S.D.Tex.: Strip clubs aren’t “closely regulated businesses” for administrative searches

“In 2007, the Texas Legislature instituted the Sexually Oriented Business Fee Act (‘the SOBF’)” which requires admission fees into strip clubs and records inspections. A sexually oriented business is not one of those that can be “closely regulated” for administrative inspections. 9000 Airport LLC v. Hegar, 2023 U.S. Dist. LEXIS 201337 (S.D. Tex. Nov. 9, 2023):

The Comptroller argues that SOBs fall within the “closely regulated industry” exception. They do not. Eight years ago, the Supreme Court wrote that “[o]ver the past 45 years, the Court has identified only four industries that have such a history of government oversight that no reasonable expectation of privacy … could exist for … such an enterprise.” Patel, 576 U.S. at 424 (refusing to classify hotels as a regulated industry) (internal quotations omitted). The Court held that “[s]imply listing” the four closely regulated industries—liquor sales, firearms dealing, mining, and running an automobile junkyard—”refutes [the] argument that hotels should be counted among them.” Id. The same act of “simply listing” the closely regulated industries refutes the argument that SOBs should be included in this quaternity.

The Court declines the Comptroller’s invitation to add a fifth industry to this “narrow exception.” Id. The Comptroller’s only argument is the conclusion that “[b]ased on a substantial history of regulation, sexually oriented business are within a ‘closely regulated industry’ for Fourth Amendment purposes,” buttressed by a citation to the nude dancing restrictions that the Supreme Court upheld in City of Erie v. Pap’s A.M., 529 U.S. 277, 120 S. Ct. 1382, 146 L. Ed. 2d 265 (2000) (DE 13). But Pap’s did not even mention the Fourth Amendment, let alone the closely regulated exception. Such a threadbare and unrelated argument does not overcome “‘[t]he clear import of our cases … that the closely regulated industry … is the exception.'” Patel, 576 U.S. at 424 (quoting Barlow’s, Inc., 436 U.S., at 313). Accordingly, the exception does not apply.

Even if the closely regulated exception did apply, the statute would still violate the Fourth Amendment. Under the closely regulated exception, “the statute’s inspection program, in terms of the certainty and regularity of its application, [must] provid[e] a constitutionally adequate substitute for a warrant.” Id. 426 (internal quotations omitted). Neither the statute nor the related Administrative Code addresses this requirement. Tex. Bus. & Com. Code 102.052(b) & 34 TAC 3.722 authorize the Comptroller to search and inspect an SOB’s private records “upon request,” without any limits on how often or when he may inspect those records. The Comptroller does not dispute this. Instead, he argues that the clarity of the statute’s instructions satisfies this requirement. But clarity of how to comply with the inspection scheme says nothing about its certainty or regularity. Accordingly, the plaintiff is likely to succeed on its Fourth Amendment claim.