LOS ANGELES - On April 24, 2008 the California Supreme Court handed down its decision in the civil rights case brought by Manta Management, the owner and operator of the Flesh Club Adult Cabaret in San Bernardino, California.
This is the decision that reviewed the earlier decision by the State Court of Appeal in the case of Manta Management v. City of San Bernardino, 44 Cal. Rptr.3d 35 (2006). The case is extremely important to the adult industry and to the First Amendment. Although it relates to adult zoning ordinances it does have wider implications and there are substantial benefits to adult businesses (strip clubs, adult bookstores, arcades, etc.) that are facing action by local officials.
The history is somewhat convoluted but the historical facts are important with respect to the significance of the recent decision by the California Supreme Court interpreting the Federal Civil Rights Act.
Manta decided to open and operate an adult business in the City of San Bernardino but did not like the properties in the two zones wherein the City asserted one could and should operate an adult business. Obviously the zones were not appropriate. They were the CH (commercial heavy) and IL (industrial). My client looked throughout the City of San Bernardino and decided that he wanted the best spot - 100 Hospitality Lane, which is the equivalent of Beverly Hills Rodeo Drive in terms of its meaning and significance to the City of San Bernardino. This is the only nice street in the entire city. All of the great hotels and restaurants are located along Hospitality Lane. At the time my client decided to go into this particular project there was a vacant building at 100 Hospitality Lane. Unfortunately, under the City's Zoning Code adult businesses were not permitted at that location. That fact, however, did not deter my client, who was determined to open and operate his adult cabaret at this particular location.
My client, in order to get all of the relevant building permits, opened up as a comedy club but the comedians were not funny and my client decided to go to a strip club operation instead. On the same day he did so we filed a lawsuit in the federal court to enjoin the City from enforcing the City's Zoning Code. The federal lawsuit was based upon the contention that the Zoning Code was unduly restrictive. Also other defects in the regulatory scheme were claimed.
The major issue was whether or not the City provided sufficient alternative locations for adult businesses so as to justify the ordinance. The Federal District Court would not grant a preliminary injunction in favor of Manta because the City filed an affidavit with the District Court by its Planning Director indicating that there were sufficient places elsewhere in the City where one could lawfully operate such a business. Upon this factual (misrepresentation) by the City, the Federal District Court denied the request for the preliminary injunction.
Undeterred, Manta continued to operate its strip club without the protection of the federal injunction that the federal court did not issue. The City Attorney then filed a separate lawsuit in the local Superior Court in San Bernardino seeking an injunction against Manta. Specifically the City Attorney was seeking to enforce the City's zoning law that did prohibit adult businesses where my client chose to operate. My primary objection to the preliminary injunction sought by the City Attorney was that there were insufficient places in the City where one could lawfully operate such a business and therefore the Superior Court judge should not grant the preliminary injunction. The same "false" affidavit filed by the City in response to the federal lawsuit Manta filed was filed with the Superior Court. Essentially the City's affidavit stated that there were 224 acres available in the other areas of the City that were zoned for adult businesses where Manta could operate its strip club. On this basis the Superior Court judge granted the preliminary injunction sought by the City Attorney.
Although I requested that the City file a bond to cover whatever damages might be suffered by Manta should we later win at trial the Superior Court followed the state statute which exempts cities from the requirement that bonds be posted. Ordinarily when a plaintiff sues a defendant in a state court and gets a preliminary injunction that will last until the trial the plaintiff needs to post a bond but the statute exempts cities from that requirement. I appealed the order granting the preliminary injunction but before the appellate court could hear the appeal the trial court set the trial date.
A different judge (not the one who issued the preliminary injunction) conducted a month long trial and found in favor of my client, Manta Management. Specifically Judge Carl Davis ruled that there was not a sufficient number of alternative sites for manta to operate. Therefore he dissolved the preliminary injunction that was previously issued by Judge Dwayne Lloyd. In the mean time, I did something that had never been done before. I filed a cross complaint in the state court action for damages suffered by Manta during the time that it was closed by the preliminary injunction. By agreement of the parties the cross complaint for damages was severed from the lawsuit that the City filed to enforce the City's ordinance. The cross complaint under the Civil Rights Act would be tried later to determine what the damages would be assuming that the ordinance was invalid.
Although Judge Carl Davis dissolved the preliminary injunction previously issued by Judge Dwayne Lloyd, the City promptly appealed that order to the Court of Appeal and pending appeal the Court of Appeal over my objection, issued a stay of the order dissolving the preliminary injunction. That meant the preliminary injunction would remain in effect even though Judge Davis dissolved it.
Eventually I won in the Court of Appeal. The same Court of Appeal that initially stayed the order dissolving the preliminary injunction ruled in favor of Manta. Specifically the Court of Appeal upheld Judge Davis' ruling that the ordinance was unconstitutional. The City then took the case to the State Supreme Court but that Court denied review. Thus, the order dissolving the preliminary injunction became effective and Manta could reopen.
We then took the case to trial on the cross complaint for damages under the Civil Rights Act. It must be kept in mind that both the federal and state courts have concurrent jurisdiction over civil rights claims. Therefore even though we are using the Federal Civil Rights Act the state court had jurisdiction to adjudicate that claim.
The City Attorney argued that there could be no recovery as a matter of law because the City never filed a bond and the filing of a bond was a prerequisite for Manta to be able to collect damages for the wrongfully issued preliminary injunction . I argued that the Federal Civil Rights Act trumped any state immunity law to the contrary and I prevailed on this point before still a third judge, Donald Alvarez. Judge Alvarez then ruled there was liability under the Civil Rights Act and we then proceeded to a jury trial since the City requested trial by jury.
The jury awarded my client $1,400,000 for lost profits during the time the club was closed by virtue of the preliminary injunction. The damages would have been higher but the City claimed that much of the activity at the Flesh Club was prostitution and therefore damages could not be collected based upon earnings from prostitution. The jury found that there was a lot of prostitution at the location but nevertheless still awarded $1,400,000 in damages for the loss of the constitutionally protected dancing (excluding the prostitution).
The City then appealed the judgment to the State Court of Appeal and that court handed what it said was a case of first impression, which means the issue had never been presented to any court before and never decided. The State Court of Appeal in a three to zero decision which was published and which was a precedent at the time ruled that the Civil Rights Act trumped any state laws and upheld the judgment for $1,400,000. The City never argued that the act of the judge who issued the preliminary injunction (Dwayne Lloyd) was an intervening cause that broke the chain of causation. In tort law one may sue another person for causing damage but if there has been an intervening act of a third party that act allegedly breaks the chain of causation.
The State Supreme Court, on its own motion, asked the parties to brief the causation issue. In response, I argued that the State Court of Appeal's decision was correct and that it was the City's unconstitutional ordinance that caused the damage not the preliminary injunction. Fearing that the Supreme Court might reject this argument, I came up with a backup argument that prevailed.
Specifically, my argument was that the City Attorney and the City misled Judge Dwayne Lloyd into issuing the preliminary injunction because the City falsely told Judge Lloyd that there were 224 acres available when in fact Judge Davis ruled to the contrary. Therefore I argued that even if the preliminary injunction would otherwise be deemed to have broken the chain of causation between the unconstitutional ordinance on the one hand and the shutting down of the club on the other, that argument (that the preliminary injunction broke the chain of causation) should not apply in a situation where the judge who granted the preliminary injunction was misled by the City.
There are analogous cases in criminal law where a police officer obtains a search warrant under false pretenses. The City argued in response to my argument on this point that even if the City provided the preliminary injunction judge with false information the City did not do so deliberately or intentionally but rather did so inadvertently through a misunderstanding of a particular ordinance. In other words there was no intent to deceive the judge who issued the preliminary injunction . I argued that intent was not relevant and that whether the City acted in good faith or not the City should be held liable for the preliminary injunction that caused the damage if the judge who issued the preliminary injunction was misled by the City's presentation of the evidence of the time of the hearing on the preliminary injunction.
The Supreme Court ruled that it was the injunction that caused the damage not the ordinance since my client did not shut down the club until the preliminary injunction was issued. In other words, my client never obeyed the unconstitutional ordinance and therefore the ordinance was not deemed to be the cause of the damage.
However, on the backup argument regarding the City misleading the judge who issued the preliminary injunction we prevailed before the State Supreme Court. The Supreme Court said Manta would prevail if the judge was misled by the City. The court specifically rejected the City's argument that a good faith mistake should be a defense. The Supreme Court said lack of intent to mislead was not a defense.
As a result of the foregoing the State Supreme Court has remanded the case on a limited basis back to the trial court to determine whether or not a misrepresentation was made and if so whether it was material. The Supreme Court specifically stated that the issue of intent would not be litigated on remand.
I have not decided whether to take this to the United States Supreme Court to try to get the State Court of Appeal's decision upheld without the gloss placed upon it by the State Supreme Court. Naturally I would prefer the ruling of the State Court of Appeal, which was that liability is automatic whenever a preliminary injunction enjoining First Amendment activity is vacated after trial. The Supreme Court did state that if the judge who issues the preliminary injunction simply makes a legal mistake and was not misled by the City then there would be no liability. So this would mean that if all of the relevant facts are presented to a judge who is asked to issue a preliminary injunction then there would be no liability according to the State Supreme Court if the judge who issues the preliminary injunction simply makes a legal error. The State Court of Appeal did not limit the liability under this circumstance. For this reason I may take the case to the United States Supreme Court to get the decision of the Court of Appeal reinstated since it is a better decision.
However, if I am forced to go back to the trial court for a limited remand I believe it will be fairly easy to demonstrate that the preliminary injunction would not have been issued had the City not deceived the judge into believing that there were 224 acres available elsewhere. Since Judge Carl Davis, the trial judge, found that at most there were only 80 acres available elsewhere and since that was the basis for him dissolving the preliminary injunction it would seem to me that materiality can be established fairly easily. Also, as stated, I do not need to show intent on the part of the City Attorney in deceiving the judge. This would be analogous to a negligent misrepresentation of the facts. Negligent misrepresentation is a species of tort law. One can prevail in a suit for deception even if the deception is not deliberate.
There are some good things that have come out from the State Supreme Court's decision including the concept that even without the posting of a bond a city can be held liable under the Civil Rights Act for damages caused by an erroneously issued preliminary injunction. Of course, under the State Supreme Court's decision we still have to show that the preliminary injunction that was issued was issued as a result of the judge being misled factually by the City Attorney. Nevertheless, the absence of the bond is not fatal. The City Attorney argued to the contrary and lost on this point also.
What is also significant from this case, I believe, is that this case should not be limited to preliminary injunctions. Specifically, if a City Attorney misrepresents facts to a judge who issues a final, permanent injunction, and that injunction is later overturned on appeal damages could also be awarded (assuming the basis for winning was a reversal as to the facts asserted by the City).
Attorneys representing adult businesses in this area should use this decision aggressively against City Attorneys and other public attorneys who are trying to enforce ordinances that are unconstitutional.
If a City Attorney or a District Attorney goes to a court and makes a misrepresentation as to a fact and that misrepresentation leads the judge to issue a preliminary injunction or a permanent injunction, there is liability under the Civil Rights Act for damages caused by the erroneously issued court order. There is a separate aspect of this case which is also interesting. Part of the reason the Flesh Club remained closed for a while was the order issued by the State Court of Appeal. Arguably it was the State Court of Appeal that further caused the damage to the Flesh Club, not the preliminary injunction issued by Judge Dwayne Lloyd. On that point I did argue before the State Supreme Court that the City misrepresented the facts with respect to damages. Specifically in response to my argument that a bond should be posted the City Attorney told the State Court of Appeal that damages would be available as a remedy if later the Court of Appeal should rule for the Flesh Club and dissolve the stay. This is a matter also for the trial court on remand.
In the meantime, the jury's verdict of $1,400,000 stands, subject a determination by the trial court judge as to whether the misrepresentation was material and whether it caused the preliminary injunction judge to issue the injunction that Judge Carl Davis, the trial judge, later dissolved on the specific ground that the ordinance was unconstitutional because of lack of alternative locations for adult businesses.
The decision of the California Supreme Court is published as was the decision of the State Court of Appeal.
In most jurisdictions, including California, preliminary injunction hearings are not conducted with witnesses and cross examination. They are not like trials. They typically involve the presentation of sworn declarations. It is not until the trial (perhaps one year later) that the witnesses appear in court and testify in person subject to cross examination. In this case I was able to demonstrate the falsity of the affidavit at trial. However, there was no cross examination at the preliminary injunction hearing. This is the format in most jurisdictions. So, the ruling of the Supreme Court is very important. It is the first and only case to uphold the application of the Federal Civil Rights Act to preliminary injunctions later dissolved at trial.
