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Houston Strip Club Claims City Favors Competitors

A Houston strip club whose dancers must abide by a “no-touch” rule claims in a federal antitrust lawsuit that the city set it up to fail when it authorized topless lap dances at 16 rival clubs exempt from the rule through a settlement.

HOUSTON (CN) – A Houston strip club whose dancers must abide by a “no-touch” rule claims in a federal antitrust lawsuit that the city set it up to fail when it authorized topless lap dances at 16 rival clubs exempt from the rule under a settlement.

To crack down on a rash of seedy strip clubs, Houston passed an ordinance in 1997 that banned sexually oriented businesses from operating without a permit within 1,500 feet of a residential neighborhood, school, church, park or day care center.

The law targeted prostitution and pimps as it banned all private rooms, also known as VIP or champagne rooms, in strip clubs, prohibited clubs from hiring dancers accompanied by another person who speaks for them or collects their pay, and barred clubs from hiring anyone convicted of a prostitution or drug offense within the past five years.

The ordinance also made it illegal for a stripper to touch a customer while dancing or get closer than 3 feet from them.

Sixteen strip clubs promptly sued the city and after 16 years of litigation, they reached a settlement in 2013 that Dobbins Chang LLC dba Fantasy Plaza claims puts itself and dozens of other Houston strip clubs, who are not part of the settlement, at a disadvantage.

Fantasy Plaza, represented by Albert Van Huff of local firm Monshaugen & Van Huff, sued the city in Houston federal court on Thursday.

The settlement exempts the 16 clubs from the no-touch rule, authorizing their strippers to perform topless lap dances. It also exempts them $5 per customer tax the city imposed on strip clubs in 2012.

In return, the 16 clubs agreed to collectively pay Houston, through a percentage of their liquor sales, more than $1 million per year into a human-trafficking abatement fund the city set up as part of the settlement.

Then-Houston Police Chief Charles McClelland told local media in 2013 that HPD would use the fund to hire seven new officers for the department’s vice unit, solely focused on human trafficking.

Fantasy Plaza claims in its lawsuit that the fund’s main purpose was to put strip clubs that were not part of the settlement out of business.

“City officials have characterized the clubs that were not part of the settlement as ‘rogue clubs’ that needed to be shut down,” the lawsuit states.

Fantasy Plaza says the settlement drove both its clients and dancers to the 16 clubs that signed the settlement because those clubs can offer topless lap dancing, generating more income at the door and more tips for the dancers, while saving on the $5 per customer tax that other clubs have to pay.

“Because Fantasy Plaza must abide by city law, it cannot compete for customers in the same manner as these competitors, which has caused and will continue to cause Fantasy Plaza to lose business and, ultimately, to fail,” the complaint states.

Fantasy Plaza’s attorney, Van Huff, did not immediately respond Thursday afternoon when asked if he intends to amend the lawsuit to make it a class action.

The complaint says the settlement puts Fantasy Plaza and “other similarly situated” clubs at a severe disadvantage, wording that is always used in class actions.

Fantasy Plaza claims the city is effectively taking bribes – through a cut of the 16 clubs’ alcohol sales – not to enforce the law against them in violation of the Robinson-Patman Act, a federal law that bars anticompetitive practices including price discrimination.

The club says the city has also run afoul of the Sherman Antitrust Act. To make a Sherman Act case, a plaintiff must prove three elements: the existence of an agreement which unreasonably restrains competition and affects interstate commerce.

It an attempt to prove the settlement touches on interstate commerce, Fantasy Plaza’s lawsuit claims many people who patronize Houston strip club are visiting from other states and the clubs sell alcohol bought in interstate commerce from wholesale distributors.

Fantasy Plaza also says that many Houston strippers travel around the country working at different clubs throughout the year, and that its exclusion from the settlement has reduced its revenue needed to buy supplies from out-of-state vendors.

Houston Mayor Sylvester Turner’s office did not respond Friday afternoon to a request for comment on the lawsuit.

Houston charges sexually oriented businesses $2,280 for new operating permits and $1,140 to renew their permits, according to a city fee schedule.

Fantasy Plaza seeks actual and treble damages of more than $1 million for alleged violations of the Sherman Act, Robinson-Patman Act, and the due process and equal protection provisions in the Fifth and 14th Amendments.

It also seeks a declaration that the settlement agreement is an “illegal restraint on trade and an illegal commercial bribery scheme,” and a permanent injunction forcing the city to stop giving preferential treatment to the 16 clubs.

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Categories / Business, Law, Regional

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