Scahill v. District of Columbia

          Argued September 20, 2018

          Appeal from the United States District Court for the District of Columbia (No. 1:16-cv-02076)

          Brendan J. Klaproth argued the cause and filed the briefs for appellants.

          Richard S. Love, Senior Assistant Attorney General, Office of the Attorney General for the District of Columbia, argued the cause for appellees. With him on the brief were Karl A. Racine, Attorney General, and Loren L. AliKhan, Solicitor General. Caroline S. Van Zile, Deputy Solicitor General, entered an appearance.

          Before: Garland, Chief Judge, and Rogers and Griffith, Circuit Judges.

          OPINION

          Rogers, Circuit Judge.

         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, 633 F.3d 1101, 1109 (D.C. Cir. 2011), which held that required notification of the government does not constitute compelled speech. HRH's commercial association claim is foreclosed by Roberts v. U.S. Jaycees, 468 U.S. 609, 620 (1984), and City of Dallas v. Stanglin, 490 U.S. 19, 25 (1989).

         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, 556 U.S. 662, 682 (2009). We also affirm the dismissal of Scahill's claims. His commercial association claim fails for the same reasons as HRH's; his freedom of movement claim fails under the court's precedent; and his procedural due process claim fails to identify a cognizable liberty or property interest.

         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 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, 271 F.Supp.3d 216 (D.D.C. 2017); see Fed. R. Civ. P. 12(b)(6). Except as to HRH's First Amendment retaliation claim based on appellants' legal challenges to the license conditions, the district court ruled that issue preclusion prevented HRH from re-litigating its standing in view of the D.C. Court of ...