YNOT – In a decision that may have implications for web-based businesses of all kinds, a federal appellate court has rendered a split decision in the ongoing case pitting gay adult studio Flava Works Inc. against the City of Miami. The 11th U.S. Circuit Court of Appeals reversed a federal district court’s ruling, ultimately deciding CocoDorm.com, which exists as a commercial entity only in cyberspace, nonetheless constitutes a business under Miami’s zoning code and therefore can be forced to relocate outside a residential neighborhood.However, the three-judge appellate panel also remanded the case to the lower court for reconsideration of underlying constitutional claims left unresolved at the district level.

The case began in mid-2007, when the City of Miami Code Enforcement Board ordered Flava Works to move its CocoDorm operation out of a Miami residential neighborhood because the area was not zoned for adult businesses. In September 2007, Flava Works filed suit against the city, claiming CocoDorm is not an adult business as the city defines such things because the house has no brick-and-mortar traffic. Instead, CocoDorm’s customers visit it on the internet, where they are able to watch the house’s young residents do what boys do in group-living situations when webcams are trained on them 24/7/365.

Citing a previous 11th Circuit decision in Voyeur Dorm L.C. vs. City of Tampa, Fla., in January 2009 the district court stayed the execution of an eviction order that would have forced CocoDorm from its residential location.

Interestingly, the 11th Circuit found significant differences between Flava Works Inc. vs. City of Miami and its own previous decision in Voyeur Dorm. Flava Works and its attorneys relied heavily on the Voyeur Dorm ruling, which in essence indicated adult entertainment operations that exist solely in cyberspace are not subject to the same zoning restrictions that apply to establishments offering in-person adult entertainment.

During the appeal, the City of Miami abandoned all references to adult entertainment, relying solely on a generic definition of “business.” The 11th Circuit found merit in the city’s position.

“On appeal, the City of Miami only contends that Voyeur Dorm does not address the operation of a generic business in a residential zone,” Judge Peter Fay wrote for the panel. “The City of Miami argues that Voyeur Dorm is distinguishable because it was limited to a determination of whether or not the appellant had operated an adult business establishment in a residential zone.

“…[W]e find that Voyeur Dorm does not address a prohibition against the operation of all businesses within a residential zone.” Furthermore, Fay noted, “The activities taking place at the [CocoDorm] residence do not fall within the zoning ordinance’s limited exception for home occupations” such as architect, broker or lawyer.

First Amendment and adult industry attorney Lawrence Walters called the zoning portion of the 11th Circuit’s decision disappointing. He also said Voyeur Dorm still stands as a precedent in situations where the primary issue is adult entertainment, not the location of a business in the generic sense.

“The 11th Circuit’s ruling is an unfortunate limitation on the scope of the Voyeur Dorm decision, which has been relied upon by adult website operators and voyeur houses across the country as a basis to avoid obtaining adult business permits for residential online operations,” Walters said. “The court had to split some pretty thin hairs to distinguish the Voyeur Dorm case, but it is still good law, so long as the issue involves applicability of adult business permits and not general business licenses.”

The Flava Works decision may have implications for other dorm-type online operations in the future, assuming other cities mimic Miami’s approach.

“Flava Works argues that no business was being conducted at the [CocoDorm] residence because no goods were bought or sold and nothing was manufactured on the premises,” Fay wrote in the 11th Circuit’s decision. “However, it can be reasonably asserted that raw video images, which were later sold over the internet, were created at the [CocoDorm] residence. While these images are not tangible goods, they have a commercial value and enable Flava Works to earn a profit. This seems to comport with the common definition of a business, which is ‘[a] commercial enterprise carried on for profit’ (Black’s Law Dictionary 211 [8th ed. 2004]).

“The activities taking place at the [CocoDorm] residence are part and parcel to Flava Works’ business operations,” the opinion continued. “The fact that certain aspects of the business are performed at other locations does not alter this analysis. Business objectives are the sole reason individuals are paid to live and engage in sexual activities at the [CocoDorm] residence. Flava Works would be unable to deliver content to its subscribers without these endeavors. The activities taking place at the [CocoDorm] residence are a clear violation of the prohibition against operating a business in a residential zone.”

According to Walters, the implications of the court’s ruling could have effects not only for the adult industry, but for anyone who operates an online business from home.

“I see some fairly significant repercussions from the 11th Circuit’s decision, since it undermines the reasoning behind Voyeur Dorm and treats online entertainment the same as sale of tangible goods, for purposes of licensing,” he said. “Anybody operating a home internet business could be in trouble as a result of this ruling, if they dont get a business license.”

Although the appellate court reinstated an eviction order issued by the Miami Code Enforcement Board, the Flava Works case is not over. Depending upon the lower court’s ruling about constitutional issues including free speech, equal protection and interstate vs. intrastate commerce, the 11th Circuit may be asked to address Flava Works again.

“Fortunately for Flava Works, the case is not over, and the district court will have an opportunity to rule on the constitutional issues raised as a defense to the applicability of the business license requirements,” Walters said. “I have not analyzed those constitutional arguments, so I can’t really give you odds on winning, but these are all cutting-edge issues.

“If the constitutional challenges make it back up to the 11th Circuit, the adult internet industry should consider submitting amicus briefs through the Free Speech Coalition or other organizations.”