December 23, 2008

FEDERAL APPEALS COURT INVALIDATES ORDINANCE HOSTILE TO FRANCHISING

CHALLENGING CITY HALL ON CONSTITUTIONAL GROUNDS

In a pair of concurrently filed opinions, the United States Court of Appeals for the Eleventh Circuit struck down a local ordinance designed to prevent expansion of chain and franchised businesses.

In both cases the court held that an ordinance in the town of Islamorada, Florida prohibiting “formula restaurants” and restricting the size of “formula retail” establishments violated the Commerce Clause of the United States Constitution. The Commerce Clause prohibits regulatory measures that favor or benefit in-state economic interests to the disadvantage of out-of-state competitors.

Local communities are increasingly putting in place formula restaurant and retail restrictions that often apply not just to “big box” retailers but to franchised businesses seeking to enter these markets. Successful challenges, such as this one in Florida, should temper these community legal efforts and bolster franchise expansion.

The outcome of these cases shows that local community formula provisions that are misguided barriers to franchise development (such as Islamorada’s) may be successfully challenged on constitutional grounds. That is, you can fight City Hall, and win.

For our readers, we have prepared an overview of these cases. Please read it here.