The Cloister East, Inc. v. New York State Liquor Authority

Background

The Cloister Café, operated by The Cloister East, Inc., and its owners sued the New York State Liquor Authority (the “SLA”) and several SLA officers and employees under 42 U.S.C. § 1983. They alleged that the SLA improperly suspended the café’s liquor license after a Gothamist.com article reported that the café was hosting illegal pandemic parties.

New York executive orders and Department of Health guidance allowed restaurants and bars to serve customers outdoors subject to requirements concerning open-air space, distancing, table capacity, group size, and food served with alcoholic beverages. Under New York law, the SLA generally had to provide a hearing before suspending or revoking a liquor license, but it could summarily suspend a license without advance notice or a hearing when public health, safety, or welfare imperatively required emergency action. A prompt administrative or judicial proceeding was then required.

According to the amended complaint, SLA investigator Charles R. Stravalle visited the café on August 7, 2020. Plaintiffs alleged that he misunderstood the café’s outdoor area and caused an erroneous report to reach the SLA Board. They also alleged that SLA counsel Margarita Marsico and General Counsel Gary Meyerhoff gave the Board inaccurate or misleading information about the café’s outdoor structure, occupancy, patrons, food receipts, and a disc jockey, and that the Board improperly relied on the Gothamist article. The Board then issued an emergency suspension order. The SLA later began proceedings to revoke or cancel the license, and the Board ultimately canceled it after an administrative law judge sustained 16 charges.

Plaintiffs asserted three constitutional claims against the individual defendants: lack of procedural fairness before the emergency suspension, lack of procedural fairness in the license-revocation process, and denial of equal protection. They also sought damages, declarations, and an injunction against enforcement of the suspension order.

Prior Proceedings and Motions

In an earlier round of this case, the court denied plaintiffs’ request for emergency injunctive relief after the SLA represented that the suspension order could be reviewed in a New York state court proceeding under Article 78. Plaintiffs then filed such a proceeding. A state judge temporarily vacated the suspension order, but the SLA rescinded it, and the state court found the proceeding moot.

Plaintiffs later filed a state-court proceeding challenging the cancellation of the liquor license. That proceeding was dismissed because the café had been administratively dissolved in 1993 for failing to pay taxes and therefore lacked legal capacity to sue. Plaintiffs filed an appeal and sought renewal based on later payment of the tax liability and reinstatement; the opinion stated that the application remained pending.

The SLA moved to dismiss on state immunity grounds. The individual defendants moved to dismiss for failure to state a legally sufficient claim and asserted qualified immunity, which generally protects government officials from damages claims unless they violated a federal right that was clearly established at the time. The court granted the motion to dismiss, while allowing plaintiffs to seek permission to file an amended and supplemental complaint.

Claims Against the SLA

The court treated the Eleventh Amendment’s state immunity protection as a jurisdictional issue. Plaintiffs did not dispute that the protection generally applied to claims against state agencies such as the SLA. They argued that the SLA had waived immunity by agreeing that the suspension order could be reviewed in a New York Article 78 proceeding and then rescinding the order, which mooted that proceeding.

The court rejected the waiver argument. It explained that a state’s consent to be sued in state court does not amount to consent to be sued in federal court. The SLA’s statements about Article 78 review therefore did not waive its immunity in federal court. The SLA’s rescission of the suspension order also did not constitute an express and unequivocal consent to suit in this court.

The court also rejected plaintiffs’ reliance on the exception that can permit prospective injunctions against state officials or agencies for ongoing violations of federal law. The amended complaint sought an injunction staying the suspension order. But the suspension order had been stayed, rescinded, and superseded by the later license-cancellation proceedings. The alleged violation connected to the suspension therefore was no longer ongoing, and an injunction would not provide prospective relief. The court dismissed the claims against the SLA, stating that the dismissal was without prejudice to a motion for leave to file a supplemental complaint as described later in the opinion.

Claims Against the Individual Defendants

For the claim concerning the lack of a hearing before the emergency suspension, the court held that a defendant must have been personally involved in the alleged constitutional violation and must have had the power to provide the process that plaintiffs say was missing. The suspension order showed that the decision to suspend the license was made by SLA Board members Vincent Bradley, Lily Fan, and Greeley Ford. Plaintiffs did not allege that Stravalle, Marsico, Meyerhoff, or Secretary Donohue participated in that decision or had the power to provide advance notice and a hearing. The court therefore concluded that those defendants could not be liable on this theory.

The court then considered qualified immunity for Bradley, Fan, and Ford. It did not decide whether the emergency suspension actually violated due process. Instead, it considered whether the officials were entitled to immunity because it was objectively reasonable for them to believe that emergency circumstances justified suspending the license without a pre-suspension hearing.

The court concluded that the allegations showed an objectively reasonable basis for the Board to believe that an emergency existed. The alleged information suggested that customers were inside or in an allegedly illegal enclosure, that the premises was over capacity, and that patrons were mingling in a way that threatened public health during the pandemic. The court stated that the Board’s decision was not plainly incompetent or a knowing violation of the law, even if the decision ultimately was incorrect. It therefore held that Bradley, Fan, and Ford were entitled to qualified immunity for the suspension decision.

Plaintiffs also alleged that Chairman Bradley’s recommendation, before the administrative hearing, that the café should not permanently receive its license back showed bias and denied them a meaningful hearing. The court stated that only Bradley could be liable on that theory because plaintiffs did not allege that the other individual defendants had the power to provide the requested process. The court nevertheless concluded that the claim failed because an Article 78 proceeding could provide post-deprivation judicial review of the revocation decision. The court noted that it was unclear whether the pending state proceeding would ultimately be heard on the merits, but held that this uncertainty did not defeat the dismissal motion based on the allegations then before it.

Finally, plaintiffs claimed that the defendants denied them equal protection by relying on the Gothamist article and treating them differently from establishments that received fair hearings based on admissible evidence. Because plaintiffs did not allege membership in a protected class, the court analyzed the claim as a “class-of-one” claim. Such a claim requires allegations that the plaintiff was intentionally treated differently from similarly situated comparators without a rational basis for the difference.

The court found the allegations insufficient. Plaintiffs provided no details about the other establishments or the circumstances of their supposedly fair hearings. Without those details, the court could not determine whether the other establishments were nearly identical to the café or whether legitimate government concerns justified different treatment. The court therefore held that plaintiffs had not plausibly alleged an equal-protection violation.

Disposition

The court granted defendants’ motion to dismiss the amended complaint for failure to state a claim upon which relief may be granted. It permitted plaintiffs to move for leave to file an amended and supplemental complaint under Rule 15(d), attaching the proposed pleading. The deadline was the earlier of November 26, 2021, or 30 days after final resolution of the then-pending Article 78 proceeding. The opinion did not state that the overall dismissal was with prejudice or without prejudice, although it specifically stated that the claims against the SLA were dismissed without prejudice to the described supplemental-complaint motion.