Planning Division Manager Bill Faus received a phone call from the applicant this morning and said he awaited a formal written statement from Bilic to make the withdrawal official.

It seemed like a no-brainer for Bilic after lawyers for Home Depot - which leases the strip mall at 8800 San Ysidro Ave. north of the Gilroy Premium Outlets - sent city planners copies of a 1999 declaration that bars "adult entertainment facilities" on the premises. Credit Suisse filed the so-called declaration of conditions, covenants and restriction before it developed the property.

The declaration serves the same purpose as a homeowners' association bylaws, and when Credit Suisse sold a portion of its lot to Huberto Acevedo for his El Amigo Restaurant in 2001, the Swiss financial services company reaffirmed in an agreement with him that "no portion of the Acevedo Property shall be used for bar or lounge purposes." The agreement also restricts alcohol sales at El Amigo's to 20 percent of gross sales, and the restaurant can only operate as a full-service sit-down restaurant with alcohol for diners only.

All this spelled trouble for Ante Bilic, the Saratoga-based club owner who wants to turn Acevedo's struggling eatery into his latest venue: Showgirls. While the restaurant sits in a commercial zone that allows strip clubs if the planning commission and police chief agree, mixed public opinion and the revelation of these latest documents may derail Bilic's plans for a 56-seat club with two catwalks, a main stage for topless dancing, six lap dance booths, a pool table and an outdoor patio.

"We are in the process of notifying Mr. Acevedo and Mr. Bilic that the property cannot be used for the proposed use under these documents," Taren Weber, a real estate paralegal for Home Depot, wrote in an e-mail to the city's planning department Friday. "We ask that the city of Gilroy Planning Commission not approve the conditional use permit requested by Mr. Bilic."

Bilic has declined to comment and his lawyer could not be reached Monday. It also remained unclear whether the city would refund any of the $4,185 he has spent on his application so far, but city staff and Councilman Perry Woodward said Bilic should have been more careful.

"This is a free market economy, and somebody trying to open a new business is expected to do their own homework," Woodward said.

When he is not serving as a councilman, Woodward works as a partner at San Jose-based Terra Law, where he has spent his career thumbing through complex real estate and commercial issues, specifically cases involving land use and purchase and sale transactions, according to the company's Web site. He likened Credit Suisse to the Eagle Ridge homeowners' association retaining the right to telling homeowners what color they can paint their houses and how they can manicure their lawns even though individuals own the property.

In this particular case, Credit Suisse acted like a homeowners' association and imposed restrictions beyond the city's commercial zoning ordinance, which allows strip clubs within commercial zones and with the special permit.

"This is a very well recognized legal principal, and I'm not surprised that Home Depot is looking at this because they presumably do not want a strip club in their parking lot as they didn't want one back when they entered into negotiations with Credit Suisse," Woodward said.

As for the refund, Planning Technician Kelly Ramirez said, "If we've already gotten to this stage - you know, sending out legal notices and writing the staff report - then it's really up to the planner to determine how much time has been invested so far and then determine."

That would be City Planner Melissa Durkin, who did not return messages Monday, but Ramirez said it is not up to planners to dig up old declarations: Acevedo should have told Bilic about his tied hands before Bilic filed his application and alerted Home Depot's legal cadre.

The Planning Commission will meet Jan. 15 to discuss the issue and hear from all sides, and the city council will meet Jan. 26 at the earliest to hand down a decision if the commission rejects the permit and Bilic appeals.

Bilic could also take a bet and continue through the city's permit process with the hope of negotiating with Credit Suisse simultaneously or afterward. A conditional permit expires in three years.