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Scahill v. District of Columbia

United States District Court, District of Columbia

September 25, 2017

MARTIN SCAHILL, et al., Plaintiffs,
v.
DISTRICT OF COLUMBIA, et al., Defendants.

          MEMORANDUM OPINION

          JOHN D. BATES UNITED STATES DISTRICT JUDGE.

         Plaintiffs Martin Scahill and HRH Services, LLC filed this suit under 42 U.S.C. § 1983, challenging conditions placed on a liquor license issued to HRH for its restaurant, the Alibi, by the District of Columbia Alcoholic Beverage Control Board (“Board”). The conditions essentially prevent Scahill from entering the premises or playing any role in the business, which plaintiffs claim violates a number of their constitutional rights. Currently before the Court is [10] defendants' motion to dismiss for lack of standing and for failure to state a claim. For the following reasons, the motion will be granted, and plaintiffs' claims will be dismissed.

         I. BACKGROUND

         The following facts are taken from plaintiffs' complaint. In January 2015, HRH Services, owned by Rachel and Richard Traverso, applied to the ABC Board for a “New Retailer's Class CR License” for the Alibi restaurant. Am. Compl. [ECF No. 9] ¶¶ 11-12. The Board approved the liquor license on May 18, 2016, subject to certain conditions that restricted Scahill's involvement in HRH's business. Id. ¶ 13; see also Board Order No. 2016-280 (“Board Order”) [ECF No. 10-1] at 23, 36.[1] Scahill is not an owner of HRH or the Alibi, but is the guarantor on the Alibi's lease. Am. Compl. ¶¶ 12, 41. In addition, Scahill is the former owner of My Brother's Place, the restaurant that previously occupied the space in which the Alibi is located, and was the applicant listed on a prior liquor license application filed by Melles Hospitality Group. Id. ¶ 13.

         Under the terms of the liquor license, awarded to HRH by the Board, HRH must execute and maintain a barring notice against Scahill prohibiting him from entering or accessing the Alibi for five years, and must notify D.C. police within 24 hours if any violation of the barring notice occurs. Id. ¶ 13; Board Order at 24, 36. HRH is also prohibited from transferring ownership of the Alibi to Scahill, and from permitting Scahill to obtain an interest in the business, in the Alibi, or in the license. Am. Compl. ¶ 13; Board Order at 24, 36. Finally, HRH is prohibited from employing Scahill in any capacity, either in its business or at the Alibi; from giving Scahill access to or control over the business's financial accounts; and from allowing Scahill to “volunteer” for the organization. Am. Compl. ¶ 13; Board Order at 36-37. Any violation of these conditions could result in revocation of the liquor license. Am. Compl. ¶ 13; Board Order at 37.

         On May 31, 2016, HRH moved the Board for reconsideration of these conditions, which the Board denied on June 29, 2016. Am. Compl. ¶¶14-15. Scahill filed a petition for review of the Board's order with the D.C. Court of Appeals on July 27, 2016. Id. ¶ 16.[2] On October 6, 2016 the Board issued a Notice of Status and Show Cause Hearing to HRH, alleging that Scahill had been seen at the Alibi on June 10, 2016, in violation of the conditions placed on the liquor license. Id. ¶ 17. The Notice charged HRH with failing to follow the Board's order, and threatened to revoke HRH's license. Id. Plaintiffs allege that the Board's action was in retaliation for their appeals. Id. HRH and Scahill then filed this lawsuit on October 18, 2016. Id. ¶ 18. Allegedly in retaliation for filing this suit, the Board issued a second Notice of Status and Show Cause hearing to HRH on November 7, 2016, asserting that Scahill had been seen at the Alibi on July 8, 2016. Id. ¶ 19.

         Plaintiffs bring claims against the Board, the District of Columbia, and ten unnamed “John Doe” defendants under 42 U.S.C. § 1983, seeking declaratory and injunctive relief as well as damages. Plaintiffs allege that the conditions placed on the liquor license violate their First Amendment rights to freedom of speech and freedom of association, and that the Board issued the show cause orders to HRH in retaliation for plaintiffs' exercise of their First Amendment rights. In addition, plaintiffs claim that the order violates their Fifth Amendment rights to liberty, due process, and freedom of movement, and that the Board's order violates the unconstitutional conditions doctrine. Id. ¶¶ 20-52. Defendants-the District of Columbia and the Board-filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6), arguing that plaintiffs lack standing and have failed to state a claim.[3]

         II. DISCUSSION

         To survive a motion to dismiss, a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plaintiff's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. “‘Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, ' are therefore insufficient to withstand a motion to dismiss.” BEG Invs., LLC v. Alberti, 144 F.Supp.3d 16, 21 (D.D.C. 2015) (quoting Iqbal, 556 U.S. at 678). “A court need not accept a plaintiff's legal conclusions as true nor must a court presume the veracity of any legal conclusions that are couched as factual allegations.” Id. (citing Twombly, 550 U.S. at 555). Nor must a court accept as true a plaintiff's factual allegations “insofar as they contradict exhibits to the complaint or matters subject to judicial notice.” Kaempe v. Myers, 367 F.3d 958, 963 (D.C. Cir. 2004).

         Defendants argue that plaintiffs lack standing to challenge the conditions imposed on the liquor license because HRH voluntarily stipulated to these conditions, as reflected in the Board's order and findings of fact. Defendants also claim that the Board is non sui juris (meaning it cannot be sued independently), and that plaintiffs have failed to allege an unconstitutional custom or policy that would enable them to bring suit against the District. See Mot. to Dismiss at 2-3. On the merits, defendants argue that plaintiffs have failed to allege enough facts to support any of their claims. Id. at 2. The Court will consider each argument in turn.

         A. Judicial Notice

         At the outset, the Court must briefly discuss which documents it may consider in evaluating the motion to dismiss. Defendants' arguments regarding standing depend heavily on findings in the Board's order imposing the license conditions, which defendants have attached to their motion to dismiss. See Board Order. Defendants have also provided the Board's order denying the motion for reconsideration, a D.C. Court of Appeals order denying HRH's petition for review of the Board's order, and Scahill's petition for review of the Board's order. See Exs. B-D, Mot. to Dismiss [ECF Nos. 10-2 to 10-4]. Plaintiffs argue that defendants “improperly” attached these documents to their motion to dismiss, and that the Court may not consider in particular the Board's principal order, as it is outside the pleadings and not “integral” to the complaint. The Court disagrees, for several reasons.

         The argument that the Board's principal order imposing the license conditions is not “integral” to plaintiffs' complaint is entirely unsupportable-the complaint quotes this order at length, and it is the basis for most of plaintiffs' claims. See, e.g., Am. Compl. ¶¶ 13, 22-25, 31- 32, 34-36, 40-45, 48-52. As the Board's order is appended to the motion to dismiss, referred to in the complaint, integral to plaintiffs' claims, and undisputed as to its authenticity, the order may be considered here. See Kaempe, 367 F.3d at 965.

         In addition, the Board's order, the order denying the motion for reconsideration, and the documents from the D.C. Court of Appeals are public records relevant to plaintiffs' complaint and subject to judicial notice on a motion to dismiss. See EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997); Grant v. Dep't of Treasury, 194 F.Supp.3d 25, 28 n. 2 (D.D.C. 2016) (noting that “the Administrative Judge's Initial Decision, Treasury's Final Agency Decision, and [the Merit System Protection Board]'s Final Order are official, public documents subject to judicial notice”); BEG Invs., 144 F.Supp.3d at 19 n.3 (taking judicial notice of ABC Board orders which were official public documents, pertinent to plaintiff's claims, and attached to defendant's motion to dismiss); Hinton v. Corr. Corp. of Am., 624 F.Supp.2d 45, 46 (D.D.C. 2009) (noting that on a motion to dismiss, courts may consider “documents upon which the plaintiff's complaint necessarily relies even if the document is produced not by the plaintiff in the complaint but by the defendant in a motion to dismiss” (internal quotations omitted)).

         Finally, the Court may consider matters outside the pleadings in resolving challenges to its subject matter jurisdiction under Rule 12(b)(1). See Advance Am. v. FDIC, ___F.Supp.3d___, 2017 WL 2869918, at *2 (D.D.C. 2017). A lack of standing constitutes “a defect in [the Court's] subject matter jurisdiction, ” Haase v. Sessions, 835 F.2d 902, 906 (D.C. Cir. 1987), and in considering jurisdiction, the court “may rest its decision on its own resolution of disputed facts.” Advance Am., 2017 WL 2869918, at *2 (citing Herbert v. Nat'l Acad. of Sci., 974 F.2d 192, 197 (D.C. Cir. 1992)). Because defendants challenge plaintiffs' standing here, the Court may look to matters outside the pleadings, including the Board's orders, to determine whether plaintiffs have standing to allege their claims. Accordingly, the Court will take judicial notice of the Board's order and of the other orders attached to defendants' motion to dismiss.

         B. Standing

         A plaintiff “bears the burden of showing that he has standing, ” Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009), and “must demonstrate standing for each claim he seeks to press and for each form of relief that is sought, ” Town of Chester v. Laroe Estates, Inc., 137 S.Ct. 1645, 1650 (2017) (citation omitted). “The ‘irreducible constitutional minimum of standing contains three elements': (1) injury-in-fact, (2) causation, and (3) redressability.” Commuter Rail Div. of Reg'l Transp. Auth. v. Surface Transp. Bd., 608 F.3d 24, 30 (D.C. Cir. 2010) (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992)). Plaintiffs must plead or prove each element of standing “with the requisite ‘degree of evidence required at the successive stages of the litigation.'” In re Science Applications Int'l Corp. Backup Tape Data Theft Litig. (“SAIC”), 45 F.Supp.3d 14, 23 (D.D.C. 2014) (quoting Lujan, 504 U.S. at 561). Thus, at the motion to dismiss stage, “[p]laintiffs must plead facts that, taken as true, make the existence of standing plausible.” Id. (emphasis in original). When considering standing, the Court “must be ‘careful not to decide the questions on the merits for or against the plaintiff, and must therefore assume that on the merits the plaintiffs would be successful in their claims.'” In re Navy Chaplaincy, 534 F.3d 756, 760 (D.C. Cir. 2008) (quoting City of Waukesha v. EPA, 320 F.3d 228, 235 (D.C. Cir. 2003)).

         1. HRH's Standing

         Defendants assert briefly that plaintiffs have not suffered an injury in fact because they have not shown that the conditions imposed on the license actually harmed them. Mot. to Dismiss at 11. Defendants also argue, based on the evidence from the Board's order that HRH voluntarily executed a barring notice against Scahill, that the conditions in the liquor license are a “self-inflicted injury” caused by HRH and not fairly traceable to the Board. Id. at 11-12. Scahill's injuries, in turn, are therefore traceable to HRH rather than to the Board. Id. at 12. In other words, defendants argue that plaintiffs have a causation problem. See, e.g., Ellis v. Comm'r of IRS, 67 F.Supp.3d 325, 336 (D.D.C. 2014) (“[I]t is well-settled in this jurisdiction that self-inflicted injuries-injuries that are substantially caused by plaintiff's own conduct-sever the causal nexus needed to establish standing.”).

         As it turns out, there is no need to decide this issue as it relates to HRH, because another court has already done so. After the Board denied HRH's motion for reconsideration, HRH appealed the Board's order to the D.C. Court of Appeals under the District of Columbia Administrative Procedure Act's (“DCAPA”) judicial review provision. See D.C. Code § 2-510(a). The court issued a show cause order “directing [HRH] to show cause why the petition for review should not be dismissed for lack of standing.” HRH Servs., Inc. v. D.C. Alcoholic Beverage Control Bd., No. 16-AA-758 (D.C. Oct. 13, 2016) (Ex. C, Mot. to Dismiss [ECF 10-3]). HRH filed a response, but the court ultimately dismissed the petition for lack of standing. Id. While the court did not lay out every step of its reasoning, it noted that the Board had required HRH to “enforce the barring notice it had issued against Martin Scahill, a person not affiliated with the business according to [HRH's] own statements below.” Id. (emphasis added).[4]

         The DCAPA only allows review of agency actions when a party has suffered “a legal wrong, or [is] adversely affected or aggrieved.” D.C. Code § 2-510(a). The D.C. Court of Appeals has interpreted this language to require the same elements of standing that federal courts apply under Article III of the U.S. Constitution. See Mallof v. D.C. Bd. of Elections and Ethics, 1 A.3d 383, 394-95, 394 n.51 (D.C. 2010); see also Friends of Tilden Park, Inc. v. District of Columbia, 806 A.2d 1201, 1206 (D.C. 2002) (“Congress did not establish this court under Article III of the Constitution, but we nonetheless apply in every case the constitutional requirement of a case or controversy and the prudential prerequisites of standing.” (quoting Speyer v. Barry, 588 A.2d 1147, 1160 (D.C. 1991)) (internal quotation marks omitted)). In particular, the party seeking review must show that it suffered an injury in fact, Mallof, 1 A.3d at 394, which is determined by “look[ing] to federal standing jurisprudence, ” Friends of Tilden Park, 806 A.2d at 1206 (citation and internal quotation marks omitted). The D.C. Court of Appeals relied on the injury-in-fact requirement in its order dismissing HRH's petition. HRH Servs., No. 16-AA-758 (“A party has not been . . . aggrieved by agency action unless [there is] some actual or threatened ‘injury in fact' from the challenged agency action.” (citation omitted)).

         Because another court has already determined that HRH lacks Article III standing to challenge the Board's order, this Court must determine whether issue preclusion (collateral estoppel) prevents HRH from asserting standing on claims related to the order. See Nat'l Ass'n of Home Builders v. EPA, 786 F.3d 34, 41 (D.C. Cir. 2015) (“Issue preclusion applies to threshold jurisdictional issues like standing . . . .”). Defendants did not raise this question in their motion to dismiss. But because issue preclusion “belongs to courts as well as to litigants, even a party's forfeiture of the right to assert it-which has not happened here because the defendant[s] remain[] free to file an answer-does not destroy a court's ability to consider the issue sua sponte.” Stanton v. D.C. Court of Appeals, 127 F.3d 72, 77 (D.C. Cir. 1997) (emphasis in original); see U.S. Bank Nat'l Ass'n v. Poblete, ___F.Supp.3d___, 2016 WL 1089217, at *11 (D.D.C. Mar. 18, 2016) (applying same rule to collateral estoppel); Amore ex rel. Estates of Amore v. Accor, S.A., 484 F.Supp.2d 124, 129 (D.D.C. 2007) (same); Burlington Res. Oil & Gas Co. v. U.S. Dep't of the Interior, 21 F.Supp.2d 1, 4 n. 4 (D.D.C. 1998) (same).

         Three things must be true for issue preclusion to apply: “‘[1], the same issue now being raised must have been contested by the parties and submitted for judicial determination in the prior case[; 2], the issue must have been actually and necessarily determined by a court of competent jurisdiction in that prior case[; and] [3], preclusion in the second case must not work a basic unfairness to the party bound by the first determination.'” Martin v. Dep't of Justice, 488 F.3d 446, 454 (D.C. Cir. 2007) (alterations in original) (quoting Yamaha Corp., 961 F.2d at 254).[5]

         Each of these requirements was satisfied here. The D.C. Court of Appeals issued a show cause order on the precise issue in question, and HRH filed a brief in its own defense. See HRH Servs., No. 16-AA-758. The standing question was therefore “contested” and “submitted for judicial determination.” Martin, 488 F.3d at 454. It is also clear that the standing issue was “actually and necessarily determined”: the court dismissed the petition for review because-and only because-it concluded that HRH lacked standing. HRH Servs., No. 16-AA-758. And there is no doubt that the D.C. Court of Appeals is a court of competent jurisdiction to review D.C. agency orders. See D.C. Code § 2-510(a) (authorizing D.C. Court of Appeals to hear petitions for review of agency orders); Lightfoot v. Cendant Mortg. Corp., 137 S.Ct. 553, 560 (2017) (“A court of competent jurisdiction is a court with the power to adjudicate the case before it.”). Finally, a finding of preclusion here does not “work a basic unfairness” to HRH. Martin, 488 F.3d at 454. Because the D.C. Court of Appeals specifically asked HRH to address the standing issue if it wished to avoid dismissal, HRH's “incentives to litigate the point now disputed were no less present in the prior case.” Id. at 455. “[N]or are the stakes of the present case of ‘vastly greater magnitude, '” since both cases challenge the same Board order, with the same potential set of consequences for HRH should it lose. Id. Therefore, collateral estoppel applies. HRH lacks standing to bring any claims that directly challenge the Board's order.

         This is not the end of the matter, however. Since the Court finds that Scahill has standing, see infra at p. 17, most of plaintiffs' claims can go forward. See Carpenters Indus. Council v. Zinke, 854 F.3d 1, 9 (D.C. Cir. 2017) (“If constitutional standing ‘can be shown for at least one plaintiff, we need not consider the standing of the other plaintiffs to raise that claim.'” (quoting Mountain States Legal Found. v. Glickman, 92 F.3d 1228, 1232 (D.C. Cir. 1996))). But HRH's standing bar does signal last call for its unconstitutional conditions claim. At first, it is unclear whether plaintiffs bring this claim only with respect to HRH, or with respect to both HRH and Scahill. The complaint alleges that the Board's unconstitutional conditions injured Scahill as the guarantor on the lease for the Alibi. Am. Compl. ¶ 52. Yet the heading for this count in the complaint indicates that only HRH is asserting an unconstitutional conditions claim, not Scahill. Id. at 14. And whereas Counts I and II state that both “[p]laintiffs reallege and incorporate by reference” the prior allegations in the complaint, id. ¶¶ 20, 29, Count IV states that only “Plaintiff HRH Services LLC” does so, id. ¶ 47 (emphasis added).[6] Moreover, in order to assert a claim under the unconstitutional conditions doctrine, a plaintiff must allege that the government has conditioned receipt of a benefit on the curtailment of the plaintiff's constitutional rights. See Autor v. Pritzker, 740 F.3d 176, 183 (D.C. Cir. 2014). Plaintiffs do not allege that Scahill has received or been denied any government benefit. Id. ¶¶ 47-52. Because of this, and because the complaint states on its face that the unconstitutional conditions claim only applies to HRH, the Court determines that this claim has been brought with respect to HRH alone. Since HRH does not have standing, Count IV of the complaint will be dismissed.

         2. Scahill's Standing

         The D.C. Court of Appeals' decision dismissed only HRH's case for lack of standing, and therefore the decision does not preclude Scahill's standing to challenge the license conditions.[7] However, his standing may be difficult to establish, because the Board's order does not directly regulate Scahill. The parties do not address this specific issue with respect to standing, but as standing is necessary to the Court's jurisdiction, the Court has an obligation to consider it. See, e.g., Lee's Summit v. Surface Transp. Bd., 231 F.3d 39, 41 (D.C. Cir. 2000) (“When there is doubt about a party's constitutional standing, the court must resolve the doubt, sua sponte if need be.”). Standing is “substantially more difficult to establish” when the plaintiff is not “the object of the government action or inaction” challenged. Pub. Citizen, Inc. v. Nat'l Highway Traffic Safety Admin., 489 F.3d 1279, 1289 (D.C. Cir. 2007) (quoting Lujan, 504 U.S at 562). Where not directly regulated by a challenged government regulation, a plaintiff must show that there is a “substantial probability” that he will be harmed as a result of the rule. See Stillwell v. Office of Thrift Supervision, 569 F.3d 514, 518 (D.C. Cir. 2009) (quoting St. John's United Church of Christ v. FAA, 520 F.3d 460, 462 (D.C. Cir. 2008)).

         The Board's order requires the license holder-HRH-to maintain the barring notice against Scahill and to enforce it through the measures the Board sets out. See Am. Compl. ¶ 13; Board Order at 36-37. On the face of the order, then, there are no consequences for Scahill if HRH does not comply with these conditions. Moreover, the Board has not ordered HRH to do anything to Scahill that it could not otherwise do legally-absent the order, HRH would be free to maintain a barring notice against Scahill, decline to employ him, and otherwise decline to associate with him.

         That being said, while Scahill may not be the primary object of the Board's order, he is certainly a secondary object. The basic purpose of the license conditions is to keep Scahill and HRH apart, when they apparently wish to work together. The effect of the Board's order is that Scahill cannot set foot in the Alibi (without risking arrest), cannot work there, and cannot obtain an interest in the business. Scahill also alleges that he is the guarantor on the Alibi's lease, and that the order barring him from the premises prevents him from playing a role in the business and managing the liability to which he is exposed as the guarantor. Am. Compl. ¶ 41. This could constitute harm, and while this harm is contingent on HRH complying with the terms of the Board's order, the consequence of HRH's non-compliance-revocation of its license-suggests that HRH is likely to enforce the terms of the Board's order, making this harm a “substantial probability.”[8] At this stage, plausibility is all that is required. See SAIC, 45 F.Supp.3d at 23.[9]

         The second question is whether Scahill's alleged injuries are “fairly traceable” to the Board. A defendant need not be the “but-for cause” of a plaintiff's injuries; an action may be fairly traceable to the defendant even if defendant's action indirectly caused plaintiff's harm, although this makes the burden of establishing standing heavier. See, e.g., Massachusetts v. EPA, 549 U.S. 497, 524 (2007) (causation may be established where defendant caused an “incremental” part of the alleged injury); Cmty. for Creative Non-Violence v. Pierce, 814 F.2d 663, 669 (D.C. Cir. 1987) (causation may be established where a defendant's actions are “a substantial factor motivating the third parties' actions”). When a third party bears some responsibility for the plaintiff's harm, standing may be established where, for example, “the record present[s] substantial evidence of a ...


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