Opinion
Civil Action No. SA-06-CA-48-FB.
April 14, 2006
ORDER REGARDING PLAINTIFF'S REQUEST FOR LEAVE TO AMEND
Before the Court are Plaintiff's Motion to Remand (docket no. 4) and related filings. Plaintiff included in its motion to remand a request for leave to amend its state court petition to delete any federal claim raised in the petition. After careful consideration, the Court is of the opinion the issue of federal question jurisdiction should be addressed and plaintiff's request for leave to amend (contained within docket no. 4) should be granted. The motion to remand remains pending for disposition.
BACKGROUND
Plaintiff's business is classified as a "human display establishment" as a result of the enactment of Ordinance No. 101022 regulating sexually oriented businesses. This Ordinance resulted from a compromise and settlement between certain businesses featuring topless dance entertainment and defendant inEI Enterprises, Inc., et al. v. City of San Antonio, Civil Action No. SA-03-CA-356-FB, filed in the United States District Court for the Western District of Texas. Plaintiff was originally a party to this suit, although it was subsequently dismissed at its request and was not a party to the settlement. During its operation history plaintiff has featured nude dance entertainment, which defendant prohibits by Ordinance No. 101022.
After the business was issued a criminal citation because it does not hold a human display establishment permit, plaintiff filed this suit in state court on December 9, 2005. Plaintiff's state court petition seeks a temporary injunction until trial, "a declaratory judgment . . . clarifying the required identification of an "Owner-Operator" (on the permit application) applicable to a wholly-owned subsidiary of a publicly traded corporation as a human display establishment in the context of Ordinance No. 101022," and, if necessary, a permanent injunction.
Defendant removed the case to federal court on January 13, 2006, based on federal question jurisdiction. The notice of removal quotes plaintiff's state petition at Paragraph VI, which contains the following language:
While claiming that nude dance entertainment is expression protected by the First Amendment to the United States Constitution and Article I, Section 8 of the Texas Constitution and further maintaining that Defendant's efforts to ban public nudity through Section 21-300(1)(5) of Ordinance No. 101022 is preempted by State law, Plaintiff still seeks a Human Display Establishment Permit from Defendant in order to continue its business. In this suit, at this time, however, Plaintiff seeks only declaratory relief to cause its permit application to be processed properly.
(underline emphasis added). The notice of removal also quotes Paragraph XI of the petition, which provides:
Plaintiff, as a wholly-owned subsidiary of a publicly traded company, is potentially denied the ability to exercise First Amendment rights and rights protected by Article I, Section 8 of the Texas Constitution by virtue of an unlawful prior restraint, namely the requirement that an applicant for a human display establishment permit list its "owner-Operator" (as defined). This task is an undue burden as applied to a publicly traded company and its wholly-owned subsidiary. Moreover, the information requested of the applicant is not linked to a substantial governmental interest, as applied.
(underline emphasis added). Defendant argues plaintiff's references to the First Amendment challenge the federal constitutionality of Ordinance 101022.
Plaintiff filed a motion to remand stating it had no intent to allege a First Amendment or any other federal claim. Plaintiff contends it referenced the federal constitutionality of Ordinance No. 101022 only to provide "background information." It maintains it is seeking solely to clarify the meaning of the term "Owner-Operator" under state law through this litigation. Alternatively, if a plain reading of the pleading indicates a federal claim is made, plaintiff requests permission to amend its petition to delete any reference to the United States Constitution. In support of its motion to remand, plaintiff submits the affidavit of Eric Langan, plaintiff's president and corporate representative. Mr. Langan reiterates plaintiff's argument that it had no intent to allege a First Amendment violation and, alternatively, reurges the request for leave to amend the petition to delete any federal claim which may have been made. Mr. Langan in his affidavit states:
It was not the intention of RCI ENTERTAINMENT (San Antonio), d/b/a XTC Cabaret to raise any federal question or constitutional issue by filing this lawsuit.
RCI ENTERTAINMENT (San Antonio) d/b/a XTC Cabaret instead seeks clarification by way of declaratory relief of the term "owner-operator" under the City of San Antonio's Human Display Ordinance.
Although Plaintiff believes its Original Petition for Declaratory Relief and Injunction to be clear on this matter, Plaintiff is prepared to and will upon permission of the Court amend its Petition to clarify the relief sought.
Defendant responds plaintiff's "claims of constitutional infirmity, constitutional harm and for constitutional relief" under the First Amendment to the United States Constitution are clear. It also opposes the proposed amendment citing Honsaker v. Robert Bosch Corp., No. Civ. EP-03-CA-339(KC), 2004 WL 1124952, at *1-2 (W.D. Tex. May 18, 2004), which holds that an amendment done in federal court with the object of divesting the Court of jurisdiction is done in bad faith. Before turning to plaintiff's amendment request, threshold issue of federal question jurisdiction should be addressed.
DISCUSSION
Federal Subject Matter Jurisdiction"The presence or absence of federal-question jurisdiction is governed by the `well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar, Inc. V. Williams, 482 U.S. 386, 392 (1987) (internal citation omitted). Plaintiff's assertion of protected rights under the First Amendment presents a question of federal law. Nonetheless, plaintiff does not expressly allege it is entitled to the affirmative relief it seeks pursuant to the Federal Constitution. See Cervantez v. Bexar County Civil Serv. Comm'n, 99 F.3d 730, 733 (5th Cir. 1996) (statement in state court petition that plaintiff was entitled to relief pursuant to "Title 42 of the United States Code, Section 1983" sufficiently conferred federal question jurisdiction even though petition did not elaborate on claim). Nor though does plaintiff unequivocally disclaim any reliance on federal law. Ortiz v. Brownsville Indep. Sch. Dist., 257 F. Supp. 2d 885, 888-89 (S.D. Tex. 2003) (case is not removable where state court petition expressly excludes federal claims). Instead, plaintiff alleges the First Amendment "potentially" creates a cause of action, but its right to relief does not depend on resolution of this substantial federal question "at this time."
The Court considered whether plaintiff's First Amendment claim is not ripe for adjudication and does not present a case or controversy because this claim is inconsistent with plaintiff's request for declaratory/injunctive relief to obtain a human display establishment permit or, alternatively, this claim is contingent because it arises only if plaintiff, as a wholly-owned subsidiary of a publicly traded company, cannot be identified as an "Owner-Operator" as the term is defined in Ordinance 101022. Inconsistent and contingent claims pleaded in the alternative, however, are ripe and do establish a judicially cognizable case or controversy. Lawler v. Poudre School Dist., 171 F.Supp.2d 1155, 1157-58 (D. Colo. 2001). Therefore, federal jurisdiction exists even though plaintiff's First Amendment claim is pleaded in the alternative and may be inconsistent with the relief sought. Id. Moreover, at least one Court has determined "potential federal questions" raised by a plaintiff's "anticipated federal action . . . satisfy the well-pleaded complaint rule and allow the Court to exercise subject matter jurisdiction over [plaintiff's] claims." Don King Productions, Inc. V. Hopkins, No. 04 Civ. 9705 (PKL), 2005 WL 1053336 (S.D.N.Y. May 4, 2005). Additionally, the Fifth Circuit Court of Appeals has "held that the scope of federal subject matter jurisdiction is broader than the existence of a cause of action." Cervantez, 99 F.3d at 733. Therefore, even if plaintiff's pleading is insufficient to state a First Amendment claim, "it is not insufficient to create federal subject matter jurisdiction in the district court." Id. Accordingly, this Court finds plaintiffs state court petition alleges a First Amendment claim on its face sufficient to support federal subject matter jurisdiction.
Leave to Amend
Noting it did not intend to allege a First Amendment violation in its state court petition, plaintiff seeks leave to amend to "eliminate any reference to its beliefs in its [federal] constitutional rights." Rule 15(a) of the Federal Rules of Civil Procedure, governing the amendment of pleadings, provides "leave shall be freely given when justice so requires." Notwithstanding this liberal standard, leave shall not be granted when the apparent or declared reason for amendment constitutes "undue delay, bad faith or dilatory motive on the part of the movant."Forman v. Davis, 371 U.S. 178, 182 (1962). Defendant contends that plaintiff's motivation in moving to amend is primarily to defeat federal jurisdiction and is therefore done in bad faith. Defendant does not argue nor does the record reveal any delay or dilatory factors in bringing the request to amend.
In evaluating any improper motive on the part of plaintiff to destroy federal jurisdiction, the Court may consider the extent to which such a motivation is evinced through the circumstances of the case. See Hensgens v. Deere Co., 833 F.2d 1179, 1182 (5th Cir. 1987) (court may balance "factors bearing on the equities" when considering motion to amend). Standing alone, plaintiff's state court petition might have been enough to support denial, despite its lack of clarity regarding the relief sought under the Federal Constitution. However, when this pleading is considered in the context of the entire case, the circumstances support a finding that plaintiff should be allowed to amend its petition.
Plaintiff has set forth specific facts indicating it lacked the intent to assert a First Amendment claim. For example, plaintiff is familiar with filing in federal court. In the earlier litigation, EI Enterprises, Inc., et al. v. City of San Antonio, Civil Action No. SA-03-CA-356-FB, adult business owners, including plaintiff, filed suit here. Plaintiff is also familiar with alleging a specific federal claim seeking relief under the United States Constitution. Plaintiffs' Original Complaint for Declaratory and Injunctive Relief filed in the federal forum expressly "urges a declaration by this Court" that the Human Display Ordinance "is unconstitutional and in violation of" the First and Fourteenth Amendments. Although this Court has determined plaintiff's allegations in its state court petition demonstrate a federal question is involved, this pleading lacks the specificity of the federal complaint.
Additionally, the general question of free speech protection under the First Amendment as it applies to sexually oriented dance entertainment was raised in the federal litigation, which resulted in a settlement. Plaintiff's state court petition focuses upon a much narrower issue-the "required identification of an "Owner-Operator" (on the permit application) applicable to a wholly-owned subsidiary of a publicly traded corporation as a human display establishment in the context of Ordinance No. 101022"-which no one disputes is a state court issue.
Moreover, the parties have worked for years on the Human Display Ordinance, with issues remaining to be resolved. Given this ongoing relationship, plaintiff wanted to provide "background information" concerning the history of Ordinance 101022 in its state court complaint. This is bolstered by the affidavit of Mr. Langan, plaintiff's president and corporate representative, who specifically states: "It was not the intention of RCI ENTERTAINMENT (San Antonio), d/b/a XTC Cabaret to raise any federal question or constitutional issue by filing this lawsuit."
Defendant contends plaintiff's action in seeking to amend ab initio in and of itself is evidence that the desire to divest this Court of jurisdiction is the motivation behind the request for leave. In support of its position, defendant relies on the decision in Honsaker v. Robert Bosch Corp., No. Civ. EP-03-CA-339(KC), 2004 WL 1124952, at *1 (W.D. Tex. May 18, 2004), in which the Court denied plaintiff's motion to amend her complaint to allege damages below the amount required for diversity jurisdiction. In Honsaker, the circumstances of the case suggested plaintiffs' motivation was to divest the Court of jurisdiction because plaintiff could have easily filed a binding stipulation or affidavit limiting her damages prior to removal.Id. at *2. Defendant analogizes the facts in Honsaker to those in the case at hand because plaintiff, too, could have limited its claim to the state court claim. As such, defendant surmises plaintiff's attempt to amend is a tactical maneuver to divest the Court of jurisdiction and thus evidences an improper motive.
Unlike the plaintiff in Honsaker, RCI Entertainment has proffered a legitimate reason for seeking to amend its petition: a lack of intent to satisfy the jurisdictional threshold. TheHonsaker plaintiff, on the other hand, did not directly argue the amount in controversy was less than that required for diversity jurisdiction and offered no explanation for having failed to do so. Id. at *2 n. 1. Plaintiff's direct challenge to the federal question requirement undercuts the suggestion that plaintiff's motivation in filing to request to amend was primarily to defeat jurisdiction. There is not the Honsaker predicate for finding an improper motive or upon which to conclude plaintiff's request to eliminate its unintentional First Amendment claim was a tactical maneuver deliberately orchestrated by plaintiff to defeat federal jurisdiction after removal. Hammann v. United Servs. Auto. Ass'n, No. Civ. A. SA-02-CA-1168-FB, 2003 WL 22110382, at *9 (W.D. Tex. July 15, 2003) ("[F]orum manipulation is more readily inferred when the plaintiff admits that certain, specified claims are federal claims [and then] requests amendment for the purpose of deleting those claims.").
IT IS THEREFORE ORDERED that plaintiff's request for leave to amend (contained in docket no. 4) is GRANTED. Plaintiff shall file its amended complaint on or before April 28, 2006.
It is so ORDERED.