Privity Through Entity Structures: Extending Res Judicata to LLC Members and Trade Association Affiliates

Introduction

This case arises from a challenge by 9000 Airport L.L.C. (“9000 Airport”) to the constitutionality of Texas’s Sexually Oriented Business Fee Act (the “Act”), which imposes per-customer fees on adult entertainment establishments. 9000 Airport secured a preliminary injunction in the federal district court blocking enforcement of the Act, but the Fifth Circuit reversed, holding that the doctrine of res judicata bars 9000 Airport’s suit. In so ruling, the court broke new ground—holding that an LLC and its members, plus affiliated sister entities and a trade association representing them, stand in privity for preclusion purposes. The Comptroller of Public Accounts, Glenn Hegar, defended the judgment below on the ground that the Texas Supreme Court’s 2011 decision in Combs v. Texas Entertainment Association was final on the merits and precludes relitigation of the same constitutional challenge.

Summary of the Judgment

The Fifth Circuit’s per curiam opinion (April 7, 2025) applied Texas res judicata law to three elements: (1) a prior final judgment on the merits (Combs v. Tex. Ent. Ass’n, 347 S.W.3d 277 (Tex. 2011)); (2) identity of parties or privity; and (3) the second action involves the same claims as were or could have been raised in the first. The court found element 1 satisfied by Combs, and element 3 satisfied because 9000 Airport’s First Amendment challenge to the fee statute was essentially the very same claim. Its novel holding concerned element 2: privity. The court concluded that

9000 Airport, as an LLC, is bound by judgments against its members;
its two co-owners, Curtis Wise and Kevin Richardson, share ownership interests in other “Bucks Wild” adult nightclubs that were TEA members;
those Bucks Wild clubs are in privity with the Texas Entertainment Association because the trade group sued on behalf of its members and represented their interests; and
accordingly, 9000 Airport is in privity with the TEA and bound by Combs.

On that basis, the court reversed the preliminary injunction and remanded for further proceedings consistent with its opinion. Judge Douglas dissented, arguing that the chain of privity invoked by the majority—LLC to member‐owners to sister entities to trade‐association membership—is too attenuated to satisfy Fourteenth Amendment due process.

Analysis

1. Precedents Cited

The court relied primarily on:

Combs v. Texas Entertainment Association, 347 S.W.3d 277 (Tex. 2011) – Texas Supreme Court decision rejecting a First Amendment challenge to the Act on intermediate-scrutiny grounds;
Texas Ent. Ass’n, Inc. v. Hegar, 10 F.4th 495 (5th Cir. 2021) – Fifth Circuit decision on a related “clothing rule,” noting in dicta that Combs precludes challenges to the underlying fee statute;
Amstadt v. U.S. Brass Corp., 919 S.W.2d 644 (Tex. 1996) – defining the three-part test for res judicata under Texas law;
Eagle Oil & Gas Co. v. TRO-X, L.P., 619 S.W.3d 699 (Tex. 2021) – reaffirming Texas res judicata principles;
Various Texas and out-of-state decisions on privity (e.g., Paine v. Sealey, 956 S.W.2d 803 (Tex. App. 1997); Hammonds v. Holmes, 559 S.W.2d 345 (Tex. 1977); In re Colonial Mortgage Bankers Corp., 324 F.3d 12 (1st Cir. 2003); and the Restatement (Second) of Judgments § 61(2)).

2. Legal Reasoning

The court’s reasoning unfolded in three steps:

Res Judicata Test: Under Texas law, res judicata requires (i) a prior final judgment on the merits, (ii) identity of parties or privity, and (iii) the same claims.
Privity Analysis:
- LLC‐Member Privity: By analogy to corporations and partnerships, LLC members are bound by judgments against the LLC (citing Gator Licensing, LLC v. C. Mack, 2011 WL 3502013 (Tex. App. 2011), no pet.; Restatement (Second) of Judgments § 61(2)).
- Sister‐Entity Privity: Entities under common ownership and control (Wise and Richardson’s other Bucks Wild clubs) are in privity (analogizing 1488, Inc. v. Philsec Inv. Corp., 939 F.2d 1281 (5th Cir. 1991); Gulf Power v. FCC, 669 F.3d 320 (D.C. Cir. 2012)).
- Association-Member Privity: A trade association that sues on behalf of its members binds those members (citing Grossman v. Axelrod, 466 F. Supp. 770 (S.D.N.Y. 1979), aff’d 646 F.2d 768 (2d Cir. 1981); Aluminum Co. of Am. v. Admiral Merchants, 486 F.2d 717 (7th Cir. 1973); Sam Fox Publ’g Co. v. United States, 366 U.S. 683 (1961)).
Combining these three relationships, the court held that 9000 Airport stood in privity with the TEA and thus was barred by Combs.
Common Claim Requirement: Even though the Act’s fee doubled in 2023, the core constitutional challenge—whether any fee scheme targeting adult entertainment violates the First, Fourth or Fourteenth Amendments—was or could have been raised in Combs. The fee amount was immaterial to 9000 Airport’s argument.

3. Impact

This decision expands res judicata in several important respects:

It treats LLC members as bound parties under state‐law preclusion, aligning LLCs with corporations and partnerships for these purposes.
It binds sister entities under common ownership, even if they were not parties to the prior litigation.
It holds that a trade association’s litigation can preclude non-member affiliates whose interests are aligned and whose owners participated in the association suit.
It warns new entrants to an regulated industry that they may inherit preclusive effects of prior challenges they never joined, potentially chilling new litigation by latecomers.

Complex Concepts Simplified

Res Judicata: Once a final court decision resolves a claim, the same parties (or those in privity with them) cannot relitigate that claim in a later case.
Privity: A legal doctrine treating a non-party as if it were a party when their interests and controls are closely aligned—e.g., parent/subsidiary, association/member, or LLC/member relationships.
LLC as Jural Entity: Although an LLC is a separate legal entity, its members often bear liability and jurisdictional attributes, just as corporate shareholders or partners do in partnerships.
Trade Association Standing: An association may sue to protect its members’ interests; if it prevails or is defeated on a claim, members who authorized or benefited from that suit can be bound by the outcome.

Conclusion

In 9000 Airport v. Hegar, the Fifth Circuit reversed a preliminary injunction by extending the doctrine of res judicata through a multilayered privity analysis. The court recognized that an LLC is bound by suits involving its members, that entities under common ownership may be precluded by a sister entity’s litigation, and that a trade association’s suit on behalf of adult entertainment businesses bars member and affiliate challenges. While providing greater certainty that industry-wide challenges may be consolidated and preclusion applied broadly, the decision raises significant due‐process questions about how far privity can be stretched and whether late-arriving market participants should lose the right to their day in court. Practitioners should note the heightened importance of early group litigation and member participation when defending or mounting industry-wide challenges.