Ziggy1 Corp. v. Lynch
Ziggy1 Corp. v. Lynch
Opinion of the Court
ORDER
This case arises out of law enforcement actions taken by the Drug Enforcement Administration (“DEA”) and others
Plaintiffs here (“Ziggyl Corporation” and “Ziggy2 Corporation”) are newly created corporations, established after the April 22 seizure. Chelsey Davis appears to be the organizer and principal shareholder of these entities, and an officer of them.
' While the exact timing of subsequent events -is somewhat uncertain, it appears that DEA became aware of efforts by Mr. Davis to continue the operations of the various smoke shop locations. So far as appears from the current submissions to the court,
Plaintiffs’ evidence is that the various landlords then began heading for the exits. Notices to quit were served by some, and plaintiffs indicate several of the locations were shut down by the time of the preliminary injunction hearing. The responses of some of the landlords, through their counsel or other representatives, led to at least one meeting with the DEA and other agents at which Mr. Davis was present. He indicates he told the DEA he was seeking to sell only legal products through the businesses and that the inventory he acquired from Mr. Ren or his entities was the inventory not already seized by the DEA. Plaintiffs allege that Davis invited the various agents onto the properties to verify his claims, but they declined. He indicates he sought guidance from the agents as to what of the remaining inventory they viewed as drug paraphernalia
Plaintiffs then filed this case seeking declaratory and injunctive relief.
The court held a hearing on July 10, 2015, which it treated as a hearing on the motion for temporary restraining order (“TRO”). It granted plaintiffs’ motion in part, enjoining defendants from pursuing any civil or other forfeiture proceedings, or issuing any further warnings or letters, directed at the landlords, pending a further hearing on the request for preliminary injunction. Order, July 10, 2015 [Doc. # 10]. The order did not restrain any actions by the defendants directed to or at the plaintiffs, as opposed to the third-party landlords. At the July 28, 2015, preliminary injunction hearing, the court received evidence, heard further argument from the parties, and continued-the TRO in effect pending the court’s decision on the request for preliminary injunction. In the meantime, defendants moved to dismiss this case,,cm jurisdictional and other grounds. That motion is now also at issue.
The court concludes the motion to dismiss should be denied and the" motion for preliminary injunction granted to the extent stated in this order.
Motion to Dismiss
As the motion to dismiss raises issues going to the subject matter jurisdiction of the court, it is addressed first. In resolving the 12(b)(1) motion, the court has considered the evidence' offered at the hearing, in addition to the complaint’s allegations. See Holt v. U.S., 46 F.3d 1000, 1003 (10th Cir. 1995).
Defendants contend there is no “case or controversy” " here within the meaning of U.S. Const, art. Ill, § 2. They challenge plaintiffs’ standing to bring the claims involved here,
The court concludes plaintiffs have shown the existence of a “case or controversy” and that they have standing to pursue their claims here. With respect to the request for a declaration as to the applicability of the OSA to their operations, plaintiffs have alleged that the statutory scheme does not afford them fair notice of what conduct is prohibited, in a manner that would discourage arbitrary enforcement, Further, plaintiffs are actually engaged in activity potentially covered by the statutory scheme. The allegations and evidence indicate that the DEA, and perhaps others, are focused on the activities of these plaintiffs and others who are in the same business, that the DEA and its agents have declined to provide guidance as to the potential application of the statutes to plaintiffs, and that some agents have endorsed an expansive reach of the statutes (i.e., what is “paraphernalia”) that puts plaintiffs’ continued operations at risk. This showing is sufficient to make out the necessary “injury in fact” as to the vagueness claim. See Aid for Women v. Foulston, 441 F.3d 1101, 1110 (10th Cir. 2006).
Similarly, plaintiffs’ showing is sufficient as to their Due Process claim. They have an obvious economic interest in the continued operations of their businesses.
To the extent defendants challenge the causation (“fairly traceable”) element of standing on the basis that the DEA was just passing out information to the landlords, rather than threatening prosecution, their argument fails. The sending of the letters at the very least supports a permissible inference that the DEA was trying to cause the landlords to stop leasing to plaintiffs and to put them out of business. Further, the unchallenged testimony at the hearing was to the effect that, as to at least one landlord, agents followed up with a later contact to find out what steps the landlord had taken relative to plaintiffs after receiving the letter. That level of interest is inconsistent with simply passing out information. In any event, plaintiffs have made a sufficient showing of a causal connection between the DEA’s conduct and the injury plaintiffs allege they are suffering.
There does not appear to be any real challenge to the third element necessary
In sum, plaintiffs showing is sufficient to establish Article III standing.
In addition to their jurisdictional challenge, defendants have moved under Fed.R.Civ.P. 12(b)(6) to dismiss for failure to state a claim. They do not challenge thé factual sufficiency of the allegations, but rather focus on legal impediments to plaintiffs claims. In particular, they argue plaintiffs’ vagueness challenge is foreclosed by Supreme Court precedent and that, as to the Due Process claim, plaintiffs have not alleged a liberty or property interest that the Constitution would protect.
Defendants argue that the Supreme Court’s decision in Posters ‘N’ Things, Ltd. v. U.S., 511 U.S. 513, 114 S.Ct. 1747, 128 L.Ed.2d 539 (1994) bars plaintiffs’ vagueness challenge. In Posters, the court considered the constitutionality of 21 U.S.C. § 857 and the question of what constitutes “drug paraphernalia.”
Defendants also argue that plaintiffs lack any constitutionally protected interest in the various properties they occupy, on the basis that they have not alleged the existence of any long-term leases giving them a recognized interest in the locations. In particular, defendants argue that the only property interest plaintiffs had, if any, was a tenancy at will, which according to State ex rel. Dept. of Transp. v. S & S Prop., 994 P.2d 75, 81 (Okla.Civ.App. 1999), is not constitutionally protected. Government’s Motion to Dismiss [Doc. # 14] at 23. The exact nature of plaintiffs’ interest in the various locations is not spelled out in the complaint. Rather, it refers to the DEA’s attempt to get plaintiffs’ “landlords
Finally, defendants appear to argue that it is legally impossible for plaintiffs" to obtain any interest in the properties at issue because acts had already occurred on the properties which gave rise to a right of forfeiture in the government, relying on 21 U.S.C. §§ 881(a)(7) and (h). That remarkable assertion raises a number of questions, but it is unnecessary to address all of them here, as the Supreme Court has already essentially rejected the main thrust of defendants’ argument. In United States v. Parcel of Land, Bldgs., Appurtenances & Improvements, Known as 92 Buena Vista Ave., Rumson, N.J., 507 U.S. 111, 122, 113 S.Ct 1126, 122 L.Ed.2d 469 (1993), the Court declared that forfeiture must be judicially determined before the government’s rights vest in property. Here, there is no allegation in the complaint that a basis for forfeiture of the various tracts of real estate has been legally determined, nor, for that matter, was
The court concludes the motion,to dismiss should be denied.
Motion for Preliminary Injunction
Plaintiffs seek entry of a preliminary injunction restraining the threat of, or the institution of, civil forfeiture proceedings against the plaintiffs and the third-party landlords pending a final determination of plaintiffs’.request for clarificar tion of the legality of their inventory and operations. To obtain a preliminary injunction, the moving party must establish that: “(1) it. is substantially likely to succeed on the merits, (2) it will suffer irreparable injury if the injunction is denied, (3) its .threatened injury outweighs «the injury the opposing party will suffer under the injunction, and (4) the injunction would not be adverse to the public interest.” Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC, 562 F.3d 1067, 1070 (10th Cir. 2009).
The Tenth Circuit has applied a relaxed “probability of success” requirement when the moving party has established that the other three factors “tip decidedly in its favor.”’- Heideman v. South Salt Lake City, 348 F.3d 1182, 1189 (10th Cir. 2003). However, this relaxed- standard does not apply where the injunction sought would enjoin the enforcement of a statute. Nova Health Systems v. Edmondson, 460 F.3d 1295, 1298 n. 6 (10th Cir. 2006). Here, plaintiffs seek an order preventing enforcement of the civil forfeiture statutes pending completion of the case. They are therefore subject to the regular standard as to probability, of success. •
While the question is close, the court concludes plaintiffs have shown the necessary likelihood of success, as to at least the Due Process claim, which is the one potentially justifying the particular in-junctive relief sought here.
The evidence established that the use of the former Ziggy’s locations is important
Plaintiffs’ evidence is sufficient to establish that it will experience irreparable harm if the injunction is not granted. The evidence established that the DEA’s letter and contacts have already caused some of plaintiffs’ landlords to terminate their lease arrangements. It also established that the loss of the lease locations jeopardized the existence of the companies. Even though financial losses are ordinarily compensable in money damages, a showing that a company may be forced out of business completely can constitute the necessary showing of “irreparable injury.” Tri-State Generation & Transmission Ass’n, Inc. v. Shoshone River Power, Inc., 805 F.2d 351, 356 (10th Cir. 1986) (“A threat to trade or business viability may constitute irreparable harm.”). Further, as defendants essentially conceded at the hearing, the application of the doctrine of sovereign immunity likely precludes any monetary recovery against the government arising out of these circumstances. Finally, the court'is unpersuaded by defendants’ argument that plaintiffs are seeking only retrospective relief, and that prospective injunctive relief is unwarranted. 'The “followup” contacts with landlords by DEA agents, coupled- with the- evidence of a broader enforcement effort against “smoke shops” generally, suggests the letters were not one-time, past events, but are part of an ongoing law enforcement effort.
Plaintiffs have also established the third element necessary for injunctive re
Finally, the court concludes, on the present showing,
For the reasons indicated, entry of a preliminary injunction is warranted here. However, consistent with the reasons indicated at the time of entry of the TRO, the injunction will be limited to civil forfeiture proceedings directed to the landlords. The harm to which this injunction is principally directed is that which flows to plaintiffs from their landlords receiving what the landlords likely (and plausibly) view as threats of punitive • action if they continue to deal with plaintiffs, and under circumstances where plaintiffs have no other meaningful means of redress. If the government chooses to pursue plaintiffs di
Conclusion
For the reasons stated above, defendants’ motion t'o dismiss [Doc. # 14] is DENIED. Plaintiffs’ motion for preliminary injunction [Doc. #2] is GRANTED as follows: until further 'order of this court, defendants and their agents are preliminarily ENJOINED from (1) issuing any warnings or letters to, or otherwise contacting (other than through discovery in this case), the persons or entities who/ which are the ownersAessors of the various premises where plaintiffs were operating as of the commencement of this case; and (2) pursuing any civil forfeiture proceedings against the indicated ownersAessors.
As there are no apparent costs or monetary damages which defendants will incur by reason of entry of this order, no bond or other security will be required of plaintiffs.
IT IS SO ORDERED.
. The complaint alleges that six semitrailer loads of alleged paraphernalia were removed. Complaint [Doc. # 1] at ¶ 35.
. It is unclear at this point whether Mr. Davis is the sole shareholder of plaintiffs, and what role, if any, others may play in their operations as owners, officers, or otherwise.
. The purchase agreement with Mr. Ren or his entities was apparently oral rather than written, and involved an arrangement for acquisition of the assets based on 20% of their market or other value, with the purchase price to be determined and paid at some point in the future. Mr. Davis description of the agreement was not detailed as to many aspects, of it.
. This description is based on the complaint and on the evidence offered by plaintiffs at a hearing on their motion for prelimihary injunction held July 28, 2015. Defendants did not offer evidence at the hearing, instead limiting themselves to cross examination of plaintiffs witnesses, hence this description of the circumstances is largely plaintiffs uncontested (at this point) version of the facts.
.The closing substantive paragraph reads: “Allowing the continued use of the property, in violation of federal law, may result in the loss of an 'innocent owner’ status. In addition to the violation of federal law, this conduct may be creating a hazard to the public health and safety. Continued use of this property, in violation of federal law, may result in criminal prosecution, imprisonment, fines, and forfeiture of the property and appurtenance.” The letter then identifies two investigators the landlord could contact if they wished to discuss the matter further.
. The defendants are the Attorney General of the United States, the Administrator of the DEA and Mr. Salter, the U.S. Attorney for this district, "and various John Doe defendants.
. The relief sought in the complaint was characterized more narrowly, but the motion for preliminary injunction describes the injunc-tive relief sought to be as indicated.'
.It is unclear whether defendants challenge standing only as to the claim seeking a declaration of the "paraphernalia” statute’s application to particular products or whether the challenge extends to the. Due Process claim. However, as standing is a jurisdictional issue, the court is obliged to ppnsider the issue sua sponte if there is a qqéstion as to it. See Rector v. City & County of Denver, 348 F.3d 935, 942 (10th Cir. 2003).
. Defendants appear to argue that only a “constitutional” interest can be the basis for standing. Government’s Motion to Dismiss [Doc. #14] at 8-9. However, a broad range of interests can supply the necessary basis for injury in fact in the standing context. See Assoc. of Data Processing Serv. Orgs. v. Camp, 397 U.S. 150, 154, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970).
. Defendants’ suggestion that plaintiffs are really seeking to assert the rights of the landlords is unpersuasive. Plaintiffs' complaint is plainly directed to the potential injury to plaintiffs’ own interest, albeit by the government’s alleged efforts involving the landlords.
. 21 U.S.C. § 857 has since been repealed and replaced with 21 U.S.C. § 863, which appears to be substantially the same in all respects relevant to this case.
. Defendants also argue that harm to a person’s reputation will not support a Due Process claim, In light of tire court's conclusion that plaintiffs have alleged a sufficient basis for a Due Process claim grounded in their property interests, it' is unnecessary at this point to resolve whether defendants’ view of claims based on "reputational” harm is accurate or whether the claims involved here should be viewed as reputational in nature,
. If the issue turned on prospects for the "vagueness” claim, or the request for declaratory judgment as to the various items in plaintiffs' inventory, the result would likely be .otherwise. Plaintiffs’ reliance on authorities predating and inconsistent with Posters, coupled with the nature of their request for declaratory relief, make it unlikely the court will grant the "vagueness" relief it seeks. It appears plaintiffs are, in effect, asking the court to make an anticipatory determination of what hundreds of items are, ‘likely to be .used” for or of what plaintiffs know about, their prospective use. See Posters, 511 U.S. at 524, 114 S.Ct. 1747; see also U.S. v. Doles, 335 Fed.Appx. 736, 739 (10th Cir. 2009)(anpub-lished)("... the test under Posters ‘N’ Things • focuses not on whether he knew that the items were drug paraphernalia under the law but on whether he knew that the-items were likely to be used with illegal drugs.’ ”).
. Defendants' argument that plaintiffs' real dispute is with the landlords was not supported by the evidence. Defendant's Response [Doc. # 8] at 19 (pagination based on the CM/ECF page number). Although it appears some landlords asserted other grounds for potential lease terminations, the testimony at the hearing was sufficient to establish that most of the landlords were willing to proceed with plaintiffs as tenants but for the DEA’s letter and efforts.
. Defendants’ arguments were directed principally to issues like standing and the presence or absence of a property or liberty interest, rather than to the showing necessary to define a constitutional violation in these circumstances. Plaintiffs’ submissions did not include authorities squarely addressing the issue either.
. The court is particularly underwhelmed by defendants’ argument that, since plaintiffs paid only what they viewed as 20% of the inventory’s market value, they have no rights, or at least no prospect of real harm, now.
. As noted above, all the evidence at the hearing came from the plaintiffs.
Reference
- Full Case Name
- ZIGGY1 CORP., and Ziggy2 Corp. v. Loretta LYNCH
- Cited By
- 1 case
- Status
- Published