Jon Jon's Inc. v. City of Warren

• Decision Date: 16 February 2016
• Docket Number: CASE NO. 10–CV–12516
• Citation: 162 F.Supp.3d 592
• Parties: Jon Jon's Inc., Victoria Cerrito, Masoud Sesi and Nancy Hakim, Plaintiffs, v. City of Warren, Defendant.
• Court: U.S. District Court — Eastern District of Michigan

162 F.Supp.3d 592

Jon Jon's Inc., Victoria Cerrito, Masoud Sesi and Nancy Hakim, Plaintiffs,

v.City of Warren, Defendant.

CASE NO. 10–CV–12516

United States District Court, E.D. Michigan, Southern Division.

Signed February 16, 2016

Lawrence M. Scott, O'Reilly, Rancilio, Sterling Heights, MI, Cindy Rhodes Victor, Kus Ryan & Associates, PLLC, Auburn Hills, MI, for Plaintiffs.

Scott D. Bergthold, Law Office of Scott D. Bergthold, P.L.L.C., Chattanooga, TN, Peter W. Peacock, Plunkett & Cooney, Mount Clemens, MI, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

GEORGE CARAM STEEH, UNITED STATES DISTRICT JUDGE

This action arises out of defendant City of Warren's denial of the transfer of a liquor license involving the now defunct strip club, Jon Jon's, Inc. (“Jon Jon's”). Now before the court is defendant's motion for summary judgment. For the reasons set forth below, defendant's motion shall be granted as to the federal constitutional claims, and the court shall remand the supplemental state law claims to the Macomb County Circuit Court.

I. Background

Plaintiff Jon Jon's was an adult entertainment establishment featuring topless dancing located in Warren, Michigan. At the time the Complaint was filed, plaintiff Victoria Cerrito had owned Jon Jon's for 25 years. (Doc. 1 at ¶ 7). In 1986, Warren changed its zoning ordinances to prevent the secondary effects of sexually oriented businesses. (Doc. 91-2). The new ordinance would have prevented Jon Jon's from operating at its current location because it was within 750 feet of a residential area, id. , but Jon Jon's was granted non-conforming use status, and so was allowed to continue operating its business there. In order to retain its non-conforming use status, Jon Jon's was prohibited from making improvements constituting more than 30 percent of its listed value. (Doc. 91-8 at 7 quoting Section 4.17(c) of the Zoning Ordinance). According to council member and former defendant, Mark Liss, the reason for the restriction was to phase out the nonconforming use status over time. (Doc. 91-13 at 16).

In the spring of 2008, Cerrito planned to sell Jon Jon's in its entirety to plaintiff Masoud (Mark) Sesi because the business was in need of a substantial make over to survive, and she could not afford to undertake the needed renovations. (Doc. 1 at ¶¶ 10-11). Cerrito and Sesi entered into a purchase agreement for $1.3 million. (Doc. 91-3 at 29). Sesi paid Cerrito about $500,000 up front, of which $100,000 went to purchasing a 9 percent stake in Jon Jon's. (Doc. 91-7). Cerrito transferred 9 percent of the stock to Sesi on December 1, 2008. Id. Because she transferred less than ten percent, Cerrito did not need approval from local law enforcement and the local legislative body. (Doc. 1 at ¶ 14). Cerrito then resigned, effective immediately, and Sesi became Jon Jon's president, secretary, and treasurer. (Doc. 91-7 at 5). Sesi was to pay the remainder of the $1.3 million after the transfer of the remaining 91 percent of the stock was approved by the Warren City Council. (Doc. 91-3 at 29).

Through his counsel, Cecil St. Pierre, Sesi obtained a variance to install a walk in cooler and to raise the roof height in January, 2009. (Doc. 91-8 at 8). In April, 2009, Cerrito sought to transfer the remaining 91 percent of Jon Jon's stock to Sesi. (Doc. 1 at ¶ 15). Transfer required approval from the Warren police and Warren City Council. In August, 2009, the Warren Police Commissioner recommended against the transfer application based on Sesi's long history of liquor code violations at Cheetah's, a strip club in Detroit which Sesi owned. Before the City Council considered the transfer application, Sesi withdrew his request, because he believed that his efforts to obtain City Council approval would be futile. (Doc.1 at ¶ 22).

A few words about Sesi's involvement in Cheetah's is warranted here. In 2002, Sesi, through his company, BFC Management, purchased that sexually oriented business serving alcohol in Detroit. (Doc. 91-3 at 14, 19). From 2005 to 2007, Cheetah's was charged with numerous liquor license violations, including allowing dancers to touch patrons' genitals and selling alcohol to minors. (Doc. 91-6). Cheetah's also attracted national attention based on human trafficking that occurred at its club where three Ukranian women were forced to strip against their will. (See Criminal Complaint, Doc. 91-5). According to Sesi's e-mail in 2009, the NBC Today Show covered the story of sex trafficking at Cheetah's. (Doc. 98, Ex. 1). Sesi was never indicted on the charges of human trafficking, and no evidence links him to the criminal activity. Plaintiffs argue that because the criminal complaint involving sex trafficking at Cheetah's (Doc. 91-5) was not filed until 2013, and Sesi was never involved in the trafficking or convicted of any crime, any consideration of alleged criminal activity taking place at Cheetah's would not support defendant's motion for summary judgment. (Doc. 98 at 4). It is not disputed, however, that the alleged human trafficking taking place at Cheetah's was reported nationally prior to 2009. Also, Liss testified that one of Cheetah's dancers testified before the United States Congress about human trafficking. (Doc. 91-9 at 34-35).

As soon as Sesi took over Cheetah's, Sesi hired his nephew Lahkman (Luke) Al-Hakim to work at Cheetah's. (Doc. 91-3 at 25). Al-Hakim works at Cheetah's five nights a week. Id. Early on, Al-Hakim earned about $1,000 a week for his work at Cheetah's; he now is paid $4,000 per week. Id. at 25-26. At some point, the exact date is unclear from the record, Al-Hakim purchased the property on which Cheetah's sits. (Doc. 91-4 at 29). Sesi now pays Al-Hakim rent in the amount of $17,000 per month. (Doc. 91-4 at 29-30). Also, in the summer of 2009, Al-Hakim, though his company Warren Property Investments, purchased the property on which Jon Jon's is located. (Doc. 91-4 at 40, 47-48.)

One month after Sesi withdrew his transfer request, on October 20, 2009, Sesi sold his interest in Jon Jon's to plaintiff Nancy Hakim for $5,000, which was only a small fraction of what he had paid Cerrito less than ten months earlier. (Doc. 91-11). Hakim is Sesi's niece (Doc. 91-13 at 15, Doc. 91-4 at 19) and Al-Hakim's sister. (Doc. 91-3 at 52). That same day, Hakim also entered into a stock purchase agreement to buy Cerrito's 91 percent interest in Jon Jon's, subject to approval of the Michigan Liquor Control Commission (“MLCC”), for $650,000. (Doc. 91-12). Based on the significant cost difference between what Sesi paid to purchase Jon Jon's stock and the price for which he sold it to Hakim some ten months later, defendant argues the sale to Hakim was not an arm's length transaction, and that Hakim was really a front person for Sesi and would repay him the additional $500,000 he had paid to Cerrito once Hakim obtained a loan secured, in part, by Cheetah's collateral. (Doc. 100-1 at 10) (Doc. 91-3 at 65).

The Warren City Police Commissioner recommended that the MLCC grant Hakim's transfer request. (Doc. 98, Ex. 8). In January, 2010, Jon Jon's applied to the City Council for approval of the stock sale transfer of the 91 percent sale of Cerrito's interest and 9 percent sale of Sesi's interest to Hakim. (Doc. 1 at ¶ 25). Jon Jon's closed on April 22, 2010 to begin renovations. (Doc. 91-3 at 35). About a week later, on April 27, 2010, the motion to approve the stock transfer to Hakim was heard by the City Council. (Doc. 91-13 at 13-18). At the City Council meeting, Hakim was presented by attorney Cecil St. Pierre, (Doc. 91-13 at 14-15), the same attorney who had represented Sesi. Hakim's brother, Al-Hakim, paid St. Pierre, and St. Pierre did not speak to Hakim prior to representing her. (Doc. 91-10 at 33). At her deposition, Hakim testified that if her transfer application was granted, she did not intend to operate Jon Jon's herself, but that her brother, Al-Hakim, would handle everything. (Doc. 91-10 at 22-23, 34). Hakim testified that she is jobless, mostly stays home, rarely goes outside, and primarily cares for her elderly mother. (Doc. 91-10 at 7, 12, 18; 91-3 at 53). She also testified that she had previously owned a liquor store in Detroit and a banquet facility in Southfield, but testified that her brother ran those businesses. (Doc. 91-10 at 9-11, 13). Hakim also testified that she now owns an interest in an adult entertainment business, King of Diamonds, in Detroit, but did not know what percentage of shares she owns, her brother takes care of everything, and she has never been to the club. (Doc. 91-10 at 16-17).

At that City Council meeting, Liss expressed concerns that Sesi would be involved in Jon Jon's operations, and that the $800,000 in improvements anticipated by Jon Jon's would destroy the strip club's non-conforming use status. Id. at 16. The President of Central Homeowners of Warren (“CHOW”) appeared and expressed concern that Sesi would be involved in the operation of Jon Jon's. Id. at 15. Hakim's counsel represented that the transfer would eliminate Sesi as a minority shareholder and offered to put a written restriction on the stock certificates stating that Sesi would never be a shareholder in Jon Jon's. Id. at 14-15. The City Council voted 5-4 to deny the transfer application. Id. at 18. The Council did not issue a formal written decision outlining its reasons for the denial, but the meeting minutes set forth Liss' objections and the concerns of other council members as stated at the meeting. Id. at 13-18.

Liss' concerns appear to have been well founded. There is indeed a link between Hakim and Cheetah's (now known as Ace of Spades). At the council meeting, St. Pierre stated that “a loan from a Chicago bank would finance the transaction and the improvements.” (Doc. 91-13 at 16). As was later revealed, Cheetah's mortgage, assignment of rents and UCC-1 filings, were the collateral for the loan Hakim sought to finance the sale and the...