International Franchise Assn v. City of Seattle , 803 F.3d 389 ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
INTERNATIONAL FRANCHISE No. 15-35209
ASSOCIATION, INC.; CHARLES
STEMPLER; KATHERINE LYONS; D.C. No.
MARK LYONS; MICHAEL PARK; 2:14-cv-00848-
RONALD OH, RAJ
Plaintiffs-Appellants,
v. OPINION
CITY OF SEATTLE, a Municipal
Corporation; FRED PODESTA,
Director of the Department of
Finance and Administrative
Services,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Washington
Richard A. Jones, District Judge, Presiding
Argued and Submitted
September 1, 2015—Seattle, Washington
Filed September 25, 2015
Before: Michael Daly Hawkins, Ronald M. Gould,
and Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Hawkins
2 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
SUMMARY*
Civil Rights
The panel affirmed the district court’s denial of a
preliminary injunction which the International Franchise
Association sought in order to prevent the City of Seattle
from enforcing a provision, in its recently enacted minimum
wage ordinance, that classifies certain franchisees as large
employers, subjecting them as a result to a steeper schedule
of incremental wage increases over the next five years.
The panel held that IFA did not show that it was likely to
succeed on the merits or that a preliminary injunction was in
the public interest. Rejecting IFA’s claims that the Seattle
ordinance violated the dormant Commerce Clause, the panel
determined that there was insufficient evidence of a burden
on interstate commerce. Rejecting IFA’s claim brought under
the Equal Protection Clause, the panel held that the district
court did not err in finding a legitimate purpose in the
classification and a rational relationship between franchisees
and their classification as large employers. The panel further
rejected IFA’s First Amendment challenge after determining
that the Seattle ordinance was not motivated by a desire to
suppress speech, the conduct at issue was not franchisee
expression, and the ordinance did not have the effect of
targeting expressive activity. The panel also held that
ordinance was not preempted by the Lanham Act and did not
violate the Washington state constitution.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 3
In evaluating whether IFA would suffer irreparable harm,
the panel held that the chain of events suggested by IFA was
speculation that did not rise beyond the mere possibility of
harm. The panel further held that IFA did not provide
persuasive evidence showing that the public interest would
suffer as a result of allowing the ordinance to take effect,
failed to raise serious questions going to the merits of any of
its claim, and failed to show that an injunction was in the
public interest.
COUNSEL
Paul D. Clement (argued), Viet D. Dinh and H. Christopher
Bartolomucci, Bancroft PLLC, Washington, D.C., for
Plaintiffs-Appellants.
Peter S. Holmes, Seattle City Attorney, Gregory C. Narver
(argued), Gary T. Smith, John B. Schochet, Assistant City
Attorneys, Seattle City Attorney’s Office, Seattle,
Washington; Parker C. Folse, III, Edgar G. Sargent, Justin A.
Nelson, Drew D. Hansen, E. Lindsay Calkins, Susman
Godfrey LLP, Seattle, Washington, for Defendants-
Appellees.
Kate Comerford Todd, Steven P. Lehotsky, United States
Chamber Litigation Center, Inc., Washington, D.C., for
Amicus Curiae the Chamber of Commerce of the United
States of America.
William S. Consovoy, Thomas R. McCarthy, J. Michael
Connolly, Consovoy McCarthy PLLC, Arlington, Virginia,
for Amici Curiae American Hotel & Lodging Association,
Asian American Hotels Owners Association, Home Care
Association of America and Washington Retail Association.
4 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
Angelo I. Amador, Regulatory Counsel, National Restaurant
Association, Washington, D.C., for Amicus Curiae the
National Restaurant Association.
Ronald A. Fein, Free Speech For People, Newton,
Massachusetts; Brenda Wright, Adam, Lioz and Naila Awan,
Dçmos, New York, New York, for Amici Curiae Free Speech
for People, Dçmos, Courage Campaign, and Equal Justice
Society.
Rebecca Smith, National Employment Law Project, Seattle,
Washington; Paul K. Sonn, National Employment Law
Project, New York, New York, for Amicus Curiae National
Employment Law Project.
Michael Rubin, Stacey M. Leyton (argued), Eric Brown,
Altshuler Berzon LLP, San Francisco, California; Dmitri
Iglitzin, Schwerin Campbell Barnard Iglitzin & Lavitt LLP,
Seattle, Washington, for Amici Curiae SEIU Healthcare,
775NW, SEIU Healthcare1199NW, SEIU Local 6, OPEIU
Local 8, UFCW Local 21, OneAmerica, Working
Washington, Martina Phelps, and Crystal Thompson.
Robert W. Ferguson, Attorney General, Alan D. Copsey and
Jay D. Geck, Deputy Solicitors General, Office of the
Attorney General, Olympia, Washington, for Amicus Curiae
State of Washington.
John R. Lopez, IV, Solicitor General, Dominic E. Draye and
Jennifer M. Perkins, Office of the Attorney General, Phoenix,
Arizona, for Amicus Curiae State of Arizona.
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 5
OPINION
HAWKINS, Circuit Judge:
The International Franchise Association (“IFA”) appeals
the denial of a preliminary injunction which IFA sought in
order to prevent the City of Seattle (“City”) from enforcing a
provision in its recently enacted minimum wage ordinance.
The provision classifies certain franchisees as large
employers, subjecting them as a result to a steeper schedule
of incremental wage increases over the next five years.
While we express no view as to the ultimate merits, we affirm
because IFA did not, at this stage in the proceeding, show it
is likely to succeed on the merits or that a preliminary
injunction is in the public interest.
FACTUAL AND PROCEDURAL BACKGROUND
Shortly after taking office, Seattle Mayor Ed Murray
assembled an Income Inequality Advisory Committee
(“IIAC”) tasked with making recommendations “on how best
to increase the minimum wage in Seattle.” The IIAC
consisted of twenty-four members and included
representatives from the business community and labor
unions. Following a series of meetings and public
engagement forums, the IIAC recommended enacting staged
increases in the minimum wage, with smaller businesses
subject to a more gradual schedule, recognizing that they
“would face particular challenges in implementing a higher
minimum wage.” Though the IIAC debated whether to
classify franchisees as large employers, it did not recommend
doing so.
6 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
Based on the IIAC recommendation, the Mayor’s Office
drafted a proposed ordinance that would raise the minimum
wage to $15 per hour in stages according to two
schedules—one for businesses with 500 or more employees
(“Schedule One Employers”) and the second for businesses
with fewer than 500 employees (“Schedule Two
Employers”). The draft ordinance classified franchisees
associated with a franchisor and/or network of franchisees
employing more than 500 employees nationwide as Schedule
One employers, regardless of the number of persons
employed by the particular franchisee or the number of
persons employed in Seattle.
The City Council unanimously passed the ordinance on
June 2, 2014, and the Mayor signed it into law the next day.
The ordinance raises the minimum wage in stages according
to two schedules for large and small employers, Ord. §§ 4, 5,
and classifies franchisees affiliated with large networks as
large employers, id. § 2(T) (definition of large employer).
The ordinance defines a franchise as:
A written agreement by which: (1) A person
is granted the right to engage in the business
of offering, selling, or distributing goods or
services under a marketing plan prescribed or
suggested in substantial part by the grantor or
its affiliate; (2) The operation of the business
is substantially associated with a trademark,
service mark, trade name, advertising, or other
commercial symbol; designating, owned by,
or licensed by the grantor or its affiliate; and
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 7
(3) The person pays, agrees to pay, or is
required to pay, directly or indirectly, a
franchise fee.
Ord. § 2(I).
The incremental increases for each schedule are as
follows:
Effective Date Schedule One Schedule Two Ä
Apr. 1, 2015 $11 $10 10%
Jan. 1, 2016 $13 $10.50 24%
Jan. 1, 2017 $15 $11 36%
Jan. 1, 2018 $15 $11.50 30%
Jan. 1, 2019 $15 $12 25%
Jan. 1, 2020 $15 $13.50 11%
Jan. 1, 2021 $15 $15 0%
IFA filed suit in district court, seeking a preliminary
injunction that would require Seattle to classify certain
franchisees as small employers. It did not challenge the
City’s authority to raise the minimum wage generally or to
differentiate between large and small employers, nor does it
do so on appeal. IFA alleged that the franchisee classification
violated the Commerce Clause, Equal Protection Clause, First
8 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
Amendment, and the Washington State Constitution, and was
preempted by the Lanham Act and ERISA.1
After hearing argument, the district court denied IFA’s
motion for preliminary injunction, finding that it did not show
a likelihood of succeeding on the merits of its various claims.
Int’l Franchise Ass’n, Inc. v. City of Seattle, 2015 WL
1221490, at *5–23 (W.D. Wash. Mar. 17, 2015). The district
court also concluded that the remaining preliminary
injunction factors disfavor granting a preliminary injunction.
Id. at *24–25.
Judgment was entered March 17, 2015. IFA filed a
timely notice of appeal on March 20, 2015.
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction to review the denial of a motion
for a preliminary injunction under 28 U.S.C. § 1292(a)(1).
Denial of a motion for a preliminary injunction is reviewed
for abuse of discretion and the underlying legal principles de
novo. DISH Network Corp. v. F.C.C., 653 F.3d 771, 776 (9th
Cir. 2011). The court does not review the underlying merits
of the case, but rather whether the district court relied on an
erroneous legal premise or abused its discretion in denying
IFA’s motion for preliminary injunctive relief. See Earth
Island Inst. v. Carlton, 626 F.3d 462, 468 (9th Cir. 2010). In
making this determination, the court considers “‘whether the
decision was based on a consideration of the relevant factors
and whether there has been a clear error of judgment.’” DISH
Network Corp., 653 F.3d at 776 (quoting Sports Form, Inc. v.
United Press Int’l, Inc., 686 F.2d 750, 752 (9th Cir. 1982)).
1
IFA does not raise the ERISA claim on appeal.
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 9
ANALYSIS
To obtain a preliminary injunction, IFA was required to
show (1) it is likely to succeed on the merits of its claim,
(2) it is likely to suffer irreparable harm in the absence of
preliminary relief, (3) the balance of hardships tips in its
favor, and (4) a preliminary injunction is in the public
interest. Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7,
20 (2008).
I. Dormant Commerce Clause
“Although the Commerce Clause is by its text an
affirmative grant of power to Congress to regulate interstate
and foreign commerce, the Clause has long been recognized
as a self-executing limitation on the power of the States to
enact laws imposing substantial burdens on such commerce.”
South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 87
(1984). Modern dormant Commerce Clause jurisprudence
primarily “is driven by concern about ‘economic
protectionism—that is, regulatory measures designed to
benefit in-state economic interests by burdening out-of-state
competitors.’” Dep’t of Revenue of Ky. v. Davis, 553 U.S.
328, 337–38 (2008) (quoting New Energy Co. of Ind. v.
Limbach, 486 U.S. 269, 273–74 (1988)).
“A critical requirement for proving a violation of the
dormant Commerce Clause is that there must be a substantial
burden on interstate commerce.” Nat’l Ass’n of Optometrists
& Opticians v. Harris, 682 F.3d 1144, 1148 (9th Cir. 2012)
(citing South-Central Timber Dev., 467 U.S. at 87). This
standard recognizes that dormant Commerce Clause cases
often involve “delicate adjustment of the conflicting state and
federal claims,” H.P. Hood & Sons, Inc. v. Du Mond,
10 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
336 U.S. 525, 553 (1949) (Black, J., dissenting), and that “not
every exercise of local power is invalid merely because it
affects in some way the flow of commerce between the
States,” Great Atl. & Pac. Tea Co. v. Cottrell, 424 U.S. 366,
371 (1976) (recognizing “States retain broad power to
legislate protection for their citizens in matters of local
concern”).
“If a statute discriminates against out-of-state entities on
its face, in its purpose, or in its practical effect, it is
unconstitutional unless it ‘serves a legitimate local purpose,
and this purpose could not be served as well by available
nondiscriminatory means.’” Rocky Mountain Farmers Union
v. Corey, 730 F.3d 1070, 1087 (9th Cir. 2013) (quoting Maine
v. Taylor, 477 U.S. 131, 138 (1986)). “Absent
discrimination, we will uphold the law ‘unless the burden
imposed on [interstate] commerce is clearly excessive in
relation to the putative local benefits.’” Id. at 1087–88
(quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142
(1970)).2 “The party challenging the statute bears the burden
of showing discrimination.” Black Star Farms, LLC v.
Oliver, 600 F.3d 1225, 1230 (9th Cir. 2010).
A. Facial Discrimination
The district court did not apply an improper legal standard
or clearly err in determining that the ordinance does not
facially discriminate against out-of-state entities or interstate
commerce. The ordinance does not classify employers based
on the location of their headquarters, the location of their
workers, or the extent to which they participate in interstate
commerce. Rather, it classifies based on the number of
2
IFA does not appeal the district court’s application of Pike.
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 11
employees (a facially-neutral classification) and the business
model (a facially-neutral classification). Nor does the
ordinance classify based on an employer’s links to interstate
commerce or out-of-state firms, but on neutral characteristics,
such as having a marketing plan, operating a business
associated with a trademark, and paying a franchisee fee.
Ord. § 2(I). A franchisee affiliated with a network that has
500 employees in the State of Washington and a headquarters
in Seattle is treated just like a franchisee affiliated with a
franchise that has 10 employees in Washington, 490 in
Oregon, and a headquarters in Boston. A franchisee that
sources its inputs from Washington and serves local Seattle
residents is treated just like a franchisee—or a non-
franchisee, for that matter—that sources its inputs from
Oregon and serves out-of-state tourists.
IFA contends the ordinance does not impose a facially
neutral requirement because it expressly discriminates against
franchises. Based on this record, we disagree. A distinction
drawn based on a firm’s business model—a characteristic
IFA contends is highly correlated with interstate
commerce—does not constitute facial discrimination against
out-of-state entities or interstate commerce. See Cachia v.
Islamorada, 542 F.3d 839, 843 (11th Cir. 2008) (ban on
“formula” restaurants “does not facially discriminate between
in-state and out-of-state interests”); Island Silver & Spice,
Inc. v. Islamorada, 542 F.3d 844, 846 (11th Cir. 2008)
(restrictive regulation of “formula” retail establishments
“does not facially discriminate against interstate commerce”).
At a minimum, the district court did not clearly err in
rejecting IFA’s correlation. IFA did not establish that Seattle
franchisees—the party IFA concedes bears the burden of the
ordinance—that pay local taxes and have local representation
12 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
are out-of-state entities. See S.C. State Highway Dep’t v.
Barnwell Bros., Inc., 303 U.S. 177, 184 n.2 (1938) (political
restraints are absent when legislating against out-of-state
interests). Nor did it establish that franchises have such
unique links to interstate commerce relative to non-franchises
that the ordinance facially discriminates against interstate
commerce.
B. Discriminatory Purpose
The Ninth Circuit recently stated:
The party challenging a regulation bears the
burden of establishing that a challenged
statute has a discriminatory purpose or effect
under the Commerce Clause. We will assume
that the objectives articulated by the
legislature are actual purposes of the statute,
unless an examination of the circumstances
forces us to conclude that they could not have
been a goal of the legislation.
Rocky Mountain Farmers Union, 730 F.3d at 1097–98
(internal citations and quotation marks omitted). In the
context of interpreting statutes, the Supreme Court has
consistently held that statutory construction “must begin with
the language employed by Congress and the assumption that
the ordinary meaning of that language accurately expresses
the legislative purpose.” Gross v. FBL Fin. Servs., Inc.,
557 U.S. 167, 175–76 (2009) (citation omitted); see also
United States v. O’Brien, 391 U.S. 367, 383 (1968)
(discerning congressional purpose is a hazardous matter).
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 13
IFA does not fault the district court for applying an
incorrect test or considering irrelevant factors. Rather, it
argues that the district court erred in evaluating the evidence
of motive.
While the record contains some evidence that City
officials and advocates questioned the merits of the franchise
business model, the district court did not clearly err in
determining that the City Council was not motivated by an
intent to discriminate against out-of-state firms or interstate
commerce. The text shows the City had a legitimate, non-
discriminatory purpose. The preamble states that the
ordinance’s general purpose is to improve public health and
welfare and reduce economic inequality. See Ord. Pr. 5; id.
§ 1(11) (“The public welfare, health, and prosperity of Seattle
require wages and benefits sufficient to ensure a decent and
healthy life for all Seattle workers and their families”).
As for the distinction between large and small businesses,
the ordinance explains in a finding that “small businesses
and not-for-profit organizations may have difficulty in
accommodating the increased costs.” Id. § 1(9). While the
preamble does not provide a rationale for the franchisee
classification, the definition of franchisees as large
employers, id. § 2(T)—read in concert with the “small
business” finding—supports an inference that the Council
viewed franchisees as more akin to large employers than
small businesses and not-for-profits in their ability to
accommodate increased costs.
In sum, there is strong textual evidence of the Council’s
general purpose and weaker textual evidence of its purpose
with respect to the franchisee classification. Yet, the
ordinance’s context and structure indicate the purpose behind
14 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
classifying franchisees as large employers is their relative
ability to accommodate increased costs. Further,
discriminatory motives are absent from the text; the
ordinance does not demean franchises or describe them as an
economic or social ill, nor does it euphemistically call for
“diversifying” business ownership or “leveling the playing
field.” In distinguishing between large and small employers,
the ordinance does not use location as a factor, nor does it
discuss reliance on local inputs or local customers.
In contrast, statutes struck down for their impermissible
purpose have contained language promoting local industry or
seeking to level the playing field. See W. Lynn Creamery,
Inc. v. Healy, 512 U.S. 186, 194 (1994) (“avowed purpose . . .
[is] to enable higher cost Massachusetts dairy farmers to
compete with lower cost dairy farmers in other States”);
Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 270–71 (1984)
(stated reason for exempting “ti root okolehao” from tax was
to encourage and promote the establishment of a new
industry). IFA cites to no cases in which an ordinance
lacking a stated discriminatory purpose was stricken for its
impermissible motive.3
IFA identifies the following as evidence of improper
motive: (1) two emails from IIAC member Nick Hanauer on
May 3 and May 31, (2) an email from Robert Feldstein, a
member of the Mayor’s staff, (3) a statement by Mayor
3
In addition, the context and manner in which the ordinance was
enacted does not give rise to a reason to doubt its stated purposes. For
instance, the Mayor did not exclude the business community from the
IIAC, the ordinance was not debated in secret, and the record does not
show that the City has a history of discriminating against out-of-state
businesses. Thus, we assume the ordinance’s stated purposes are its true
purposes. See Rocky Mountain Farmers Union, 730 F.3d at 1097–98.
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 15
Murray, (4) a tweet by a Councilmember, (5) a statement by
Councilmember Licata, and (6) a statement by
Councilmember Clark. The district court “considered all of
the emails and statements identified by the parties,” and
reproduced excerpts of many of them in its order.4
Of the evidence identified by IFA, Hanauer’s emails
contain the strongest anti-franchise language. He stated in an
email sent May 3:
[F]ranchises like [S]ubway and McDonalds
really are not very good for our local
economy. They are economically extractive,
civically corrosive and culturally dilutive [sic]
. . . . A city dominated by independent, locally
owned, unique sandwich and hamburger
restaurants will be more economically,
civically and culturally rich than one
dominated by extractive national chains.
He stated in another email sent May 31:
4
Courts have considered legislative history to determine whether local
action was motivated by a discriminatory purpose. See, e.g., Kassel v.
Consol. Freightways Corp. of Del., 450 U.S. 662, 683–84 (1981)
(Brennan, J., concurring); Dean Milk Co. v. City of Madison, 340 U.S.
349, 354 (1951); see also Edwards v. Aguillard, 482 U.S. 578, 594 (1987)
(plain meaning viewed against context and legislative history can control
determination of legislative purpose). Yet, “contemporaneous remarks of
a sponsor of legislation are certainly not controlling in analyzing
legislative history,” Weinberger v. Rossi, 456 U.S. 25, 35 n.15 (1982)
(citations omitted), and statements by a lobbyist are entitled to little
weight, see, e.g., Bell Atl. Tel. Cos. v. F.C.C., 131 F.3d 1044, 1048 (D.C.
Cir. 1997).
16 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
[N]ational franchises like McDonalds, or
Burger King or KFC, or Subway, simply are
not that beneficial to our city. First, these
organizations are consistently at the low end
of the scale in terms of paying decently and
offering benefits. Not all small, locally
owned companies take great care of their
workers, but none of the national chains do
. . . . [O]ur city has no obligation to continue
policies that so obviously advantage them and
disadvantage the local businesses that benefit
our city and it’s [sic] citizens more.
While the emails are persuasive evidence of Hanauer’s
anti-franchise views, they do not show that Hanauer intended
to burden out-of-state firms or interfere with the wheels of
interstate commerce. More importantly, they also do not
show that City officials wished to discriminate against out-of-
state entities, bolster in-state firms, or burden interstate
commerce.
Thus, IFA failed to demonstrate that Seattle franchisees
are out-of-state entities or that franchises are so interstate in
character relative to non-franchises that a distinction drawn
on this basis interferes with interstate commerce. The district
court did not clearly err in rejecting this framework. See
Exxon Corp. v. Governor of Md., 437 U.S. 117, 127 (1978)
(dormant Commerce Clause does not protect “particular
structure or methods of operation in a retail market” or
“particular interstate firms”). Thus, the evidence of anti-
franchise views is insufficient to show a discriminatory
motive.
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 17
Even if we were to accept IFA’s premise, the district
court did not clearly err in finding that the City did not have
an impermissible motive. First, Hanauer’s emails are not
entitled to substantial weight. Hanauer was not a City
Councilmember but one of twenty-four members of the IIAC.
Although Mayor Murray created and appointed the members
of the IIAC—lending it a quasi-official status—IFA
recognizes that the IIAC “did not draft any proposed
legislation.” And, even if the IIAC is “akin to a legislative
committee,” as IFA contends, its proposal did not contain the
franchise recommendation IFA challenges (citing Ord.
§ 1(9)). Thus, at most, the emails provide insight into the
motive of the body that did not recommend the provision.
This is weak evidence of the City’s alleged impermissible
purpose.
Further, the time line indicates that Hanauer’s emails
came from the keystrokes of an advocate, not a quasi-official
IIAC member, let alone a City official. See All. of Auto.
Mfrs. v. Gwadosky, 430 F.3d 30, 39 (1st Cir. 2005)
(statements by a law’s private-sector proponents can shed
light on its purpose, but “correspondence of a single lobbyist
has little (if any) probative value in demonstrating the
objectives of the legislative body as a whole”) (citations
omitted); see also W. Lynn Creamery, 512 U.S. at 215
(Rehnquist, C.J., dissenting) (“Analysis of interest group
participation in the political process may serve many useful
purposes, but serving as a basis for interpreting the dormant
Commerce Clause is not one of them.”). The emails were not
sent until after Mayor Murray publicly announced the IIAC
18 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
proposal.5 By May 3, the debate was no longer transpiring
within the IIAC but between the Mayor, Council, and
advocates, Hanauer included. The district court did not
clearly err in assigning Hanauer’s emails little weight.
Second, while IFA provides some evidence that City
officials criticized the franchise model, the statements it cited
are too indirect and limited to overcome the evidence of the
provision’s permissible purpose. For instance, a member of
the Mayor’s staff stated in an email that “[i]f we lose
franchises in Seattle, I won’t be sad,” Mayor Murray stated
that “[t]here is a problem in the franchise business model,”
and Councilmember Clark stated that she was not worried
about the ability of franchisees to absorb a higher minimum
wage. Yet, an errant remark in an email sent by a staff
member is not a cipher that decodes the City Council and
Mayor’s motives. And, the other two comments reflect a
debate about the characteristics and resources of franchises,
but are not persuasive evidence that the City was motivated
by an intent to harm franchises. The district court did not
clearly err in finding that this evidence fell short of
demonstrating an impermissible purpose.
C. Discriminatory Effects
The district court correctly observed that “decisions
interpreting the dormant Commerce Clause appear somewhat
difficult to reconcile.” Int’l Franchise Ass’n, at *5 n.10; see
Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth.,
5
See Office of Mayor Murray, Murray: ‘We Have a Deal: Seattle
Workers Are Getting a Raise’ (May 1, 2014), available at
http://murray.seattle.gov/murray-we-have-a-deal-seattle-workers-are-
getting-a-raise/#sthash.w1yKnLXX.dpbs.
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 19
476 U.S. 573, 579 (1986) (recognizing “that there is no clear
line” separating legislation with discriminatory effects from
legislation with indirect effects). This is particularly the case
here, where we assess an ordinance that does not resemble an
established type of dormant Commerce Clause case.6 Rather,
the measure arguably imposes costs on a class of businesses
said to be highly correlated with out-of-state firms or
interstate commerce.
We lack Supreme Court authority assessing whether a
regulation affecting franchises ipso facto has the effect of
discriminating against interstate commerce. Nor has the
Supreme Court addressed whether franchises are
instrumentalities of interstate commerce that cannot be
subjected to disparate regulatory burdens. While regulations
that expressly classify based on business structure or impose
disparate burdens on franchises present interesting questions,
our review is limited to considering whether the district court
applied improper legal principles or clearly erred in
reviewing the record.7
6
Emblematic examples include South-Central Timber, 467 U.S. at 104
(processing requirement); Dean Milk Co., 340 U.S. at 354 (same);
Comptroller of Treasury of Md. v. Wynne, 135 S. Ct. 1787, 1792 (2015)
(preferential taxation); City of Phila. v. New Jersey, 437 U.S. 617, 622
(1978) (import ban); Hunt v. Wa. State Apple Adver. Comm’n, 432 U.S.
333, 352 (1977) (regulatory preference for domestic products); W. Lynn
Creamery, 512 U.S. at 188–90 (tariff-like price manipulation of imported
goods); Walgreen v. Rullan, 405 F.3d 50, 52–53, 56–57 (1st Cir. 2005)
(excluding out-of-state service providers).
7
We briefly observe that several courts have considered whether
measures that affect national chains violate the dormant Commerce
Clause. See Cachia, 542 F.3d at 843; Island Silver, 542 F.3d at 846; Wine
& Spirits Retailers, Inc. v. Rhode Island, 481 F.3d 1, 15 (1st Cir. 2007);
Wal-Mart Stores v. City of Turlock, 483 F. Supp. 2d 987, 991 (E.D. Cal.
20 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
2006); Great Atl. & Pac. Tea Co., Inc. v. Town of E. Hampton, 997 F.
Supp. 340, 344–45, 351 (E.D.N.Y. 1998). The decisions are not clearly
reconcilable, with two district courts upholding prohibitions on retailers
wishing to build large establishments, Turlock, 483 F. Supp. 2d at
1012–14; Hampton, 997 F. Supp. at 351, and the Eleventh Circuit striking
down size-based and franchise-based prohibitions, Cachia, 542 F.3d at
843 (prohibition of chain restaurants “disproportionately targets
restaurants operating in interstate commerce”); Island Silver, 542 F.3d at
846–47 (measure effectively eliminates “all new interstate chain
retailers”). In addition, Cachia and Island Silver are at odds with the First
Circuit’s rejection of a Commerce Clause challenge to Rhode Island’s
prohibition against chains and franchises owning and operating liquor
stores. Wine & Spirits Retailers, 481 F.3d at 15 (“[A] negative impact on
[plaintiff’s] business model is, in itself, insufficient to show discriminatory
effect.”). These cases do not affect our conclusion that Seattle’s ordinance
passes muster under the dormant Commerce Clause. Unlike Cachia,
Island Silver, and decisions that have stricken measures that limit
competition, see, e.g., H.P. Hood & Sons, 336 U.S. at 545 (statute
required agency to deny licenses to a new milk dealer if the market was
“already adequately served”); Granholm v. Heald, 544 U.S. 460, 473–74
(2005) (statute prohibited out-of-state wineries from directly shipping
wine to in-state consumers); Lewis v. BT Inv. Managers, Inc., 447 U.S. 27,
39 (1980) (statutes prevented out-of-state banks from owning in-state
subsidiary banks or businesses offering investment advisory services to
banks); Fla. Transp. Servs., Inc. v. Miami-Dade Cnty., 703 F.3d 1230,
1257–59 (11th Cir. 2012) (permitting process required only new entrants
to apply and “made entry impossible”); Walgreen, 405 F.3d at 52–53,
56–57 (new pharmacies required to obtain certificate of necessity),
Seattle’s minimum wage ordinance does not limit competition by
prohibiting chain retailers and restaurants. Moreover, Seattle may impose
additional burdens on businesses that have adopted a franchise business
structure without running afoul of the dormant Commerce Clause. See
Exxon, 437 U.S. at 127 (dormant Commerce Clause does not protect the
“particular structure or methods of operation in a retail market”); Nat’l
Ass’n of Optometrists and Opticians LensCrafters, Inc. v. Brown, 567 F.3d
521, 527 (9th Cir. 2009) (under the dormant Commerce Clause, “states
may legitimately distinguish between business structures in a retail
market”).
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 21
i. Legal Standards
IFA contends that the district court cited and applied two
improper legal standards in its discriminatory effects analysis:
(1) the evidentiary burden; and (2) the standard to determine
whether a statute causes discriminatory effects.
IFA’s argument that the district court abused its discretion
by requiring a heightened evidentiary standard is
unpersuasive. Two recent decisions from our court establish
that a plaintiff must satisfy a higher evidentiary burden when,
as here, a statute is neither facially discriminatory nor
motivated by an impermissible purpose. See Rocky Mountain
Farmers Union, 730 F.3d at 1100; Black Star Farms,
600 F.3d at 1232. Our approach is not an outlier. See Cherry
Hill Vineyard, LLC v. Baldacci, 505 F.3d 28, 37 (1st Cir.
2007) (“There must be substantial evidence of an actual
discriminatory effect”). It was not error to apply these
precedents.
IFA raises a somewhat stronger but ultimately
unsuccessful point when it contends that the district court
erred in requiring evidence that the “law causes local goods
to constitute a larger share and goods with an out-of-state
source to constitute a smaller share of the market.” Int’l
Franchise Ass’n, at *10. However, the district court did not
err in considering this test, among others, because “if the
effect of a state regulation is to cause local goods to constitute
a larger share, and goods with an out-of-state source to
constitute a smaller share, of the total sales in the market,”
then “the regulation may have a discriminatory effect on
interstate commerce.” Exxon Corp., 437 U.S. at 126 n.16.
Nevertheless, this is not the only test to determine whether a
measure has discriminatory effects. While the “mix of
22 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
goods” test is an apt one to evaluate statutes that impose
tariffs on goods, this ordinance is alleged to impair the
competitiveness of businesses such as hotels and restaurants.
IFA does not contend that the ordinance will restrict the flow
of goods.
But the district court did not limit its analysis to the “mix
of goods” test. The district court also evaluated whether the
ordinance would cause franchisees to suffer a “competitive
disadvantage as compared to other similarly situated small
businesses,” Int’l Franchise Ass’n, at *11, “increas[e] costs
for a particular type of business model,” id., create barriers to
entry, id. at *13, raise labor costs “in a way that will impact
the flow of interstate commerce,” id., cause franchisees to
close or reduce operations, id., or generally affect interstate
commerce, id. at *13–14. Thus, the court considered
measures well-suited to evaluating the effects of the
ordinance. See New Energy Co. of Ind., 486 U.S. at 274; W.
Lynn Creamery, 512 U.S. at 194–96. While the “mix of
goods” test was on its own insufficient, the court did not err,
as it evaluated a range of possible effects.
ii. Substantial Evidence of Discriminatory Effects
The district court did not clearly err in finding that IFA
did not provide substantial evidence showing that the
ordinance will have discriminatory effects on out-of-state
firms or interstate commerce. IFA’s showing that 96.3
percent of Seattle franchisees are affiliated with out-of-state
franchisors, and that in-state franchisees will be placed at a
competitive disadvantage, does not prove that the ordinance
will have a discriminatory effect on out-of-state firms. IFA’s
offering does not tend to prove that costs will be imposed on
out-of-state firms, out-of-state firms will be at a competitive
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 23
disadvantage, out-of-state businesses will close, or that new
out-of-state firms will not enter the market.
Rather, to the extent the ordinance has an effect, its
primary or perhaps exclusive effect is to harm in-state
firms—franchisees located in Seattle. These in-state firms
will face a higher wage requirement relative to franchisees
outside of Seattle and non-franchisees.8 See Gen. Motors
Corp., 519 U.S. at 298–99 (effects analysis should evaluate
similarly-situated entities). Alternatively, the ordinance can
be viewed as harming one type of in-state entity (franchisees)
while benefitting another type of in-state entity (non-
franchisees). Neither comparison shows that in-state
economic interests are benefitted by burdening out-of-state
competitors. See Dep’t of Revenue of Ky., 553 U.S. at 338.
IFA does not present evidence of the ordinance’s effect
on out-of-state firms. The record does not discuss diminished
franchisor royalties or profitability, or show that future
franchise development in Seattle will be impaired. The only
thing the affiliation rate shows is that most in-state
franchisees have out-of-state relationships and are subject to
a disparate minimum wage requirement. The district court
did not clearly err in determining that IFA did not, at this
stage in the proceeding, provide substantial evidence of
discriminatory effects on out-of-state firms.
8
Because the district court determined that the IFA failed to produce
evidence showing that the Seattle ordinance had a discriminatory effect
even if franchisees and independent small businesses were similarly
situated, we need not reach the question whether the district court erred in
concluding that franchisees and non-franchisees are not similarly situated.
24 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
Nor did the district court err in finding that the ordinance
does not have the effect of discriminating against interstate
commerce. The rate of out-of-state franchise affiliation tells
us very little about the ordinance’s effect on interstate
commerce. IFA does not demonstrate how a wage
requirement imposed on in-state franchisees affects interstate
commerce. The ordinance’s effects appear to be highly local.
Indeed, IFA concedes that franchisees independently pay the
“operating costs of their businesses” including “wages” and
that “[n]o other party shares in these small business
obligations.” In other words, in-state franchisees are
burdened, not the wheels of interstate commerce. Cf. Cachia,
542 F.3d at 840; Island Silver, 542 F.3d at 846 (prohibiting
national chains has the effect of discriminating against
interstate commerce).
Even crediting IFA’s contention that a disparate impact
on national chains discriminates against interstate commerce,
the district court did not clearly err in finding that the
affiliation rate and franchisee declarations provided by IFA
were insufficient. The record does not show that interstate
franchise networks will face higher costs or reduce their
investment and operations in Seattle, nor does it show that the
ordinance will discourage the flow of goods in interstate
commerce.
In sum, the evidence that the ordinance will burden
interstate commerce is not substantial. It does not show that
interstate firms will be excluded from the market, earn less
revenue or profit, lose customers, or close or reduce stores.
Nor does it show that new franchisees will not enter the
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 25
market or that franchisors will suffer adverse effects. The
district court did not clearly err.9
II. Equal Protection Clause
“In areas of social and economic policy, a statutory
classification that neither proceeds along suspect lines nor
infringes fundamental constitutional rights must be upheld
against equal protection challenge if there is any reasonably
conceivable state of facts that could provide a rational basis
for the classification.” F.C.C. v. Beach Commc’ns, Inc.,
508 U.S. 307, 313 (1993) (citations omitted). The district
court properly cited the rational-basis standard. Int’l
Franchise Ass’n, at *15 (citing F.C.C., 508 U.S. at 315).
The district court did not clearly err in finding a
legitimate purpose in the classification and a rational
relationship between franchisees and their classification as
9
Nor did the district court err in rejecting IFA’s contention that the
ordinance is “tantamount to a tariff on interstate business activity and thus
clearly proscribed by the Commerce Clause.” A tariff is a “schedule or
system of duties imposed by a government on imported or exported
goods,” Tariff, Black’s Law Dictionary (10th ed. 2014), and a tax is a
“charge, usu[ally] monetary, imposed by the government on persons,
entities, transactions, or property to yield public revenue,” Tax, Black’s
Law Dictionary (10th ed. 2014). The cases IFA cited either involved
duties on imported goods, W. Lynn Creamery, 512 U.S. at 188–90 , or
taxes yielding public revenue, Wynne, 135 S. Ct. at 1792; Best & Co. v.
Maxwell, 311 U.S. 454, 454–57 (1940); Alpha Portland Cement Co. v.
Commonwealth of Mass., 268 U.S. 203, 219 (1925). The measures at
issue in these cases do not resemble the Seattle ordinance, which does not
reduce the competitiveness of out-of-state goods (and hence is not tariff-
like) or impose differential taxes that yield public revenue. No case or
legal principle identified by IFA converts a geography-neutral regulatory
measure into a tariff or tax.
26 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
large employers. The court found that a “reasonably
conceivable state of facts” could support the classification
based on “the economic benefits flowing to franchisees” and
franchisees’ ability to “handle the faster phase-in schedule.”
Id. at *16–17. The court based its determination on
declarations from experts on franchises, as well as individual
franchisees.
Even if the relationship between the advantages enjoyed
by franchisees and their ability to handle the faster phase-in
schedule lacks strong support, the City’s determination does
not require empirical data, and the classification is entitled to
a “strong presumption of validity.” F.C.C., 508 U.S. at 314.
IFA did not negate every possible rationalization for the
classification, see Lehnhausen v. Lake Shore Auto Parts Co.,
410 U.S. 356, 364 (1973), and the district court did not
clearly err in finding that the classification survived rational-
basis review.
Nor is the classification the result of “mere animus or
forbidden motive.” As a threshold matter, this argument fails
because the district court did not clearly err in finding a
legitimate, rational basis for the City’s classification. Cf.
Romer v. Evans, 517 U.S. 620, 635 (1996) (amendment does
not further a proper legislative end). It is legitimate and
rational for the City to set a minimum wage based on
economic factors, such as the ability of employers to pay
those wages.10
10
The animus argument also fails because most of the cited evidence
consists of statements of IIAC members. The district court did not err in
finding these statements to be of little value in determining the
motivations of the City Council and Mayor. Even if the IIAC member
statements were probative of the City’s intent, the statements reflect a
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 27
III. First Amendment
IFA argues that the ordinance discriminates on the basis
of protected speech because two of the three definitional
criteria for franchises are based on speech and
association—operating under a marketing plan prescribed by
a franchisor and associating with a trademark or other
commercial symbol. This construction of the ordinance is
unpersuasive. “[R]estrictions on protected expression are
distinct from restrictions on economic activity or, more
generally, on nonexpressive conduct . . . . [T]he First
Amendment does not prevent restrictions directed at
commerce or conduct from imposing incidental burdens on
speech.” Sorrell v. IMS Health Inc., 131 S. Ct. 2653, 2664
(2011); see also Minneapolis Star & Tribune Co. v. Minn.
Comm’r of Revenue, 460 U.S. 575, 581 (1983). The
threshold question is whether conduct with a “significant
expressive element” drew the legal remedy or the ordinance
has the inevitable effect of “singling out those engaged in
expressive activity.” Arcara v. Cloud Books, Inc., 478 U.S.
697, 706–07 (1986).
legislative debate about the merits of the franchise model and do not show
the City’s “bare [] desire to harm a politically unpopular group . . . .” U.S.
Dep’t of Agric. v. Moreno, 413 U.S. 528, 534 (1973). The evidence does
not indicate that the City engaged in the type of invidious discrimination
reserved for this area of Equal Protection jurisprudence. Cf. Romer,
517 U.S. at 635 (striking down an amendment that “classifie[d]
homosexuals not to further a proper legislative end but to make them
unequal to everyone else.”); City of Cleburne, Tex. v. Cleburne Living
Ctr., 473 U.S. 432, 450 (1985) (holding that the application of a zoning
ordinance was based on “irrational prejudice” against those with
disabilities).
28 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
Seattle’s minimum wage ordinance is plainly an
economic regulation that does not target speech or expressive
conduct. The conduct at issue—the decision of a franchisor
and a franchisee to form a business relationship and their
resulting business activities—“exhibits nothing that even the
most vivid imagination might deem uniquely expressive.”
Wine & Spirits Retailers, Inc. v. Rhode Island, 418 F.3d 36,
53 (1st Cir. 2005) (discussing business activities of franchisee
and franchisor). A business agreement or business dealings
between a franchisor and a franchisee is not conduct with a
“significant expressive element.” Cf. Hurley v. Irish-Am.
Gay, Lesbian & Bisexual Grp. of Bos., 515 U.S. 557, 569–70
(1995) (compiling instances of communicative conduct). Nor
does the statute “singl[e] out those engaged in expressive
activity” such as newspapers or advocacy organizations. Cf.
Minneapolis Star, 460 U.S. at 581 (“special tax that applies
only to certain publications”).
The ordinance, like a statute barring anti-competitive
collusion, e.g., Giboney v. Empire Storage & Ice Co.,
336 U.S. 490, 502 (1949), is not wholly unrelated to a
communicative component, but that in itself does not trigger
First Amendment scrutiny. See Arcara, 478 U.S. at 708
(subjecting every incidental impact on speech to First
Amendment scrutiny “would lead to the absurd result that any
government action that had some conceivable speech-
inhibiting consequences, such as the arrest of a newscaster for
a traffic violation, would require analysis under the First
Amendment”) (O’Connor, J., concurring). Although the
franchisees are identified in part as companies associated
with a trademark or brand, the ordinance applies to businesses
that have adopted a particular business model, not to any
message the businesses express. Cf. Reed v. Town of Gilbert,
135 S. Ct. 2218, 2227 (2015) (“Government regulation of
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 29
speech is content based if a law applies to particular speech
because of the topic discussed or the idea or message
expressed.”). It is clear that the ordinance was not motivated
by a desire to suppress speech, the conduct at issue is not
franchisee expression, and the ordinance does not have the
effect of targeting expressive activity. The district court did
not err in finding IFA did not show, on this record, a
likelihood of success on this claim.
IV. Lanham Act Preemption
IFA’s preemption argument alleges that because the
ordinance defines franchisees in part based on their shared
use of a trademark, it frustrates the purposes and objectives
of the Lanham Act. The district court correctly ruled that IFA
did not show a likelihood of succeeding on this claim, as the
ordinance does not conflict with the purposes of the Act.
As the Lanham Act does not expressly preempt state law,
Mariniello v. Shell Oil Co., 511 F.2d 853, 857 (3d Cir. 1975),
and courts have said that it does not occupy the field, Attrezzi,
LLC v. Maytag Corp., 436 F.3d 32, 41 (1st Cir. 2006), the
ordinance can only be preempted if it conflicts with the
Lanham Act, see generally Freightliner Corp. v. Myrick,
514 U.S. 280, 286–87 (1995) (local laws can be preempted
expressly, when Congress occupies the field, or when state
law conflicts with or frustrates the purpose of statute).
IFA does not indicate which provision of the Lanham Act
preempts the ordinance, apart from a general purposive
statement in the Act that it is designed to “protect registered
marks used in such commerce from interference by State, or
territorial legislation . . . .” 15 U.S.C. § 1127. The Act does
not discuss the regulation of wages or employment conditions
30 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
or establish that classifications based on trademark use are
impermissible.
The value of the purpose language is limited by the
absence of operative language. Oft-cited language in the
Senate Report accompanying the statute clarifies Congress’s
motives:
The purpose underlying any trade-mark
statute is twofold. One is to protect the public
so it may be confident that . . . it will get the
product which it asks for and wants to get.
Secondly, where the owner of a trade-mark
has spent energy, time, and money in
presenting to the public the product, he is
protected in his investment from its
misappropriation by pirates and cheats.
S. Rep. No. 79-1333, at 1274.
A number of courts have cited this language in assessing
whether measures affecting—but not directly regulating—
trademarks are preempted. For instance, the Third Circuit
affirmed a rule barring franchisors from terminating a
franchise without cause, rejecting the argument that it was
preempted by the Lanham Act because “[n]o deception of the
public is suggested and no dilution of [an] investment in its
trademark is alleged to have occurred.” Mariniello, 511 F.2d
at 858.
Similarly, the Utah Supreme Court determined that a state
criminal statute penalizing passing counterfeit goods
containing federally registered trademarks does not conflict
with the Lanham Act because it does not “permit confusing
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 31
or deceptive trademarks to operate, infringing on the
guarantee of exclusive use to federal trademark holders.”
State v. Frampton, 737 P.2d 183, 191 (Utah 1987) (quoting
Mariniello, 511 F.2d at 858); see also Am. Petroleum Inst. v.
Cooper, 718 F.3d 347, 359 (4th Cir. 2013) (“[U]nder the
Lanham Act, the mark holder has a right to maintain the
quality of the goods bearing its mark, and when a state statute
does not significantly interfere with that right, there is no
preemption.”); Golden Door, Inc. v. Odisho, 646 F.2d 347,
352 (9th Cir. 1980) (similar, citing Mariniello). Applying
this standard, the ordinance does not interfere with a
franchise’s ability to maintain quality, compromise the
public’s confidence in trademarks, allow misappropriation, or
directly interfere with or regulate marks. Thus, the ordinance
is not preempted by the statute.11
Further, it has not been shown that Congress clearly
intended to preempt an ordinance of this nature. See N.Y.
State Conference of Blue Cross & Blue Shield Plans v.
11
A second body of law—addressing local authority to regulate signs
bearing trademarks—cuts against IFA’s position as well. Interpreting a
provision in the Act prohibiting localities from “requir[ing] alteration of
a registered mark,” 15 U.S.C. § 1121(b), we determined that “a zoning
ordinance may not require a change in a registered mark” but may
“prohibit the display of a registered mark.” Blockbuster Videos, Inc. v.
City of Tempe, 141 F.3d 1295, 1300–01 (9th Cir. 1998); see also Lisa’s
Party City, Inc. v. Town of Henrietta, 185 F.3d 12, 16 (2d Cir. 1999)
(allowing cities to control “the color, design elements, or character of
outdoor signs”). Thus, despite a prohibition on altering trademarks and
the purpose of protecting trademark holders, cities may bar mark-holders
from displaying trademarks and in some jurisdictions may regulate their
color and size. The burden that an ordinance can place on the use of the
mark itself far outstrips the burden that the Seattle ordinance places on
trademark holders and constitutes far greater interference with the use of
trademarks.
32 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
Travelers Ins. Co., 514 U.S. 645, 655 (1995) (“[W]here
federal law is said to bar state action in fields of traditional
state regulation, we have worked on the ‘assumption that the
historic police powers of the States were not to be superseded
by the Federal Act unless that was the clear and manifest
purpose of Congress.’”) (citation omitted) (quoting Rice v.
Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). Here,
we assess a field of traditional state regulation, minimum
wages to be paid to employees, and the text of the Lanham
Act does not indicate an intent to preempt such an ordinance.
It was not error for the district court to find IFA unlikely to
succeed on this claim.
V. Washington State Constitution
Article I, section 12 of the Washington Constitution
provides: “No law shall be passed granting to any citizen,
class of citizens, or corporation other than municipal,
privileges or immunities which upon the same terms shall not
equally belong to all citizens or corporations.” Washington
courts employ a two-step inquiry to determine whether a law
violates the privileges and immunities clause: (1) whether the
law in question involves a privilege or immunity; if not, the
provision is not implicated; but (2) if so, whether the
legislative body had a “reasonable ground” for granting the
privilege or immunity. Ockletree v. Franciscan Health Sys.,
179 Wash. 2d 769, 776 (2014).
IFA’s claim that the ordinance violates the state
constitution is unpersuasive at both steps. The district court
correctly concluded that the provision is not violated
“anytime the legislature treats similarly situated businesses
differently.” Int’l Franchise Ass’n, at *22. Rather, “the
terms ‘privileges and immunities’ pertain alone to those
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 33
fundamental rights which belong to the citizens of the state by
reason of such citizenship.” Grant Cnty. Fire Prot. Dist. No.
5 v. City of Moses Lake,150 Wash. 2d 791, 812-13 (2004)
(citing State v. Vance, 29 Wash. 435, 458 (1902)).
Accordingly, legislative classifications only constitute a
privilege “where it is, ‘in its very nature, such a fundamental
right of a citizen that it may be said to come within the
prohibition of the constitution, or to have been had in mind by
the framers of that organic law.’” Ockletree, 179 Wash. 2d
at 778 (quoting Vance, 29 Wash. at 458–59). IFA was
required to show that the classification derogated a
fundamental right of citizens and failed to do so. Compare
Ralph v. City of Wenatchee, 34 Wash. 2d 638, P. 2d 270, 272
(1949) (striking down regulation that “substantially []
prohibited . . . non-resident photographers”), with Ass’n of
Wa. Spirits & Wine Distribs. v. Wa. State Liquor Control Bd.,
182 Wash. 2d 342, 362 (2015) (upholding differential fees on
spirits industry according to position in distribution chain).
We also affirm because the classification rests on “‘real
and substantial differences bearing a natural, reasonable, and
just relation to the subject matter of the act.’” Ockletree,
179 Wash. 2d at 783 (quoting State ex rel. Bachich v. Huse,
187 Wash. 75, 84 (1936)). The City determined that
franchisees have material advantages over non-franchisees
that affect their ability to absorb increases in the minimum
wage—a distinction related to the ordinance’s subject matter.
VI. Remaining Preliminary Injunction Factors
A. Irreparable Harm
IFA contends that franchisees will suffer competitive
injury, lose customers and goodwill, and go out of business.
34 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
The district court disagreed, finding the “allegations []
conclusory and unsupported by the facts in the record.” Int’l
Franchise Ass’n, at *24.
The district court, however, did err in evaluating IFA’s
evidence of competitive injury. A rule putting plaintiffs at a
competitive disadvantage constitutes irreparable harm. See
Gilder v. PGA Tour, Inc., 936 F.2d 417, 423 (9th Cir. 1991);
Apple Computer, Inc. v. Formula Int’l, Inc., 725 F.2d 521,
525–26 (9th Cir. 1984). The declarations of franchise owners
and the ordinance’s text indicate that franchisees will face a
higher minimum wage obligation compared to non-
franchisees. Franchisees will experience higher labor costs
or lose the flexibility to pay workers the wage rate required
of non-franchisees. The allegations are neither conclusory
nor without support in the record.
Seattle offers some evidence showing that the ordinance
may result in a higher wage rate for all employers and that the
injury is merely speculative. Furthermore, Seattle’s experts
observe that higher labor costs may actually attract new
customers and improve productivity. While the evidence is
mixed, we find that the court erred in rejecting IFA’s
evidence of competitive injury.
In contrast, IFA did not show that franchisees face
irreparable harm as a result of losing customers or goodwill.
The only evidence supporting these allegations is the
speculation of franchise owners that higher wages will result
in higher prices and reduce demand. The record does not
discuss the costs and revenues of these businesses, the
performance of non-franchisees, current or future labor costs,
the proportion of employees earning more than the minimum,
or the elasticity of demand for goods and services provided
INT’L FRANCHISE ASS’N V. CITY OF SEATTLE 35
by franchisees. Thus, it is impossible to evaluate whether
franchisees will need to raise prices or whether price changes
will result in decreased demand. The chain of events
suggested by IFA is speculation that does not rise beyond the
mere “possibility” of harm. Winter, 555 U.S. at 22.
B. Balance of Hardships and Public Interest
The district court also erred in finding that IFA did not
demonstrate that the balance of hardships tips in its favor.
The inquiry is not between franchisees and workers, but
rather between the parties—franchisees and the City. See All.
for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1137 (9th Cir.
2011). If the ordinance goes into effect, franchisees will face
a higher wage requirement than their competitors. In
contrast, the City did not make a persuasive showing that it
would experience hardships from the issuance of a
preliminary injunction.
In contrast, the district court did not err in concluding that
the public interest disfavors an injunction. Granting a
preliminary injunction would likely result in many workers
receiving reduced wages. See Bernhardt v. L.A. Cnty.,
339 F.3d 920, 931 (9th Cir. 2003) (evaluating impact on
non-parties). Seattle voters would see part of a law passed as
a result of an election enjoined. See Golden Gate Rest. Ass’n
v. City of S.F., 512 F.3d 1112, 1116 (9th Cir. 2008). IFA did
not provide persuasive evidence showing that the public
interest would suffer as a result of allowing the ordinance to
take effect. The district court did not clearly err.
36 INT’L FRANCHISE ASS’N V. CITY OF SEATTLE
VII. Serious Questions Test
A plaintiff is alternatively entitled to a preliminary
injunction by raising serious questions going to the merits and
showing a balance of hardships that tips sharply in the
plaintiff’s favor, a likelihood of irreparable injury, and that an
injunction serves the public interest. All. for the Wild
Rockies, 632 F.3d at 1135 (plaintiff must make a showing on
all four prongs). Though the district court failed to include
all Winter factors, Int’l Franchise Ass’n, at *25, it ultimately
reached the proper conclusion because IFA did not raise
serious questions going to the merits on any of its claims, nor
did it show that an injunction is in the public interest.
CONCLUSION
We affirm the district court’s denial of IFA’s motion for
a preliminary injunction. The district court applied the
correct legal standards and did not clearly err in its factual
determinations.
AFFIRMED.