International Franchise Ass'n v. City of Seattle

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.