Judge overturns brothel license rule

A residency requirement that prevented a Texas businessman from taking over the Chicken Ranch brothel near Pahrump has been declared unconstitutional.

Bruce Kahn, who lives in the Dallas area, was in the process of purchasing the Chicken Ranch in 2007 when Nye County officials denied his application for a license to operate the bordello. According to a Nye County ordinance, a license application must include evidence that the applicant has lived in the state for at least six months.

"Now buyers from outside of the state will be able to apply to purchase the Chicken Ranch without first having to move to Nevada to be able to make the application," Las Vegas attorney Allen Lichtenstein said.

Lichtenstein represents Western Best Ltd., which owns the brothel. He is working on the case in a private capacity and not in his role as general counsel and interim executive director of the American Civil Liberties Union of Nevada.

U.S. District Judge James Mahan's ruling does not affect a Nye County ordinance that requires licensees to operate their brothels from within the state of Nevada. Las Vegas attorney Clyde DeWitt, who represents Kahn, said his client told Nye County officials he would move to Las Vegas after he obtained his license.

Lichtenstein said no offers to purchase the Chicken Ranch are pending.

"One of the reasons that we went to court is because several times over the last few years discussions concerning the sale of the Chicken Ranch stalled immediately because of the residency requirement," the lawyer said.

Lichtenstein said Mahan's ruling resolves a "key issue" in the case, but Reno attorney Brent Ryman, who represents Nye County, said the decision addressed "simply one small portion of the case."

Ryman said "the county believes there were a number of reasons" to deny Kahn's application.

Kahn's company, TCR Holdings, filed a federal lawsuit in March 2009 against Nye County.

Ryman said no decision has been made about whether to appeal Mahan's ruling.

Mahan's order found that the ordinance that contains the residency requirement for license applicants violates the "dormant Commerce Clause" of the Constitution.

DeWitt said the clause "has been the subject of quite a number of constitutional challenges to local regulations of interstate businesses, particularly with respect to local governments attempting to regulate the Internet."

"Most of those challenges have been successful," the lawyer said. "For that reason, we've always felt confident in that component of our case."

DeWitt said the dormant Commerce Clause prohibits local governments from enacting business regulations that exclude nonresidents from participating.

According to Kahn's lawsuit, he began negotiating to buy the Chicken Ranch in September 2006 from Western Best. Once the sale appeared feasible, Kahn created TCR Holdings, a limited liability company based in Carson City, "for the sole purpose of acquiring" the brothel.

An agreement was reached, according to the lawsuit, and TCR Holdings deposited $150,000 earnest money into an escrow account.

"Under the agreement, escrow could not be closed until TCR obtained a license from the board to operate a brothel," the lawsuit states.

After a June 19, 2007, hearing, the licensing board denied TCR's application.

According to the complaint, the application was denied because Kahn lived out of state and because he failed to provide certain information, "none of which had been requested by the board prior to the hearing and none of which was expressly required by any provision" of the Nye County Code.

Escrow expired on June 30, 2007, according to the complaint, and Kahn forfeited his earnest money in accordance with the terms of the escrow agreement. The lawsuit also claims Kahn spent about $80,000 in his effort to obtain the brothel license.

Following a March 9 hearing, Mahan orally announced his finding that Nye County's residency requirement for license applicants was unconstitutional.

Two days later, the 9th U.S. Circuit Court of Appeals overturned a 2007 ruling Mahan made in another case affecting the brothel industry. In that case, Mahan had concluded that Nevada laws limiting brothel advertising violated the First Amendment of the U.S. Constitution.

Lichtenstein, who is working on the advertising case for the ACLU of Nevada, filed a petition Thursday that asks the appeals court to reconsider its decision.

Contact reporter Carri Geer Thevenot at cgeer@reviewjournal.com or 702-384-8710.