Net Connection Hayward, LLC v. City of Hayward

Filing 54

ORDER Denying 35 Motion for Preliminary Injunction filed by Net Connection Hayward, LLC. Signed by Judge Samuel Conti on July 18, 2013. (sclc2, COURT STAFF) (Filed on 7/18/2013)

1
2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE NORTHERN DISTRICT OF CALIFORNIA

8

United States District Court

For the Northern District of California

9
10

NET CONNECTION HAYWARD, LLC,
Plaintiff,

11
v.

12
13

CITY OF HAYWARD,
Defendant.

14

) Case No. C 13-1212 SC
)
) ORDER DENYING PRELIMINARY
) INJUNCTION
)
)
)
)
)
)
)
)

15
16
17

I.

18

INTRODUCTION
This is a case about the police powers of a city versus the

19

constitutional rights of a business.

20

Plaintiff Net Connection Hayward, LLC's ("Plaintiff") motion for a

21

preliminary injunction against Defendant City of Hayward

22

("Defendant" or the "City").

23

on this matter on April 30 and May 1, 2013, and the parties

24

completed their supplementary briefing on the issue on May 30,

25

after which the Court deemed the matter submitted.1

Now before the Court is

The Court held evidentiary hearings

Having

26
27
28

1

The parties agreed that their supplemental briefs on the
preliminary injunction matter, ECF Nos. 35 ("Br. ISO PI"), 39
("Opp'n to PI"), 43 ("Reply ISO PI"), submitted per the Court's
post-hearing Order, ECF No. 30, are meant to supplement but not

1

considered the evidence presented in the hearings, as well as the

2

parties' papers and arguments, the Court DENIES Plaintiff's motion

3

for a preliminary injunction.

4
5 II.

BACKGROUND

6

Plaintiff is a business called Net Connection in downtown
Tr. at 2.2

7

Hayward, California.

8

physical location as "Net Connection Hayward").

9

is Mr. Ron Doyle.

United States District Court

Plaintiff's owner

Defendant is the City of Hayward.

Plaintiff sells and rents computer time, including Internet

10
For the Northern District of California

Id.

(The Court refers to Plaintiff's

11

access and access to software like word processors and spreadsheet

12

programs; provides other services like faxing, scanning, and

13

copying; and sells snacks and drinks.

14

four other businesses located around California that are

15

essentially the same as Net Connection Hayward, but that particular

16

location is the one at issue in this case.

Id. at 12.

Plaintiff has

Id. at 11-12.

As a promotional strategy, Plaintiff operates a sweepstakes

17
18

(the "Sweepstakes Promotion") at Net Connection Hayward.

Id. at

19

12.

20

obtained from Capital Sweepstakes, which apparently designs and

21

licenses similar software to other businesses in California.

22

id. at 11-12, 43.

23

customers who purchase computer time (or who opt into the

24

Sweepstakes Promotion for free, with no purchase necessary) to play

The Sweepstakes Promotion runs on software that Plaintiff

See

Essentially, the Sweepstakes Promotion allows

25
26

supersede their briefs on the earlier-entered temporary restraining
order, ECF Nos. 3 ("Mot. for TRO"), 9 ("Opp'n to TRO").

27

2

28

The transcript cited here is from the Court's hearing on
Plaintiff's motion for a preliminary injunction, ECF Nos. 32-33,
but the Court uses the shorter citation "Tr." for brevity's sake.
2

1

a series of games on Plaintiff's computers, with the possibility of

2

winning cash prizes.

3

customers spend a great deal of time playing the Sweepstakes

4

Promotion games: witnesses approximated that about fifty percent of

5

customers play the games as opposed to using the computers for

6

other activities.

See, e.g. id. at 45-47, 50-55.

Plaintiff's

Id. at 54, 253.

Though the inner workings of the Sweepstakes Promotion are not

7
8

important at this point, the Court will briefly summarize a very

9

complicated technological setup as described in the report and

United States District Court

For the Northern District of California

10

analysis on the Sweepstakes Promotion software from Nick Farley &

11

Associates, Inc., ECF No. 36-1 ("Suppl. Farley Report").

12

several different game types that a customer can play on

13

Plaintiff's computers by using "points" that the customer acquires

14

by buying computer time or just by asking for free points.

15

1-2.

16

underlying mechanism for all of the types is the same: the player

17

essentially flips over a virtual card to see if she wins or loses,

18

though the "stacks" of "cards" with which the customer interacts

19

are all pre-shuffled by a computer and then sorted among the

20

different game types and levels among each game.

21

example, a customer can choose to play "Fat Cat" or "Panda

22

Paradise," each of which will draw from a different pool of pre-

23

shuffled pieces and require the customer to use a different amount

24

of Sweepstakes Promotion points.

25

a customer needs to flip over a card depends on what game type the

26

customer is playing, and each different level of points draws from

27

a different pool as well.

28

computational level, the results of each Sweepstakes Promotion game

There are

Id. at

The game types are designed to look different, but the

Id.

Id. at 9.

3

at 1-6, 9.

Id. at 1-6.

For

How many points

On a purely mathematical and

1

are preset and predictable, since the Sweepstakes Promotion

2

software does not randomize results as a customer uses the

3

software, but the number of game types and the way "piles" of cards

4

are shuffled, selected, and rotated among the games provides for a

5

vast number of possible outcomes.

See id. at 6-10.

Before opening Net Connection Hayward, Mr. Doyle obtained a

6
7

lease on a building in downtown Hayward and contacted Defendant's

8

planning manager, Mr. Richard Patenaude.

9

Mr. Patenaude was the head of the City's planning division.

Tr. at 13.

At that time,
Id. at

United States District Court

For the Northern District of California

10

220.

The City's zoning ordinance was exclusionary, meaning that

11

anything not specifically listed in the ordinance is prohibited,

12

and Mr. Patenaude's job when Mr. Doyle contacted him involved

13

(among other things) deciding whether particular uses could be

14

allowed under the City's ordinance.

15

ECF No. 3-10 ("Pl.'s RJN ISO TRO") Exs. G ("Zoning Ordinance

16

Sections 10-1.100 - 10-1.180") (providing basic zoning ordinance

17

guidelines), I ("Zoning Ordinance Sec. 10-1.2800 - 10.1-2850")

18

(describing zoning compliance processes).3

See id. at 220-22; see also

The area where Plaintiff's business is located is zoned

19
20

"Central City-Commercial."

21

Commercial Ordinance").

22

permits a list of primary and conditional uses, but Plaintiff's

23

business description is not included there.

24

accordingly require some form of approval from the city --

25

Plaintiff's business would not be a permissive primary use.

26

Zoning Ordinance Sections 10-1.100 - 10-1.180; Zoning Ordinance

27

3

28

Pl.'s RJN ISO TRO Ex. H ("Central City-

The Central City-Commercial subdistrict

See id.

It would

See

The Court takes judicial notice of documents submitted with the
parties' various requests for judicial notice under Federal Rule of
Evidence 201.
4

1

Sections 10-1.2800 - 10-1.2850; see also Pl.'s RJN ISO TRO Ex. K

2

("Zoning Ordinance Sections 10-1.3105 - 10-1.3170").

3

When Mr. Doyle explained to Mr. Patenaude what Net Connection

4

Hayward planned to do, he said that the business would sell and

5

rent computer time, provide photocopying and scanning services, and

6

sell products like office supplies, snacks, and drinks.

7

He also mentioned that Net Connection Hayward would offer

8

promotions, which Mr. Patenaude asked him to explain further.

9

at 14-15.

Id. at 14.

Id.

Mr. Doyle accordingly sent Mr. Patenaude a letter on

United States District Court

For the Northern District of California

10

November 11 or 12, 2012, in which he outlined Net Connection

11

Hayward's business and explained that Net Connection Hayward would

12

offer "special promotions" similar to those offered by major food

13

establishments and gas stations, so that customers could win cash

14

prizes through the use of purchased Internet time.

15

("Doyle Decl. ISO TRO") Ex. B ("Patenaude Ltr.").

ECF No. 3-7

16

A few days after sending his letter, Mr. Doyle followed up

17

with Mr. Patenaude and learned that Mr. Patenaude still did not

18

understand the business or the Sweepstakes Promotion.

19

Part of Mr. Patenaude's concern was that Mr. Doyle's description of

20

the Sweepstakes Promotion was not on the business license

21

application itself, though Mr. Patenaude agreed with Mr. Doyle that

22

the space for a description was too small to fit a very detailed

23

description -- all that fit was "Internet Service / Business

24

Center."

25

Promotion and Plaintiff's business for Mr. Patenaude, Mr. Doyle

26

told Mr. Patenaude that in San Lorenzo, not far from Hayward,

27

Plaintiff operated an identical business to the one Plaintiff

28

planned to open in Hayward.

See id. at 67-68, 73, 229.

Id.

Tr. at 17.

To clarify the Sweepstakes

Mr. Doyle invited Mr. Patenaude

5

1

to investigate the San Lorenzo business, since the services there

2

were exactly what Plaintiff planned to provide at Net Connection

3

Hayward.

4

Plaintiff's San Lorenzo location,

5

understanding of the written description of the business that Mr.

6

Doyle provided with the actual business's operations.

Id.

Mr. Patenaude accepted the invitation and visited
so that he could corroborate his

Id. at 223.

7

While at Plaintiff's San Lorenzo location, Mr. Patenaude

8

walked around the business, looked at the computers, spoke briefly

9

to the cashier, and left.

Id. at 223-25, 229-30; see also

United States District Court

For the Northern District of California

10

Patenaude Ltr.

11

at Plaintiff's San Lorenzo location, nor did he play any of the

12

Sweepstakes Promotion games, Tr. at 225, or read the large poster

13

in Plaintiff's business that explained the Sweepstakes Promotion,

14

Doyle Decl. ISO TRO Ex. A ("Sweepstakes Poster").

15

manager, Ms. Keyawie Hernandez, also testified that the cashier on

16

duty when Mr. Patenaude visited offered him some points to play the

17

Sweepstakes Promotion games, and Mr. Patenaude's companion asked if

18

he wanted to operate any of the computers, but Mr. Patenaude

19

declined all offers.

20

businesses similar to Plaintiff's were licensed and operating in

21

the City, though Mr. Patenaude apparently did not visit those.

22

at 232-33.

23

Mr. Patenaude did not operate any of the computers

Tr. at 84-88.

Plaintiff's

At that time, two other

Id.

Not long after Mr. Patenaude visited Plaintiff's San Lorenzo

24

location, he approved a business license for Plaintiff, which

25

Plaintiff retrieved toward the end of November 2012.

26

232-33.

27

license from a land use perspective and that he would not have

28

issued the license if he had any concerns with the legality of

Id. at 18-19,

Mr. Patenaude stated both that he authorized Plaintiff's

6

1

Plaintiff's proposed business.

Id. at 228-29, 232-35.

Though the

2

City's zoning ordinance was exclusionary and allowed non-permissive

3

uses only if the planning director (or the City Planning

4

Commission, on appeal) determines that the use is similar to and

5

not more objectionable than additional uses, the City also issues

6

two different types of use permits: administrative use permits,

7

which are approved by staff, and conditional uses, which require

8

conditional use permits from the City Planning Commission.

9

264-65.

Id. at

Mr. Patenaude did not clarify under which permit he

United States District Court

For the Northern District of California

10

approved Plaintiff's license, but there is no dispute that he

11

approved it from a land use perspective, relative to the City's

12

zoning ordinance.

13

Id. at 228-29, 232-35.

Plaintiff began operating at Net Connection Hayward in

14

December 2012.

15

Bureau of Gambling Control issued an advisory letter, which was not

16

intended to be legal advice, stating that it considers "Internet

17

cafes" that offer Internet time or phone cards in conjunction with

18

"promotional sweepstakes" to be illegal gambling operations subject

19

to California criminal laws.

20

Letter") at 1-3.

21

position is that sweepstakes like the one Plaintiff uses at its

22

businesses are games of chance that function as illegal slot

23

machines or lotteries.

24

Id. at 11.

Around the same time, the California

Pl.'s RJN ISO TRO Ex. L ("Advisory

Essentially, the Bureau of Gambling Control's

Id. at 3.

In December, sometime around the Advisory Letter's

25

dissemination, Plaintiff received its first visit from the City

26

police.

27

Doyle and Ms. Hernandez for an explanation of the Sweepstakes

28

Promotion, which they provided, along with a demonstration.

See Tr. at 86-89.

On that visit, the police asked Mr.

7

Id. at

1

87-88.

2

Connection Hayward, during which officers visited the business,

3

checked on customers (talking to some outside the store), and asked

4

more questions about the Sweepstakes Promotion.

5

After that, the police did several "walkthroughs" at Net

Id. at 88-89.

Police visits to Net Connection Hayward continued -- including

6

one random visit culminating in the arrest of one of Plaintiff's

7

employees for an outstanding traffic warrant -- but the police were

8

never at Net Connection Hayward to respond to calls of any sort.

9

Id. at 27, 30, 32, 82, 84-88, 252, 298-99, 316.

Mr. Doyle and his

United States District Court

For the Northern District of California

10

employees also testified that Net Connection Hayward has never had

11

problems with crime, drugs, prostitution, or any such issues.

12

e.g., at 30, 82, 252.

13

confirmed the same.

14

that Defendant actually reported came from a neighbor of Net

15

Connection Hayward, who reported seeing some bikes parked in public

16

places outside the business; having people park in her parking lot,

17

which was not marked as private; and observing some people smoking

18

near Plaintiff's business.

19

See,

Defendant's law enforcement witnesses
See, e.g., id. at 296, 316.

The only issues

See id. at 280-81.

On February 8, 2013, Defendant sent Plaintiff a cease-and-

20

desist letter indicating that Defendant had learned of Plaintiff's

21

Sweepstakes Promotion and considered it illegal under California

22

Penal Code sections 330a, 330b, 330.1, and 319 -- Defendant

23

therefore ordered Plaintiff to cease and desist operation of the

24

Sweepstakes Promotion at Net Connection Hayward.

25

TRO Ex. E ("Feb. 8 Ltr.").

26

Plaintiff did not comply, Defendant would take any necessary legal

27

action against Plaintiff, including public nuisance abatement, and

28

that Defendant would assist with any other investigation or

Doyle Decl. ISO

The February 8 Letter stated that if

8

1

prosecution related to Plaintiff's Sweepstakes Promotion.

2

1-2.

3

Id. at

On February 19, 2013, the City's Director of Development

4

Services and the City Attorney recommended that the City Council

5

adopt an interim urgency ordinance that would impose a temporary

6

moratorium on the development, establishment, and operation of

7

Plaintiff's business and other similar businesses.

8

TRO Ex. B ("Feb. 19 Memo.").

9

Pl.'s RJN ISO

On the same day, Mr. Doyle wrote an extensive letter to the

United States District Court

For the Northern District of California

10

Mayor and City Council of Hayward, explaining in detail his

11

opposition to the urgency ordinance and moratorium, and asking in

12

the alternative that the matter be continued for forty-five days so

13

that it could be reviewed in greater detail.

14

Ltr.").

15

Defendant's planned urgency ordinance and requested that Defendant

16

consider several points: (1) not all sweepstakes are illegal in

17

California; (2) Plaintiff's Sweepstakes Promotion conforms with

18

California law; (3) Sweepstakes Promotion operators whose

19

businesses are nuisances can be eradicated without eliminating jobs

20

and revenue from legitimate operators; (4) there is no legal

21

justification for imposing a moratorium that would deprive

22

Plaintiff of the opportunity to conduct its business; (5) the

23

planned ordinance is unnecessary to preserve the community's

24

health, safety, and welfare (or to avoid a current and immediate

25

threat to the same); and (6) if the City Attorney believes that

26

sufficient evidence exists to declare Plaintiff's business a

27

nuisance, that evidence should be tested in a court instead of in

28

the City Council.

Id. Ex. C ("Doyle

The letter thoroughly explained Plaintiff's opposition to

Id. at 3-5.

9

1

The City adopted Ordinance No. 13-03 on February 20, 2013,

2

pursuant to California Government Code section 65858.

3

ISO TRO Ex. D.

4

issuance or approval of any permits or licenses for "Computer

5

Gaming and Internet Access Businesses" -- Net Connection Hayward is

6

such a business -- and all operation of such businesses.

7

Pl.'s RJN

Broadly, that ordinance prohibited both all future

Id. at 4.

On March 7, 2013, Defendant sent Plaintiff another cease-and-

8

desist letter.

ECF No. 10 ("Vigilia Decl.") Ex. C ("Mar. 7 Ltr.").

9

The contents of that letter were similar to the February 8 Letter,

United States District Court

For the Northern District of California

10

but instead of asking Plaintiff to cease and desist subject to

11

California gambling laws, the letter demanded that Plaintiff comply

12

with Ordinance No. 13-03.

13

invited Plaintiff to contact the City Attorney to discuss the

14

matter, but the City Attorney apparently never responded to

15

Plaintiff's requests for a conversation about Ordinance No. 13-03.

16

See Doyle Decl. ISO TRO ¶ 18.

17

Net Connection Hayward for fear of prosecution or other legal

18

action.

19

See id. at 1-3.

The March 7 Letter

On March 11, 2013, Plaintiff closed

Id. ¶ 20.

Plaintiff sued Defendant on March 19, 2013, asserting five

20

causes of action based on the facts described above: (1) denial of

21

procedural due process, (2) denial of substantive due process, (3)

22

violation of the right to equal protection, (4) declaratory relief,

23

and (5) writ of mandate.

24

TRO on March 21, 2013, and Defendant opposed the motion on March

25

25, 2013, one day before the hearing.

26

22, 2013, Defendant noticed a public hearing on its forthcoming

27

decision to extend Ordinance No. 13-03.

28

RJN") Ex. C ("Mar. 22 Hr'g Notice").

Compl. ¶¶ 24-55.

10

Plaintiff moved for a

In the meantime, on March

ECF No. 42 ("Def.'s Supp.

1

At the hearing on Plaintiff's motion for a TRO, Plaintiff gave

2

a brief overview of the Sweepstakes Promotion and the procedure by

3

which it obtained a business license, as described above.

4

generally ECF No. 19 ("TRO Hr'g Tr.").

5

its police powers are very broad and that Plaintiff showed no

6

evidence that Defendant acted arbitrarily or unreasonably.

7

at 31-35.

8

permissible under Defendant's zoning ordinances, that Plaintiff

9

obtained its business license improperly (meaning that Plaintiff

See

Defendant responded that

See id.

Defendant added that Plaintiff's business was not

United States District Court

For the Northern District of California

10

had no vested interest in it or the operation of its business), and

11

that the Sweepstakes Promotion is illegal under California law.

12

Id. at 36-41.

13

Based on the evidence then before it, the Court granted

14

Plaintiff's TRO to maintain the status quo while the parties

15

prepared to present evidence at the preliminary injunction hearing.

16

Id. at 45.

17

the TRO would remain in full force and effect, regardless of

18

Federal Rule of Civil Procedure 65's deadlines, until the Court's

19

decision on the preliminary injunction.

20

Stip.").

After Plaintiff's TRO issued, the parties agreed that

ECF No. 17 ("Apr. 4

Plaintiff's business therefore reopened.

21

On April 2, 2013, the City's Director of Development Services

22

and the City Attorney recommended that the City Council extend the

23

moratorium it had established in Ordinance No. 13-03.

24

RJN Ex. B ("Apr. 2 Memo.").

25

background of Ordinance No. 13-03, suggested that Plaintiff's and

26

other similar businesses' licenses had been granted without

27

approval of those businesses' sweepstakes, and explained

28

Defendant's concerns about these new businesses in terms of other

Def.'s Supp.

That Memorandum described the

11

1

cities' experiences and the potential negative effects of such

2

businesses.

3

extending Ordinance No. 13-03 on April 2, and it did so

4

unanimously, enacting Ordinance No. 13-05 pursuant to California

5

Government Code Section 65868.

6

No. 13-05").4

See id. at 1-7.

The City Council met to consider

Def.'s Supp. RJN Ex. A ("Ordinance

Ordinance No. 13-05 included findings -- more detailed than

7

public health, safety, and general welfare; that Computer Gaming

10

United States District Court

what is summarized here -- that its purpose was to promote the

9
For the Northern District of California

8

and Internet Access Businesses presented new challenges for the

11

City, as evidenced by other cities' experiences with similar

12

businesses; that the City's present Zoning Ordinance Municipal Code

13

were unsuited for handling these new business developments.

14

1-5.

15

No. 13-03 and also formally declared Computer Gaming and Internet

16

Access Businesses to be nuisances.

Ordinance No. 13-05 imposed the same moratorium as Ordinance

The facts described above represent the current status of the

17
18

Id. at

parties and the relevant municipal legislation.

19
20 III.

LEGAL STANDARD

21

A plaintiff seeking a preliminary injunction must establish

22

(1) that it is likely to succeed on the merits, (2) that it is

23

likely to suffer irreparable harm absent preliminary relief, (3)

24

that the balance of equities tips in its favor, and (4) that an

25

injunction is in the public interest.

Winter v. Natural Resources

26
27
28

4

The parties often refer to the two Ordinances, Nos. 13-03 and 1305, collectively. The Court occasionally does the same, though the
operative Ordinance here is Ordinance No. 13-05, and the Court
cites that Ordinance specifically when it is important to do so.
12

1

Defense Council, Inc., 555 U.S. 7, 20 (2008).
The Ninth Circuit has formulated a version of the preliminary

2
3

injunction test in which "serious questions going to the merits"

4

and a balance of hardships tipping toward the plaintiff can support

5

the issuance of a preliminary injunction, so long as there is a

6

likelihood of irreparable injury and the injunction is in the

7

public interest (that is, so long as the plaintiff makes a showing

8

on all four prongs of the Winter test).

9

Rockies v. Cottrell, 632 F.3d 1127, 1131-33 (9th Cir. 2011).

See Alliance for the Wild
In

United States District Court

For the Northern District of California

10

other words, under this formulation, a stronger showing under one

11

factor could offset a weaker showing for another, but a plaintiff

12

must still satisfy every Winter factor.

Id. at 1135.

13
14 IV.

DISCUSSION

15

Plaintiff argues that Defendant's enactment of the Ordinances,

16

declaration of Plaintiff's business as a nuisance, and legal

17

threats to shut down Plaintiff's business deprived Plaintiff of its

18

due process and equal protection rights under the Fourteenth

19

Amendment.

20

for Plaintiff's requests for declaratory relief and a writ of

21

mandate.

22

entitled to relief regardless of the underlying legality of the

23

Sweepstakes Promotion.

24

properly at every step of the ordinance, nuisance declaration, and

25

enforcement processes.

See Br. ISO PI at 1-2.

See Compl. ¶¶ 48-55.

Id.

These claims are also the basis

Plaintiff claims that it is

Defendant argues that it acted

See Opp'n to PI at 1-2.

26

A.

27

The parties' disputes over Plaintiff's due process claims

28

Due Process

concern essentially: (a) the Ordinances' legality generally; (b)

13

1

whether Plaintiff had obtained a vested right prior to the

2

Ordinances' enactment, and how Defendant might impair that right;

3

and (b) Defendant's nuisance powers.
a.

4
5

The Ordinances

Defendant enacted Ordinance No. 13-03 as an interim urgency

6

ordinance under California Government Code section 65868.

Opp'n

7

RJN Ex. B.

8

legislative body to adopt interim urgency zoning ordinances

9

prohibiting land uses that may conflict with a contemplated general

The purpose of Section 65858 "is to allow a local

United States District Court

For the Northern District of California

10

plan amendment or another land use measure proposal which the

11

legislative body is studying or intends to study within a

12

reasonable period of time."

13

Sutter, 58 Cal. App. 4th 860, 869 (Cal. Ct. App. 1997).

14

effects of an interim urgency ordinance under Section 65858 are

15

limited to forty-five days from the date of adoption, but after

16

notice and a public hearing, the legislative body can extend the

17

ordinance.

216 Sutter Bay Assocs. v. Cnty. of
The

Cal. Gov't Code § 65858(a)-(b).

18

Interim urgency ordinances must include legislative findings

19

constituting urgency, and when those facts may reasonably be held

20

to constitute an urgency, courts generally do not interfere with or

21

determine the truth of those facts.

22

4th at 868.

23

breadth of cities' police powers, courts will neither substitute

24

their judgment for those of the legislature nor hold that a

25

legislative body's enactments were improper uses of the legislative

26

body's police powers "unless [the enactments] are palpably

27

unreasonable, arbitrary or capricious, having no tendency to

28

promote the public welfare, safety, morals, or general welfare."

216 Sutter Bay, 58 Cal. App.

Ordinances are presumptively valid, and given the

14

1

Thain v. City of Palo Alto, 207 Cal. App. 2d 173, 187 (Cal. Ct.

2

App. 1962).

3

In this case, there are two especially relevant sections of

4

Ordinance No. 13-05, the operative Ordinance at this point: the

5

part that declares Plaintiff's business a nuisance, and the part

6

that prohibits Plaintiff from operating its business.

7

Ordinance No. 13-05 defines "Computer Gaming and Internet Access

8

Businesses" as follows:

9

United States District Court

For the Northern District of California

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

First,

. . . [A]n establishment that provides one
or
more
computers
or
other
electronic
devices for access to the World Wide Web,
Internet, e-mail, video games or computer
software programs that operate alone or
networked (via LAN, WAN, wireless access or
otherwise)
or
that
function
as
a
client/server
program,
and
which
seeks
compensation or reimbursement, in any form,
from users.
"Computer Gaming and Internet
Access Business" shall also be synonymous
with
a
personal
computer
("PC")
café,
Internet
café,
cyber
café,
sweepstakes
gaming facilities, business center, Internet
sales business and Internet center with
Internet sweepstakes-type games . . . .
Ordinance No. 13-05 at 5.
The moratorium's scope, as to Computer Gaming and Internet
Access Businesses, is this:
. . . [F]rom and after the effective date of
this Ordinance, no permit or any other
applicable license or entitlement for use,
including but not limited to, the issuance
of a business license, business permit,
building permit, use permit or zoning text
amendment shall be approved or issued for
the establishment or operation of Computer
Gaming and Internet Access Businesses in the
City of Hayward.
Additionally, Computer
Gaming and Internet Access Businesses are
hereby expressly prohibited in all areas and
zoning districts in the City.

28

15

1
2
3

Id.
Ordinance No. 13-05 also declares Computer Gaming and Internet
Access Businesses to be nuisances:

4
The establishment, maintenance or operation
of a Computer Gaming and Internet Access
Business as defined herein with[in] the City
limits of the City of Hayward is a public
nuisance.
Violations of this Ordinance may
be enforced by any applicable law, including
but
not
limited
to
injunctions,
administrative
citations
or
criminal
penalties.

5
6
7
8
9

United States District Court

For the Northern District of California

10
11

Id. at 6.
Plaintiff has never disputed Defendant's ability to enact the

12

Ordinances.

13

the Ordinances themselves operate unconstitutionally to deprive

14

Plaintiff of due process and subject it to unequal treatment under

15

the law because its business is both legal and permissible under

16

the City's zoning regulations.

17

Defendant's ability to use the Ordinances to prohibit Plaintiff's

18

operation of its business after Defendant's ostensible approval of

19

the business.

20

See Reply ISO PI at 1.

Plaintiff's argument is that

Plaintiff's claims primarily attack

Id.

When a dispute over an ordinance is not whether it was validly

21

enacted but that it has been unconstitutionally applied, an

22

ordinance's broad scope is limited if it divests a plaintiff of

23

vested rights previously acquired, unless the prohibited business

24

is a nuisance.

25

311-13 (Cal. 1930) ("[W]here . . . a retroactive ordinance causes

26

substantial injury and the prohibited business is not a nuisance,

27

the ordinance is to that extent an unreasonable and unjustifiable

28

exercise of police power."); Igna v. City of Baldwin Park, 9 Cal.

See Jones v. City of Los Angeles, 211 Cal. 304,

16

Monterey Park, 163 Cal. App. 2d 339, 346-47 (Cal. Ct. App. 1958);

3

see also, e.g., Santa Barbara Patients' Collective Health Coop. v.

4

City of Santa Barbara, No. CV 10-06534 DDP, 2012 WL 5964353, at *5

5

(C.D. Cal. Nov. 29, 2012) (citing McCaslin, 163 Cal. App. 2d at

6

346-47)).

7

lawfully operating businesses by enacting new ordinances, because

8

cities generally want to avoid questions as to the

9

constitutionality of new ordinances' application to existing uses.

10

United States District Court

App. 3d 909, 913-14 (Cal. Ct. App. 1970);

2

For the Northern District of California

1

Hansen Bros. Enters., Inc. v. Bd. of Supervisors, 12 Cal. 4th 533,

11

550 (Cal. 1996); Bauer v. City of San Diego, 75 Cal. App. 4th 1281,

12

1291 (Cal. Ct. App. 1999).

13

claims.

14

McCaslin v. City of

This principle limits cities' abilities to close

The same concern animates Plaintiff's

Courts interpret municipal ordinances in the same manner and

15

pursuant to the same rules applicable to the interpretation of

16

statutes.

17

1068, 1087 (Cal. Ct. App. 2013).

18

function.

19

the Ordinance, that the Ordinance prohibits the operation of

20

Plaintiff's business.

21

not appear to be at issue.

22

whether Plaintiff obtained a vested interest in the operation of

23

its business, and if so, whether Defendant could lawfully impair

24

that interest.

25
26

See City of Monterey v. Carrnshimba, 215 Cal. App. 4th

Id.

Such interpretation is a judicial

The Court finds it clear, based on the language of

b.

Ordinance No. 13-05 at 5.

That much does

The remaining issues are therefore

Vested Rights

The doctrine of vested rights states that a property owner who

27

has performed substantial work and incurred substantial

28

liabilities, in good faith reliance on a government permit, has a

17

1

vested right to use the premises as the permit allows.

Communities

2

for a Better Env't v. S. Coast Air Quality Dist., 48 Cal. 4th 310,

3

323 (Cal. 2010).

4

public entities may impair vested rights where necessary to protect

5

the health and safety of the public," impairment of a vested right

6

without due process is a constitutional violation, unless the use

7

is a public nuisance.

8

App. 4th 639, 648-49 (Cal. Ct. App. 1996); see also McCaslin, 163

9

Cal. App. 2d at 346-47.

While "[i]t is well settled in California that

Davidson v. County of San Diego, 49 Cal.

United States District Court

For the Northern District of California

10

Plaintiff argues that it obtained a vested right to operate

11

its business when it obtained a business license (coupled with a

12

discretionary approval from a land use perspective) from Defendant.

13

See Br. ISO PI at 3.

14

business license does not confer a right to do business in Hayward,

15

and in any event, any vested rights in this case would be limited

16

to computer time rental and ancillary business services -- not

17

operation of a sweepstakes.

18

that it can lawfully impair a vested right to protect public health

19

and safety or to abate a nuisance.

20

Cal. at 317; Davidson, 49 Cal. App. 4th at 648-49).

21

dispute that Plaintiff spent time and money setting up Net

22

Connection Hayward.

23

Defendant responds that mere issuance of a

Opp'n to PI at 11-13.

Defendant adds

Id. at 14-15 (citing Jones, 211
There is no

Defendant relies mainly on City of Corona v. Naulls, 166 Cal.

24

App. 4th 418 (Cal. Ct. App. 2008), in which the operator of a

25

medical marijuana dispensary had obtained a license to do business

26

in the City of Corona but was found not to have a vested right to

27

do business in the City.

28

in the trial court's decision in Naulls (and the appellate court's

Id. at 427.

18

However, the critical fact

City of Corona that he was going to operate a medical marijuana

3

facility.

4

operate a "miscellaneous retail" facility, explained nothing

5

further -- he obtained his license essentially under false

6

pretenses.

7

effort to be transparent with the City.

8

his business, he invited Mr. Patenaude to look around his other

9

businesses, and he made no attempt to hide that he would operate a

10

United States District Court

affirmation of it) was that the dispensary operator never told the

2

For the Northern District of California

1

cash-prize sweepstakes (even though he did not fully explain that

11

sweepstakes's architecture).

12

Patenaude Letter.

13

businesses and was given the opportunity to play the sweepstakes

14

games and investigate further, though he apparently did not choose

15

to go very deeply.

Id. at 427-28.

Id.

His application stated that he would

In this case, Mr. Doyle appears to have made every
He sent emails describing

See, e.g., Tr. at 14-15, 17;

Indeed, Mr. Patenaude visited Mr. Doyle's other

See, e.g., Tr. at 223-25, 228-29, 232-35.

16

Defendant's failure to investigate the matter and make a

17

different finding at the time Plaintiff originally applied for its

18

license is not Mr. Doyle's fault.

19

supposed to do.

20

one of the ancillary business services Plaintiff planned to offer,

21

therefore limiting Plaintiff's license to "rental of

22

computer/Internet time, provision of facsimile and copy services,

23

and incidental sales of prepackaged snack foods," Opp'n to PI at

24

13, but the Court finds otherwise.

25

nature of its business to Defendant.

26

to get Defendant to examine his sweepstakes program, but Defendant

27

was apparently not inclined to do so.

28

Both parties did what they were

Defendant contends that the sweepstakes were not

Again, Plaintiff made clear the
Mr. Doyle did what he could

The Court finds that Plaintiff obtained a vested right to

19

1

operate its business when Defendant approved its business license

2

from a land use perspective.

3

prohibits the operation of business without a license and makes the

4

operation of certain business contingent on Defendant's approval,

5

Defendant's agent Mr. Patenaude approved Plaintiff's business from

6

a land use perspective, indicating that Plaintiff had satisfied

7

requirements -- what more was Plaintiff expected to do?

8

Br. ISO PI at 3, 7-10; Pl.'s RJN ISO TRO Exs. E ("Municipal Code

9

Sections 1-3.00 - 1-3.07"), F ("Municipal Code Sections 4-1.00 - 4-

Even though Hayward's Municipal Code

See Pl.'s

United States District Court

For the Northern District of California

10

1.67").

11

purposes, and that Plaintiff had no right to operate its business

12

absent compliance with law and Defendant's approval, must fail.

13

See Opp'n at 11-12.

14

perspective, which in Plaintiff's and the Court's view appears to

15

be a sign-off on Plaintiff's business's legality.

16

Defendant's argument that the license was only for tax

Defendant approved the license from a land use

Since the Court has found that Plaintiff had a vested interest

17

in the operation of its business after Defendant approved the

18

license, the Court must consider the exception to the due process

19

rule from Jones -- whether Defendant impaired Plaintiff's vested

20

interest in response to a nuisance.

21

also Davidson, 49 Cal. App. 4th at 648-49; McCaslin, 163 Cal. App.

22

2d at 346-47.

23
24

c.

Jones, 211 Cal. at 317; see

Nuisances

Defendant argues that it lawfully declared Plaintiff's

25

business, and specifically its sweepstakes operation, to be a

26

public nuisance.

27

whether Plaintiff has a vested right in its business, Defendant can

28

impair that right to protect public health and safety or to respond

Opp'n to PI at 7-8.

20

It adds that regardless of

1

to a nuisance.

Id. at 14-15.

Plaintiff responds that Defendant

2

acted arbitrarily and irrationally both in enacting the Ordinance

3

and declaring Plaintiff's business a nuisance, and that Plaintiff

4

was entitled to a judicial determination of the nuisance

5

declaration's validity before Defendant could take action based on

6

a nuisance per se.

7

states that Defendant cannot argue that Plaintiff's business is a

8

nuisance per se, since Defendant approved Plaintiff's business from

9

a land use perspective, and that Defendant failed to demonstrate

See Reply ISO PI at 1-4, 6-8.

Plaintiff also

United States District Court

For the Northern District of California

10

that Plaintiff's business is illegal under the Penal Code.

11

8-14.

12

In this dispute, the Court finds for Defendant.

Id. at

Cities have a

13

statutory power to declare activities or conduct to be nuisances

14

per se.

15

Zone Conservation Comm'n, 43 Cal. App. 3d 315, 319 (Cal. Ct. App.

16

1974).

17

se, courts do not look to the common law of nuisance or to state

18

statutes to determine whether a nuisance exists, nor do courts

19

substitute their judgment for the legislature's in examining the

20

danger caused by a nuisance per se -- the only question is whether

21

a statutory violation exists and whether the statute is

22

constitutionally valid.

23

2d 93, 100 (Cal. 1966) (en banc); People ex rel Dep't of Transp. v.

24

Outdoor Media Grp., 13 Cal. App. 4th 1067, 1076-77 (Cal. Ct. App.

25

1993).

Cal. Gov't Code § 38771; see also CEEED v. Cal. Coastal

Whenever a city has declared something to be a nuisance per

See City of Bakersfield v. Miller, 64 Cal.

26

Neither notice nor a hearing is required when a city declares

27

something a nuisance per se, but both are required when government

28

acts to terminate an existing land use activity.

21

CEEED, 43 Cal.

1

App. 3d at 319.

2

declare something a nuisance.

3

process, cities may not act arbitrarily or unreasonably in

4

declaring nuisances per se.

People ex rel. Gallo v. Acuna, 14 Cal.

5

4th 1090, 1107 (Cal. 1997).

Second, activities or conduct that are

6

expressly permitted under statute cannot be deemed nuisances.

7

Civ. Code § 3482.

8
9

There are two broad limits on a city's ability to
First, per constitutional due

Only the first limit is at issue here.

Cal.

The Court finds that

Defendant did not act arbitrarily or unreasonably in enacting the

United States District Court

For the Northern District of California

10

Ordinances and declaring Plaintiff's business a nuisance.

11

Court owes deference to Defendant's choices on this matter, Thain,

12

207 Cal. App. 2d at 186-87, and Defendant made findings as to the

13

necessity of its decision that the Court will neither over-analyze

14

nor second-guess.

15

studied the issue, enacted a moratorium on a particular land use,

16

then gave notice and held a hearing for that moratorium's extension

17

and the declaration of a nuisance.

18

Memo.; Ordinance No. 13-03; Ordinance No. 13-05; Mar. 22 Hr'g

19

Notice.

20

See Ordinance No. 13-05 at 1-5.

The

Defendant

See Feb. 19 Memo.; Apr. 2

Plaintiff argues that Defendant lacked a rational basis to

21

make these decisions because its evidence concerned activity

22

outside Hayward and Defendant (in Plaintiff's estimation) did not

23

prove that Plaintiff's sweepstakes promotion is illegal.

24

PI at 6-8; see also, e.g., Ordinance No. 13-05 at 1-5 (discussing

25

evidence that other cities have had problems with businesses like

26

Plaintiff's).

27

none of Defendant's evidence in support of either its Ordinances or

28

nuisance determination concerns facts specific to Plaintiff's

Reply ISO

As to the first point, Plaintiff is correct that

22

1

business, and that Plaintiff has not had any typical nuisance

2

problems like drug activity or prostitution.

3

12.

4

due process context, the Court's job is to evaluate whether the

5

object of the ordinance is proper, and if so, whether the ordinance

6

bears a reasonable and substantial relation to its object.

7

Thain, 207 Cal. App. 2d at 186.

8

Defendant needed to wait for the same negative effects it observed

9

in other municipalities to arise in its own downtown before it

See Br. ISO PI at 9-

But deep inquiries into the evidence are unnecessary: in the

In this case, no law suggests that

United States District Court

10
For the Northern District of California

See

could respond to a new land use development.

This is not arbitrary

11

or unreasonable action.

12

enacting the Ordinance was proper and that Defendant showed

13

rational grounds for its enactment.

The Court finds that Defendant's object in

14

At several points, Plaintiff asserts that, nuisance

15

declaration aside, it deserved a judicial determination before

16

Defendant could actually take action against the alleged nuisance

17

of Plaintiff's business.

See Br. ISO PI at 4-5; Reply ISO PI at 2-

18

3; Br. ISO TRO at 21-22.

This is not true.

19

nuisance on its own, even though abatement requires additional

20

process (such as notice, hearing, and potentially judicial review).

21

See CEEED, 43 Cal. App. 3d at 319.

22

because Plaintiff sued Defendant before the abatement process got

23

underway, and so the facts before the Court concern only

24

Defendant's process up to that point.

A city can declare a

The parties never got that far,

25

Plaintiff's strongest argument that it was entitled to due

26

process in the form of a judicial determination of the nuisance

27

declaration's validity comes from Leppo v. City of Petaluma, 20

28

Cal. App. 3d 711 (Cal. Ct. App. 1971), in which the California

23

1

Court of Appeal stated that under neither common law nor its

2

statutory power to declare and abate public nuisances could a city,

3

by mere declaration, make a property a nuisance "when in fact it is

4

not."

5

App. 4th 241, 244 n.4 (Cal. Ct. App. 1999) (citing Leppo, 20 Cal.

6

App. 3d at 718).

7

to establish by a preponderance of the evidence that an emergency

8

existed before it declared something to be a nuisance.

9

ISO PI at 1-2.

Id. at 718; see also Flahive v. City of Dana Point, 72 Cal.

According to Plaintiff, Leppo requires Defendant

See Reply

However, Plaintiff's contention blurs the legal

United States District Court

For the Northern District of California

10

distinction between the process required when a city declares

11

something to be a nuisance and when a city acts to abate a

12

nuisance.

13

something to be a nuisance, its powers are broad indeed, as

14

described above.

15

concern that a city could declare something a nuisance "when it in

16

fact is not" is a narrower statement than it seems, as the Court of

17

Appeal recently clarified in Golden Gate Water Ski Club v. Cnty. of

18

Contra Costa, 165 Cal. App. 4th 249, 256 (Cal. Ct. App. 2008).

19

In Golden Gate, the court stated that Leppo and Flahive's

See CEEED, 43 Cal. App. 3d at 319.

When a city declares

In this context, the Leppo and Flahive courts'

20

statements that a city's "designation of a nuisance does not

21

necessarily make it so" addressed "the situation where there is

22

some factual dispute which, if determined in favor of the

23

landowner, would mean the landowner was not in fact violating

24

zoning law or land use ordinance."

25

Similarly, the defendants in City of Claremont v. Kruse, 177 Cal.

26

App. 4th 1153, 1167-68 (Cal. Ct. App. 2009), cited Leppo for their

27

argument that a city could not enforce an ordinance declaring a

28

condition that violated the city municipal code to be a public

24

165 Cal. App. 4th at 256.

1

nuisance, absent a judicial determination.

The court in Kruse

2

distinguished Leppo by noting that it concerned neither a similar

3

ordinance nor a nuisance per se -- rather, Leppo concerned whether

4

a city could dispense with a due process hearing and summarily

5

demolish a building pursuant to its nuisance abatement powers.

6

In this case there is no factual dispute that Plaintiff's

7

business violated the Ordinances, which are the operative land use

8

laws in this case.

9

simplicity of Leppo is not apposite here, since Defendant has both

Id.

Further, as the court in Kruse noted, the

United States District Court

For the Northern District of California

10

gone through statutorily mandatory process for its ordinance and

11

exercised its nuisance per se powers.

12

factual contentions about Defendant's nuisance declaration are

13

misplaced: they go toward whether Defendant acted unreasonably or

14

arbitrarily in declaring Plaintiff's business a nuisance, not

15

whether the business is in fact a nuisance.

16

did not act unreasonably or arbitrarily, Plaintiff's challenge

17

fails.

Accordingly, Plaintiff's

And since Defendant

At this point, no further examination of Defendant's

18
19

Ordinances is necessary.

It does not even matter whether Defendant

20

was right or wrong about the sweepstakes promotion's legality,

21

because the overriding question is whether Defendant's responses to

22

its decision that the promotion was illegal were proper.

23

were.

24

Plaintiff's business a nuisance, but even in enacting the

25

Ordinances, Defendant acted within the law.

26

pass Ordinance No. 13-03 without the usual notice and hearing, and

27

it provided the statutorily requisite hearing for Ordinance No. 13-

28

05.

They

It is enough that Defendant acted properly in declaring

It was permitted to

See Mar. 22 Hr'g Notice; Tr. at 36 (Mr. Doyle spoke at the

25

1

hearing).
d.

2
3

Conclusion as to Plaintiff's Due Process Claims

As explained above, Plaintiff has shown no likelihood of

4

success on its substantive or procedural due process claims.

5

Defendant followed the proper procedures in enacting and enforcing

6

the Ordinances, and Defendant did not act arbitrarily or

7

unreasonably in doing so.

Plaintiff also claims that Defendant's enactment and

10

United States District Court

B.

9
For the Northern District of California

8

Equal Protection

enforcement of the Ordinances violated Plaintiff's Fourteenth

11

Amendment right to equal protection under the law.

12

alleges that Defendant treated Plaintiff differently than similarly

13

situated businesses, for no rational reason.

14

(citing Village of Willowbrook v. Olech, 528 U.S. 562, 564 (2000)).

15

Plaintiff's claim is based on its allegation that while Hayward is

16

home to other businesses that operate sweepstakes promotions for

17

cash prizes, Defendant targeted only Plaintiff with its enforcement

18

efforts.

19

fails to show any facts indicating that it was irrationally treated

20

differently from any similarly situated business, and in any event,

21

Defendant's actions were rationally related to its legitimate

22

interest in regulating land use and putting a check on potentially

23

criminal conduct.

See id. at 23-24.

Plaintiff

See Br. ISO PI at 23

Defendant responds that Plaintiff

Opp'n to PI at 10-11.

24

When a government's action does not involve a suspect

25

classification or implicate a fundamental right, it will survive

26

constitutional scrutiny for an equal protection violation as long

27

as it bears a rational relation to a legitimate state interest.

28

New Orleans v. Dukes, 427 U.S. 297, 303-04 (1976); Lockary v.

26

1

Kayfetz, 917 F.2d 1150, 1155 (9th Cir. 1990).

2

standard is quite deferential: it forbids the Court from judging

3

the wisdom, fairness, or logic of legislative choices, and where

4

there are "plausible reasons" for the legislature's action, the

5

Court's "inquiry is at an end."

6

449 U.S. 166, 174-79 (1980); see also FCC v. Beach Commc'ns, Inc.,

7

508 U.S. 307, 313-14 (1993).

U.S. R.R. Retirement Bd. v. Fritz,

To establish its equal protection claim in this case,

8
9

The rational basis

Plaintiff must establish that Defendant "intentionally, and without

United States District Court

For the Northern District of California

10

rational basis, treated [Plaintiff] differently from others

11

similarly situated."

12

Plaintiff contends that according to Defendant's own arguments,

13

Defendant specifically targeted Plaintiff's Sweepstakes Promotion

14

because sweepstakes games are not permitted under any city

15

ordinance.

16

other businesses' sweepstakes are legally identical to Plaintiff's,

17

and so if Defendant was really aiming to curtail sweepstakes for

18

zoning compliance reasons, it should have targeted those businesses

19

too.

20

that Defendant's enforcement actions against Plaintiff and other

21

Internet cafes must have been irrational and pretextual, given the

22

Sweepstakes Promotion's similarity to those run by better-

23

established businesses like McDonald's or Coca-Cola.

24

Village of Willowbrook, 528 U.S. at 564.

Reply ISO PI at 7.

Id. at 7-8.

However, according to Plaintiff,

Plaintiff's argument (partly by implication) is

See id.

Part of Plaintiff's argument appears to urge the Court to

25

analyze the workings of Plaintiff's sweepstakes software and

26

compare it to Plaintiff's evidence on other businesses'

27

sweepstakes.

28

rules and some brief, vague testimony on how the McDonald's

That evidence consists of an array of sweepstakes

27

1

sweepstakes might work.

2

Exs. A-M (providing other sweepstakes rules); Tr. at 135-46.

3

See ECF No. 3-3 ("Griffin Decl. ISO TRO")

The Court declines to consider these issues.

It is

this point, and the Court will not (and cannot) issue an advisory

6

opinion on that matter.

7

(forbidding advisory opinions).

8

evidence to determine whether any other businesses' sweepstakes are

9

similar, much less identical, to Plaintiff's, or even whether the

10

United States District Court

unnecessary to answer questions about the sweepstakes' legality at

5

For the Northern District of California

4

other businesses Plaintiff and Defendant mention (e.g., Coca-Cola,

11

Carl's Jr., or Wal-Mart) could qualify as Computer Gaming and

12

Internet Access Businesses under the Ordinances.

13

and Plaintiff's witness's guesses about another business's

14

sweepstakes is not enough to permit the Court to decide this issue.

15

Flast v. Cohen, 392 U.S. 83, 96 (1968)
Besides, the Court lacks enough

A list of rules

What is clear from the evidence is that Plaintiff has failed

16

to show any likelihood of success on its equal protection claim.

17

If the Court looks to the most obviously similarly situated

18

businesses -- Internet cafes like Plaintiff -- most of those

19

businesses are already in court, on one side of the table or the

20

other.

21

Chances Are, LLC v. City of Hayward, No. CV 13-2383 SC.

22

no disparate treatment (much less irrational action) there, and

23

Plaintiff does not claim that there was.

24

that even if the Court assumes that businesses as different from

25

Plaintiff as Wal-Mart, McDonald's, and Carl's Jr. are "similarly

26

situated" for purposes of equal protection law -- which they may

27

be, given the breadth of the Ordinances -- and even if all of these

28

businesses' sweepstakes operate identically, Plaintiff has not

See, e.g., Ibiz LLC v. City of Hayward, No. CV 13-1537 SC;

28

There is

However, the Court finds

1

established that Defendant had no rational basis for taking

2

enforcement action against Plaintiff instead of McDonald's, for

3

example.

4

The parties spar on what Defendant's actual motives were, but

5

Defendant states that its aim was to stop what it saw as both

6

forbidden activity under its land use ordinances and potentially a

7

form of illegal gambling, and also to provide a longer review

8

period for the City Council's decision about what to do with these

9

new businesses.

See Opp'n to PI at 10-11.

This is enough for

United States District Court

For the Northern District of California

10

rational basis review.

11

related to Defendant's goals, the Court's inquiry must stop there.

12

U.S. R.R. Retirement Bd., 449 U.S. at 179.

13

not find that any evidence suggests pretext on Defendant's part.

14

Plaintiff might think that Defendant's decision was wrong, but

15

Plaintiff never established evidence suggesting that Defendant had

16

an ulterior motive in pursuing its enforcement actions against

17

Plaintiff and other similar Internet cafes.

18

at 1155-56 (plaintiffs in equal protection action raised issue of

19

fact as to a utility board's allegedly pretextual and therefore

20

irrational decision to refuse a water hookup due to water shortage,

21

since plaintiffs' facts indicated that there was no water shortage

22

at all).

23
24

Since it is plausible and rationally

Further, the Court does

Cf. Lockary, 917 F.2d

The Court finds that Plaintiff has not shown a likelihood of
success for its equal protection claim.

25

C.

Declaratory Judgment

26

Plaintiff requests a declaration that (1) the operation of its

27

business and its offering of a promotional sweepstakes is

28

permissible under the Hayward Zoning Ordinance, or is otherwise a

29

1

legal nonconforming use; and (2) the sweepstakes system Plaintiff

2

uses is legal and permissible under California law.

3

51.

4

Compl. ¶¶ 48-

The parties extensively briefed these issues as they applied

5

to Plaintiff's constitutional claims, but they did not brief the

6

underlying issues of whether declaratory judgment is proper in this

7

case or whether Plaintiff has showed a likelihood of succeeding on

8

its claim for declaratory relief.

9

question that the parties meet the requirements for federal

At this point, there is no

United States District Court

For the Northern District of California

10

jurisdiction in this case, or that the parties have no pending

11

state actions between themselves.

12

declaratory relief claim at the preliminary injunction stage, the

13

Court must consider whether Plaintiff's argument on this point

14

satisfies the Winter factors, as modified by the Ninth Circuit.

15

In considering Plaintiff's

The Declaratory Judgment Act ("DJA") allows a district court

16

to "declare the rights and other legal relations of any party

17

seeking such declaration, whether or not further relief is or could

18

be sought," but only "[i]n a case of actual controversy."

19

U.S.C. § 2201(a).

20

Circuit applies a two-part test to determine whether jurisdiction

21

over a claim for a declaratory relief is appropriate. Principal

22

Life Ins. Co. v. Robinson, 394 F.3d 665, 669 (9th Cir. 2005).

23

court must first determine if an actual case or controversy exists

24

within its jurisdiction.

25

whether to exercise its jurisdiction.

26

28

Under the Declaratory Judgment Act, the Ninth

Id.

The

If so, the court must then decide
Id.

In determining whether to exercise jurisdiction, courts are

27

guided by the factors from Brillhart v. Excess Ins. Co., 316 U.S.

28

491 (1942).

"The Brillhart factors are non-exclusive and state

30

1

that, '[1] the district court should avoid needless determination

2

of state law issues; [2) it should discourage litigants from filing

3

declaratory actions as a means of forum shopping; and [3] it should

4

avoid duplicative litigation.'"

5

at 669 (quoting Dizol, 133 F.3d at 1225) (alterations in original).

6

Additionally, the Ninth Circuit asks district courts to consider

7

whether the declaratory action will be useful in clarifying the

8

legal relations at issue, thereby affording relief from

9

uncertainty, insecurity, and controversy giving rise to the

Principal Life Ins. Co., 394 F.3d

United States District Court

For the Northern District of California

10

proceeding.

McGraw-Edison Co. v. Preformed Line Prods. Co., 362

11

F.2d 339, 342 (9th Cir. 1966), cert denied 385 U.S. 919 (1966).
As to Plaintiff's first request for declaratory judgment --

12
13

that the operation of its business and its offering of a

14

promotional sweepstakes is permissible under the Hayward Zoning

15

Ordinance, or is otherwise a legal nonconforming use -- the Court

16

finds no likelihood of success.

17

above, at length.

The Court discussed this issue

18

As to Plaintiff's second request -- to declare Plaintiff's

19

Sweepstakes Promotion legal under California law -- the Court finds

20

no likelihood of success.

21

matter, and for the Court to decide the issue now would be an

22

impermissible advisory opinion.

There is no actual controversy on that

Flast, 392 U.S. at 95-96.

It is true that courts may grant declaratory relief on the

23
24

constitutionality of state criminal statutes when prosecution has

25

been threatened but is not pending.

26

U.S. 452, 469-70 (1974).

27

case.

28

Defendant's Ordinances were unconstitutionally enacted, but as the

See Steffel v. Thompson, 415

But that situation does not apply to this

Plaintiff's claims are based on Plaintiff's contentions that

31

1

Court has found, that is not the case here.

Plaintiff's requested

2

declaratory relief is very different: it asks the Court to decide

3

whether the California gambling laws should apply to Defendant's

4

Sweepstakes Promotion, even though as noted above, and as Plaintiff

5

agrees, the legality of the Sweepstakes Promotion is not relevant

6

to Plaintiff's constitutional claims.

7

legality of [Plaintiff's] sweepstakes is a disputed issue, the

8

resolution of this motion [for a preliminary injunction] does not

9

depend on the outcome of that issue.")

Br. ISO PI at 2 ("While the

As such, if the Court were

United States District Court

For the Northern District of California

10

to issue a ruling on whether Plaintiff's sweepstakes system is

11

legal and permissible under California law, the Court would

12

essentially be issuing an advisory opinion on a state statute even

13

though the statute's constitutionality has not been challenged, and

14

the statute itself is not relevant to Plaintiff's other

15

constitutional claims.

16

against advisory opinions).

Flast, 392 U.S. at 95 (discussing rule

Therefore none of the factors from Brillhart, Dizon, or

17
18

McGraw-Hill favor the exercise of jurisdiction under the DJA or

19

indicate that Plaintiff has shown a likelihood of success for its

20

declaratory relief claims regarding the legality of the

21

sweepstakes.

22

relief matter would resolve no actual controversies, settle no

23

rights at issue in this case, and would result in the Court's

24

making an unnecessary decision on state law.

In short, resolution of this particular declaratory

Accordingly, the Court finds that Plaintiff has not shown a

25
26

likelihood of success for its declaratory judgment claim under

27

Winter.

28

///

32

1

D.

Writ of Mandate

2

Plaintiff requests a writ of mandate invalidating the

3

Emergency Ordinance as applied to Net Connection and directing

4

Defendant to cease all enforcement efforts against Net Connection

5

pursuant to the Emergency Ordinance.

6

above, Plaintiff has not shown sufficient likelihood of success on

7

the merits to warrant the Court's issuing a writ of mandate.

8

claim will not suffice to show the necessity of a preliminary

9

injunction under Winter.

Compl. ¶¶ 52-55.

As stated

This

United States District Court

For the Northern District of California

10

E.

Conclusion on Plaintiff's Preliminary Injunction

11

Under both Winter alone and the Ninth Circuit's formulation of

12

the sliding scale test, Plaintiff has not shown that a preliminary

13

injunction should issue.

14

632 F.3d at 1131-33.

15

success on the merits on any of its claims, and without a showing

16

under every Winter factor, Plaintiff cannot obtain a preliminary

17

injunction.

18

///

19

///

20

///

21

///

22

///

23

///

24

///

25

///

26

///

27

///

28

///

Winter, 555 U.S. 7, 20 (2008); Cottrell,

Plaintiff has failed to show a likelihood of

See Cottrell, 632 F.3d at 1131-33.

33

1

V.

CONCLUSION
For the reasons described above, Plaintiff Net Connection

2
3

Hayward LLC's motion for a preliminary injunction is DENIED.

The

4

Court wishes to make clear that Plaintiff's motion is denied

5

because it was directed only to issues of due process, equal

6

protection, declaratory relief, and mandate, as discussed above.

7

However, the plaintiff in the related case of IBiz, LLC v. City of

8

Hayward, Case No. 13-1537, succeeded on a First Amendment challenge

9

-- which Plaintiff did not make in this case -- and was granted a

United States District Court

For the Northern District of California

10

preliminary injunction against the ordinance that was at issue

11

here.

12

injunction, even though Plaintiff's motion is denied.

Defendant City of Hayward remains subject to that

13
14

IT IS SO ORDERED.

15
16
17

Dated: July 18, 2013
UNITED STATES DISTRICT JUDGE

18
19
20
21
22
23
24
25
26
27
28

34