Failure to Grant Franchise to Arab Not Discrimination Under California Law

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

A restaurant franchisor’s failure to award a franchise to an Arab from the Middle East was not discrimination in violation of a California franchise anti-discrimination statute, a California appellate court has determined. Thus, the franchisor was entitled to summary judgment on the claim, and a ruling by a California state trial court was affirmed.

The prospective franchisee based his allegation of discrimination, in part, on the fact that the franchisor changed its position about granting him a franchise following the September 11, 2001, attacks on the World Trade Center.

Anti-discrimination Statute

Section 51.8 of the California Civil Code (CCH Business Franchise Guide ¶4051) prohibited discrimination in the granting of franchises solely because of the race, color, religion, sex, national origin, or disability of the prospective franchisee, the court noted.

The trial court found that the prospective franchisee established a prima facie claim of discrimination. In rebuttal, the franchisor presented evidence that the franchise application was rejected because the franchisor never received a completed site submittal package to review.

An officer of the franchisor, who was Lebanese, submitted a declaration stating, "At no time did I have any discriminatory motives” based on the prospective franchisee’s race, ethnicity, religion, or heritage when he rejected the franchise application.

In addition, the franchisor provided evidence of numerous franchisees of Middle Eastern descent, including franchises awarded after September 11, 2001. The prospective franchisee disputed that claim.

According to the prospective franchisee, the franchisor identified a total of 84 franchises owned or operated by persons that it identified as within the broad category "Mideast." Of those 84 franchises, 55 were owned or operated by persons identified as being Mideast-Indian; 23 persons were identified as being Mideast-Iranian; 4 persons were identified as being Mideast-Egyptian; and 2 persons were identified as being Mideast-Lebanese.

None was identified as being Mideast-Palestinian. The prospective franchisee "was an Arab and a Palestinian." He argued that Indians and Iranians were not ethnic Arabs; therefore, only six franchises were owned by ethnic Arabs. However, that claim was without merit, according to the appellate court.

Untrue or Pretextual Reasons

The prospective franchisee was required to demonstrate a triable issue by producing substantial evidence that the reasons stated by the franchisor were untrue or pretextual, or that it acted with discriminatory animus. In order to raise an issue regarding credibility, the prospective franchisee was required to set forth specific facts showing weakness in the reasons proffered by the franchisor such that a reasonable fact finder could rationally find them not credible.

His challenge to the statistics the franchisor provided regarding ethnic franchisees did not establish a reasonable inference that its explanation—that he failed to submit a completed site submittal package—lacked credibility, the court held.

The decision is Halloum v. DFO, Inc., California Court of Appeals, Third District, CCH Business Franchise Guide ¶14,362.