Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-01608/USCOURTS-ca7-15-01608-0/pdf.json

Parties Involved:
City of Milwaukee
Appellant
Ferol, LLC
Appellee
Six Star Holdings, LLC
Appellee

Document Text:

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.

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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 decisionmaker 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Before us now are two Milwaukee ordinances, now repealed, that required certain licenses before a business was 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 ordinances, seeking injunctive relief and damages. Once the ordinances 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 safeCase: 15-1608 Document: 36 Filed: 04/13/2016 Pages: 15
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 nominal 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 regarded 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 Wisconsin.) 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 entertainment. To operate an establishment that offered both alcohol and nudity, the proprietor was required to obtain a 

liquor license, sometimes called a tavern license, and a tavern- 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 theater license, MCO § 83–1, or a public–entertainment club license, MCO § 108-5. 

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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 September 2010. They quickly learned that the City did not welcome Ferraro’s plans. The Milwaukee Common Council denied 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 secondary 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 Vegas. He began calculating whether a Milwaukee-area dry 

club could be profitable based on the financial data from another Milwaukee-area club he owned. He identified managers 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 

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No. 15-1608 5

action was taken on Six Star’s application before both ordinances 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 Complaint. It challenged MCO § 90 (the liquor and tavern

amusement license ordinance), MCO § 83–1 (the theater license ordinance), and MCO § 108-5 (the public entertainment club ordinance) under 42 U.S.C. § 1983; all of these ordinances, they charged, violated their First Amendment 

rights facially and as applied. The complaint asked for damages 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 asapplied 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 secondary effects of the clubs and not on their expressive content.

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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 rendering a decision, contrary to Plain Dealer Publ’g. Co., 486 

U.S. 750 and Freedman, 380 U.S. 51. Six Star, it said, was entitled to damages for lost profits from the months during 

which it would have operated Silk East but for the ordinance. 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 public entertainment club ordinance, because it had not requested 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 persuaded 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 Avenue 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 onCase: 15-1608 Document: 36 Filed: 04/13/2016 Pages: 15
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 damages 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 ordinances?” (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 particularized 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 sufCase: 15-1608 Document: 36 Filed: 04/13/2016 Pages: 15
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 assumption 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 ordinance caused injury that was “actual or imminent, not conjectural or hypothetical.” Susan B. Anthony List v. Driehaus, 

134 S. Ct. 2334, 2341 (2014) (internal quotation marks omitted). Ferol’s “allegation[s] of future injury may suffice 

[when] ... there is a ‘substantial risk’ that the harm will occur.” 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 justiciable because “[p]laintiffs face a credible threat of prosecution” (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 conduct” 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 

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No. 15-1608 9

Pittsburgh Avenue had the City not had its open-ended and 

unpredictable licensing regime. Ferraro set out the numerous concrete steps that he had taken on Ferol’s behalf to prepare 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 (although 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 preenforcement 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 unfettered 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 established “that when a licensing statute allegedly vests unbridled 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 delegates overly broad licensing discretion to an administrative 

office ... whether or not he applied for a license.”).

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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 asapplied challenges is not so well defined that it has some automatic effect or that it must always control the pleadings 

and disposition in every case involving a constitutional challenge.” Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 

331 (2010). Rather, “it goes to the breadth of the remedy employed by the Court”: a facial challenge usually invites prospective 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 disappeared, and so we are left only with Ferol’s request for 

damages. That aspect of the case does not depend on the legal theory he is using.

Ferol had already suffered an injury from the unconstitutional 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 injuryin-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 protected 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 

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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 lawyer.” 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 explained that Ferol relied on the advice of its (licensed) counsel, 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 prosecutorial 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 challenge 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 prosecution 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 enforceCase: 15-1608 Document: 36 Filed: 04/13/2016 Pages: 15
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 undertaken protected First Amendment activities but for nowrepealed 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 limitations 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 ultimately 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 district 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 

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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 Microsystems, 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 requirements [of avoiding vagueness and unlimited enforcement 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, 

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14 No. 15-1608

Inc. v. City of Dallas, 493 U.S. 215, 253 (1990) (Scalia, J., concurring 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 because, 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 immediately 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 standards binding the City, not how quickly Six Star could have 

moved if the City had issued a license. The City is not defending 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 

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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.

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