Officials Immune for Enforcing Town’s Ban on Restaurant Franchises

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

Several employees of the town of Springdale, Utah, were entitled to qualified immunity for acting to enforce a town ordinance that banned franchised restaurants in connection with a suit brought by a sandwich shop franchisee contesting the constitutionality of the ordinance, according to a federal district court in Salt Lake City, Utah.

“Formula Restaurants”

In order to preserve the unique character of Springdale—a small, historic town just outside Zion’s National Park—the town passed the ordinance banning "formula restaurants" in 2006. The ordinance specifically defined "formula restaurant or delicatessen" as any "business which is required by contractual or other arrangement to provide any of the following: substantially identical named menu items, packaging, food preparation methods, employee uniforms, interior décor, signage, exterior design, or name as any other restaurant or delicatessen in any other location."

The ordinance went on to state that "formula restaurants and formula delicatessens" were "incompatible with the [town’s] general plan …because of the limited amount of private land available within the town’s boundaries; the large size or scale required of such uses; excessive noise, odor or light emissions; their excessive use of limited resources and the undue burden they place on public utilities and services, or because they are of a character hereby found to be in conflict with the town’s general plan."

Nonrenewal of License

After initially issuing a business license to the franchisee for operation of a sandwich shop, the town refused to renew the license upon realizing that the planned shop was to be a franchised Subway restaurant. In addition, the town’s fire marshall refused to perform a fire inspection of the business.
Unable to open for business as a result, the franchisee filed suit against the town, various town employees, and members of the town council for monetary damages and declaratory and injunctive relief. The franchisee subsequently stipulated to the dismissal of the council members, agreeing that they were entitled to legislative immunity.

Immunity

Qualified immunity insulated government officials from personal civil liability as long as their conduct did not violate clearly established statutory or constitutional rights of which a reasonable person would have known, the court noted. Faced with the officials’ contention that qualified immunity applied, the franchisee bore the burden of showing that a reasonable official should have known that his specific conduct violated the franchisee’s rights under clearly established law.

The franchisee correctly contended that state governments could not significantly burden interstate commerce through discriminatory, protectionist legislation. the court remarked. However, the franchisee failed to demonstrate that facially neutral laws prohibiting franchise restaurants had been clearly established as violating that constitutional principle, the court decided.

The franchisee identified a single Eleventh Circuit case on point, Cachia v. Islamorada (CCH Business Franchise Guide ¶13,974), holding that a local regulation banning franchise restaurants should be subject to a heightened level of scrutiny under the Dormant Commerce Clause. With no Supreme Court or Tenth Circuit cases on point, and only one circuit case explicitly suggesting the ordinance could potentially be unconstitutional, the law governing this area was not clearly established, the court held.

The decision is Izzy Poco, LLC v. Springdale, CCH Business Franchise Guide ¶14,715.