The negotiated payout includes damages and attorneys’ fees.
The unconstitutional ordinance outlawed stores with "significant" and "substantial" portions of sexually explicit inventory from locating within 1,000 feet of neighborhoods, recreational facilities and businesses selling alcohol.
It has been replaced by a new law that uses a 35 percent benchmark regarding the amount of merchandise, its monetary value, the interior floor space used for its display or the revenues gained by its sale. The new law was approved by Knoxville's City Council in May 2005.
A second new ordinance also imposes licensing requirements for employees of adult-oriented businesses in the city.
The Knoxville Police Department issued dozens of citations against Fantasy Video, which stocked some 3,500 sexually explicit rental videos in a back room while offering general-interest videos in the front of the store.
The store attempted to comply with the ordinance by reducing its adult inventory, but Knox County Chancellor Daryl Fansler, calling the efforts a sham, granted the city an injunction against the store’s owners, Entertainment Resources LLC of Nashville.
The store eventually lost its lease and shut its doors in 2001.
The state Court of Appeals reversed Fansler’s ruling in 2004 and sent it back to Chancery Court for a determination of any damages due. The state Supreme Court affirmed the ruling the next year, and the U.S. Supreme Court declined to hear the city’s final appeal in December 2005.
Knoxville City Law Director Morris Kizer and attorneys for the owners reached an agreement July 25, right before a scheduled hearing to decide the damages.
The store’s attorneys were reportedly prepared to ask for about $3.5 million in damages and fees.
The city will pay the $1.5 million from a "risk fund" that exists for such instances, a city spokesperson said.
"We’re pleased that what remained of the case is resolved and we can finally close the books on this thing," said Philip N. Elbert, a Nashville attorney who represents the owners.
The city’s new ordinance requiring employee licenses has led to three separate lawsuits filed on behalf of seven adult businesses and two individual performers. Kizer said the city is delaying enforcement of the law until those lawsuits are settled.