George-Khouri Family v. OH Dept Liquor ( 2005 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0443n.06
Filed: May 26, 2005
No. 04-3782
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
GEORGE-KHOURI FAMILY LIMITED )
PARTNERSHIP; LICENSED BUSINESS )
OWNERS OF OHIO, LLC, )
)
Plaintiffs-Appellants, ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
v. ) NORTHERN DISTRICT OF OHIO
)
OHIO DEPARTMENT OF LIQUOR )
CONTROL, et al., )
)
Defendants-Appellees. )
Before: GUY, DAUGHTREY, and GIBBONS, Circuit Judges.
JULIA SMITH GIBBONS, Circuit Judge. Plaintiff-appellant the George-Khouri Family
Limited Partnership (“Partnership”) leased property to a tenant who acquired a liquor license that
was later revoked. Under Ohio law, no permit could be issued or transferred to anyone on that
property for one year after the revocation. Pursuant to 42 U.S.C. § 1983, the Partnership and the
Licensed Business Owners of Ohio (“LBOO”) sued individual officials of Ohio’s Liquor Control
Commission and the state Department of Commerce, Division of Liquor Control, alleging various
federal constitutional claims. The district court granted judgment on the pleadings to the defendants
as to one of the plaintiffs’ claims and summary judgment to the defendants as to the other claims.
For the reasons set forth below, we affirm the district court’s orders.
No. 04-3782
George-Khouri Family Ltd. P’ship v. Ohio Dep’t of Liquor Control
I.
Ohio’s Liquor Control Commission (“Commission”) is a quasi-judicial agency that
promulgates rules for implementation of Ohio’s liquor laws. The Commission also conducts
hearings on appeals of decisions made by the Ohio Department of Commerce, Division of Liquor
Control (DLC), including those decisions made on applications for new liquor permits, renewal of
permits, and transfers of permits.
In March 1999, the Partnership acquired property at 1057-1059 Old River Road in
Cleveland, Ohio. On March 10, 1999, the Partnership leased two floors of the property to PDU,
Inc., for use as a bar and nightclub for five years. Around May 2001, PDU sold the nightclub to new
owners Eric Buckner, Mack Danzey, and Toya Danzey. The new owners entered into an assignment
agreement with PDU and the Partnership to have all of PDU’s rights and obligations under the lease
transferred to the new owners.
Although the record is unclear on the point, Buckner and Mack Danzey evidently were
authorized to operate an establishment at 1057-1059 Old River Road under PDU’s liquor permit.
Due to two alleged violations of Ohio liquor laws and regulations by Buckner and one of his
associates in February 2002, the Commission sent a notice to the premises, addressed to PDU, that
a hearing would be held on June 4, 2002, to determine whether PDU’s permit should be suspended
or revoked. After the hearing, the Commission revoked PDU’s permit effective July 2, 2002. The
Partnership learned of the revocation of PDU’s liquor permit several days later. A stay of the
Commission’s order was obtained from the Franklin County Court of Common Pleas, but the stay
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expired on July 8, 2002. An appeal from the Commission’s decision was taken and then voluntarily
dismissed in October 2002.
Mack Danzey sought to transfer a liquor permit belonging to another entity to 1057-1059 Old
River Road in December 2002. In a letter dated February 21, 2003, the DLC notified Danzey that
due to Ohio Admin. Code § 4301:1-1-08,1 the DLC would not consider Danzey’s application for
transfer until October 7, 2003, one year after “the former permit holder at this location voluntarily
dismissed an appeal in the Franklin County Court of Common Pleas.” Danzey appealed this
decision to the Commission. The Commission held a hearing on the appeal on June 10, 2003. On
June 30, 2003, the Commission found that the “special circumstances” waiver provision in § 4301:1-
1-08 applied and ordered that the DLC process the liquor permit transfer application.
The Partnership evidently assisted Danzey during his attempts to transfer another permit to
the 1057-1059 Old River Road location. The Partnership also made an unsuccessful attempt “to
locate a tenant with a liquor permit and the ability to enter into a lease of the premises.” The
Partnership indicated that at some point PDU stopped paying rent on the premises, and the
1
Ohio Admin. Code § 4301:1-1-08, otherwise known as “Rule 8,” states, in part:
A former or current permit holder whose permit has been revoked for cause shall not be
issued any permit for a period of one year at that location following the effective date of such
revocation. A permit shall not be issued or transferred to a location for a period of one year
following the effective date of a revocation or refusal to issue, transfer or renew any
permit....The effective date of the revocation begins twenty-one days after the mailing date
of the revocation order or upon final determination by a court if an appeal is filed or upon
the dissolution of a stay order issued by the court. The commission shall have the discretion
to waive the enforcement of this rule when special circumstances are shown.
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Partnership threatened PDU with eviction, although the record is unclear as to when this happened,
whether PDU was actually evicted, or how much rent PDU owed the Partnership.
Plaintiff-appellant LBOO is an organization of individuals and entities that operate liquor-
related businesses within Ohio. According to the plaintiffs’ complaint, the LBOO was formed to
assist the member business owners with any issues, legal and otherwise, that they may have in
operating their businesses. The Partnership is a member of the LBOO.
The Partnership and the LBOO sued the Ohio DLC, the Commission, and individual
employees of the DLC and Commission,2 alleging three counts: (1) that the application of Ohio
Admin. Code § 4301:1-1-08 to the Partnership violated its procedural and substantive due process
rights, violated equal protection, and constituted a regulatory taking without just compensation; (2)
that the Commission did not have statutory authority under Ohio law to enforce § 4301:1-1-08; and
(3) that the plaintiffs were entitled to damages, declaratory relief, and a permanent injunction. On
May 14, 2004, the district court granted defendants’ motion for judgment on the pleadings as to
Count Two, due to lack of jurisdiction over the claim. Four days later, the district court granted
summary judgment to the defendants on the remaining claims. The plaintiffs appealed to this court
from both the order granting summary judgment to the defendants and the order granting judgment
on the pleadings as to Count Two.
II.
A.
2
The plaintiffs later stipulated to a voluntary dismissal of the DLC and Commission from the
suit, leaving only the individual employees as defendants.
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George-Khouri Family Ltd. P’ship v. Ohio Dep’t of Liquor Control
The defendants filed a motion for judgment on the pleadings, but they based their motion on
an allegation that the plaintiffs had failed to state a claim upon which relief could be granted. Where
the Rule 12(b)(6) failure-to-state-a-claim defense is raised by a Rule 12(c) motion for judgment on
the pleadings, this court applies the de novo standard for a Rule 12(b)(6) motion in reviewing the
district court's decision. Ziegler v. IBP Hog Mkt., 249 F.3d 509, 511-12 (6th Cir. 2001); Morgan
v. Church’s Fried Chicken, 829 F.2d 10, 11 (6th Cir. 1987). The defendants’ motion was granted
as to the plaintiffs’ state law claim in Count Two, on the basis that the “Eleventh
Amendment...prohibits a federal court from deciding the state law claims, such as those asserted in
the Amended Complaint, against state officials, unless the state has consented to be sued.” This
conclusion is sound.
A federal court cannot take supplemental jurisdiction over claimed state law violations by
state officers. See Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 123 (1984); McNeilus
Truck & Mfg., Inc. v. State of Ohio, 226 F.3d 429, 438 (6th Cir. 2000). Appellants concede that the
Eleventh Amendment bars a federal court from enjoining the actions of state officials on the basis
of state law. See Pennhurst, 465 U.S. at 106. Appellants argue, however, that their complaint
sought only a declaratory judgment, not injunctive relief, with regard to Count Two, and that
therefore the Eleventh Amendment does not bar their claim. This is not a correct reading of the law.
“The Declaratory Judgment Act...does not explicitly authorize suits against states and therefore
cannot be used to circumvent the Eleventh Amendment.” United States v. South Carolina, 445 F.
Supp. 1094, 1099 (D.S.C. 1977); see also Heydon v. MediaOne of Southeast Mich., Inc., 327 F.3d
466, 470 (6th Cir. 2003) (“The Declaratory Judgment Act does not create an independent basis for
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federal subject matter jurisdiction....The Act only provides courts with discretion to fashion a
remedy. Thus, before invoking the Act, the court must have jurisdiction already.”) (citations
omitted); Foreman v. Gen. Motors Corp., 473 F. Supp. 166, 183 (E.D. Mich. 1979) (“The Court is
not impressed that 28 U.S.C. § 2201 gives or takes away jurisdiction. As previously stated, this
section is procedural.”). The Act merely provides a different type of remedy for a plaintiff bringing
a “case of actual controversy within [a federal court’s] jurisdiction.” 28 U.S.C. § 2201(a). There
is no precedent suggesting that federal courts have jurisdiction over requests for a declaratory
judgment that state officials are violating state law. The district court did not err in granting the
defendants’ motion on the pleadings as to Count Two.
B.
Summary judgment is appropriate if “the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R.
Civ. P. 56(c). The court must “view the evidence and draw all reasonable inferences therefrom in
the light most favorable to the non-moving party.” Little v. BP Exploration & Oil Co., 265 F.3d
357, 361 (6th Cir. 2001). If a reasonable jury could not return a verdict for the nonmoving party on
the basis of the evidence as construed in its favor, summary judgment should be granted to the
movant. See Burchett v. Kiefer, 310 F.3d 937, 942 (6th Cir. 2002).
In Count One of their amended complaint, the plaintiffs sought relief under 42 U.S.C. §
1983, alleging that the application of Ohio Admin. Code § 4301:1-1-08 to the plaintiffs violated the
Partnership’s federal constitutional rights on three bases: (1) it violated their procedural and
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substantive due process rights; (2) it violated their right to equal protection under the law; and (3)
it constituted a regulatory taking without just compensation. The plaintiffs’ complaint sought
declaratory and injunctive relief as well as damages and named four of the six defendants in both
their official and individual capacities (and the other two only in their official capacities).
We first note that the Eleventh Amendment is a bar to claims for past damages against state
defendants sued in their official capacities, but it does not bar prospective relief (injunctive or
declaratory) against those defendants. Rossborough Mfg. Co. v. Trimble, 301 F.3d 482, 489 (6th Cir.
2002); Wolfel v. Morris, 972 F.2d 712, 719 (6th Cir. 1992); see Will v. Mich. Dep’t of State Police,
491 U.S. 58, 71 n.10 (1989); Edelman v. Jordan, 415 U.S. 651, 663 (1974). Nor does the Eleventh
Amendment bar suits for damages against state officials sued in their individual capacities. Hafer
v. Melo, 502 U.S. 21, 30-31 (1991). Moreover, qualified immunity protects officials from liability
only in their individual capacities and only from damages - not from declaratory or injunctive relief.
Flagner v. Wilkinson, 241 F.3d 475, 483 (6th Cir. 2001); Littlejohn v. Rose, 768 F.2d 765, 772 (6th
Cir. 1985). Applying these rules to the present case, the only claims plaintiffs can bring are claims
for declaratory or injunctive relief against all six defendants in their official or individual capacities,
and claims for damages against the four defendants named in their individual capacities.
Additionally, the only claims for which qualified immunity might apply are those made by plaintiffs
for damages against the four defendants named in their individual capacities.
The district court held that: (1) the four defendants named in their individual capacities are
entitled to qualified immunity from any claims for monetary damages; and (2) the plaintiffs’ claims
for declaratory and injunctive relief could not survive summary judgment, because both their equal
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George-Khouri Family Ltd. P’ship v. Ohio Dep’t of Liquor Control
protection and their due process claims failed on the merits.3 We first address the merits of the
constitutional claims for declaratory and injunctive relief, because if the appellants’ due process or
equal protection rights were not violated, then they cannot establish the first step in overcoming the
qualified immunity defense: that a constitutional or statutory violation occurred. See Williams v.
Mehra, 186 F.3d 685, 691 (6th Cir. 1999). We will then consider the issue of qualified immunity
inquiry as to the takings claim, for which the appellants sought only damages and not declaratory
or injunctive relief.
1. Equal protection
The equal protection clause of the U.S. Constitution “requires the government to treat
similarly situated individuals in a similar manner.” Gutzwiller v. Fenik, 860 F.2d 1317, 1328 (6th
Cir. 1988). To survive an equal protection challenge, legal classifications must be “rationally related
to legitimate governmental objectives.” Schweiker v. Wilson, 450 U.S. 221, 230 (1981).
Basically, the appellants argue that in a situation like the one in the present case, where the
liquor permit holder is a tenant and the state sends notices relating to liquor licenses to the permit
holder only, the state is violating the equal protection clause by treating property owners who hold
liquor permits differently than those who do not. Putting aside the fact that this argument seems to
be merely a reworded version of the appellants’ due process argument (an argument that is
considered infra), the argument has no merit. The Partnership chose to lease its property to a tenant
3
The district court noted that in a court filing not included in the joint appendix, the plaintiffs
expressly stated they sought only damages - not injunctive or declaratory relief - on their claim that
the application of Ohio Admin. Code § 4301:1-1-08 to the plaintiffs constituted a regulatory taking
without just compensation.
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who acquired a liquor license, and through this action it differentiated itself from landlords who own
liquor licenses themselves. For the state to only send notices regarding liquor permits to those
landlords who own liquor licenses is surely a rational way to further the government’s legitimate
purpose of regulating the liquor industry.4 The state has every reason to believe that a permit holder
- landlord or tenant - will pursue vigorously its interest in maintaining its liquor permit and avoiding
Rule 8’s one-year sanction on the property in question. The appellants’ equal protection claim
cannot survive summary judgment.
2. Due process
The appellants also claim that the defendants’ enforcement of Rule 8 violated their
substantive and procedural due process rights. Substantive due process has been defined as “[t]he
doctrine that governmental deprivations of life, liberty or property are subject to limitations
regardless of the adequacy of the procedures employed.” Pearson v. City of Grand Blanc, 961 F.2d
1211, 1216 (6th Cir. 1992) (internal quotation marks and citation omitted). “Substantive due process
claims may be loosely divided into two categories: (1) deprivations of a particular constitutional
guarantee; and (2) actions that ‘shock the conscience.’” Valot v. Southeast Local Sch. Dist. Bd. of
Educ., 107 F.3d 1220, 1228 (6th Cir. 1997). “[I]f any conceivable legitimate governmental interest
supports the contested [law], that measure...cannot offend substantive due process norms.” 37712,
Inc. v. Ohio Dep’t of Liquor Control, 113 F.3d 614, 620 (6th Cir. 1997). Appellants make no
4
The Twenty-First Amendment “gives the States wide latitude to regulate the importation
and distribution of liquor within their territories.” Brown-Forman Distillers Corp. v. N.Y. State
Liquor Auth., 476 U.S. 573, 584 (1986) (citing Cal. Liquor Dealers Ass’n v. Midcal Aluminum, Inc.,
445 U.S. 97, 107 (1980)).
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attempt in their brief to explain how the defendants’ enforcement of Rule 8 deprived them of any
fundamental right or shocked the conscience. They merely argue that the Commission exceeded its
statutory authority in enacting Rule 8 and unreasonably delayed the administrative hearing on the
request to transfer another permit to the 1057-1059 Old River Road location. There is most certainly
a “conceivable legitimate governmental interest” - that of penalizing permit holders who offend state
liquor laws by prohibiting them from opening a new business under another name in the same
location or transferring another license to that location - behind Rule 8, as well as the defendants’
application of Rule 8 to the appellants, who chose to lease their premises to liquor permit holders.
Neither the rule nor the application of the rule offended notions of substantive due process.
Procedural due process generally requires that the state provide a person with notice and an
opportunity to be heard before depriving that person of a property or liberty interest. See, e.g.,
Thompson v. Ashe, 250 F.3d 399, 407 (6th Cir. 2001). Only after a plaintiff has met the burden of
demonstrating that he possessed a protected property or liberty interest and was deprived of that
interest will the court consider whether the process provided the plaintiff in conjunction with the
deprivation, or lack thereof, violated his rights to due process. Hamilton v. Myers, 281 F.3d 520,
529 (6th Cir. 2002). The district court held that as a landlord, the Partnership had no property
interest in being able to lease to a tenant with a valid liquor permit, and “even if there were such a
constitutionally protected property interest, injunctive relief would not be necessary in this case, as
any harm could be remedied through the award of monetary damages.” This conclusion was correct.
It is true that “a holder of an Ohio liquor license has a property interest protected under the Due
Process Clause. Therefore, the state must accord a liquor licensee due process before revoking the
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George-Khouri Family Ltd. P’ship v. Ohio Dep’t of Liquor Control
license.” Brookpark Entm’t, Inc. v. Taft, 951 F.2d 710, 716 (6th Cir. 1991) (footnote omitted).
However, the Partnership did not have such a license. Moreover, this court has never held, and the
appellants cite to no authority holding, that the right to lease one’s land to a tenant holding a liquor
permit is a property interest protected under the Due Process Clause.
For these reasons, the appellants did not raise a genuine issue of material fact as to whether
their claims for injunctive and declaratory relief based on violations of equal protection and due
process rights could succeed.
C.
Qualified immunity protects government officials from civil liability for actions taken within
their official discretion insofar as these actions do not violate clearly established statutory or
constitutional rights of which a reasonable official would have been aware. See Harlow v.
Fitzgerald, 457 U.S. 800, 818 (1982). It is not merely a defense to liability; rather, when applicable,
qualified immunity protects government officials from lawsuits and, hence, the burdens of litigation.
See Saucier v. Katz, 533 U.S. 194, 200-01 (2001). Whether qualified immunity applies is a question
of law reviewed de novo. Flint v. Ky. Dep’t of Corr., 270 F.3d 340, 346 (6th Cir. 2001).
To assert qualified immunity, an official must first demonstrate that she acted within her
discretionary authority. See Gardenhire v. Schubert, 205 F.3d 303, 311 (6th Cir. 2000). Once the
official makes this showing, the burden shifts to the plaintiff to prove that the officer violated a right
so clearly established that any reasonable official in her position would have understood it was
unlawful to engage in the conduct that violated the right. Id. In the present case, the appellants do
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not dispute that the defendants were acting within their authority as state officials, so the burden
shifts to the appellants to overcome the qualified immunity defense.
This court evaluates this burden according to a three-prong standard. See Williams, 186 F.3d
at 691. First, the court considers whether a constitutional or statutory violation occurred. Id. If so,
the court then considers whether the right that was violated was clearly established in the sense that
a reasonable person would have known of the right. Id. If the right was clearly established, the
court’s third step is to “determine whether the plaintiff has alleged sufficient facts, and supported
the allegations by sufficient evidence, to indicate that what the official allegedly did was objectively
unreasonable in light of the clearly established constitutional rights.” Id. The operative question “is
whether it would be clear to a reasonable officer that his conduct was unlawful in the situation he
confronted.” Saucier, 533 U.S. at 202.
As described supra, the appellants cannot show that a constitutional violation of their due
process or equal protection rights occurred, so the defendants are entitled to qualified immunity on
the plaintiffs’ claims for damages based on these allegations. With regard to the takings claim, the
plaintiffs sought only damages, and the district court found that qualified immunity applied.
The appellants argue that the Partnership’s property was barred from being used as a liquor
establishment for nearly one year by Rule 8, and this bar constituted a regulatory taking, because
it “denied the Partnership all economically beneficial or productive use of its land.” Regulatory
takings can occur in two situations: first, when a regulation denies all economically beneficial or
productive use of land, and second, when a regulation places limitations on land that fall short of
eliminating every economically beneficial use yet still constitute a taking. Anderson v. Charter
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Township of Ypsilanti, 266 F.3d 487, 493 (6th Cir. 2001). Plaintiffs fail to raise a genuine issue of
material fact as to whether, as they claim, “the permitted and only viable use of this property is as
a liquor permit establishment,” and that the application of Rule 8 to the property thus constituted a
taking. The Partnership knowingly took the risk of buying a property and then leasing it under the
expectation that the tenant would maintain the liquor license. The tenants, not the state, were
responsible for the revocation of the license and any resulting economic impact. Cf. Blue Ribbon
Props. v. Hardin County Fiscal Court, 50 Fed. Appx. 671, 676 (6th Cir. 2002) (“There is no doubt
that the County’s actions interfered with Blue Ribbon’s investment-backed expectations, but Blue
Ribbon purchased the property with the knowledge that it could not construct or operate a landfill
on it without obtaining County and state permits.”).5 In sum, plaintiffs cannot establish a genuine
issue of material fact as to whether the defendants are not entitled to qualified immunity.
III.
For the foregoing reasons, we affirm the district court’s orders granting defendants’ motion
for judgment on the pleadings as to Count Two and granting summary judgment to the defendants
on the remaining claims.
5
A fundamental problem in the appellants’ argument is that it is unclear from the record
exactly how the Partnership was harmed by the application of Rule 8 to the Partnership’s property.
Evidently, after the revocation of PDU’s liquor license, the Partnership attempted unsuccessfully
“to locate a tenant with a liquor permit and the ability to enter into a lease of the premises.” This
statement suggests that, but does not explain why, the Partnership released the new owners of PDU’s
nightclub, who had taken on all the rights and obligations of PDU’s five-year lease running to March
2004, from their lease obligations, such as the obligation to pay rent. It seems that from the terms
of the lease and assignment agreements, the Partnership was still entitled to collect rent from its
tenant, regardless of whether the liquor permit had been revoked or not.
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