City of Batavia, 161 Ill.Dec. 239 , 578 N.E.2d at 599 ; Primm, 252 P.2d at 839 . Rather, the provisions are more broadly aimed to ⁵³⁷ protect the health and welfare of the citizens by licensing operators of adult entertainment establishments. Accordingly, in our analysis, we separately consider 1) the rights that Dembo acquired by virtue of its status as a nonconforming adult entertainment business under zoning laws, and 2) how the licensing provisions of the Ordinance interact with such zoning nonconforming use status.

I. Forfeiture of Nonconforming Use Appellant contends the circuit court erred when it ruled that Dembo had a lawful nonconforming use, and asserts that Dembo’s nonconforming use was legally “abandoned” when it failed to apply for a license to operate an adult entertainment business after passage of the Ordinance. Appellant argues that while a pre-existing nonconforming use may constitute a vested right, Dembo’s use of the property without the required license for two years resulted in a termination of its once lawful nonconforming use. It is this argument that exhibits appellant’s failure to recognize the difference between the power to license and the power to zone, and the consequences of such difference. We start our discussion of this issue with a brief review of the law of nonconforming use.

The Law Governing Nonconforming Use One of the earliest Maryland cases discussing the right of a property owner with a legal use to continue that use after passage of a new zoning ordinance making the use non-permissible is Amereihn v. Kotras, 194 Md. 591 , 71 A.2d 865 (1950). In Amereihn , the Court of Appeals explained the rationale for recognizing nonconforming uses as follows: If a property is used for a factory, and thereafter the neighborhood in which it is located is zoned residential, if such regulations applied to the factory it would cease to exist, and the zoning regulation would have the effect of confiscating such property and destroying a vested right therein of the owner. Manifestly this cannot be done, ⁵³⁸ because it would amount to a confiscation of the property, and nonconforming use is a vested right and entitled to constitutional protection. Id. at 601 , 71 A.2d 865 .

Since 1950, Maryland courts have developed and refined the law regarding the respective rights of zoning authorities and owners of properties qualifying as nonconforming uses. See, e.g. Board of Zoning Appeals v. Meyer, 207 Md. 389 , 114 A.2d 626 (1955) (holding that when a property owner at time of adoption of last comprehensive zoning was using land for use which by new legislative action became non-permitted, the owner has a lawful nonconforming use); County Comm’rs v. Zent, 86 Md.App. 745 , 587 A.2d 1205 (1991) (explaining permissible intensification of nonconforming use as compared to impermissible “extension”); McKemy v. Baltimore County, 39 Md.App. 257, 269-70 , 385 A.2d 96 (1978) (defining four factors to determine whether current