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Sessions v. City of Philadelphia

argued: July 24, 1991.


On Appeal and Cross-Appeal from the United States District Court for the Eastern District of Pennsylvania; E.D. Pa. No. 90-CV-132.

Sloviter, Chief Judge, Greenberg, Circuit Judge, and James F. McClure, District Judge.*fn*

Author: Greenberg


GREENBERG, Circuit Judge

In this civil rights action, the City of Philadelphia appeals from an order entered February 11, 1991, denying it a judgment notwithstanding a verdict in favor of the plaintiffs Midnight Sessions (After Midnight), Baker Ocean, Inc. (Down South), and several of their individual investors, who alleged that the City violated their constitutional rights by denying their applications for dance hall licenses. In particular the plaintiffs pleaded causes of action under 42 U.S.C. § 1983 claiming that they had been denied substantive and procedural due process of the law and that their property had been unconstitutionally taken. The plaintiffs also alleged that the City denied them equal protection of the laws, asserting in this regard, among other things, that it engaged in intentional race discrimination because it would not license the dance halls as they were in white neighborhoods, but catered to a young black clientele. In addition, Down South asserted that the City unconstitutionally harassed it by repeatedly citing it for City fire code violations. The plaintiffs also advanced a count for racial discrimination predicated on their clientele under 42 U.S.C. §§ 1981, 1982, 1985 and 1986 and a RICO count.

The verdict was returned on interrogatories and was based on three findings that the City violated the plaintiffs' rights to procedural and substantive due process of law and took their property without just compensation. The City, however, was found not liable for racial discrimination and the RICO count and equal protection counts were dismissed before trial. The jury awarded $2,553,000 to After Midnight and $522,000 to Down South in lump sums without a breakdown on particular bases for liability. The district court by an order entered on January 14, 1991, from which the City also appeals, granted attorneys' fees and costs of $644,460.40 to the plaintiffs. Though, as we later explain, the plaintiffs cross-appealed from a pretrial order granting judgment to an individual defendant, James J. Tayoun, we will refer to the plaintiffs as the appellees as the City is the principal appellant.

On a motion for summary judgment decided before the trial, the district court held that the appellees' loss of investment in the dance halls could be a taking without just compensation but deferred for decision at trial the question whether there had been a taking. Furthermore, the court in a pretrial ruling characterized the due process issue as whether the City's licensing procedure in this instance was arbitrary and capricious, determining that the jury would decide that. We conclude that the district court should have granted the City's motion for summary judgment and motion for judgment notwithstanding the verdict on the takings and procedural due process claims as well as on the substantive due process claim of Down South. Furthermore, we conclude that the district court erred in its disposition of the substantive due process claim of After Midnight as it instructed the jury to decide a legal issue which should have been determined by the court. Accordingly, we will reverse and direct entry of judgment for the City on all issues except for the substantive due process claim of After Midnight which we will remand for a new trial.*fn1


A. After Midnight

The case is complicated both legally and factually and we therefore describe it at length. In June 1987, Jack Manoff and other investors decided to open a new club, "After Midnight," at property they were leasing at 1004-26 Spring Garden Street, Philadelphia, which was to include an arcade, restaurant, roller skating rink, movie theater, and a dance floor to accommodate as many as 2,780 persons. The investors contemplated that After Midnight would feature live entertainment. They intended to operate the skating rink from 10 a.m. to 10 p.m. and an all-night disco from 10 p.m. to 10 a.m. After Midnight obtained zoning and building permits to convert the Spring Garden Street property into the club. In February 1988, After Midnight applied for a dance hall license, which the City's Department of Licenses and Inspection ("L&I"), following its established though unwritten procedure, refused to accept, returning it with a notation that a certificate of occupancy was required before the application. Ultimately After Midnight completed the construction and passed all inspections so that it received its certificate of occupancy on April 27, 1988. It then reapplied for a dance hall license.

In January 1988, the commanding officer of the applicable police district, Captain Barcliff, reported to the central police division that community opposition to the new dance club was growing. Area residents and businesses were understandably concerned about the large numbers of juveniles expected to attend the dances (3,000-5,000) and contemplated problems from congestion, vandalism, drinking and drugs, noise, muggings, and general disorder. According to Barcliff, After Midnight planned to operate the club throughout the night on Fridays, Saturdays, and Sundays. He concluded that "it is my opinion that the large crowd that is expected would pose a real problem for the neighborhood and the police." In March 1988, Barcliff again reported to the central police division that the opponents in the neighborhood cited "potential increases in vehicle traffic, noise, disturbances on the street, drugs, etc."

Events unfolded as Barcliff anticipated. Following the opening of After Midnight without its dance hall license on May 13, 1988, its operations caused neighbors to complain that it disrupted the neighborhood with noise, trash, drugs, and alcohol; that large numbers of people were roaming the neighborhood or loitering; that patrons were harassing and frightening neighbors; and that patrons were urinating in the street. L&I cited After Midnight for operating without the dance hall license on May 13, but did not cite it for May 14 and 15 despite its continued operation. On May 20, L&I denied After Midnight's application for a dance hall license, the notice of denial indicating that it had been denied due to "Police Disapproval -- Objection of neighbors." The notice also stated that an appeal from the disapproval could be filed with the Board of License Inspection and Review within 30 days. After Midnight did appeal but the Review Board affirmed the denial at a hearing on May 31, 1988. The Review Board indicated that the "neighborhood testimony was unanimous, unwavering, and we are pursuaded by the problems that seem to have arisen since the dance hall began in operation in May." After Midnight then appealed to the Court of Common Pleas but it later withdrew the appeal.

In September 1988, After Midnight requested that the Review Board reconsider its denial, but this request was denied on October 25, 1988, the board noting that After Midnight had appealed from the original denial to the Court of Common Pleas and had not obtained relief. The Review Board therefore regarded the matter as concluded. After Midnight reapplied for a dance hall license on October 31, 1988, but L&I indicated that it could not accept the application for three months.*fn2 After Midnight then sought and obtained a writ of mandamus from the Court of Common Pleas requiring L&I to accept its application. But L&I denied that application on November 29, 1988, noting police disapproval, and stating that its decision was:

based on the opposition of various community groups, business persons and nearby residents (within a two block radius) along with the fact that the anticipated large crowds would pose a problem for the neighborhood and to the police department's ability to deliver protective services to the entire community.

App. at 1987.

After Midnight again appealed to the Review Board which, after a hearing on December 12, 1988, ordered L&I to grant the dance hall license. After Midnight thereafter operated as a dance hall for six months before going out of business.

As we have indicated, in its complaint against the City, After Midnight contended that the City's actions constituted both a taking of its property without just compensation and a violation of its procedural and substantive due process rights, and that the City intentionally discriminated against it on the basis of race because its anticipated clientele was primarily young blacks. It also contended that Councilman James J. Tayoun, who actively opposed its application and was a defendant, had inappropriately and illegally meddled in the process. It alleged that the City was liable under 42 U.S.C. § 1983 for the constitutional violations, 42 U.S.C. §§ 1981, 1982, 1985 and 1986 for the racial violations, and 18 U.S.C. § 1961 et seq. for RICO violations. In addition, certain other individuals associated with the City, including members of the L&I board, as well as private persons and organizations, were defendants but they are no longer parties, having been dismissed from the case prior to or at trial, and are not involved in this appeal.

B. Down South

In June 1988, some of the same investors purchased a much smaller property at 425-27 South Street, Philadelphia, at which a licensed dance club called "Glitters" had previously operated. They planned to convert this property into an after-hours dance club known as "Down South." Down South opened without a dance hall license and was cited by L&I for this violation. It subsequently applied for a dance hall license on September 19, 1988, but L&I denied the application on October 14, 1988, based on a police department report that recommended disapproval and cited community objections. The police report indicated that neighbors objected to the all-night hours, loud noise, public urination, and trash. On November 10, 1988, Down South appealed this determination to the Review Board, asserting that "community objection" was an insufficient ground for disapproval but it did not pursue this appeal.

After Down South applied for the license, L&I cited it for various fire code violations. In particular, on September 28, 1988, L&I cited it for failure to recharge fire extinguishers and to post conspicuously a sign indicating the maximum occupancy. The notice of violation clearly stated that reinspection would occur within the next 30 days but it also indicated a location at which Down South could obtain the sign. On September 30, 1988, L&I reissued a notice citing the same violations, including the statement "all operations must cease if these violation [sic] are not corrected in the time specified i.e. immediately." The City denied an application for a certificate of occupancy on October 14, 1988, and Down South did not appeal from this denial. The engineer who examined the facility stated that the plans Down South submitted were unacceptable.

Down South asserted claims similar to those of After Midnight and, in addition to suing the City and Tayoun, it, like After Midnight, sued certain other public officials and private individuals and organizations but all were dismissed either prior to or at trial and thus are not parties to this appeal. Down South also alleged that the inspections were acts of harrassment which put it out of business as it ran out of money.


The City filed pretrial motions to dismiss and for summary judgment which were partially successful as the district court ultimately dismissed the equal protection, RICO and 42 U.S.C. §§ 1985 and 1986 conspiracy claims against it, though it would not dismiss the due process and taking claims. The court determined that the parties agreed that the City maintained a long-standing policy to apply police and neighborhood approval to dance hall licensing, a policy the court considered might support municipal liability under 42 U.S.C. § 1983. The court, however, did not decide whether neighborhood objections are a valid legal basis upon which to deny a dance hall license, instead leaving that question to the jury to answer. It did state that the appellees had property interests in receipt of the dance hall licenses if they satisfied the objective criteria required for dance hall licensing, relying on Winsett v. McGinnes, 617 F.2d 996, 1007 (3d Cir. 1980) (in banc), cert. denied, 449 U.S. 1093, 101 S. Ct. 891, 66 L. Ed. 2d 822 (1981) and Second & Ashbourne Associates v. Cheltenham Township, No. 88-6400, (E.D. Pa. 1989). It said that the appellees met the objective rules, regulations, ordinances and laws for licensing and that L&I ultimately did issue a license to After Midnight.*fn3 It thus concluded that the right to approval of the licenses was a property interest.

The court noted that substantive due process included the right to be free from arbitrary government action and that arbitrariness turned on whether the government action was rationally related to the furtherance of a legitimate government interest. Again, the court concluded that a jury should resolve the question of whether the requirement of community and police approval for the licensing furthered a valid governmental interest or was simply an arbitrary and irrational supplement to the applicable objective criteria. Turning to the procedural due process claims, the court concluded that the availability of an appeal to the Review Board of L&I's decision did not establish, as a matter of law, that the City's procedure was constitutional as provided or applied and the court therefore denied the City summary judgment on the due process claims. On the unconstitutional taking of property claims, the court determined that the property taken was the appellees' "reasonable, distinct, investment backed expectations" in their dance halls. The appellees alleged that their investments for renovation, based on the expectation that they would obtain licenses when the governmental requirements were met, were lost when the City denied their applications for dance hall licenses. The court rejected the City's argument that the appellees had not lost the beneficial use of their properties.

The district court dismissed the RICO claims against the City and Tayoun, who also moved for a pretrial dismissal, by order entered July 24, 1990. The appellees do not appeal this dismissal insofar as it involved the City and thus we do not describe these claims against it further.*fn4 The court held that Tayoun's actions did not constitute "racketeering activity" under the statute and thus the appellees did not adequately plead the RICO count. Appellees cross-appeal from the dismissal as to Tayoun.*fn5

As we have noted, the jury returned a verdict against the City on the procedural and substantive due process and taking claims, but found it was not liable for intentional race discrimination. The City then moved for a judgment notwithstanding the verdict, or for a new trial, arguing that there was insufficient evidence to support the jury's verdict that it had denied appellees' due process rights or had unconstitutionally taken their property.*fn6 The City also contended that the district court erred as a matter of law when it submitted the issues of substantive and procedural due process and unconstitutional taking to the jury. Finally, the City challenged the submission of certain damage claims to the jury.

In its opinion denying the motion, the district court insisted that it, not the jury, had decided that the appellees had property rights in the dance hall licenses. Thus, it had charged the jury that the appellees had property rights in the dance hall licenses and, although the City objected to the initial charge on this point, it later agreed to the language of the re-charge and did not object. The district court then concluded that there was sufficient evidence to support the jury's finding that Down South had satisfied all the objective criteria for obtaining a license. The court, without elaboration, rejected the City's contention that determination of whether the City's procedures were constitutionally adequate was a question of law for the court. It stated that there was evidence that the City told the appellees it would not consider community objections but, after the appellees appeared for their hearing without evidence, based its decision on that exact criterion.

Likewise, it concluded that there was evidence that the City closed Down South and rendered it financially unable to pursue the appeals process and that this conduct denied it procedural due process. Additionally, the court concluded that the evidence supported the jury's verdict on unconstitutional taking of property. Finally, the court rejected the City's contention that it had submitted questions of law to the jury. The court explained that many issues of material fact were unresolved and required the jury's consideration. The court insisted that it did not ask the jury to determine the constitutionality of the Dance Hall Act nor interpret that statute; rather, it stated that it instructed the jury to determine whether the City acted arbitrarily and ...

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