Martin Scahill & HRH Servs. LLC v. Dist. of Columbia
Opinion
This appeal arises from conditions placed by the D.C. Alcoholic Beverage Control Board on the liquor license of the Alibi restaurant. The court must decide whether the curable defect exception to issue preclusion allows a plaintiff to establish standing under Article III of the Constitution based on events that arose after the initial complaint was filed, and whether the license conditions violate appellants' First and Fifth Amendment rights. The district court had ruled the original complaint controlled its jurisdiction as to most of HRH Services, LLC's constitutional claims. On the merits, it ruled that HRH's retaliation allegations and Scahill's nearly identical constitutional allegations failed to state a claim.
Guided by Supreme Court instruction and precedent from our sister circuits, we hold that HRH properly invoked the curable defect doctrine and that the district court was wrong to reject HRH's proposed second amended complaint that would have cured the standing defect. We deny on the merits HRH's claims that were dismissed for lack of standing, and consequently HRH's unconstitutional conditions claim fails as well. HRH's compelled speech claim is foreclosed by
Full Value Advisors
,
LLC v. SEC
,
We affirm the dismissal of HRH's First Amendment retaliation claim because even assuming the facts alleged in the complaint are true, the record shows that retaliation was "not a plausible conclusion,"
Ashcroft v. Iqbal
,
I.
In January 2015, HRH Services, LLC, d/b/a The Alibi ("HRH") applied to the D.C. Alcoholic Beverage Control Board for a license to serve alcoholic beverages at the Alibi restaurant. Rachel Traverso and *1180 her father Richard Traverso were identified as co-owners of HRH, but the Board was concerned about the possible involvement of Martin Scahill, who had been part owner of the previous restaurant at that location, which was fined by the Board for allowing underage drinking. Scahill had originally applied with two others for a liquor license at the same location before withdrawing the application when the Board raised issues regarding his qualifications. He also had been working at the Alibi restaurant. The Board "required HRH to demonstrate that it was not engaging in subterfuge to allow Mr. Scahill to obtain a license without the legally required review of his qualifications for licensure." ABC Board Order at 3 (May 18, 2016) ("2016 Board Order"). At a hearing on HRH's application, HRH informed the Board it had served a barring notice on Scahill that he could not be on the premises and stated it would accept other license conditions as the Board deemed necessary. See id. ¶ 90.
On May 18, 2016, the Board granted HRH a liquor license with conditions. The conditions required HRH to "maintain a barring notice against Martin Scahill to prohibit him from entering or accessing the licensed premises for a period of five years" and to notify the Metropolitan Police Department ("MPD") of any violations. The conditions also prohibited HRH from "directly or indirectly transfer[ing] or attempt[ing] to transfer ownership" of the business to Scahill, providing him "access or control over any financial accounts maintained by the business," and "employ[ing] [him] as a manager, employee, independent contractor, or volunteer" at the restaurant. 2016 Board Order at 36-37. The Board denied HRH's motion for reconsideration.
Scahill and HRH thereafter unsuccessfully attempted to have the license conditions set aside on statutory grounds. The D.C. Court of Appeals dismissed HRH's petition for review under the D.C. Administrative Procedure Act ("DCAPA") for lack of standing because of its lack of aggrievement. HRH Servs., LLC v. D.C. Alcoholic Beverage Control Bd. , No. 16-AA-758, Order at 1 (D.C. Oct. 13, 2016). The court rejected on the merits Scahill's claims under the DCAPA that the imposition of the license conditions exceeded the Board's authority and was unsupported by the evidence and arbitrary and capricious, holding the Board acted within its discretion. Scahill v. D.C. Alcoholic Beverage Control Bd. , No. 16-AA-775, Mem. Op. and J. at 5-7 (D.C. Feb. 8, 2018).
Scahill and HRH also seek to have the license conditions set aside on constitutional grounds. After filing a complaint in the U.S. district court on October 18, 2016, Scahill filed an amended complaint on December 28, 2016, adding HRH as a plaintiff and arguing that the license conditions violated their First and Fifth Amendment rights. The district court granted the government's motion to dismiss the amended complaint for lack of standing and failure to state a claim.
Scahill v. District of Columbia
,
HRH moved on October 16, 2017, for reconsideration and for leave to file a second amended complaint. Paragraph 60 of the proposed complaint alleged that in retaliation
*1181
for exercise of HRH's First Amendment rights, the Board, by order of July 19, 2017, "took adverse action against HRH Services by issuing a $4,000.00 fine, the maximum allowable penalty, to HRH [S]ervices for the alleged violation[s] of the Liquor License conditions." The Board found that HRH had allowed Scahill to be on the premises of the Alibi restaurant on two occasions and each time failed to notify the MPD about his presence. Although agreeing that HRH had shown an injury-in-fact as a result of the $4,000 fine, the district court ruled that the fine did not trigger the curable defect exception to issue preclusion because the fine was imposed nine months after the original complaint was filed and thus was too late to confer standing.
Scahill v. District of Columbia
,
II.
On appeal, Scahill and HRH contend that the district court erred in ruling that HRH lacked standing under Article III of the Constitution on the basis of issue preclusion because the court should have applied the curable defect exception in view of the Board's imposition of the fines and granted its motion for leave to file the amended complaint. On the merits, they contend that the district court erred in ruling that their well-pleaded claims failed to show violations of their rights under the First and Fifth Amendments of the Constitution. Our review of the dismissal of the complaint for failure to state a claim is
de novo
.
Sparrow v. United Air Lines, Inc.
,
Issue preclusion occurs when (1) the same issue was "contested by the parties and submitted for judicial determination in [a] prior case," (2) the issue was "actually and necessarily determined by a court of competent jurisdiction in that prior case," and (3) preclusion does not result in "basic unfairness to the party bound by the first determination."
Yamaha Corp. of Am. v. United States
,
First, the issue of HRH's standing was "contested" and "submitted for judicial determination,"
The curable defect exception to issue preclusion allows relitigation of jurisdictional dismissals when a material occurrence subsequent to the original dismissal remedies the original deficiency.
Nat'l Ass'n of Home Builders v. EPA
,
More instructive is the Supreme Court's precedent where jurisdiction was determined by looking beyond the original complaint. In
Mathews v. Diaz
,
A number of the circuit courts of appeal have addressed whether events subsequent to the filing of the original complaint can cure a jurisdictional defect. Some courts have held that a plaintiff may cure a standing defect through a supplemental pleading alleging facts that arose after the original complaint was filed.
See
Northstar Fin. Advisors Inc. v. Schwab Investments
,
The circuit courts of appeal adopting the former approach have relied on the supplemental pleadings provision of Federal Rule of Civil Procedure 15(d), which provides such pleading may "set[ ] out any transaction, occurrence, or event that happened after the date of the pleading to be supplemented," FED. R. CIV. P. 15(d).
1
The Advisory Committee has explained that Rule 15(d) was amended in order to place broad discretion in the district court in order to avoid "needlessly remitt[ing] [plaintiffs] to the difficulties of commencing a new action even though events occurring after the commencement of the original action have made clear the right to relief."
The government acknowledges the open jurisdictional question in this court and the Supreme Court and the circuit split. Citing the Tenth Circuit's 2013 decision as "significant authority contrary to plaintiffs' position," Appellee's Br. at 22, the government offers no analysis of which approach this court should adopt. Instead the government maintains that even assuming that there is merit to the
Northstar
approach, appellants cannot prevail because their proposed second amended complaint had not been accepted for filing when the district court considered HRH's standing in view of the Board's imposition of the $4,000 fine. This approach harkens back to the type of technical obstacle that the Supreme Court rejected in
Rockwell International Corp.
,
Therefore, we hold that a plaintiff may cure a standing defect under Article III through an amended pleading alleging facts that arose after filing the original complaint. The alternative approach forces a plaintiff to go through the unnecessary hassle and expense of filing a new lawsuit when events subsequent to filing the original complaint have fixed the jurisdictional problem. The "reasonable notice" and "just terms" limitations in Rule 15(d) guard against undue expansion of a provision designed to eliminate "needless[ ] remitt[ing]" of a plaintiff. FED. R. CIV. P. 15 advisory committee notes to 1963 amendment. Because the district court found that HRH suffered an injury-in-fact as a result of the imposition of the $4,000 fine nine months after HRH filed its original complaint in federal court, HRH properly invoked the curable defect exception to issue preclusion. The district court, consequently, was wrong to reject HRH's proposed second amended complaint that included allegations about the Board's enforcement action that would have cured the standing defect. We turn, therefore, to the merits.
III .
HRH contends that the license conditions violate its First Amendment rights against compelled speech and its right of commercial association. Absent a finding that HRH has such constitutional rights, appellants' counsel conceded, Oral Arg. Tape 9:50-10:19 (Sept. 20, 2018), that HRH cannot prevail on its claim that the license conditions are unconstitutional conditions.
*1185
HRH's compelled speech claim is based on the license conditions requiring HRH to report any violation of the barring notice to the MPD and the Board. This claim is foreclosed by
Full Value Advisors
,
HRH's commercial association claim is foreclosed by
U.S. Jaycees
,
HRH's retaliation claim is unavailing. In the proposed second amended complaint, HRH alleges that the Board's enforcement action resulting in the fines was in retaliation for HRH's and Scahill's efforts to overturn the license conditions by filing a motion for reconsideration by the Board, petitioning the D.C. Court of Appeals, and filing a complaint in federal court. Even assuming the truth of the allegations in the complaint, the district court did not err in concluding retaliation was "not a plausible conclusion."
Iqbal
,
To establish a First Amendment retaliation claim, HRH must show (1) "that [it] engaged in protected conduct," (2) "that the government took some retaliatory action sufficient to deter a person of ordinary firmness in plaintiff's position from speaking again," and (3) "that there exists a causal link between the exercise of a constitutional right and the adverse action taken against him."
Doe v. District of Columbia
,
HRH did not plausibly allege the requisite causation. Although it maintains that investigators appeared at the Alibi restaurant in retaliation for appellants' legal challenges, the Board relied on testimony that D.C. investigators visited the Alibi restaurant on two occasions in response to complaints that Scahill was seen at the restaurant.
See
ABC Board Order ¶¶ 12, 19 (July 19, 2017) ("2017 Board Order"). The proposed second amended complaint alleges that the Board unreasonably fined HRH even though one of the two investigators, Ms. Cullings, "testified under oath that she never identified Mr. Scahill as being present at the Alibi on June 10, 2016." Proposed Second Am. Compl. ¶ 63. The Board could properly rely on testimony from the other investigator, Mr. Brashears, who was familiar with Scahill and identified him talking to Rachel Traverso and working at the restaurant; Ms. Cullings
*1186
testified that she had no reason to doubt this. Appellants also object to the district court's adoption of the Board's factual findings, but HRH attached the 2017 Board Order to its motion for leave to amend the complaint and the district court need not "accept as true the complaint's factual allegations insofar as they contradict exhibits to the complaint or matters subject to judicial notice,"
Kaempe v. Myers
,
Scahill's commercial association claim fails for the same reasons as HRH's fails. His Fifth Amendment claims fail as well. Appellants contend Scahill adequately pleaded a substantive due process claim based on his right to travel. But, as the district court ruled, neither the Supreme Court nor this court has recognized a general right to intrastate travel.
See
Hutchins v. District of Columbia
,
Accordingly, we affirm the September 25, 2017 dismissal of Scahill's claims and HRH's First Amendment retaliation claim; we reverse the December 11, 2017 denial of HRH's motions for reconsideration and for leave to file the second amended complaint; and we affirm the dismissal of HRH's remaining claims.
Federal Rule of Civil Procedure 15(d) provides:
On motion and reasonable notice, the court may, on just terms, permit a party to serve a supplemental pleading setting out any transaction, occurrence, or event that happened after the date of the pleading to be supplemented. The court may permit supplementation even though the original pleading is defective in stating a claim or defense. The court may order that the opposing party plead to the supplemental pleading within a specified time.
Reference
- Full Case Name
- Martin SCAHILL and HRH Services LLC, Appellants v. DISTRICT OF COLUMBIA, Et Al., Appellees
- Cited By
- 52 cases
- Status
- Published