Parrott et al v. Odom et al

IN THE UNITED STATES DISTRICT COURT FOR THE
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
HENRY LEE PARROTT, et al.,
Plaintiffs,
v.
APRIL ODOM, et al.,
Defendants.
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NO. 3:23-cv-00618
JUDGE RICHARDSON
MEMORANDUM OPINION
Plaintiffs, Henry Lee Parrott (“Plaintiff Parrott”) and Estate & Financial Strategies, Inc.
(“Plaintiff EFS” or “EFS”), initiated this lawsuit on June 16, 2023 by filing a complaint (Doc. No.
1, “Complaint”), in this Court naming as Defendants April Odom (“Defendant Odom”) and
Elizabeth Bowling (“Defendant Bowling”). Plaintiffs filed an amended complaint (Doc. No. 5,
“Amended Complaint”) on July 13, 2023, which likewise named (only) Defendant Odom and
Defendant Bowling as Defendants.1
Now pending before the Court is the “Motion to Dismiss [the Amended Complaint]” (Doc.
No. 21, “Motion”) filed by Defendants and supported by a memorandum (Doc. No. 22, “Opening
Brief”). Plaintiffs have filed a response (Doc. No. 26, “Response”) in opposition to the Motion,
and Defendants have filed a reply (Doc. No. 28, “Reply”), in further support of the Motion.
For the reasons described herein, the Court will GRANT the Motion in its entirety.
1 Defendant Odom and Defendant Bowling are sued only in their individual capacities.
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ALLEGED FACTS2
1. 	The Parties3
Plaintiff EFS is “a Tennessee corporation . . . that provided clients with comprehensive
retirement and financial planning services.” (Doc. No. 5 at ¶ 7). “From 2004 until December 31,
2021,” Plaintiff EFS “was registered as an investment advisor in Tennessee.” (Id. at ¶ 8). “As a
registered investment advisor (“RIA”),” Plaintiff EFS had “been subject to multiple routine books
and records examinations by the Tennessee Securities Division (the “Division”),” which resulted
in “no prior reported violations or uncorrected deficiencies.” (Id. at ¶ 9).
Plaintiff Parrott is a resident of Tennessee and is the “sole owner of EFS.” (Id. at ¶ 10).
Until December 31, 2021, Plaintiff Parrott “was registered in Tennessee as an investment advisor
representative (“IAR”) with EFS.” (Id.).
Defendant Odom is the “Director of Registration for the Tennessee Department of
Commerce and Insurance” at the Division. (Id. at 1). Defendant Bowling is the “Assistant
Commissioner for the Tennessee Department of Commerce and Insurance,” at the Division. (Id.).
2 The facts herein are taken from the Amended Complaint. For purposes of the instant Motion, the facts in
the Amended Complaint are accepted as true, except to the extent that they are qualified herein (as, for
example, by “Plaintiff alleges”) to denote that they are not being taken as true but instead are set forth
merely to make clear what a party claims to be true. Throughout this opinion, the Court forgoes any such
qualifiers for any fact that it is accepting as true, stating those facts without qualification even though it is
aware that any such (alleged) fact ultimately might not prove to be true.
The Court quotes extensively from the Amended Complaint herein. For clarity, the Court notes that unless
indicated otherwise, as for example, by the use of single quotation marks nested within a portion of the
Amended Complaint quoted using double quotation marks, it is quoting the Amended Complaint and not
directly quoting some statement (made during the underlying alleged events at issue) that the Amended
Complaint quoted or paraphrased.
3 When citing to a page in a document filed by one of the parties, the Court endeavors to cite to the page
number (“Page __ of __”) added by the Clerk’s Office as part of the pagination process associated with
Electronic Case Filing if such page number differs from the page number originally provided by the
author/filer of the document. In addition, where the Amended Complaint is cited herein without including
a paragraph symbol, the citation is not to a paragraph number but rather to a page that contains the cited
content outside the boundaries of any paragraph.
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Although not a party to this action, the “Division is the regulatory agency charged with, among
other things, overseeing RIAs and IARs in Tennessee.”4 (Id. at ¶ 12). “In such capacity, the
Division conducts routine books and records examinations of RIA firms, which are typically
conducted on a three-year cycle.” (Id.).
2. 	Factual Background
This case arises out of the renewal, or rather the non-renewal, of Plaintiff EFS’s and
Plaintiff Parrott’s respective “RIA and IAR registrations,” in January 2022. (Id. at ¶ 29).
The circumstances leading to this case began on November 13, 2020, when the Division
“opened a routine books and records examination of EFS [(“Examination”)]. The [E]xamination
was assigned to Securities Examiner Devlyn Simon (“Simon”).” (Id. at ¶ 13). Plaintiff Parrott
cooperated with the Division’s Examination and “timely provided all requested documentations,
corrected potential issues noted by the Division, and answered all inquiries posed by the
examiner,” Simon. (Id. at ¶ 14). After Simon conducted an initial interview with Plaintiff Parrott
in November 2020, “no one from the Division contacted [Plaintiff] Parrott to discuss the
examination or any of the requested documents.” (Id. at ¶ 15). On January 13, 2021, Simon sent
Plaintiffs “a follow-up request for additional documents and information (“First Deficiency
Letter”),” to which Plaintiffs responded with “the requested documents and information on
February 12, 2021.” (Id. at ¶ 16). On May 17, 2021, Simon sent Plaintiffs a request for additional
information (the “Second Deficiency Letter”), in response to which Plaintiffs provided the
“requested documents and information on June 1, 2021” and provided “a supplemental response
on July 9, 2021.” (Id. at ¶ 17). In June 2021, the Division paused the Examination, and “the
4 The Amended Complaint implies, albeit without expressly stating, that the Division is a part (a “division,”
unsurprisingly) of the Tennessee Department of Commerce and Insurance. The Court takes judicial notice
that this is in fact the case.
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Division had no further communication with Plaintiffs from May 17, 2021 to December 20, 2021.”
(Id.).
On December 22, 2021, following communications between Simon and Plaintiff Parrott,
“the Division requested additional information, and gave Parrott a deadline of January 7, 2022 to
provide the requested materials.” (Id. at ¶ 20). Plaintiffs “provided an initial response to the
Division’s December 22 request by the deadline and a supplemental response on January 10,
2022.” (Id. at ¶ 22).
On January 12, 2022, at the conclusion of the Examination, Simon produced a “findings
letter” that “outlin[ed] alleged deficiencies found pursuant to the [Examination]. . . (the “Findings
Letter”).” (Id. at ¶¶ 23-24).5 A call to discuss the findings was scheduled for the next day, January
13, 2022, “by and among Simon, Defendant Odom, Plaintiff Parrott, and “Craig Watanabe,
Director of IA Compliance at RIA Compliance Firm LLC.” (Id. at ¶ 27). On the January 13 call,
Plaintiffs were made aware “of several alleged ‘books and records’ deficiencies, and were again
told that they would likely receive a warning letter or a small fine and be required to address any
deficiencies.” (Id. at ¶ 28).
Plaintiff EFS and Plaintiff Parrott are “required to renew their RIA and IAR registrations,”
respectively, every year. (Id. at ¶ 29).6 In order to renew, “RIA registrants”—and inferably also
IAR registrants, although the Amended Complaint does not here mention IAR registrants—“have
to file annual amendments and pay a nominal renewal fee. If everything is complete and the fees
5 A “findings letter” is a document “produced at the conclusion of [an] examination and outlines alleged
deficiencies and corrective measures that may need to be taken.” (Id. at ¶ 23). The Court uses the term
“findings” to discuss the content of such a letter, including the Findings Letter in particular.
6 Although not explicitly explained in the Amended Complaint, the Court understands that these
registrations permit Plaintiff EFS and Plaintiff Parrott to conduct business as an RIA and IAR, respectively.
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are paid, the renewal in Tennessee is automatic.” (Id. at ¶ 30).7 “FINRA established the “E-Bill”
system that enables RIAs” (meaning, the Court infers, RIA registrants)—and again, inferably, also
IARs (meaning, the Court also infers, IAR registrants)—“to authorize electronic payment directly
from a designated bank account to pay annual renewal registration fees.” (Id. at ¶ 31).
“Plaintiffs’ renewal fees were set up to pay each year through the [above described] E-Bill
system.” (Id. at ¶ 32). However, on “December 31, 2021,” Plaintiffs’ “renewal registrations failed
to renew simply because [Plaintiffs] were unaware that there were insufficient funds in EFS’ E-
Bill account.” (Id. at ¶ 34). Plaintiffs allege that “[b]ut for the fact that the FINRA E-Bill account
was underfunded, Plaintiffs were otherwise qualified for renewal and should have automatically
been renewed on January 1, 2022.” (Id. at ¶ 35). The Division was made aware of Plaintiffs’
7 The renewal process detailed above is governed by certain provisions in Tenn. Code Ann. §§ 48-1-101–
48-1-201. Provisions in two sections in particular—§ 48-1-110 and § 48-1-112—are relevant to this case
in that they provide procedures for the Commissioner of the Tennessee Department of Commerce governing
its consideration of whether to deny an application for a registration or suspend or revoke an existing
registration for an RIA and IAR.
Tenn. Code Ann. § 48-1-110(a)(1-3) prescribes certain procedural requirements (regarding what is to be
included in the actual application and the completion of a criminal background check) that applicants for
RIA and IAR registrations must satisfy when applying for said registrations.
Tenn. Code Ann. § 48-1-110(a)(4) then provides, with respect to applications for RIA and IAR
registration, that if “no denial order is in effect and no proceeding is pending under § 48-1-112, such
registration becomes effective at twelve o’clock (12:00) noon, central time, of the thirtieth day after a
completed application is filed. The commissioner may by rule or order specify an earlier effective date, and
may by order defer the effective date until twelve o'clock (12:00) noon, central time, of the thirtieth day
after the filing of any amendment.”
Tenn. Code Ann. § 48-1-112(a) provides that “[t]he commissioner may by order deny, suspend, or revoke
any registrations under this part if the commissioner finds that” (1) “The order is in the public interest and
necessary for the protection of investors; and (2) “the applicant or registrant” has engaged in certain conduct
provided for in Tenn. Code Ann. § 48-1-112(a)(2)(A-K).
The upshot of these provisions taken together is that a registration may be suspended or revoked, and an
complete application for a registration— either in the form of an application for a new registration or in the
form of an application for renewal of an existing registration, both of which the Court notes are materially
different from an extant registration with respect to finding a property interest implicating due process
protections—may be denied only for cause, meaning that the commissioner must find that the suspension,
revocation, or denial is in the public interest and that the circumstances implicate particular statutory
provisions apply; otherwise state officials lack discretion to deny issuance or renewal of a registration.
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“oversight on January 4, 2022, when Senior Securities Examiner Patterson [(“Patterson”)] ran a
‘failure to renew’ (“FTR”) report, which clearly indicated that EFS failed to renew.” (Id. at ¶ 37).
The Division notified Plaintiffs of the failure to renew roughly three weeks after January 4, 2022.
(Id. at ¶ 39).
The failure by Plaintiffs “to automatically renew annual registrations as a result of not
having sufficient funds in their FINRA E-Bill accounts is a common occurrence in Tennessee and
in other states, and in almost all circumstances, the advisers’ registrations are subsequently
renewed retroactively by the Division and other state securities regulators without penalty.” (Id. at
¶ 40). Indeed, Patterson informed Plaintiff Parrott that such an oversight “‘happens all the time’
and that the registrations would be renewed retroactively.” (Id. at ¶ 41).
On January 19, 2022, Simon sent to Plaintiff Parrott an email, which was reviewed by
Defendant Odom prior to its sending, noting that the “only outstanding items” for Plaintiff Parrott
to address with respect “to the applications” for the RIA and IAR registrations “were obtaining
any ‘missing’ agreements; and (2) updating any older (pre-2019) agreements” and that this
information should be provided within 30 days of January 19, 2022. (Id. at ¶¶ 52, 53, 60). Plaintiff
Parrott “was never informed that approval of the registrations was contingent upon him providing
the outstanding items.” (Id. at ¶ 53). However, despite Simon requesting certain missing client
agreements or updating older client agreements in the January 19, 2022 email, Defendant Odom
“prevented Plaintiffs from contacting their clients to obtain the agreements and informed Mr.
Parrott that his clients were ‘not his clients anymore.’” (Id. at ¶¶ 52, 60).
On January 24, 2022, Plaintiff Parrott submitted materials to renew the at-issue RIA and
IAR registrations, and Patterson confirmed that the applications were “‘in good order and could
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be approved today.’” (Id. at ¶ 42). Patterson then approved the application “effective January 24,
2022.” (Id. at ¶ 43).
However, this was not the end of the process for Plaintiffs, because “[a]ll registration
applications [including, inferably, applications for renewal of a registration] initially approved by
. . . Patterson are sent to [Defendant] Odom to sign off on the approval.” (Id. at ¶ 45).
On January 25, 2022, “either [Defendant Odom] or [Defendant Bowling] refused to
approve the registrations,” and instead Defendant Odom “requested a ‘tolling agreement.’” (Id. at
¶ 54).8 Plaintiff Parrott was required by Defendant Odom to “sign the tolling agreement or [else]
the applications [for the registration renewals] would be denied.” (Id. at ¶ 55). Plaintiff Parrott
therefore signed the tolling agreement. (Id. at ¶ 56). Using such a tolling agreement “to extend the
application period for an initial [sic] or renewal of an application’s registration” is (allegedly) “an
established state procedure,” one that Plaintiff alleges resulted in their case in “a de facto
suspension of Plaintiffs’ registrations which infringed on Plaintiffs’ right to procedural due
process,” i.e., “violated Plaintiffs’ procedural due process rights,” (id. at ¶¶ 57, 93, 95), and that
resulted in a de facto suspension of their registration renewals. (Id. at ¶¶ 61, 99).9
After the tolling agreement was signed by Plaintiff Parrott, “one or both of the Defendants
dragged out the . . . registration [process for] nearly five months . . . repeatedly asking Plaintiffs
8 Oddly and regrettably, it is unclear from the Amended Complaint just exactly what the tolling agreement
“tolls.” As best the Court can discern, the tolling agreement relieved the Division of having to make a
decision on Plaintiffs’ registration applications within the presumptive deadline for the Division to act on
said registration applications. Plaintiffs also allege vaguely that the tolling agreement was somehow used
“in an attempt to force Plaintiffs into accepting the alleged [Examination] deficiencies.” (Doc. No. 5 at ¶
87). Plaintiffs imply that as a result of the agreement’s prescribed tolling of the decision deadline on their
registration applications, Plaintiffs “were unable to conduct advisory business from December 31, 2021
until they were re-registered in March, 2023,” thereby resulting in substantial monetary damages, which
are detailed further below. (Id. at ¶ 70).
9 That is to say, as explained in further detail below, the tolling agreement effected a denial of Plaintiffs’
applications for registration renewal.
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for additional information (or in some cases, information the Division already had).” (Id. at ¶ 58).
“Defendant Odom’s repeated requests for information after the tolling agreement was signed,
together with all of the communications (and omissions from communications) coming out of the
Division, falsely led Plaintiffs to believe that their license renewals were not going to be denied.”
(Id. at ¶ 62).
However, “[o]n or about June 16, 2022 . . . the Division filed, and [Defendant] Bowling
emailed to counsel for 	the Plaintiffs, a Notice of Hearing and Charges, requesting the
Commissioner of the Tennessee Department of Commerce and Insurance uphold an Order of
Denial of the Plaintiffs’ applications for renewal of their [RIA and IAR] registrations.” (Id. at ¶
63). This occurred despite Plaintiffs being “unaware that [the] Order of Denial had been issued”
and being “given no notice or opportunity to be heard as to this Order of Denial.” (Id).
Five months later, on November 14, 2022, “a hearing was held before Administrative
Judge Elizabeth D. Cambron, sitting on behalf of the Commissioner of the Department of
Commerce and Insurance, on the Securities Division’s Petition to uphold the Order of Denial.”
(Id. at ¶ 68). Ultimately, on January 27, 2023, Administrative Judge Cambron reversed the Order
of Denial. (Id. at ¶ 69). Plaintiffs ultimately re-registered as an RIA and IAR, respectively, in
March 2023. (Id. at ¶ 70).
As a result of the dispute over Plaintiffs’ renewal of registration, Plaintiffs “were unable to
conduct advisory business from December 31, 2021, until they were re-registered in March 2023,”
and Plaintiffs lost “approximately $1,700,000.00 in actual revenue,” and “an estimated $20 million
in assets under management.” (Id.)
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3. 	Plaintiffs’ Claim and Defendants’ Motion
Via the Complaint Plaintiffs bring a single claim. (“Plaintiffs’ Claim” or “Claim”).
Plaintiffs’ Claim is a 42 U.S.C. § 1983 claim against Defendants for violation of the right to
procedural due process under the Fourteenth Amendment. Via the Claim, Plaintiffs allege they
possessed “property interests protected by the Due Process Clause of the U.S. Constitution” both
in the RIA and IAR registrations themselves and “in not having the registration[s] revoked or
suspended, where a complete application and fee had been filed, all requested information had
been provided to the Division . . . and none of the statutory scenarios giving the Commissioner [of
the Tennessee Department of Commerce] discretion to deny, suspend, or revoke the registration
were present.” (Id. at ¶ 86).10 Consistent with the Court’s above recounting of Plaintiffs’
allegations, Plaintiffs allege that the use of the tolling agreement “was a de facto suspension of
Plaintiffs’ registrations without affording notice or opportunity to be heard,” (id. at ¶ 87), and that
Defendant Odom’s actions in “coercing [Plaintiff] Parrott into signing a tolling agreement were
illegal and were a violation of Plaintiffs’ rights to due process under the Fourteenth Amendment.”
(Id. at ¶ 89). Plaintiffs also allege that the tolling agreement effected a de facto denial of their
applications for registration renewal. (Id. at ¶¶ 61, 99).11 Plaintiffs further allege that there was
neither “pre-deprivation process provided for the de facto suspension of Plaintiffs’ registrations”
10 As noted above, Tenn. Code Ann. § 48-1-112(a) provides certain “statutory scenarios” permitting the
Commissioner of the Tennessee Department of Commerce to revoke or suspend a registration or deny an
application for a new registration or registration renewal.
11 Although Plaintiffs frame this in their Amended Complaint as a “de facto suspension of Plaintiffs’ . . .
renewals,” (Doc. No. 5 at ¶ 61), the Court understands Plaintiffs to be talking about a de facto denial of
Plaintiffs’ applications for registration renewal, because after all, if a registration is not in effect (as is the
case here), such registration cannot really be suspended. Accordingly, herein, the Court generally refers to
the de facto denial as opposed to de facto suspension of Plaintiffs’ applications for registration renewal.
At times, the Court will refer to a denial of Plaintiffs’ registration renewals. When it does so, the Court
is really referring to the denial of Plaintiffs’ applications for registration renewal.
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that occurred as a result of the tolling agreement, nor a “post-deprivation process, or adequate post-
deprivation process,” for this de facto suspension. (Id. at ¶ 92). Plaintiffs also allege that the
“administrative proceedings in this case were not sufficiently timely and did not provide any
opportunity for Plaintiffs to recover their damages and were therefore inadequate.” (Id. at ¶ 98).
At base then, Plaintiffs’ Claim is that the use of the tolling agreement “to extend the application
period for an initial [sic] or renewal of an application’s registration,” (id. at ¶ 93), constituted a de
facto suspension of their “registrations” and a denial of their “registration renewals” (and a
deprivation of the purported property interests embodied therein) without adequate process in
violation of Plaintiffs’ procedural due process rights under the Fourteenth Amendment to the U.S.
Constitution. (Id. at ¶¶ 87, 99).12
Plaintiffs bring their Claim against Defendants in their individual capacities (and not in
their official capacities). They seek (1) “Compensatory damages in an amount to be determined at
trial;” (2) “Attorneys’ fees pursuant to 42 U.S.C. § 1983;” (3) “Court costs;” and (4) “Other
damages to be proved at trial.” (Id. at 17).
Via the Motion, Defendants seek dismissal of Plaintiffs’ Amended Complaint for failure
to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). (Doc. No. 21 at 1). In
particular, Defendants assert that dismissal is proper because (1) Defendants have absolute, quasi-
judicial immunity “from acts taken in the process of approval or denial of registration
applications”;13 (2) Defendants have qualified immunity that protects them “from liability in
12 As explained further below, what is really at issue here—given that the purported deprivation of a
property interest occurred while Plaintiffs were attempting to renew their registrations—is a (purported)
deprivation of a property interest associated with the renewal of the registrations, as opposed to a
deprivation of a property interest in a valid and in-effect registration already attained.
13 The “defense of absolute immunity” can be “properly raised in a motion to dismiss” pursuant to Fed. R.
Civ. P. 12(b)(6). Henegar v. City of Morristown, Tenn., 856 F.2d 194 (TABLE ) (6th Cir. 1988). See also
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performing their discretionary functions as employees of the [ ] Division”;14 and (3) “Plaintiffs
lack a protected property interest necessary to state a claim for violation of the Due Process
Clause.” (Doc. No. 22 at 5, 8, 11).
LEGAL STANDARD
For purposes of a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the Court must take all
of the factual allegations in the complaint as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To
survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face. Id. A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id. Threadbare recitals of the elements of a cause
of action, supported by mere conclusory statements, do not suffice. Id. When there are well-
pleaded factual allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement to relief. Id. at 679. A legal conclusion, including one couched
as a factual allegation, need not be accepted as true on a motion to dismiss, nor are mere recitations
of the elements of a cause of action sufficient. Id.; Fritz v. Charter Twp. of Comstock, 592 F.3d
718, 722 (6th Cir. 2010), cited in Abriq v. Hall, 295 F. Supp. 3d 874, 877 (M.D. Tenn. 2018).
Moreover, factual allegations that are merely consistent with the defendant’s liability do not satisfy
Bon-Ing, Inc. v. Hodges, No. 2:16-CV-710, 2016 WL 6680813, at *2 (S.D. Ohio Nov. 14, 2016) (“The
defense of absolute immunity presents a legal question which can be raised by a motion to dismiss under
Rule 12(b)(6).” (citing Bright v. Gallia Cnty., Ohio, 753 F.3d 639, 648 (6th Cir. 2014))), aff’d, 700 F. App’x
461 (6th Cir. 2017).
14 A court considering a motion to dismiss may “dismiss under Fed. R. Civ. P. 12(b)(6) based on qualified
immunity.” Jackson v. Schultz, 429 F.3d 586, 589 (6th Cir. 2005). See also Duren v. Byrd, No. 1:18-CV-
00084, 2021 WL 3848105, at *9 (M.D. Tenn. Aug. 26, 2021) (“[I]n noting that the defense
of qualified immunity is prone to rejection when asserted as a 12(b)(6) or 12(c) motion, the Sixth Circuit
makes clear that the defense indeed can be asserted in that manner.”).
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the claimant’s burden, as mere consistency does not establish plausibility of entitlement to relief
even if it supports the possibility of relief. Iqbal, 556 U.S. at 678.
In determining whether a complaint is sufficient under the standards of Iqbal and its
predecessor and complementary case, Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), it may be
appropriate to “begin [the] analysis by identifying the allegations in the complaint that are not
entitled to the assumption of truth.” Iqbal, 556 U.S. at 680. This can be crucial, as no such
allegations count toward the plaintiff’s goal of reaching plausibility of relief. To reiterate, such
allegations include “bare assertions,” formulaic recitation of the elements, and “conclusory” or
“bold” allegations. Id. at 681. The question is whether the remaining allegations—factual
allegations, i.e., allegations of factual matter—plausibly suggest an entitlement to relief. Id. If not,
the pleading fails to meet the standard of Federal Rule of Civil Procedure 8 and thus must be
dismissed pursuant to Rule 12(b)(6). Id. at 683.
Notably, the above principles are most applicable to one kind (the most common kind) of
argument made on a Rule 12(b)(6) motion, namely the argument that the plaintiff’s allegations are
insufficient to state a claim. Here, each of Defendants’ second and third above-stated arguments is
of this type.
But there is a second (and less common) kind of argument that can be made on a Rule
12(b)(6) motion for why the plaintiff’s allegations fail to state a claim, namely that they
affirmatively show that the defendant(s) necessarily has (have) a legal defense that is fatal to the
claim. See, e.g., Peatross v. City of Memphis, 818 F.3d 233, 240 (6th Cir. 2016) (“Although a
motion pursuant to Rule 12(b)(6) [generally] invites an inquiry [only] into the legal sufficiency of
the complaint, not an analysis of potential defenses to the claims set forth therein, dismissal
nevertheless is appropriate when the defendant is entitled to a meritorious affirmative defense such
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as qualified immunity.”). For a 12(b)(6) motion to be granted based on this kind of argument, the
allegations of the complaint (together with anything else that, as identified above, properly can be
considered along with those allegations) must affirmatively show that the defendant necessarily is
entitled to the asserted defense as a matter of law. See, e.g. Bushong v. Delaware City School Dist.,
851 F. App'x 541, 545 (6th Cir. 2021) (“Because the failure to exhaust is an affirmative defense,
dismissal under Rule 12(b)(6) . . . is appropriate only if the face of the complaint shows that the
plaintiff has not in fact exhausted her administrative remedies.”); Cataldo v. U.S. Steel Corp., 676
F.3d 542, 547 (6th Cir. 2012) (stating in connection with a limitations defense, that when “the
allegations in the complaint affirmatively show that the claim is time-barred,” then “dismissing
the claim under Rule 12(b)(6) is appropriate.”). The first of Defendants’ above-stated arguments
is of this type.
DISCUSSION
Below, the Court will first address Defendants’ argument that the Amended Complaint
should be dismissed because Defendants are entitled to qualified immunity. Because the Court
ultimately determines that Defendants are entitled to qualified immunity with respect to their
actions, the Court does not reach Defendants’ other arguments in support of their Motion.15
15 Generally, “[i]mmunity is a threshold issue courts must address before considering the merits of a case.”
Gratsch v. Hamilton Cnty., 12 Fed. App’x 193, 201 (6th Cir. 2001) (noting that the issue of qualified
immunity is a threshold issue). See also Torcasio v. Murray, 57 F.3d 1340, 1352 (4th Cir.1995) (holding
that district courts should consider whether officials are entitled to qualified immunity and then, only if not
so entitled, address other issues); Michaels v. New Jersey, 50 F. Supp. 2d 353, 361 (D.N.J. 1999)
(“Like absolute immunity, qualified immunity is a threshold issue that may be decided by the court at the
outset of litigation.”). The Court notes that there is some doubt about whether a court must address defenses
of absolute and qualified immunity before addressing the merits of a claim when evaluating a motion to
dismiss raising all such defenses, such as the instant Motion, or whether instead the court has the discretion
to decide the order in which to address the raised defenses of absolute immunity, qualified immunity and
failure to state a claim (i.e., lack of substantive merit based on the complaint’s allegations). See e.g.,
Crothers v. Carr, No. 23-8014, 2025 WL 1122681, at *5 n.6 (10th Cir. April 16, 2025) (“Although absolute
immunity and qualified immunity are ordinarily threshold issues that analytically precede the merits of a
plaintiff’s claim, the Supreme Court has noted that neither is jurisdictional. Thus, although it may not
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1. 	Qualified Immunity Generally
As noted above, the defense of qualified immunity properly can be asserted under Fed. R.
Civ. P. 12(b)(6). See, e.g., Peatross, 818 F.3d at 240. Nevertheless, such dismissal is generally
inappropriate, as the Sixth Circuit explained not long ago (in an unpublished opinion, but one
relying exclusively on published opinions):
Although a defendant's “entitle[ment] to qualified immunity is a threshold question
to be resolved at the earliest possible point, that point is usually summary judgment
and not dismissal under Rule 12.” Wesley v. Campbell, 779 F.3d 421, 433–34 (6th
Cir. 2015) (alteration in original) (quotation marks and citations omitted). “The
reasoning for our general preference is straightforward: ‘Absent any factual
development beyond the allegations in a complaint, a court cannot fairly tell
whether a case is “obvious” or “squarely governed” by precedent, which prevents
us from determining whether the facts of this case parallel a prior decision or not’
for purposes of determining whether a right is clearly established.” Guertin v. State,
912 F.3d 907, 917 (6th Cir. 2019) (quoting Evans-Marshall v. Bd. of Educ. of Tipp
City Exempted Vill. Sch. Dist., 428 F.3d 223, 235 (6th Cir. 2005) (Sutton, J.,
concurring)). Therefore, it is generally inappropriate for a district court to grant a
12(c) 	motion 	based 	on qualified immunity. Wesley, 	779 	F.3d 	at 	433; see
also Courtright v. City of Battle Creek, 839 F.3d 513, 518 (6th Cir. 2016).
Kilnapp v. City of Cleveland, No. 22-4059, 2023 WL 4678994, at *3 (6th Cir. July 21, 2023).
However, clarifying its statement that granting a Rule 12 motion based on qualified
immunity grounds is “generally inappropriate,” the Sixth Circuit has explained that this “general
statement is at best imprecise.” Crawford v. Tilley, 15 F.4th 752, 763 (6th Cir. 2021). The Sixth
always be advisable, it is at least permissible to address the merits of a plaintiff’s claim instead of dismissing
it based on an immunity defense.” (citations omitted) (emphasis added))).
Irrespective of this doubt, the Court here elects to decide first whether Defendants are entitled to
immunity (either absolute or qualified) before addressing the merits of Plaintiffs’ Claim. Importantly, the
Court can identify no case law to suggest that it must determine whether Defendants are entitled to absolute
immunity before determining whether Defendants are entitled to qualified immunity. See e.g., Nader v.
Blackwell, 545 F.3d 459, 478 (6th Cir. 2008) (“Given our holding that [defendant] has qualified immunity
from suit, it is unnecessary for us to decide whether he also enjoys absolute immunity.”); Michaels, 50 F.
Supp. 2d at 361 (“Like absolute immunity, qualified immunity is a threshold issue that may be decided by
the court at the outset of litigation.”). Thus, the Court elects to conduct the qualified immunity analysis
first, because it ultimately disposes of Plaintiffs’ Claim and therefore moots any issue regarding the
applicability of absolute immunity.
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Circuit noted that this cautionary proviso is really directed at decisions that rest on “qualified
immunity’s clearly established prong,”16 id., but also noted that, “a complaint distinguishable from
our past cases on its face will not often survive a motion to dismiss on qualified immunity
grounds.” Id. at 766. This “is especially true where granting relief to the plaintiff can only be done
by recognizing a novel constitutional right,” and where it is “apparent from the complaint that the
law was not clearly established because ‘not a single judicial opinion’ had held the official’s action
unconstitutional.” Id.
“Once the qualified immunity defense is raised, the burden is on the plaintiff to demonstrate
that the officials are not entitled to qualified immunity.” Silberstein v. City of Dayton, 440 F.3d
306, 311 (6th Cir. 2006); see also Cahoo v. SAS Analytics Inc., 912 F.3d 887, 898 (6th Cir.
2019) (“‘[T]he plaintiff bears the burden of showing that an officer is not entitled to the defense
of qualified immunity.’” (quoting Courtright v. City of Battle Creek, 839 F.3d 513, 518 (6th Cir.
2016))). To survive the motion to dismiss on qualified-immunity grounds, a plaintiff must allege
facts that “plausibly mak[e] out a claim that the defendant’s conduct violated a constitutional right
that was clearly established [by] law at the time, such that a reasonable [official] would have
known that his conduct violated that right.” Johnson v. Moseley, 790 F.3d 649, 653 (6th Cir. 2015).
The analysis of a claim of qualified immunity involves either one or two steps (or
“prongs”), each of which involves the court answering a particular question. The “first step is to
determine if the facts alleged make out a violation of a constitutional right. The second is to ask if
the right at issue was ‘clearly established’ when the event occurred such that a reasonable officer
16 The court here seemed to be saying that the general rule is primarily a rule that a qualified-immunity
defense generally cannot be conclusively established on a 12(b)(6) motion to dismiss specifically on the
rationale that the constitutional right allegedly violated was not “clearly established.”
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would have known that his conduct violated it.”17Martin v. City of Broadview Heights, 712 F.3d
951, 957 (6th Cir. 2013) (citing Pearson v. Callahan, 555 U.S. 223, 232 (2009)). Although these
two questions may be addressed in either order, both questions must be answered in the affirmative
for a plaintiff’s claim to proceed. Id. (citing Pearson, 555 U.S. at 236). So if either question is
answered in the negative, the court may dismiss the claim without answering the other question.
Kenjoh Outdoor, LLC v. Marchbanks, 23 F.4th 686, 694 (6th Cir. 2022) (“If one prong is decisive,
we need not to [sic] consider the other.”).
Here, as noted above, Defendants have raised the defense of qualified immunity. (Doc.
No. 22 at 8-11). Defendants argue that qualified immunity “protects Defendants from liability in
performing their discretionary functions as employees of the [ ] Division.” (Id. at 8). In particular,
Defendants assert that Plaintiffs both “cannot establish that they had a property right to a new
registration after their prior registration expired” or that “any supposed rights were ‘clearly
established.’” (Id. at 10). The question is thus whether Plaintiffs satisfy their burden to
“demonstrate that” Defendants “are not entitled to qualified immunity.” Silberstein, 440 F.3d at
311.
17 As Martin’s verbiage here suggests but does not make entirely clear, the issue here is actually not just
whether the right allegedly violated was clearly established. The issue is actually whether it was clearly
established that the official’s alleged conduct violated a constitutional right. See, e.g., Mullenix v. Luna,
577 U.S. 7, 11 (2015) (“A clearly established right is one that is sufficiently clear that every reasonable
official would have understood that what he is doing violates that right.” ) (internal quotation marks
omitted); Beck v. Hamblen Cnty., Tennessee, 969 F.3d 592, 598 (6th Cir. 2020) (“To overcome a qualified-
immunity defense, § 1983 plaintiffs must show two things: that government officials violated a
constitutional right and that the unconstitutionality of their conduct was clearly established when they
acted.”). And to answer that question, obviously, it is necessary but not sufficient that the right allegedly
violated was clearly established.
In sum, the customary framing of the second element is somewhat imprecise because the question
ultimately is not just whether the right allegedly violated was clearly established. Nevertheless, like other
courts, the Court herein at times will use the shorthand reference to the “right” being clearly established
without referring explicitly to the requirement that it be clear that the official’s conduct violated such right.
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2. 	Whether the Right is Clearly Established
The Court will begin and end its analysis with the question of whether the rights at issue in
this case were clearly established “when the event occurred[, meaning] that a reasonable officer
would have known that his conduct violated [them].” Martin, 712 F.3d at 957. As noted above, a
plaintiff has the burden of demonstrating that the right was clearly established at the time of the
challenged conduct. See Hughes v. City of North Olmsted, 93 F.3d 238, 241 (6th Cir. 1996). The
inquiry into whether a right was clearly established must be conducted “in light of the specific
context of the case.” Saucier v. Katz, 533 U.S. 194, 201 (2001). “The contours of the right must
be sufficiently clear that a reasonable official would understand that what he is doing violates that
right . . . [and] in the light of preexisting law the unlawfulness must be apparent.” Anderson v.
Creighton, 483 U.S. 635, 640 (1987); see also Edwards v. Williams, 170 F. Supp. 2d 727, 735
(E.D. Ky. 2001) (explaining that a plaintiff must show “that any officials in the defendants’
positions, measured objectively, would have clearly understood that they were under an
affirmative duty to refrain from the conduct.”). That is to say, the clearly established right “must
be defined with specificity.” City of Escondido, Cal. v. Emmons, 586 U.S. 38, 42 (2019).
While it is not necessary for a case to be “directly on point” for a right to be clearly
established, “existing precedent must have placed the statutory or constitutional question beyond
debate.” See Mullenix v. Luna, 577 U.S. 7, 12 (2015); Pike v. Hester, 891 F.3d 1131, 1141 (9th
Cir. 2018) (explaining that the “clearly established” prong does not require an “exact factual
match”). In other words, “[i]n an obvious case, [general] standards can clearly establish the [right],
even without a body of relevant case law.” Flying Dog Brewery, LLLP v. Michigan Liquor Control
Comm’n, 597 F. App’x 342, 353 (6th Cir. 2015).
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The Sixth Circuit has instructed that “[w]hen determining whether a constitutional right is
clearly established, [district courts should] look first to decisions of the Supreme Court, then to
[Sixth Circuit] decisions and those of other courts within the circuit, and then to decisions of other
Courts of Appeal.” Andrews v. Hickman Cnty., 700 F.3d 845, 853 (6th Cir. 2012) (citing Masters
v. Crouch, 872 F.2d 1248, 1251–52 (6th Cir. 1989)). The Sixth Circuit has also advised that if a
question is “decided . . . by the highest state court in the state where the case arose,” a right may
be clearly established. Robinson v. Bibb, 840 F.2d 349, 351 (6th Cir. 1988).
Before beginning the analysis of whether the rights at issue in this case were clearly
established, however, it is important to explain with specificity what those rights in this particular
case would be. See Emmons, 58 U.S. at 42. Plaintiffs, as noted above, allege a violation of the right
to procedural due process under the Fourteenth Amendment. In effect, Plaintiffs assert that
Defendants’ use of the tolling agreement constituted a de facto suspension of Plaintiffs’
registrations and a denial of their registration renewals, thereby depriving Plaintiffs of their
property interests without due process.
So, two things must be clearly established for Plaintiffs to overcome the qualified-
immunity defense. The first is that Plaintiffs had “property interests . . . in their registrations and
in not having a registration revoked or suspended where a complete application and fee had been
filed, all requested information had been provided to the Division . . . and none of the statutory
scenarios giving the Commissioner [of the Tennessee Department of Commerce] discretion to
deny, suspend, or revoke the registration were present.” (Doc. No. 5 at ¶ 86).18 What this really
18 As noted above, Tenn. Code Ann. § 48-1-112(a) sets forth the above referenced “statutory scenarios.”
The Court understands (in part because Defendants do not argue to the contrary) that the Amended
Complaint does not suggest that Plaintiffs’ situation involved any of these scenarios, and so (for purposes
of the present Motion) the Court does not recognize the existence of any official discretion that may arise
specifically in the context of such scenarios.
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means—given that here the purported deprivation of a property interest occurred while Plaintiffs
were attempting to renew their registrations—is that it must have been clearly established that
Plaintiffs had a property interest in the renewal of their RIA and IAR registrations, and not just a
property interest in a valid and in-effect registration already attained.19 It is critical to clearly
establish that Plaintiffs have such a property interest in their registration renewals because for the
purposes of the present action, “[t]o implicate the protections of the due process clause, there must
be a deprivation of a property interest.” Wilson Air Center, LLC v. F.A.A., 372 F.3d 807, 816 (6th
Cir. 2004). In other words, if it was not clearly established that Plaintiffs had a property interest in
the renewal of the RIA and IAR registrations then it could not have been clearly established that
there was a right to procedural due process in connection with the deprivation of such registration
renewals.
Second, it must also be shown that any officials in the “[D]efendants’ positions, measured
objectively” must have been able to understand that they “were under an affirmative duty to refrain
from” using the tolling agreement in order to avoid violating Plaintiffs’ due process rights.
Edwards, 170 F. Supp. 2d at 735. In other words, the Court must determine whether a reasonable
official in Defendants’ position would have known that using the tolling agreement violated
Plaintiffs’ due process rights by serving to deprive Plaintiffs of a property interest without
(procedural) due process.
Plaintiffs maintained their registrations until December 31, 2021, and the challenged
conduct of Defendants in using the tolling agreement (presumably, as noted above, as a means of
19 The Court notes here that although the Amended Complaint at times refers to the “den[ial], suspen[sion],
or revo[cation]” of a registration, (Doc. No. 5 at ¶ 86) really what is at issue here is the denial of the
applications for registration renewal. This is something that Plaintiffs make clear through various references
to Plaintiffs’ registration “renewals” throughout the Amended Complaint. (Doc. No. 5 at ¶¶ 44, 48, 58, 59,
61-67, 69, 99).
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relieving the Division of having to make a decision on Plaintiffs’ registration applications within
the presumptive deadline for the Division to act on said registration applications) did not begin
until January 25, 2022, when Defendant Odom requested that Plaintiff Parrott enter into the tolling
agreement. (Doc. No. 5 at ¶¶ 54-55).20 Thus, the Court will limit its review of the case law to cases
decided before January 25, 2022.
a. 	Clearly Established Property Interest21
The Court will first begin by examining whether it was clearly established that Plaintiffs
had property interests in their registration renewals.
Although the Court was not able to identify a case directly addressing whether there is a
property interest in the RIA and IAR registrations at issue in this case or, more importantly, a
property interest in having those registrations renewed, numerous courts have addressed whether
there is a property interest in a business (or business-like) license—which the RIA and IAR
registrations appear to resemble based on the Amended Complaint.22 Numerous courts have also
addressed whether there is a property interest in the continued operation of a business, such as the
continued operation of EFS that depends upon Plaintiffs’ RIA and IAR registrations and their
renewals. Indeed, federal precedent also establishes that a property interest can exist even if one is
20 The Court notes for clarity that Defendants’ challenged conduct here is using the tolling agreement either
as a means to postpone a decision on Plaintiffs’ applications for registration renewal or, as Plaintiffs allege,
“in an attempt to force Plaintiffs into accepting the alleged [Examination] deficiencies,” (Doc. No. 5 at ¶
87), as opposed to merely requesting that Plaintiffs enter into the tolling agreement.
21 The Court is aware that its discussion of whether there was a clearly established property interest in the
RIA and IAR registrations may resemble the inquiry into whether the allegations in the Amended Complaint
make out a violation of a constitutional right. The Court reiterates for clarity that herein it does not reach
the issue of whether Plaintiffs have made out a violation of a constitutional right (the first “prong” of the
qualified immunity analysis, i.e., the first requirement for avoiding qualified immunity) and instead
addresses only whether any of the constitutional rights at issue herein were clearly established (the second
requirement for avoiding qualified immunity).
22 In other words, to have a RIA or IAR “registration” is akin to having a business “license.”
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seeking the renewal of a registration or license, rather than just seeking to maintain an already
existing and in-effect registration or license. The rulings of these courts, as well as general
principles underlying when property interests that implicate procedural due process rights are
created, certainly suggest that a property interest in the RIA and IAR registrations renewals was
clearly established at the time of Defendants’ challenged conduct here.
For example, in Women’s Med. Pro. Corp. v. Baird, the Sixth Circuit noted that “[t]his
court has recognized that the Constitution protects a person’s choice of careers and occupations,”
and accordingly found that the plaintiffs had a “protected property interest in the continued
operation” of a medical clinic. 438 F.3d 595, 612 (6th Cir. 2006), abrogated on other grounds
by Dobbs v. Jackson Women’s Health Org., 597 U.S. 215 (2022). Other circuits have likewise
recognized a property interest in the continued operation of a business—and indeed in this case,
possessing the RIA and IAR registrations and actually operating Plaintiffs’ business appear to be
coterminous in that the Amended Complaint implies that without the registrations, Plaintiffs’
business simply cannot operate at all. See United States v. Tropiano, 418 F.2d 1069, 1076 (2d Cir.
1969) (recognizing that “[t]he right to pursue a lawful business . . . has long been recognized as a
property right within the protection of the Fifth and Fourteenth Amendments of the Constitution.”);
Small v. United States, 333 F.2d 702, 704 (3d Cir. 1964) (recognizing “[t]he right to pursue a
lawful business or occupation is a right of property which the law protects against intentional and
unjustifiable interference.”).
Moreover, the Tennessee Supreme Court has recognized that there is a property interest in
a business license, such that the business license “may not be revoked without due process of law.”
See Estrin v. Moss, 430 S.W.2d 345, 352 (Tenn. 1968) (noting that “[i]t is true” that a pest control
business license constitutes a “property right [that] may not be revoked without due process of
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law”). Other federal Courts of Appeals have found likewise. See e.g., Spinelli v. City of New York,
579 F.3d 160, 169 (2d Cir. 2009) (finding that “once the government has granted a business license
to an individual, the government cannot deprive the individual of such an interest without
appropriate procedural safeguards.” (cleaned up)); Jordan v. United Ins. Co. of America, 289 F.2d
778, 781 (D.C. Cir. 1961) (“once a going business has been established on the basis of a license
or certificate of authority, property rights attach. This means that such license or certificate may
not be revoked, nor may renewal be denied, without procedural and substantive due process of
law.”). See also Bell v. Burson, 402 U.S. 535, 539 (1971) (“Once licenses are issued . . . their
continued possession may become essential in the pursuit of a livelihood . . . . In such cases the
licenses are not to be taken away without that procedural due process required by the Fourteenth
Amendment.”).
Of course, the above analysis does not address the particular issue before the Court—
whether there can be a property interest in the requested (potential) renewal of a license or
registration. However, a further review shows that a property interest in a license exists even if the
plaintiff (like Plaintiffs here) is seeking a renewal of the license, as opposed to merely seeking to
maintain an already valid and in-effect license. See Easter House v. Felder, 910 F.2d 1387, 1395
(7th Cir. 1990) (finding that a plaintiff had a property interest in the renewal of a license to operate
a child welfare agency); Richardson v. Town of Eastover, 922 F.2d 1152, 1157 (4th Cir. 1991) (“a
state-issued license for the continued pursuit of the licensee's livelihood, renewable periodically
on the payment of a fee and revocable only for cause, creates a property interest in the licensee.”).
This case law suggests that it was clearly established that Plaintiffs had property interests
in the RIA and IAR registration renewals protected by the due process clause of the Fourteenth
Amendment.
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Likewise, general judicial principles concerning property interests protected by the due
process clause also suggest that it was clearly established that Plaintiff had a property interest in
the RIA and IAR registration renewals. See Flying Dog Brewery, 597 F. App’x at 353 (“[i]n an
obvious case, [general] standards can clearly establish the [right], even without a body of relevant
case law.”). It is axiomatic that the due process clause protects “those interests to which one has a
‘legitimate claim of entitlement,’” Hamilton v. Myers, 281 F.3d 520, 529 (6th Cir. 2002) (quoting
Board of Regents v. Roth, 408 U.S. 564, 577 (1972)), and a legitimate claim of entitlement includes
“any significant property interests, including statutory entitlements.” Brotherton v. Cleveland, 923
F.2d 477, 480 (6th Cir. 1991) (quotation marks omitted) (citations omitted). Importantly, property
interests “are not created by the Fourteenth Amendment, rather they are created and defined by
independent sources, such as state law.” Hamilton, 281 F.3d at 529. It is clear here that Tennessee
law has engendered a property interest in the RIA and IAR registration renewals at issue in this
case. As detailed in a footnote above, Tenn. Code Ann. § 48-1-112(a) provides that an RIA and
IAR registration and registration renewal may be denied, revoked, or suspended only in the event
of certain statutorily defined scenarios. This is exactly the kind of registration (or licensing) regime
that Tennessee state courts have recognized as providing a constitutionally protectable property
interest. United Pet Supply, Inc. v. City of Chattanooga, 921 F. Supp. 835, 846 (E.D. Tenn. 2013)
(“Under Tennessee law, a professional license that is only revocable upon a showing of cause ‘is
a constitutionally protectable property interest because the holder of the license has a clear
expectation that he or she will be able to continue to hold the license absent proof of culpable
conduct.’” (quoting Martin v. Sizemore, 78 S.W.3d 249, 263–64 (Tenn. Ct. App. 2001))).23 Thus,
23 The Court also notes for clarity that although it finds that state officials’ discretion was limited with
respect to the issuance of RIA and IAR registrations so as to support finding that Plaintiffs possessed a
clearly established property interest in such registration renewals, the Court does not mean to imply that
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general principles support a finding that Plaintiffs possessed a clearly established property interest
in the RIA and IAR registration renewals.24
Defendants argue that there can be no property interest in the registrations (and, the Court
infers, registration renewals) because “repeated use of the word ‘may’ [in the statutory scheme]
establishes statutory discretion on the part of the Department, the Commissioner, and the Securities
Division to deny Plaintiffs’ request for registration,” and accordingly, “because discretion exists,
no property rights exist.” (Doc. No. 22 at 16). Defendants assert baldly that even limited discretion
is sufficient to show that no property interest exists. (Id. at 15). There is no support for this latter
assertion in Defendants’ briefing, and in any event, Defendants’ argument is an oversimplification
of Sixth Circuit case law, which provides that “substantive limits on [the] discretion” of state
officials may create a property interest. Experimental Holdings, Inc. v. Farris, 503 F.3d 514, 520
(6th Cir. 2007). Cf. Mid-S. Indoor Horse Racing, Inc. v. Tennessee State Racing Comm’n, 798
Defendants’ conduct was “ministerial,” rather than “discretionary,” so as to constitute another basis for
depriving Defendants of qualified immunity. An act is ministerial, and thus affords no immunity to the
actor, when the act involves “the execution or implementation of a decision and entail[s] only minor
decision-making.” Davis v. Holly, 835 F.2d 1175, 1178 (6th Cir. 1987). Whether a statutory scheme
provides a “substantive limit” on officials’ discretion so as to suggest the existence of a property interest is
an issue distinct from whether an official’s act was “ministerial” as to deprive the defendant(s) of qualified
immunity. Here, Plaintiffs do not raise the latter issue, and the Court declines to consider it sua sponte.
24 In their Opening Brief, Defendants characterize Plaintiffs’ registration applications not as applications
for renewal but rather as applications for new licenses, (Doc. No. 22 at 12-14), to argue that an application
to obtain a new registration “is not a property interest protected by the Due Process Clause.” (Id. at 14).
This argument is unavailing for three reasons. First, the cases Defendants cite in support of this argument
(a Connecticut Superior Court case and a Louisiana Court of Appeals case) are not binding on this Court.
Second, this argument mischaracterizes the Amended Complaint’s allegations, which the Court must accept
as true, that characterize the RIA and IAR registration applications as applications for renewal. And third,
as discussed further below, the Tennessee statutory scheme underlying the RIA and IAR registrations
plainly provides substantive limits on state officials’ discretion when revoking or denying RIA or IAR
registrations (including denials of indisputably new applications), thus engendering a property interest in
these registrations not only when an applicant is renewing a pre-existing registration but also when the
applicant is seeking a new registration.
So, Defendants are slicing the bologna too thin on the distinction between a renewal of an RIA or IAR
registration and an application for a new registration for the purposes of the present action and
circumstances.
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S.W.2d 531, 540 (Tenn. Ct. App. 1990) (“Where state law gives the licensing agency broad
discretion to grant or to deny license applications in a closely regulated activity, the applicants for
an initial license do not have a constitutionally protected claim of entitlement.” (emphasis added)).
Here, the statutory scheme underpinning the granting of RIA and IAR registrations provides
exactly those substantive limits on the discretion of state officials (as detailed in the footnote
above) to create a property interest; as discussed above, the registrations may be suspended or
revoked—and the registration renewals may be denied—only for cause, and otherwise state
officials lack discretion when deciding whether to issue or renew a registration.
Defendants cite various other provisions of Tenn. Code Ann. § 48-1-101 — § 48-1-201 to
argue that the Commissioner of the Tennessee Department of Commerce has discretion in issuing
the registrations at issue so as to prevent the Court from identifying a property interest. Among
them are Tenn. Code Ann. § 48-1-110(f)(4), providing certain discretionary measures the
Commissioner may take to determine eligibility for registration, Tenn Code Ann. § 48-1-110(f)(5),
providing certain provisions related to registrations applied for by issuer-dealers, and Tenn. Code
Ann. §§ 48-1-118(e)(1), 48-1-118(g), providing certain discretionary measures the Commissioner
may take with respect to investigations and hearings regarding registrations. But these provisions
are unavailing to Defendants’ argument and inapplicable to the present action because they are
concerned mainly with procedures unrelated to this dispute (i.e., those provisions concerning
investigations) or are applicable only to issuer-dealers (a category not implicated in Plaintiffs’ case
(Doc. No. 26 at 18)). Moreover, Defendants’ argument ignores the overarching provisions in Tenn.
Code Ann. § 48-1-112(a), which (as discussed above) prescribe substantive limitations on the
discretion of the Commissioner of the Tennessee Department of Commerce in her ability to deny
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an application for a new registration or registration renewal, or revoke or suspend existing
registrations.
Accordingly, even though the Court could not identify any cases directly addressing
whether there is a property interest in the RIA and IAR registration renewals at issue in this case,
it appears clear to the Court that existing precedent placed beyond debate the question of whether
Plaintiffs had a property interest in their RIA and IAR registration renewals, see Mullenix, 507
U.S. at 12, and that this is “an obvious case” where principles (as discussed above) “clearly
establish[ed] the [right], even without a body of relevant case law.” Flying Dog Brewery, 597 F.
App’x at 353. However, this is not the end of the analysis because a property interest within the
scope of the Fourteenth Amendment’s due process clause is not itself the right at issue. Rather,
possessing such a property interest is merely a predicate to the right that is at issue in this case:
namely the right not to be deprived of the property interest without (procedural) due process of
law.
b. 	The Tolling Agreement
Although Plaintiffs’ property interest in their RIA and IAR registration renewals is clearly
established, the question remains whether “any officials in the [D]efendants’ positions, measured
objectively” would understand that they “were under an affirmative duty to refrain from” using
the tolling agreement in order not to violate Plaintiffs’ due process rights. Edwards, 170 F. Supp.
2d at 735. That is to say, the question is whether a reasonable official in Defendants’ position
would have known that using the tolling agreement constituted a deprivation of a protected
property interest in the RIA and IAR registration renewals so as to implicate Plaintiffs’ due process
rights to not have their registration renewals denied without (procedural) due process of law. If the
answer is no, then a reasonable official—not knowing that Plaintiffs’ due process rights were even
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implicated—would not (and indeed could not) have known further that these rights were not
merely implicated but actually violated. 25
Plaintiffs point to two cases to argue that Defendants conduct in using a tolling agreement
violated a clearly established right. As a reminder, Plaintiffs must establish that the allegations of
the Amended Complaint (accepted as true) show that any reasonable official in Defendants’
position would have understood that the use of the tolling agreement by Defendants deprived
Plaintiffs of their (clearly established) property interest in their registration renewals in violation
of Plaintiffs’ due process rights to not have their registration renewals denied without due process
of law. First, Plaintiffs cite Johnson v. Morales, 946 F.3d 911, 922 (6th Cir. 2020) for the
proposition that a plaintiff may state “a viable claim that her right to procedural due process was
violated by summary suspension of [a] business license.” (Doc. No. 26 at 21). But Johnson did not
address qualified immunity at all,26 so it teaches nothing about when qualified immunity is or is
25 Moreover, the Court emphasizes that it is not analyzing here whether — if the use of the tolling agreement
by Defendants constituted a deprivation of Plaintiffs’ property interests so as to implicate Plaintiffs’ due
process rights—such deprivation would have been one without procedural due process of law. For context,
the Court notes that such an analysis would be done under the three-part balancing test in Mathews v.
Eldridge, 424 U.S. 319 (1976) to determine what sort of process (i.e., procedures) Plaintiffs should have
been afforded prior to the purported de facto denials 	of their registration renewals (i.e., prior to the
purported deprivation of their property interests) via the tolling agreement. But here, the Court need not
reach the questions of whether any such deprivation would properly be deemed (under Mathews) one
without due process of law, or of whether a reasonable official in Defendants’ position would have known
that any such deprivation would have been properly deemed one without due process of law. As to at least
the latter question, the Court is highly dubious that the answer would be in the affirmative. But ultimately,
the Court need not answer either of these questions, because it finds that a reasonable official in Defendants’
position would not have known that their use of the tolling agreement constitutes a deprivation of property
within the meaning of the Fourteenth Amendment’s Due Process Clause (i.e., for purposes of procedural
due process).
26 Johnson was an appeal of a district court’s decision to dismiss a complaint. In relevant part, the court in
Johnson considered claims by a plaintiff that city officials “violated her procedural due process rights by
suspending her business license before granting her a chance to be heard.” Johnson, 946 F.3d at 921. The
Sixth Circuit applied the balancing test found in Mathews v. Eldridge, 424 U.S. 319 (1976) to determine
what sort of process plaintiff should have been afforded before her license was suspended and then
concluded that plaintiff had “stated a viable procedural due process claim based on the government's failure
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not available to an official who suspended a business license. And it certainly tells us nothing about
whether qualified immunity is available in the present case, because it in no way indicates “that
any officials in the [D]efendants’ positions, measured objectively, would have clearly understood
that they were under an affirmative duty to refrain from the[ir] conduct [in using the tolling
agreement as a deprivation of Plaintiffs’ property interests.].” Edwards, 170 F. Supp. 2d at 735.
More specifically, Johnson does not avail Plaintiffs in showing that the use of the tolling
agreement in this case (which Plaintiffs characterize as a de facto denial of Plaintiffs’ registration
renewals and a deprivation of the property interests thereto without due process of law) was
something that “any officials in the [D]efendants’ positions, measured objectively” would
understand that (by virtue of the Fourteenth Amendment guarantee of procedural due process),
they “were under an affirmative duty to refrain from . . . . ” Edwards, 170 F. Supp. 2d at 735. This
is not just because the court in Johnson—not being presented with any qualified immunity
defense—did not need to and did not address any similar issue (regarding what a reasonable
official would have understood). It is also because Johnson is factually distinguishable.27
to provide her some type of hearing before suspending her license.” Johnson, 946 F.3d at 925. The court’s
focus was exclusively on whether the plaintiff had stated a valid procedural due process claim, and qualified
immunity was not mentioned even once in the opinion.
27 The Court notes here that Plaintiffs do not appear to challenge directly the “Order of Denial,” on
“Plaintiffs’ applications for renewal of their registration,” (Doc. No. 5 at ¶ 63), which may have constituted
something akin to a suspension as seen in Johnson, or the subsequent proceedings before Administrative
Judge Cambron on the Order of Denial. Therefore, the Court does not address herein whether these
mechanisms constituted a violation of Plaintiffs’ right to procedural due process and whether Defendants
would have known these mechanisms would violate said right such that it should be deemed “clearly
established.”
In the event that Plaintiffs intend to challenge the adequacy of the “administrative proceedings”
(presumably meaning before Administrative Judge Cambron) as a post-deprivation remedy for the alleged
deprivation of their property interest in the registrations, (Doc. No. 5 at ¶ 98), the Court does not reach this
issue because it is downstream to whether Plaintiffs possessed a clearly established right not to be subject
to a tolling agreement in the first place.
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In the present case, Plaintiffs entered into a tolling agreement that Plaintiffs in the Amended
Complaint characterize as a mechanism “to extend the application period for an initial [sic] or
renewal of an application’s registration.” (Doc. No. 5 at ¶¶ 93, 95). Plaintiffs characterize the
tolling agreement as effecting a de facto denial of the registration renewals. (Id. at ¶¶ 61, 99). But
even assuming that this characterization is fair as far as it goes, and even reading the Amended
Complaint in the light most favorable to Plaintiffs as required, it does not appear that such denial
is at all similar to the suspension at issue in Johnson. Indeed, Plaintiffs themselves characterize
the suspension in Johnson as a summary suspension, (Doc. No. 26 at 21), and the suspension in
Johnson clearly was an actual and formal suspension. By contrast, in the present case any
suspension (or denial) engendered by the tolling agreement was merely “de facto” (in the sense
that the tolling agreement served to extend the time period for a registration)28 and involved no
summary, actual or formal suspension (i.e., denial of the registration renewals).29 So whatever
Johnson—had it actually addressed qualified immunity, and in particular the second prong of
qualified immunity—could have conveyed about what reasonable officials would have known
about the lawfulness of particular conduct would not have applied to the conduct at issue in the
present case.
28 As noted in a footnote above, the exact mechanism by which this tolling agreement functioned is unclear
from the Amended Complaint. For the purposes of the instant Motion, it is sufficient to note that Plaintiffs
assert that as a result of this extension of the registration period, Plaintiffs “were unable to conduct advisory
business from December 31, 2021 until they were re-registered in March, 2023,” thereby resulting in
substantial monetary damages. (Doc. No. 5 at ¶ 70).
29 Indeed, the Amended Complaint makes clear that the tolling agreement was offered as an alternative to
actual, formal denial of the registration renewals and thus served specifically to prevent an actual or formal
denial from occurring. As the Amended Complaint makes clear (and the Court accepts as true for the
purposes of the present Motion), Plaintiff Parrott was required by Defendant Odom to “either sign the
tolling agreement or the applications [for the registration renewals] would be denied.” (Doc. No. 5 at ¶ 55).
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For all of these reasons, Johnson does not serve to establish that Defendants should have
known that their conduct violated Plaintiffs’ rights. In fact, the Court cannot infer from the
Amended Complaint that a reasonable official in Defendants’ position would have understood that
the tolling agreement effected a denial of the RIA and IAR registration renewals—which is the
alleged deprivation by Defendants of Plaintiffs’ property interests allegedly without due process
of law—so as to implicate due process protections in the first place.
Plaintiffs next point the Court to Amato v. Office of Louisiana Com’r of Securities, 644
So.2d 412, 417 (La. App. 4th Cir. 1994). However, the Court need not consider this case in
determining whether Defendants should have known that their conduct violated Plaintiffs’ due
process rights not to have their registration renewals denied without due process of law. Although
Plaintiffs characterize Amato as a decision from the “Fourth Circuit,” (Doc. No. 26 at 21), in a
seeming reference to the U.S. Court of Appeals for the Fourth Circuit, Amato is actually a decision
from the Fourth Circuit, Court of Appeals of Louisiana. The decision of an intermediate state court
from outside of Tennessee, cannot possibly function to clearly establish law with respect to the
lawfulness of the conduct in this case of Defendants (who are Tennessee state officials). See e.g.,
Andrews, 700 F.3d at 853 (“When determining whether a constitutional right is clearly established,
[district courts should] look first to decisions of the Supreme Court, then to [Sixth Circuit]
decisions and those of other courts within the circuit, and then to decisions of other Courts of
Appeal.”); Robinson, 840 F.2d at 351 (if a question is “decided . . . by the highest state court in the
state where the case arose.”). Accordingly, the Court herein will not consider the substance of the
Amato decision, because irrespective of what Amato says, it cannot be used to show that law was
clearly established in this particular case and as to these particular Defendants.
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Even though Plaintiffs do not cite any additional case law to show that reasonable officials
in Defendants’ position would have known that the use of the tolling agreement violated Plaintiffs’
due process rights in not having their registration renewals denied without due process of law, the
Court has nevertheless further canvassed relevant case law on this point.
In this review, the Court was able to identify cases establishing that the suspension of a
license to operate a business or engage in an occupation without adequate process can violate a
right to procedural due process. See e.g., Guillemard-Ginorio v. Contreras-Gomez, 490 F.3d 31,
37-41 (1st Cir. 2007) (denying qualified immunity where officials suspended insurance licenses
for five-years in violation of procedural due process rights); Tollett v. Laman, 497 F.2d 1231, 1234
(8th Cir. 1974) (finding plaintiff established that a trailer park license “was revoked without notice
and in violation of his rights to procedural due process.”). Cf. George-Khouri Family Ltd. P’ship
v. Ohio Dept. of Liquor Control, No. 04-3782, 2005 WL 1285677, at *5 (6th Cir. May 26, 2005)
(“the state must accord a liquor licensee due process before revoking the license.”). However, these
cases, and their principles, do not avail Plaintiffs for much the same reasons as Johnson. The Court
does not deny that if Defendants had formally denied Plaintiffs’ registration renewals via the
tolling agreement, such denial potentially could (though not necessarily would) have constituted a
violation of a clearly established right; that is, such a formal denial would strike any reasonable
official as a clear deprivation of Plaintiffs’ property interest (in the registration renewals), so that
the denial would constitute a violation of a clearly established right to avoid such a deprivation
without due process of law if (albeit only if) a reasonable official in Defendants’ position would
have known that such a deprivation is properly deemed one without due process of law under the
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Mathews test.30 But again, that is not what has happened here. Rather, Plaintiffs entered into a
tolling agreement that Plaintiffs characterize as a de facto denial of their registration renewals.
However, even reading the Amended Complaint in the light most favorable to Plaintiffs, it does
not appear that the tolling agreement at issue in this case is at all similar to a formal suspension of
a license to operate a business. Indeed, as noted above, the Amended Complaint makes clear (and
the Court accepts as true for the purposes of the present Motion), that Plaintiff Parrott was required
by Defendant Odom to “either sign the tolling agreement or the applications [for the registration
renewals] would be denied,” (Doc. No. 5 at ¶ 55), thereby showing a clear distinction between a
formal suspension or denial (like those in the cases reviewed by the Court) of the RIA and IAR
registration renewals and the tolling agreement mechanism used by Defendants at issue in this
case. Thus, the Court cannot conclude based on this case law that “any officials in the
[D]efendants’ positions, measured objectively,” Edwards, 170 F. Supp. 2d at 735, would have
understood they were under a duty to refrain from using a tolling agreement (lest they violate
Plaintiffs’ due process rights by both depriving Plaintiffs of their property interest in the
registration renewals and doing so without due process of law as measured by Mathews). That is,
the Court cannot conclude based on the Amended Complaint that any reasonable official in
Defendants’ position would have understood that the tolling agreement in substance constituted a
denial of the RIA and IAR registration renewals so as to amount to a “deprivation” as to implicate
due process protections, let alone a deprivation that flunked the Mathews test.
Faced with this dearth of supporting case law, Plaintiffs also argue abstractly that “[i]t has
been the law of the land for decades that procedural due process requires, at a bare minimum,
30 The Court reiterates here that Plaintiffs do not challenge the “Order of Denial,” which actually does
appear to resemble the more formal suspension or revocation process detailed in the cases reviewed by the
Court.
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notice and an opportunity to be heard,” (Doc. No. 26 at 20), and that “with a couple of inapplicable
exceptions, ‘[i]t is the general rule that due process ‘requires some kind of a hearing before the
State deprives a person of liberty or property.’” (Id.) (citing Johnson, 946 F.3d at 921). Yet this
will not do. Federal precedent plainly provides that this Court “should not define clearly
established law at a high level of generality.” Mitchell v. Schlabach, 864 F.3d 416, 424 (6th Cir.
2017). Moreover, Plaintiffs’ general statements are incomplete as stated in ways that mirror the
incompleteness of his showing to overcome qualified immunity. It is not necessarily true that
procedural due process requires notice and an opportunity to be heard; what is true is that
procedural due process requires notice and an opportunity to be heard prior to the deprivation of a
property interest, and Plaintiff has failed to establish that a reasonable official would have known
that what Defendants did constitutes a deprivation. And as to what process is required before such
a deprivation, even if it is generally true that a hearing is required, that does not mean that one is
always required or that one was required before deprivation in this particular case; still less does
it mean that that a reasonable official would have known that a hearing was required in this case.
Finally, Plaintiffs argue that the “Amended Complaint alleges that the Defendants were
fully aware that their actions were illegal and repeatedly attempted to cover it up by falsely stating,
under oath, the Plaintiffs applications were incomplete” and that the Amended Complaint alleges
that “Defendants knew the applications were complete, but forced Mr. Parrott into signing a tolling
agreement in an attempt to maximize fines and penalties for alleged exam deficiencies, then giving
Plaintiffs a false representation and/or concealing material facts—leading them to falsely believe
that the Division and Defendant Odom were working with Plaintiffs in good faith to achieve
renewal.” (Doc. No. 26 at 24) (citing Doc. No. 5 at ¶¶ 44, 47-66, 87-89). Plaintiffs refer to these
allegations in the Amended Complaint in a seeming attempt to show that qualified immunity
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should not apply to Defendants’ conduct because “the definition of ‘clearly established’ ‘functions
to protect all but the plainly incompetent or those who knowingly violate the law.’” (Doc. No. 26
at 24) (quoting Mitchell, 864 F.3d at 424). Yet Plaintiffs’ argument skirts around the actual inquiry
underlying the clearly established prong of the qualified immunity analysis: the Court must
determine whether “existing precedent . . . placed the statutory or constitutional question beyond
debate,” Mullenix, 577 U.S. at 12 (quoting al-Kidd, 563 U.S. 731, 741 (2011)), thereby protecting
“all but the plainly incompetent or those who knowingly violate the law.” Id. In other words, for
an official to knowingly (or by plain incompetence) violate the law, existing precedent must have
placed the statutory or constitutional question beyond debate; if existing precedent does not do so,
then the official cannot validly be accused of violating the law knowingly or by plain
incompetence. It is not enough for a complaint to allege in conclusory fashion that certain
defendants knowingly violated the law; rather, a court must engage in the inquiry (which the Court
herein has done) to determine whether the right at issue in this particular case is clearly established,
and as detailed at length above, officials in Defendants’ position “measured objectively” would
not have been able to understand that they “were under an affirmative duty to refrain from” using
the tolling agreement in order to avoid violating Plaintiffs’ due process rights to not have their
registration renewals denied without due process of law. Edwards, 170 F. Supp. 2d at 735.
The Court also notes that in its analysis above, the Court assumed that the use of the tolling
agreement amounts to the conduct of Defendants, rather than conduct jointly agreed to by the
parties and that is no more attributable to Defendants than to Plaintiffs. However, this assumption
is actually not well-taken, because Plaintiff has failed to establish even that a reasonable official
in Defendants’ position would have understood that implementation of an agreement between the
Division and Plaintiff Parrott counts as conduct amounting to state action, a required element of a
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procedural due process claim. See Novak v. Federspiel, 140 F.4th 815, 820 (6th Cir. 2025)
(“A procedural-due-process claim requires proof of the following two elements: ‘(i) deprivation
by state action of a protected interest in life, liberty, or property, and (ii) inadequate state process.’”
(quoting Reed v. Goertz, 598 U.S. 230, 236 (2023))). That is, Plaintiff has failed to explain why
such an official would have understood that merely by using (relying on) on the terms of the tolling
agreement—to which Plaintiff Parrott mutually agreed despite being presented with an alternative
to entering into it—the official was not simply allowing the agreement to operate just as it was
mutually agreed but rather was affirmatively engaging in state action. This alone could also justify
the dismissal of the Amended Complaint.
In sum, the Amended Complaint is “distinguishable from [ ] past cases on its face.”
Crawford v. Tilley, 15 F.4th at 766. It is exactly complaints such as these that the Sixth Circuit has
noted “will not often survive a motion to dismiss on qualified immunity grounds.” Id. Therefore,
Defendants are entitled to qualified immunity for their actions in imposing the tolling agreement
and the Amended Complaint will be dismissed in an accompanying order granting the Motion
(Doc. No. 21).
CONCLUSION
Accordingly, for the reasons described herein, the Motion (Doc. No. 21) will be
GRANTED, and the Amended Complaint will be dismissed.
An appropriate accompanying order will be entered.
__________________________________
ELI RICHARDSON
UNITED STATES DISTRICT JUDGE
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