Federal Court Cases

Earlier this week, the Ninth Circuit issued an opinion resulting from a case where Amway-successor Quixtar, Inc. had sued it competitor Signature Management TEAM, LLC (“TEAM”) for allegedly carrying out an “Internet smear campaign” to induce Quixtar’s independent business owners to terminate their contracts with Quixtar and instead join a competing multilevel marketing company affiliated with TEAM. In re. Anonymous Online Speakers, 2010 U.S. App. LEXIS 14166 (9th Cir. Nev. July 12, 2010)

The alleged “Internet smear campaign” included a set of anonymous blogs of both text and video postings. At the lower court, during discovery, Quixtar obtained a court order compelling TEAM to identify the anonymous bloggers. TEAM, arguing that the anonymous bloggers were protected by the First Amendment, appealed the order to the Ninth Circuit. In response, Quixtar cross-petitioned the Court to order a TEAM employee to reveal the bloggers’ identity.

In the end, the Ninth Circuit held that the bloggers’ identity was not protected from the discovery process.

The U.S. Court of Appeals for the Eleventh Circuit decided last month that Flava Works Inc., a company selling sexual images filmed in a house in Miami, had violated city zoning laws by “illegally operating a business in a residential zone.”

The case, Flava Works Inc. v. City of Miami, originated in 2007 when the City issued a zoning violation then order against Flava Works. Although Flava Works used a separtate office for its general office work, it also maintained a residential house, the “CocoDorm,” where independent contractors had “sexual relations which are captured by the webcams located throughout the house” in exchange for $1,200.00 a month plus room and board.

The City found that the CocoDorm violated two City Codes: (1) “adult entertainment not permitted in C-1 zone property” and (2) “illegally operating a business in a residential zone.”

Flava Works appealed the order to the Southern District of Florida and, at the District Court level, won. The District Court pointed to a 2001 case, Voyeur Dorm, L.C. v. City of Tampa, it found controlling. The “materially indistinguishable” facts of the Voyeur Dorm case included a house of women who disrobed and performed “intimate” acts on webcam in exchange for rent and payment. The Eleventh Circuit held that the Tampa “adult entertainment” ordinance at issue did not apply to the Voyeur Dorm because customers were never physically invited to the house, and the Voyeur Dorm only offered entertainment “over the Internet in ‘virtual space.’”

The City of Miami appealed the District Court’s decision and argued that, although the Voyeur Dorm decision may be controlling as it pertains to application of one of the zoning ordinances (specifically, the one prohibiting “adult entertainment” in C-1 zone property), it could not pertain to whether Flava Works had violated the other zoning ordinance: “illegally operating a business in a residential zone.”

Flava Works argued no actual “business” was conducted at the CocoDorm, as “no goods were bought or sold and nothing was manufactured” there, and all commercial transactions took place at a separate office, and that the second ordinance could not apply either.

Disagreeing with Flava Works, the Eleventh Circuit Court of Appeals said, “it can be reasonably asserted that raw video images, which were later sold over the internet, were created” at the CocoDorm. “While these images are not tangible goods, they have a commercial value and enable Flava Works to earn a profit.” Furthermore, the activities at the CocoDorm are “part and parcel to Flava Works’s business operation,” and “the sole reason individuals are paid to live and engage in sexual activities” is business.

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