CHICAGO — The 7th U.S. Circuit Court of Appeal on Wednesday upheld an award of $435,000 in damages against the City of Milwaukee in a case involving two strip clubs.
The appeals court, 3-0, ruled that Jon Ferraro, who numerous adult entertainment businesses — Six Star Holdings and Ferol LLC — is entitled to damages for lost profits because now-repealed city licensing requirements blocked the opening of two new nude strip clubs in violation of the First Amendment.
Ferraro applied for the required liquor licenses, tavern amusement licenses, and theater licenses — but his applications stalled in City Council and later denied.
At the time, Milwaukee’s city leaders were swayed by members of the public, who 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,” the appeals court wrote in its opinion. “For market research, he visited several other dry clubs — one near Appleton, Wisc., 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.”
As Ferraro’s business plans evolved, so did his legal strategy. And he ended up filing several suits against the City of Milwaukee.
Ferraro, who owns other strip clubs elsewhere in Wisconsin, claimed that the licensing requirements violated the businesses' First Amendment rights, arguing that City Council's dislike of strip clubs was no legal reason to deny a permit.
A lower court found for the City of Milwaukee with respect to the challenges to the liquor licensing ordinance, because the city denied the license on the reasonable grounds that it would create secondary effects.
But the lower court also granted Ferraro $435,000 in damages related to the theater license application, finding that without this ordinance, he would have opened dry strip clubs in Milwaukee.
The 7th Circuit on Wednesday upheld the damages award for lost profits.
“It is fairly traceable to the unconstitutional ordinances — [Ferraro] alleged that, but for the ordinances, it would have engaged in protected speech, and a jury ultimately found this to be true,” the appeals court wrote. “Damages redress the harm that [Ferraro] suffered by replacing the lost profits [Ferraro] would have earned if it had been able to open its club at the planned time.”
In closing, the 7th Circuit judges said: “The city is fighting a losing battle over a regime whose time has passed.”
