Six Star Holdings, LLC v. City of Milwaukee , 821 F.3d 795 ( 2016 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-1608
SIX STAR HOLDINGS, LLC, and FEROL, LLC,
Plaintiffs-Appellees,
v.
CITY OF MILWAUKEE,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 2:10-cv-893 — Lynn Adelman, Judge.
____________________
ARGUED NOVEMBER 9, 2015 — DECIDED APRIL 13, 2016
____________________
Before WOOD, Chief Judge, ROVNER, Circuit Judge, and
SHAH, District Judge.*
WOOD, Chief Judge. This case requires us to visit the world
of strip clubs—establishments that no one seems to want,
officially, but that are somehow quite lucrative. Prior to
* Of the Northern District of Illinois, sitting by designation.
2 No. 15-1608
March 1, 2012, the City of Milwaukee had various licensing
requirements for this type of place, but it no longer defends
their constitutionality. The First Amendment imposes a
“heavy presumption” against the “constitutional validity” of
prior restraints on speech. Bantam Books, Inc. v. Sullivan, 372
U.S. 58, 70 (1963). Prior restraints that are viewpoint- and
content-neutral and impose a limitation only on the time,
place, and manner of speech are more likely to pass muster.
See City of Lakewood v. Plain Dealer Publ’g. Co., 486 U.S. 750,
763 (1988); Blue Canary Corp. v. City of Milwaukee, 251 F.3d
1121, 1123 (7th Cir. 2001). They are permissible if, and only
if, there are procedural safeguards that ensure that the deci-
sionmaker approving the speech does not have “unfettered
discretion” to grant or deny permission to speak. Plain Dealer
Publ’g. Co., 486 U.S. at 755–57; Freedman v. State of Maryland,
380 U.S. 51, 58–59 (1965).
Before us now are two Milwaukee ordinances, now re-
pealed, that required certain licenses before a business was
permitted to offer nude or partially nude entertainment.
(When we say “nude,” we mean to include both total and
partial nudity; the difference between the two is immaterial
for this case.) Two companies—Six Star Holdings, LLC,
which applied for a license under one of these ordinances,
and Ferol, LLC, which did not—challenged these ordinanc-
es, seeking injunctive relief and damages. Once the ordi-
nances were repealed, the plaintiffs dropped their requests
for injunctive relief but continued to pursue damages. The
latter request saves the case from mootness. See Buckhannon
Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Human Res.,
532 U.S. 598, 608–09 (2001). The district court held that the
ordinances addressed time, place, and manner of expression,
but that they did not include the necessary procedural safe-
No. 15-1608 3
guards. A jury then decided that but for the unconstitutional
ordinances, Ferol would have opened a club providing nude
entertainment. It awarded Ferol compensatory damages in
the form of lost profits, and gave Six Star nominal damages.
The City has appealed. It argues that Ferol had no injury
and therefore no standing to challenge the ordinances. It also
challenges Ferol’s theory of causation and the award of nom-
inal damages to Six Star. Finding no merit in any of these
points, we affirm the district court’s judgment.
I
Jon Ferraro saw a business opportunity in what he re-
garded as a shortage of nude-entertainment clubs in the
Milwaukee area. He created, and is the majority owner of,
the two plaintiff limited-liability companies: Six Star and
Ferol. (He owns other similar venues elsewhere in Wiscon-
sin.) Ferraro wanted to open two clubs in the downtown
Milwaukee area. The one owned by Six Star would be called
“Silk East,” at 730 North Old World Third Street, and the
other, owned by Ferol, would be called “Satin” and located
at 117 West Pittsburgh Avenue.
Under the licensing regime in place before March 1, 2012,
there were three lawful ways to offer so-called adult enter-
tainment. To operate an establishment that offered both al-
cohol and nudity, the proprietor was required to obtain a
liquor license, sometimes called a tavern license, and a tav-
ern- amusement license. See Milwaukee Code of Ordinances
(MCO) § 90. To operate a dry (that is, alcohol-free) club with
nude entertainment, the proprietor could obtain either a the-
ater license, MCO § 83–1, or a public–entertainment club li-
cense, MCO § 108-5.
4 No. 15-1608
Initially, Ferraro hoped that both of his planned clubs
would be authorized to serve alcohol and to provide nude
entertainment. Six Star and Ferol accordingly each applied
for a liquor license and a tavern-amusement license in Sep-
tember 2010. They quickly learned that the City did not wel-
come Ferraro’s plans. The Milwaukee Common Council de-
nied both sets of applications after a public hearing before
the Council’s Licensing Committee. Members of the public
complained that the clubs would produce unwanted sec-
ondary effects on the neighborhood, including a disorderly
clientele and increased crime, and that they would drive
away other businesses.
Following this setback, Ferraro reevaluated his options.
He began preparations to open a dry adult club at one of his
locations. For market research, he visited several other dry
clubs—one near Appleton, Wisconsin, and others in Las Ve-
gas. He began calculating whether a Milwaukee-area dry
club could be profitable based on the financial data from an-
other Milwaukee-area club he owned. He identified manag-
ers from his other establishments who could move to his
new club, and he contacted a parking service to arrange for
valet parking at the new club. But his lawyer interrupted his
preparations with more bad news: although he would not
need a liquor license and tavern-amusement license, he
would need either a theater license or a public-entertainment
club license to operate a dry club that featured nudity.
With this information in hand, Ferraro decided that Six
Star should apply for a theater license to operate “Silk East”
as a dry club. Six Star submitted a revised application to the
Common Council in September 2011. It went nowhere: a
Milwaukee alderman put a “hold” on it, and there it sat. No
No. 15-1608 5
action was taken on Six Star’s application before both ordi-
nances were repealed on March 1, 2012.
As Ferraro’s business plans evolved, so did his legal
strategy. Back in 2010, before applying for any license, both
Six Star and Ferol filed suits in the federal district court for
the Eastern District of Wisconsin attacking the liquor license
and tavern amusement license ordinance, MCO § 90. Their
cases were quickly consolidated. After the Common Council
denied their applications for liquor licenses and tavern
amusement licenses, they amended their complaint a few
times. Eventually they reached their Fourth Amended Com-
plaint. It challenged MCO § 90 (the liquor and tavern
amusement license ordinance), MCO § 83–1 (the theater li-
cense ordinance), and MCO § 108-5 (the public entertain-
ment club ordinance) under 42 U.S.C. § 1983; all of these or-
dinances, they charged, violated their First Amendment
rights facially and as applied. The complaint asked for dam-
ages and injunctive relief.
In time, cross-motions for summary judgment were filed.
On March 18, 2013, the district court granted summary
judgment in the City’s favor with respect to the facial and as-
applied challenge to the tavern-amusement license part of
MCO § 90 and the as—applied challenge to the liquor license
part. The court relied on Blue Canary Corp., 251 F.3d 1121,
which it understood to allow a city to deny a license based
on the secondary effects of the proposed establishment
without running afoul of the First Amendment. It held that
the Common Council’s decision rested on the predicted sec-
ondary effects of the clubs and not on their expressive con-
tent.
6 No. 15-1608
The court granted summary judgment for Six Star on its
challenge to the theater ordinance, MCO § 83–1. Because the
ordinance had since been repealed, the court limited itself to
the as-applied challenge. It held that the theater ordinance
operated as a prior restraint on expressive activity without
the necessary procedural safeguards, particularly because
the city had unfettered discretion to indefinitely delay ren-
dering a decision, contrary to Plain Dealer Publ’g. Co., 486
U.S. 750 and Freedman, 380 U.S. 51. Six Star, it said, was enti-
tled to damages for lost profits from the months during
which it would have operated Silk East but for the ordi-
nance. The court did not reach Six Star’s facial challenge to
the theater ordinance, which it thought no longer made any
difference. It noted a question about Ferol’s standing to bring
an as-applied challenge to the theater ordinance or the pub-
lic entertainment club ordinance, because it had not request-
ed a license, but it invited additional briefing on the matter.
After the court received additional briefing on Ferol’s
standing, it issued a second opinion on August 28, 2013,
granting summary judgment to Ferol on liability. It was per-
suaded that Ferol did have standing in light of an affidavit
that Ferraro submitted. Ferraro attested that Ferol would
have opened Satin as a dry club at 117 West Pittsburgh Ave-
nue in September 2010 had it not been for the theater license
and public—entertainment club ordinances. Ferraro detailed
the concrete steps he had undertaken to prepare for the
club’s opening. The court concluded that the ordinances
were unconstitutional as applied to Ferol.
Finally, the court put the questions of causation and
damages before a jury, at a trial held on February 17–19,
2015. Ferraro acknowledged that he would have opened on-
No. 15-1608 7
ly one club—either Satin or Silk East—and therefore he
asked for nominal damages for Six Star and lost-profit dam-
ages for Ferol. At the trial, the City cross-examined Ferraro
and his business partners in detail about their plans to open
a dry club. The jury found for Ferol, answering “Yes” to the
question, “Would plaintiff Ferol, LLC have opened a dry
gentlemen’s club at 117 West Pittsburgh Avenue in the City
of Milwaukee before March [1], 2012, but for the existence of
the former theater and public entertainment club ordinanc-
es?” (The form actually said March 12, but this seems to be a
typographical error.) The jury awarded Ferol $435,000 in
compensatory damages for its lost profits.
II
A
The City’s central argument on appeal is that Ferol
lacked standing to challenge either the theater license or the
public- entertainment club ordinances because it suffered no
injury traceable to the City’s conduct. This is a fundamental
issue we must take up whenever it is raised. United States v.
Cotton, 535 U.S. 625, 630 (2002). Article III standing “requires
the litigant to prove that he has suffered a concrete and par-
ticularized injury that is fairly traceable to the challenged
conduct, and is likely to be redressed by a favorable judicial
decision.” Hollingsworth v. Perry, 133 S. Ct. 2652, 2661 (2013)
(citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61
(1992)). As the “party invoking federal jurisdiction,” Ferol
“bears the burden of establishing these elements.” Lujan, 504
U.S. at 561. Standing must “be supported in the same way as
any other matter on which the plaintiff bears the burden of
proof.” Id. At the pleading stage, “general factual allegations
of injury resulting from the defendant’s conduct may suf-
8 No. 15-1608
fice,” but at summary judgment, the plaintiff “must ‘set
forth’ by affidavit or other evidence ‘specific facts.’” Id.
(quoting FED. R. CIV. P. 56(e)).
We first consider whether Ferol has standing on the as-
sumption that he is bringing a pre-enforcement challenge to
the relevant ordinances. In that case, Ferol must demonstrate
that the threat of enforcement of an unconstitutional ordi-
nance caused injury that was “actual or imminent, not con-
jectural or hypothetical.” Susan B. Anthony List v. Driehaus,
134 S. Ct. 2334, 2341 (2014) (internal quotation marks omit-
ted). Ferol’s “allegation[s] of future injury may suffice
[when] … there is a ‘substantial risk’ that the harm will oc-
cur.” Id. (quoting Clapper v. Amnesty Int’l USA, 133 S. Ct.
1138, 1147, 1150 n.5 (2013) (some internal quotation marks
omitted)). Ferol can establish future injury by alleging “‘an
intention to engage in a course of conduct arguably affected
with a constitutional interest, but proscribed by a statute,’”
and “’a credible threat of prosecution.’” Id. at 2342 (quoting
Babbit v. United Farm Workers Nat’l Union, 442 U.S. 289, 298
(1979)); see also Holder v. Humanitarian Law Project, 561 U.S.
1, 15 (2010) (pre-enforcement challenge to criminal law justi-
ciable because “[p]laintiffs face a credible threat of prosecu-
tion” (internal quotation marks omitted)).
Ferol fits comfortably within the boundaries laid out by
Susan B. Anthony List. Ferraro averred in his affidavit that the
company had “an intention to engage in a course of con-
duct” protected by the First Amendment, but that conduct
was proscribed by the ordinances, and the company faced a
credible threat of prosecution. He alleged that Ferol would
have opened a dry adult entertainment club at 117 West
No. 15-1608 9
Pittsburgh Avenue had the City not had its open-ended and
unpredictable licensing regime. Ferraro set out the numer-
ous concrete steps that he had taken on Ferol’s behalf to pre-
pare for business. In that respect, Ferol went the extra mile: it
did not have the burden of proving that it definitely would
have opened the dry club in order to have standing (alt-
hough the jury’s lost-profits verdict shows that the jury
thought Ferol did prove this). At the summary judgment
stage, Ferol needed only to allege sufficient facts to support
standing and to support those facts with evidence that met
the criteria of Federal Rule of Civil Procedure 56(c). Lujan,
504 U.S. at 561.
But Ferol’s claim may not be best understood as a pre-
enforcement challenge. It rests on the ordinances’ immediate
chilling effect on its protected speech—in other words, on an
injury that has already occurred. Where statutes operate as
prior restraints and the decisionmaker’s discretion is not
properly cabined, “the mere existence of the licensor’s unfet-
tered discretion, coupled with the power of prior restraint,
intimidates parties into censoring their own speech, even if
the discretion and power are never actually abused.” Plain
Dealer Publ’g. Co., U.S. 486 at 757. It has thus long been estab-
lished “that when a licensing statute allegedly vests unbri-
dled discretion in a government official over whether to
permit or deny expressive activity, one who is subject to the
law may challenge it facially without the necessity of first
applying for, and being denied, a license.” See id. at 755–56
(collecting cases); Freedman, 380 U.S. at 56 (“In the area of
freedom of expression it is well established that one has
standing to challenge a statute on the ground that it dele-
gates overly broad licensing discretion to an administrative
office … whether or not he applied for a license.”).
10 No. 15-1608
We recognize that Ferol is challenging the Milwaukee
ordinances as applied, not facially. But the distinction has
little force in the present circumstances. As the Supreme
Court has explained, ”the distinction between facial and as-
applied challenges is not so well defined that it has some au-
tomatic effect or that it must always control the pleadings
and disposition in every case involving a constitutional chal-
lenge.” Citizens United v. Fed. Election Comm’n, 558 U.S. 310,
331 (2010). Rather, “it goes to the breadth of the remedy em-
ployed by the Court”: a facial challenge usually invites pro-
spective relief, such as an injunction, whereas an as-applied
challenge invites narrower, retrospective relief, such as
damages. Id. In this case, the need for an injunction has dis-
appeared, and so we are left only with Ferol’s request for
damages. That aspect of the case does not depend on the le-
gal theory he is using.
Ferol had already suffered an injury from the unconstitu-
tional ordinances. It alleged—and a jury ultimately found—
that it refrained from protected speech in response to the
City’s unconstitutional ordinances. This describes an injury-
in-fact sufficient to support standing. See Virginia v. Am.
Booksellers Ass’n, Inc., 484 U.S. 383, 393 (1988). It is fairly
traceable to the unconstitutional ordinances—Ferol alleged
that, but for the ordinances, it would have engaged in pro-
tected speech, and a jury ultimately found this to be true.
Damages redress the harm that Ferol suffered by replacing
the lost profits Ferol would have earned if it had been able to
open its club at the planned time.
This is enough to show why the City’s complaint that the
district court erred by construing Ferol’s suit as an applied,
rather than a facial, challenge is going nowhere. Because the
No. 15-1608 11
distinction between facial and as-applied challenges informs
only the choice of remedy, “not what must be pleaded in the
complaint,” a court may construe a challenge as applied or
facially, as appropriate. See Citizens United, 558 U.S. at 331.
B
The City offers two additional arguments against Ferol’s
standing, but neither is persuasive. First, the City asserts that
Ferol’s decision not to apply for a license was unreasonable
because it was based on the advice of an “unlicensed law-
yer.” This argument was not raised below and is therefore
waived. See James v. Hyatt Regency Chicago, 707 F.3d 775, 783
(7th Cir. 2013). Moreover, it is without merit: in a separate
opinion regarding attorney’s fees, the district court ex-
plained that Ferol relied on the advice of its (licensed) coun-
sel, who employed and supervised a trial consultant and
other staff. Six Star Holdings, LLC v. City of Milwaukee, No. 10-
CV-0893, 2015 WL 5821441, at *4 (E.D. Wis. Oct. 5, 2015).
Second, the City says that Ferol’s standing fails because
the City never had the opportunity to exercise its prosecuto-
rial discretion to refrain from enforcing the ordinances. But
there is no requirement to give it such an opportunity. See
Am. Booksellers Ass’n, Inc., 484 U.S. at 392 (permitting chal-
lenge before statute took effect); Commodity Trend Serv., Inc.
v. Commodity Futures Trading Comm’n, 149 F.3d 679, 687 (7th
Cir. 1998) (government must “indicate affirmatively that it
will not enforce that statute” in a criminal context); N.H.
Right to Life Political Action Comm. v. Gardner, 99 F.3d 8, 15
(1st Cir. 1996) (“courts will assume a credible threat of pros-
ecution in the absence of compelling contrary evidence”); cf.
Wis. Right to Life, Inc. v. Paradise, 138 F.3d 1183, 1185 (7th Cir.
1998) (court will assume no “well-founded” fear of enforce-
12 No. 15-1608
ment when government presents official, written policy
against enforcement (quoting Am. Booksellers Ass’n, Inc., 484
U.S. at 393)).
The City’s real concern appears to be a variant of the
floodgates scenario. It fears that plaintiffs will emerge from
the woodwork alleging that they too would have undertak-
en protected First Amendment activities but for now-
repealed statutes. This is sheer speculation, however, and it
fails to take into account the many safeguards built into the
courts’ authority to adjudicate claims. Under Article III of
the Constitution, any allegation of harm must be concrete
and particularized and proven at each stage of litigation, just
like any other fact. Lujan, 504 U.S. at 561. Statutes of limita-
tions also limit legal exposure. Courts routinely entertain
suits for damages stemming from repealed laws. See, e.g.,
Markadonatos v. Vill. of Woodridge, 760 F.3d 545, 546 (7th Cir.
2014) (en banc) (Posner, J., plurality opinion) (considering
awarding damages based on repealed law, although ulti-
mately not doing so on the merits); id. at 565 (Hamilton, J.,
dissenting) (agreeing that damages could be awarded based
on repealed law); Peterson v. Lindner, 765 F.2d 698, 701 (7th
Cir. 1985) (same).
Ferol had standing to challenge the City’s theater license
and public entertainment club ordinances. Therefore the dis-
trict court had jurisdiction.
III
A
The City also argues that Ferol’s claim for damages is not
cognizable because the harm came from Ferraro’s choice to
No. 15-1608 13
self-censor, not from the ordinance. At times, the City frames
this as a challenge to the sufficiency of the evidence. To the
extent that is the case, the argument is waived: the City
failed to make a proper motion under Federal Rule of Civil
Procedure 50(a) prior to jury deliberations, and thus it had
no motion to renew under Rule 50(b) after the verdict. See
Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394, 404
(2006) (holding appellate court may not review sufficiency of
the evidence without proper Rule 50(a) and (b) motion).
The City may, however, be making a simple legal point.
We may consider “pure questions of law unrelated to the
sufficiency of the trial evidence” regardless of whether there
was a motion under Rule 50(a) or (b). Lawson v. Sun Mi-
crosystems, Inc., 791 F.3d 754, 761 (7th Cir. 2015); see also
Ortiz v. Jordan, 562 U.S. 180, 189 (2011) (declining to resolve
circuit split over the need for motions under Rule 50(a) and
(b) to preserve pure questions of law for appellate review).
So understood, it still cannot prevail. Neither company was
self-censoring in a vacuum; they were responding rationally
to the City’s position that they were not permitted to open
their businesses until it gave them a license. To the extent
that any voluntary action was involved, it is well established
that the chilling effect of a statute that violates the First
Amendment is enough to support a claim. See, e.g., FCC v.
Fox Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012)
(“when speech is involved, rigorous adherence to those re-
quirements [of avoiding vagueness and unlimited enforce-
ment discretion] is necessary to ensure that ambiguity does
not chill protected speech”); Am. Booksellers Ass'n, Inc., 484
U.S. at 393; City Council of Los Angeles v. Taxpayers for Vincent,
466 U.S. 789, 798–99 (1984); Broadrick v. Oklahoma, 413 U.S.
601, 612 (1973); Freedman, 380 U.S. at 61; see also FW/PBS,
14 No. 15-1608
Inc. v. City of Dallas, 493 U.S. 215, 253 (1990) (Scalia, J., con-
curring in part and dissenting in part); Ctr. for Individual
Freedom v. Madigan, 697 F.3d 464, 473–74 (7th Cir. 2012);
Schultz v. City of Cumberland, 228 F.3d 831, 848 (7th Cir. 2000).
B
Last, we turn to the question of the nominal damages the
district court awarded to Six Star. The City fights this be-
cause, it argues, Six Star suffered only de minimis harm. But it
overlooks the fact that this is exactly the situation for which
nominal damages are designed. And in civil rights cases,
nominal damages are appropriate when a plaintiff’s rights
are violated but there is no monetary injury. See Carey v.
Piphus, 435 U.S. 247, 266–67 (1978).
The City protests that Six Star could not have opened Silk
East at 130 North Old World Third Street because another
tenant occupied that space. Whether that is true is disputed:
Six Star offered evidence that it leased the space to a tenant
with the caveat that Six Star could displace the tenant imme-
diately upon obtaining a theater license. Moreover, this fact
is irrelevant to the legal issue, which relates to the First
Amendment implications of the lack of clear licensing stand-
ards binding the City, not how quickly Six Star could have
moved if the City had issued a license. The City is not de-
fending these repealed ordinances. At most, the presence of
the tenant might have been relevant to Six Star’s damages,
but given the award of nominal damages, even that point
drops out.
IV
The City is fighting a losing battle over a regime whose
time has passed. Finding no merit in either of its challenges
No. 15-1608 15
to Ferol’s and Six Star’s standing or its arguments on the
damages awarded to each company, we AFFIRM the judgment
of the district court.