Lso, Ltd., a California Corporation, Plaintiff-Appellantcross-Appellee v. Jay Stroh, Director of the California Department of Alcoholic Beverage Control, in His Official and Individual Capacities Manuel R. Espinoza, Chief Deputy Director of the California Department of Alcoholic Beverage Control, in His Official and Individual Capacities David E. Gill, District Supervisor, Rancho Mirage District Office Department of Alcoholic Beverage Control, in His Official and Individual Capacities, Defendants-Appelleescross-Appellants

Citation: 205 F.3d 1146Docket: 98-56093

Court: Court of Appeals for the Ninth Circuit; March 5, 2000; Federal Appellate Court

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LSO, LTD., a California corporation, initiated litigation against several officials of the California Department of Alcoholic Beverage Control (ABC) after they allegedly attempted to prevent LSO from hosting its annual Erotic Art Exhibition and Trade Show in Palm Springs in 1997. The officials, including Jay Stroh, Manuel R. Espinoza, and David E. Gill, reportedly threatened the Palm Springs Convention Center and other businesses with sanctions, including the potential loss of liquor licenses, if they allowed LSO's exhibition, citing a California law that prohibits the display of certain sexual images on licensed premises. Following a temporary restraining order issued by the federal district court, LSO successfully held its event.

The case, which is under the jurisdiction of the Ninth Circuit Court of Appeals, requires determination of whether LSO has standing to seek prospective and declaratory injunctive relief against future interference by the officials, as well as whether the officials are entitled to qualified immunity in relation to damages for their actions during the 1997 exhibition. The court concluded that LSO possesses standing and that the officials do not qualify for qualified immunity. LSO is described as a membership organization with approximately 30,000 members, having conducted annual conventions since 1973, including the Sensual and Erotic Art Exhibition since 1991, which has attracted thousands of attendees.

The Center, owned by the City of Palm Springs, was selected to host the majority of the convention events, with an exclusive use contract for July 30 to August 2, 1997. LSO invested significant resources in preparing for the convention, particularly the art exhibition, and intended to maintain a longstanding policy of prohibiting alcohol in the exhibition area. Although LSO's exhibitions are not legally obscene, much of the planned artwork violated California Administrative Code, Title 4, Section 143.4, which restricts displaying certain sexual content in licensed premises. 

In May 1997, a meeting convened by ABC District Supervisor Gill with representatives from the Center and hotels clarified that ABC regulations applied throughout licensed facilities, regardless of alcohol service in specific areas, and that licensees could face sanctions for violations. LSO's attorney proposed designating exhibition areas as alcohol-free to circumvent these regulations, but this proposal was rejected by officials who stated that no portion of a licensed area could be exempted from liquor laws. Following this, Gill communicated the prohibitions outlined in Section 143.4 to the licensees. 

On June 24, 1997, further discussions with ABC officials suggested that the planned exhibition would likely violate these regulations. Despite LSO's attempts to negotiate, no agreement was reached to allow the exhibition at the Center without potential ABC sanctions.

Gill engaged in multiple discussions with Jim Dunn, the Center's general manager, regarding LSO's planned art exhibition and potential violations of ABC regulations. Gill warned Dunn about the risks of disciplinary action if the exhibition proceeded without addressing these concerns. In response, Dunn expressed his worries through letters to LSO and proposed relocating the exhibition to a tent area, a suggestion that LSO rejected. On July 23, 1997, Dunn formally notified LSO that the exhibition was barred from the Center due to fears of sanctions from authorities. An addendum to the original contract was sent, proposing the tent relocation.

Subsequently, on July 28, 1997, LSO filed a lawsuit against ABC and several officials in federal court, seeking an injunction to allow the exhibition to occur at the Convention Center. The court issued a temporary restraining order (TRO) the next day, preventing officials from obstructing the exhibition, which successfully took place from July 31 to August 2, 1997. After the event, the court vacated its order related to a preliminary injunction. LSO later filed an amended complaint for declaratory relief, damages, and injunctive relief under 42 U.S.C. § 1983, alleging interference with its convention preparations and seeking to prevent future disruptions.

LSO appealed several district court rulings, specifically challenging the findings that it lacked standing for injunctive and declaratory relief, the grant of summary judgment to the officials based on qualified immunity, and the awarding of costs to the officials. The officials cross-appealed regarding the fees awarded to LSO for the TRO.

The district court determined that LSO lacked standing in its claims for prospective relief, dismissing them on the basis that the claims were speculative and did not demonstrate a credible threat of harm, referencing the precedent set in Nelsen v. King County. The court found that LSO did not show a specific injury from imminent conduct by the defendants, leading to the conclusion that future events were too hypothetical to establish standing for declaratory relief. The jurisdictional requirements under Article III of the Constitution necessitate an actual case or controversy, which includes the need for standing.

LSO, as the party seeking to establish federal jurisdiction, must demonstrate its standing by meeting three essential elements of Article III standing: (1) LSO must show it has suffered a concrete and particularized injury-in-fact that is actual and imminent, rather than conjectural or hypothetical; (2) it must establish a causal connection between the injury and the conduct complained of; and (3) it must demonstrate that a favorable decision is likely to redress its injury, rather than merely speculative. The controversy centers on whether LSO has alleged a specific injury-in-fact or merely a generalized grievance. The Officials contend that LSO's claims represent a generalized grievance since the regulatory threats were directed at liquor licensees and not LSO itself, which would typically preclude standing. However, the court draws on the Supreme Court's ruling in Bantam Books, Inc. v. Sullivan, where publishers were allowed to sue over actions targeting distributors because their ability to circulate books was directly impeded. The court emphasizes that LSO may have standing if it can demonstrate that its rights, akin to those of the publishers in Bantam, are being infringed, as failing to allow such claims could leave constitutional rights unprotected.

LSO claims that officials censored its art exhibition by exerting pressure and threats on the licensees from whom it needed to rent facilities, thereby infringing upon its constitutional rights. Similar to the situation in Bantam Books, LSO argues that the licensees would not pursue litigation over minor event cancellations, and the officials' distinction regarding actual injury is unconvincing. LSO emphasizes that despite ultimately hosting its 1997 convention, it incurred costs due to the officials' interference, and anticipates future interference that burdens its First Amendment rights. The court finds LSO's claims specific, rejecting the notion of a generalized grievance, and determines that LSO sufficiently demonstrates standing to challenge potential future actions by the officials, overcoming a motion to dismiss under Rule 12. The court reiterates that establishing standing requires showing a realistic threat of direct injury from the law or regulation in question, acknowledging the complexities involved in determining whether a true controversy exists.

A plaintiff can seek preventive relief without waiting for actual harm, as long as there is a credible threat that a challenged provision will be enforced against them. For standing, it is enough that the plaintiff intends to engage in conduct linked to a constitutional interest. However, individuals with only speculative fears of prosecution do not qualify as proper plaintiffs. Courts assess the reality of the threat by evaluating various factors, including past enforcement instances. Past prosecutions may support a finding of standing, but their absence does not automatically negate it; courts have recognized standing despite no prior enforcement when credible threats exist. Additionally, a government’s failure to disavow the application of a challenged provision can bolster a plaintiff's standing, indicating a reason for their fear of prosecution. Specifically, when enforcement relates to First Amendment rights, courts are inclined to favor finding standing. For example, in Virginia v. American Booksellers Ass'n, the Supreme Court acknowledged standing even without prior enforcement of a law, emphasizing that the threat of self-censorship constitutes a real harm.

The tendency to deny standing in cases lacking actual, imminent enforcement against the plaintiff is particularly pronounced in First Amendment cases, where the potential loss of free expression, vital to society at large, is a concern. Federal courts often recognize preenforcement challenges as justiciable when statutes are alleged to "chill" First Amendment-protected conduct. In this instance, LSO has established a credible threat that officials will misuse Section 143.4 to infringe upon its constitutional rights, as evidenced by past enforcement actions against LSO's conventions in 1996 and 1997. LSO claims that ABC has previously conducted raids and removed art that it deemed non-compliant with its regulations and intends to continue holding erotic art exhibitions annually. The possibility of future enforcement of Section 143.4 has deterred LSO from planning conventions in California, effectively chilling its expression and leading to self-censorship, including the cancellation of an exhibition due to fear of repercussions. The court finds that LSO was not required to demonstrate that a specific ABC licensee had refused to lease space due to fears of sanctions; it sufficed to show that the threat of enforcement would likely hinder LSO's ability to secure venues. The court concluded that the threat of enforcement constitutes a barrier to LSO’s First Amendment rights, and LSO only needed to present general allegations of injury to survive a motion to dismiss. The finding of a reasonable threat of prosecution negates any ripeness issues. Consequently, the district court's dismissal of LSO's claims for prospective relief is reversed, and the case is remanded for further proceedings.

The district court granted summary judgment to the Officials regarding LSO's claim for damages, citing qualified immunity. The court determined that the U.S. Supreme Court's ruling in 44 Liquormart, Inc. v. Rhode Island was ambiguous, and according to the California Constitution, state officials cannot refuse to enforce a law on constitutional grounds unless it has been invalidated by an appellate court. Therefore, it was reasonable for the Officials to be unaware that their actions violated LSO's rights.

In reviewing the qualified immunity decision, it is de novo, meaning the appellate court examines it anew. Qualified immunity protects state officials from liability in discretionary functions unless their conduct violates clearly established statutory or constitutional rights known to a reasonable person. The burden of proof shifts to the plaintiff once the defense of qualified immunity is invoked; they must demonstrate that the rights in question were clearly established. If successful, the defendant must then show that their conduct was reasonable.

Determining qualified immunity involves three steps: identifying the right allegedly violated, assessing whether that right was clearly established, and evaluating whether a reasonable officer would have thought their actions lawful. The first two inquiries are legal questions, while the third may involve factual determinations.

The Supreme Court has emphasized that the assessment of “clearly established rights” should be conducted with particularity rather than in broad terms. This principle was illustrated in a case involving an HIV-positive inmate, where the specific right was not the general First Amendment right but rather the right against restrictions on association within the prison population. In this case, LSO argues that the right in question is the right to be free from content-based discrimination, reflecting differing interpretations from the parties involved.

The Officials are examining whether there was a clearly established law indicating that they would infringe upon LSO's freedom of expression by informing them about the ABC regulations and their applicability to ABC-licensed premises. LSO's argument is deemed overly general, as the qualified immunity test requires a more specific context for constitutional rights. Conversely, the Officials' formulation is considered too detailed, potentially allowing them to sidestep claims by narrowly defining the alleged violation. The goal is to identify the contours of the right in question accurately.

The case does not require a determination of the government's general power to censor speech or the legality of informing individuals about state laws affecting First Amendment rights. The Officials do not contest that content-based regulation of expression, even indecent expression, is generally prohibited unless it serves a compelling government interest, nor do they dispute the strong disfavor of prior restraint on speech. LSO does not argue that its rights were violated simply by being informed of Section 143.4's content.

The Officials assert that in 1997, it was unclear whether liquor regulations could constitutionally govern the content of expression at licensed establishments, referencing the Supreme Court's decision in 44 Liquormart, which did not negate the prior ruling in California v. LaRue. However, it is noted that LaRue upheld regulations related to liquor licensing that restricted certain expressions, indicating that such regulations were permissible when applied to establishments selling liquor. This context is critical as it highlights the Court's reasoning that the regulations were valid due to their specific application in liquor-licensed establishments.

The Court established that the Twenty-first Amendment creates a presumption favoring state regulation of alcohol but clarified that its reasoning in LaRue relied on this amendment is not applicable. In 44 Liquormart, the Court reaffirmed that states cannot impose liquor regulations that infringe on First Amendment rights, indicating that the Twenty-first Amendment does not override constitutional protections regarding free speech. The incidents at issue occurred in 1997, after the Court's 1996 decision, making it clear that liquor regulations could not restrict speech protected under the First Amendment.

The Officials argued that, despite the clarity of the law in 1997, they felt obligated to enforce Section 143.4 due to a provision in the California Constitution, which states that an administrative agency cannot refuse to enforce a statute based on its unconstitutionality unless an appellate court has ruled it so. However, this view fails to consider the Supremacy Clause, which mandates that state officials must adhere to federal law and established constitutional principles, regardless of state law. Consequently, wrongful conduct under federal law cannot be shielded by state law. The Officials' argument that they are not expected to predict changes in constitutional law is contradicted by the obligation to follow clearly established constitutional rulings.

The Officials failed to recognize that the unlawfulness of their actions did not require prior judicial determination, as it was evident under existing law. The court clarified that, as of 1997, a reasonable official could not have believed that Section 143.4 could be constitutionally applied to restrict LSO's right to display non-obscene art at an ABC licensee. Consequently, the court reversed the district court's summary judgment in favor of the Officials based on qualified immunity.

Regarding attorney's fees, the Officials appealed a July 7, 1998, district court order that awarded LSO fees for obtaining a temporary restraining order (TRO), which allowed LSO to hold its 1997 convention, designating LSO as the "prevailing party" for that claim under 42 U.S.C. § 1988(b). The district court also found that the Officials were the prevailing party on other claims and awarded them costs, which LSO is appealing.

The court reviews fee awards for abuse of discretion, assessing whether the plaintiff has achieved a significant legal benefit from the litigation. The term "prevailing party" requires a resolution that alters the legal relationship between the parties. The Officials argued that merely obtaining a TRO does not confer prevailing party status, referencing cases from other circuits; however, these cases focused on whether the TRO merely maintained the status quo.

In contrast, the court determined that the TRO in this case did more than preserve the status quo, as it enabled LSO's convention and art exhibition to proceed. The district court's conclusion that LSO was the prevailing party was justified, as the TRO legally altered the relationship between LSO and the Officials by preventing further interference with the exhibition, thus affirming the fee award to LSO.

The district court's rulings favoring the Officials have been reversed on multiple claims in LSO's amended complaint, necessitating a new determination of "prevailing party" status upon remand. The court does not address LSO's appeal regarding costs awarded to the Officials, as this will be reconsidered after the remand proceedings. The court reverses the district court's dismissal of LSO's claims for prospective relief based on standing and its grant of summary judgment to the Officials citing qualified immunity. However, it affirms the award of attorney fees to LSO related to obtaining a temporary restraining order (TRO). The case is remanded for further proceedings consistent with this opinion, resulting in a partial reversal and affirmation of the district court's decisions. Costs are awarded to LSO. The court notes that factual allegations in the complaint must be accepted as true, and evidence must be viewed favorably for the nonmoving party in reviewing the district court's decisions. Additionally, LSO's plans for an art exhibition were impacted by the Officials' actions, which LSO argues were necessary for holding conventions in licensed venues. Concerns raised by the district court regarding the potential for LSO to exhibit legally obscene art can be addressed with a carefully crafted order.

The district court's reliance on prior case law is deemed inapplicable because it involved a scenario where a litigant's claim was based on speculative contingencies linked to the breach of an unchallenged law. Both the Supreme Court and the circuit court typically recognize a lack of standing in situations where plaintiffs would only face the contested law if they first violated an unchallenged statute, but this case does not fall into that category. The California regulations in question explicitly prohibit various sexual acts and displays, including: a) acts of sexual intercourse, masturbation, and other sexual acts prohibited by law; b) any touching or fondling of specified body parts; c) the display of pubic hair or genitals; d) allowing individuals on licensed premises who expose their genitals or anus; and e) showing films or pictures of prohibited live performances. The amendment referenced, enacted by California voters in 1978, aimed to prevent agencies from misinterpreting the Constitution or federal law in a way that undermines legislative directives. Notably, the officials involved have not cited any cases where Section 3.5(a) has been found to protect state officials from liability for violating federal rights.