                 NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                            File Name: 13a0800n.06

                                              No. 12-2277                                     FILED
                                                                                        Aug 29, 2013
                            UNITED STATES COURT OF APPEALS                          DEBORAH S. HUNT, Clerk
                                 FOR THE SIXTH CIRCUIT


JON JON’S INC., VICTORIA CERRITO,                           )
MASOUD SESI, NANCY HAKIM,                                   )
                                                            )
        Plaintiffs-Appellants,                              )         ON APPEAL FROM THE
                                                            )         UNITED STATES DISTRICT
                v.                                          )         COURT FOR THE EASTERN
                                                            )         DISTRICT OF MICHIGAN
CITY OF WARREN,                                             )
                                                            )
        Defendant-Appellee.                                 )
                                                            )



BEFORE: KEITH, WHITE, and STRANCH, Circuit Judges.

        HELENE N. WHITE, Circuit Judge. Plaintiffs-Appellants Jon Jon’s Inc., Victoria Cerrito,

Masoud Sesi, and Nancy Hakim (collectively, “Plaintiffs”) brought suit against the City of Warren,

Michigan (“the City”), alleging that they were denied equal protection of the law and substantive due

process on the basis of their race, that the City violated their right to free speech and association, and

that it denied them substantive and procedural due process through its enforcement of a liquor-

control statute. The district court held that Plaintiffs’ claims were barred by res judicata based on

a decision of the Macomb County Circuit Court on appeal from the Zoning Board of Appeals

(“ZBA”) for the City. Because the Michigan courts construed Plaintiffs’ case solely as an appeal

from the ZBA’s decision and did not acknowledge or consider Plaintiffs’ constitutional claims

against the City, we REVERSE and REMAND for further proceedings.
No. 12-2277
Jon Jon’s Inc. v. City of Warren


                                                  I.

       Jon Jon’s Inc. (“Jon Jon’s”) is a “gentlemen’s club” in Warren, Michigan. Victoria Cerrito

has owned Jon Jon’s for 25 years, but sold a portion of her business (9%) to Masoud Sesi on

December 1, 2008. Sesi owns a “gentleman’s club” in Detroit and has 20 years of experience in the

adult-entertainment industry. Cerrito planned to renovate Jon Jon’s and eventually sell the remainder

of the business to Sesi. In April 2009, Cerrito obtained tentative approval from the Liquor Control

Commission to sell the remainder of Jon Jon’s stock to Sesi. However, final approval of the sale

required approval of the Warren City Council.

       Plaintiffs allege that City Councilman Mark Liss led a “racist smear campaign against Sesi”

with the intent to bar the transfer of Jon Jon’s to Sesi, by creating a website “catering to the most

repugnant racial stereotypes” and suggesting that Sesi was involved in international sex trafficking.

Plaintiffs allege that this activity was designed to incite anti-Arabic sentiment against Sesi and that

Sesi withdrew his application from the City Council’s consideration as a result.

       Following Sesi’s withdrawal, Cerrito decided to sell Jon Jon’s to Nancy Hakim. Plaintiffs

assert that the Warren City Police Department and the Liquor Control Commission investigated and

approved Hakim on April 2, 2010, again necessitating the approval of the Warren City Council.

After the City Council tabled the motion to approve the stock transfer three times, on April 27, 2010,

a legal representative for Hakim assured the City Council that the transfer would eliminate Sesi as

a minority shareholder of Jon Jon’s. He further agreed to place a written restriction on the stock

certificates stating that Sesi would never be a shareholder in Jon Jon’s, and agreed that Hakim would


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Jon Jon’s Inc. v. City of Warren


voluntarily relinquish her adult-entertainment permit if Sesi later became a shareholder in the

company. Despite these concessions, the City Council rejected a motion to approve the transfer of

Jon Jon’s stock to Hakim. On June 7, 2010, Plaintiffs filed suit in Macomb County Circuit Court

challenging the City Council’s failure to approve the transfer of Jon Jon’s stock; the City removed

the case to the Eastern District of Michigan on June 24.

        In late 2008 or early 2009, Jon Jon’s had sought a zoning variance for the purposes of

installing a walk-in cooler and increasing the roof height of the building. The requests were

approved at a public hearing, and Jon Jon’s began the renovations. The parties dispute whether

zoning approval was obtained for all renovations. On August 18, 2010, the City’s Chief Zoning

Inspector informed Jon Jon’s that it had lost its nonconforming use status due to the unapproved

renovations. Jon Jon’s appealed the decision to the Zoning Board of Appeals (“ZBA”), and on

October 6, 2010, the City filed a state-court action in Macomb County Circuit Court, seeking a

declaratory judgment that by making unauthorized changes to its nonconforming sexually-oriented

business, Jon Jon’s had extinguished its lawful nonconforming use zoning status. On November 12,

2010, Plaintiffs filed a counterclaim against the City, challenging the denial of Hakim’s application

and alleging the same violations of its constitutional rights that had been raised in the instant action.

On January 5, 2011, the ZBA affirmed the Chief Zoning Inspector’s decision. Plaintiffs amended

their counterclaim to include an appeal of the ZBA’s decision, and the Macomb County Circuit

Court stayed discovery in the state court litigation pending the court’s resolution of Jon Jon’s appeal




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No. 12-2277
Jon Jon’s Inc. v. City of Warren


of the ZBA decision. The parties jointly moved to stay the instant federal action, and the district

court issued a stay on June 2, 2011.

        The Macomb County Circuit Court issued an opinion on February 23, 2012 affirming the

ZBA’s decision that Jon Jon’s had lost its status as a nonconforming use. The court recognized that

the action was originally filed by the City for declaratory judgment, but noted that “[i]n light of the

fact that the amended counter-complaint raises an appeal, the Court deems it appropriate to consider

this matter solely as an appeal and review it as such. The resolution of the appeal will dispose of

all other issues/motions.” (emphasis added). The court found that: “Jon Jon’s, acting unilaterally,

greatly expanded its construction project under the umbrella of limited variances. The Court is not

presented with a minor oversight; rather, the conduct complained of, and the degree of deviation by

Jon Jon’s, is substantial, intentional and flagrant[,]” and determined that Jon Jon’s had lost its lawful

nonconforming use status. The court concluded its opinion by noting that “Jon Jon’s has waived any

additional constitutional arguments and the argument relative to alleged bias by failing to previously

raise them,” and issued an order closing the case. Plaintiffs filed a timely claim of appeal in the

Michigan Court of Appeals.

        The Michigan Court of Appeals rejected the claim of appeal on the basis that an appeal from

a circuit court’s review of a ZBA’s decision is by leave only. See Mich. Ct. R. 7.203 (amended

2013). Plaintiffs then filed an application for leave to appeal, arguing that the ZBA’s decision was

the product of a pattern of unconstitutional harassment by municipal officials directed at Plaintiffs.

Plaintiffs framed their appeal as an appeal from the circuit court’s review of the ZBA’s decision, but


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No. 12-2277
Jon Jon’s Inc. v. City of Warren

argued that the City’s alleged discrimination in connection with their attempted liquor license

transfer established a “good faith basis” for their accusation that the ZBA was biased as part of the

City’s pattern of discrimination against Plaintiffs. The Court of Appeals denied Plaintiffs’

application for lack of merit on January 31, 2013.

        In the meantime, following the entry of the Macomb County Circuit Court judgment

affirming the ZBA, the City moved for summary judgment in the federal suit on May 5, 2012. The

district court held that res judicata barred Plaintiffs’ claims in federal court given that the state court

issued a final decision on the merits, the federal suit was a subsequent action between the same

parties, the issues in the federal suit had been raised in the state court action, and the causes of action

were identical. This appeal follows.

                                                    II.

        “We review de novo a district court’s application of the doctrine of res judicata.” Bragg v.

Flint Bd. of Educ., 570 F.3d 775, 776 (6th Cir. 2009). “Federal courts must give the same preclusive

effect to a state-court judgment as that judgment receives in the rendering state.” Abbott v.

Michigan, 474 F.3d 324, 330 (6th Cir. 2007). As the party moving for summary judgment, the City

bears the burden of proving res judicata. Id. at 331. Michigan takes a broad view of res judicata that

bars a subsequent action when: “(1) the prior action was decided on the merits, (2) both actions

involve the same parties or their privies, and (3) the matter in the second case was, or could have

been, resolved in the first.” Buck v. Thomas M. Cooley Law Sch., 597 F.3d 812, 817 (6th Cir. 2010)

(internal quotation marks omitted). “Res judicata bars not only claims already litigated, but also



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No. 12-2277
Jon Jon’s Inc. v. City of Warren

every claim arising from the same transaction that the parties, exercising reasonable diligence, could

have raised but did not.” Id. (internal quotation marks omitted).

       Michigan circuit courts are empowered to review decisions by a ZBA:

       Any party aggrieved by a decision of the zoning board of appeals may appeal to the
       circuit court for the county in which the property is located. The circuit court shall
       review the record and decision to ensure that the decision meets all of the following
       requirements:

       (a) Complies with the constitution and laws of the state.

       (b) Is based upon proper procedure.

       (c) Is supported by competent, material, and substantial evidence on the record.

       (d) Represents the reasonable exercise of discretion granted by law to the zoning
       board of appeals.

Mich. Comp. Laws § 125.3606(1). Plaintiffs argue that because the circuit court was acting as an

appellate court to the ZBA, it did not have jurisdiction to reach issues that were not considered by

the ZBA including the constitutional claims raised by Plaintiffs. Plaintiffs argue that it was

impossible to bring their claims alleging a violation of their constitutional rights in connection with

the City Council’s denial of approval of the transfer of Jon Jon’s stock before the ZBA because the

ZBA is not granted jurisdiction to review liquor license denials. Further, because the circuit court

reviewed Plaintiffs’ case solely as an appeal from the ZBA’s decision, it lacked jurisdiction to decide

their constitutional claims.

       Plaintiffs cite Houdini Properties, LLC v. City of Romulus, 743 N.W.2d 198 (Mich. 2008),

as support for their argument. In Houdini, the plaintiff acquired real estate that was zoned in a way



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No. 12-2277
Jon Jon’s Inc. v. City of Warren

that prohibited the erection of billboards. Id. at 199 (Corrigan, J., dissenting).1 The plaintiff

challenged the designation before the ZBA, which denied his application for a variance. The

plaintiff appealed the ZBA’s decision to the circuit court and also filed a separate civil action in

circuit court, seeking damages for alleged constitutional violations. The circuit court affirmed the

ZBA’s denial of a variance and then granted summary judgment to the City on the plaintiff’s civil

suit on the basis of res judicata. Id. at 199 200.

       The Michigan Supreme Court held that a ZBA lacks jurisdiction to consider constitutional

claims, and that because a circuit court reviewing a ZBA’s decision is confined to the record and

decision of the ZBA, the circuit court is similarly barred from ruling on constitutional issues

presented in an appeal from a ZBA’s decision. Id. at 198 99. Thus, res judicata does not apply to

a plaintiff’s constitutional claims arising from the same facts. Id. The court issued this ruling

despite the fact that the plaintiff had argued its constitutional claims before the ZBA and the circuit

court. Id. at 199 200. See Whitmore Lake 23/LLC v. Ann Arbor Charter Twp., No. 294696, 2011

WL 1600507, at *5 (Mich. Ct. App. April 28, 2011) (“[T]he ZBA appeal and plaintiffs[’] other

circuit court claims proceeded, as they must, on separate tracks.”) (per curiam) (unpublished).

       The City attempts to distinguish Houdini, arguing that in Houdini, the state circuit court was

not simultaneously confronted with both an administrative appeal from a ZBA and separately-pled

counterclaims seeking relief on constitutional claims related to the administrative appeal at the same

point in time. This, indeed, would be a crucial distinction had the Michigan courts treated Plaintiffs’



       1
           The Houdini majority’s decision does not contain any factual background.

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No. 12-2277
Jon Jon’s Inc. v. City of Warren

case as involving an appeal and a separate civil counterclaim. Instead, the Macomb County Circuit

Court stated that it was viewing “this matter solely as an appeal and review[ing] it as such.”

(emphasis added). So viewed, the circuit court was without jurisdiction to consider Plaintiffs’

constitutional claims as part of Plaintiffs’ appeal from the ZBA’s decision.

        Significantly, the Michigan Court of Appeals also construed Plaintiffs’ case as involving

solely the circuit court’s review of the ZBA’s decision, and rejected Plaintiffs’ claim of appeal for

lack of jurisdiction, citing Mich. Ct. R. 7.203, which states: “The court [of appeals] has jurisdiction

of an appeal of right filed by an aggrieved party from . . . [a] final judgment or final order of the

circuit court . . . except a judgment or order of the circuit court . . . on appeal from any other court

or tribunal.” Id. Thus, the Michigan Court of Appeals accepted the circuit court’s statement that

“the Court deems it appropriate to consider this matter solely as an appeal and review it as such”

and treated the appeal as solely from the circuit court’s appellate jurisdiction, and not also from the

circuit court’s disposition of Plaintiffs’ other counterclaims. Plaintiffs’ subsequent application for

leave to appeal from the circuit court’s review of the ZBA’s decision was denied for lack of merit.

If the Michigan Court of Appeals had considered Plaintiffs’ case as involving both an appeal from

the circuit court’s review of the ZBA’s decision and as an appeal from the circuit court’s dismissal

of Plaintiffs’ constitutional claims, it could not have dismissed Plaintiffs’ entire appeal for lack of

jurisdiction because parties in Michigan have a right to appeal a final judgment or order of a circuit

court, unless the judgment or order is from an appeal from another tribunal, such as the ZBA. Id.

Thus, Plaintiffs’ constitutional claims against the City were not adjudicated on the merits by the

Macomb County Circuit Court, and the Michigan Court of Appeals did not recognize or consider

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No. 12-2277
Jon Jon’s Inc. v. City of Warren

Plaintiffs’ separate constitutional claims against the City. Because the Michigan courts would not

treat the Macomb Circuit Court’s decision affirming the ZBA as a res judicata bar to Plaintiffs’

constitutional claims, the district court erred in dismissing Plaintiffs’ constitutional claims on this

basis.2 See Get Back Up, Inc. v. City of Detroit, 878 F. Supp. 2d 794, 807 08 (E.D. Mich. 2012).

                                                 III.

       Accordingly, we REVERSE the district court’s decision.




       2
         The City argues that regardless whether the state court explicitly considered Plaintiffs’
constitutional claims regarding the transfer of Jon Jon’s liquor license, its determination that its
opinion “resolves the last pending issue and closes the case” is entitled to res judicata. See Pittman
v. Mich. Corrs. Org., 123 F. App’x 637, 640 (6th Cir. 2005); Sheppard v. Dist. of Columbia, 791 F.
Supp. 2d 1, 7 8 (D.D.C. 2011). The City also contends that to the extent Plaintiffs argue that the
circuit court erred, an erroneous judgment by the state court does not prevent res judicata from
operating. Miller v. Nat’l City Bank of New York, 166 F.2d 723, 726 (2d Cir. 1948).

        However, as discussed above, Houdini makes clear that a decision on appeal from a ZBA
does not operate as res judicata as to constitutional claims arising from the same factual
circumstances, and the Michigan Court of Appeals construed Plaintiffs’ appeal as arising solely from
an appeal from the ZBA’s decision. Thus, the circuit court did not issue a decision on the merits of
Plaintiffs’ constitutional claims, and the district court erred in concluding otherwise.

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