Sambo's Restaurants, Inc. v. City of Ann Arbor

Decision Date04 November 1981
Docket NumberNo. 79-1338,79-1338
Citation663 F.2d 686
PartiesSAMBO'S RESTAURANTS, INC., and Sambar Properties, Inc., Plaintiffs-Appellants, v. The CITY OF ANN ARBOR; George W. Gardner and G. M. Scofield, Defendants-Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

Stephen E. Dawson, James A. Samborn, Dickinson, Wright, McKean, Cudlip & Moon, Detroit, Mich., for plaintiffs-appellants.

R. Bruce Laidlaw, City Atty., Ann Arbor, Mich., for defendants-appellees.

Before KEITH and MERRITT, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.

CELEBREZZE, Senior Circuit Judge.

This case raises novel freedom of speech issues regarding the standard for the waiver of first amendment rights and the scope of first amendment protection to be afforded "offensive" commercial speech. In 1971, Sambo's Restaurants, Inc., petitioned the City of Ann Arbor, Michigan, for site plan approval for construction of a Sambo's Restaurant. When the City Council balked at accepting the proposal, Sambo's agreed not to use that name in connection with the restaurant. Approval by the City Council followed quickly. After six years of operation under the name "Jolly Tiger", the restaurant applied to the City for sign permits to display the name "Sambo's". Those permits were granted, the signs erected, but the permits were subsequently revoked by the City as in contravention of the earlier "agreement". When Sambo's refused to remove the signs, the City threatened legal action. Sambo's then filed this diversity action seeking declaratory and injunctive relief for violations of its constitutional rights, 42 U.S.C. Sec. 1983. The district court's rulings that the company's stipulation not to use the name "Sambo's" was a valid and binding agreement, and that Sambo's had waived whatever First Amendment rights it might possess, form the basis of this appeal.

I.

In order to expedite the trial on the merits, the parties provided the district court with stipulated facts which are as follows. The original Sambo's Restaurant was opened in 1957 by Sam Battistone and F. Newell Bohnett. At that time, Sam Battistone's son suggested the name "Sambo's" as an appropriate title for a pancake house restaurant concept. The name was suggested because it conjured up associations with pancakes and, coincidentally, combined the names of the founders. 1

In the twenty-four years since its incorporation, Sambo's Restaurants has invested substantial sums and efforts in developing the name "Sambo's". Substantial goodwill is attributed to that name, and it constitutes a valuable property interest which is used in interstate commerce to provide a central marketing theme for all the restaurants and to convey to the public the image of a restaurant offering uniformly good food, good service and high quality at reasonable prices. The name "Sambo's" is also registered with the United States Patent and Trademark Office under 15 U.S.C. Sec. 1051.

The identity of the products and services of Sambo's Restaurants is promoted by substantial advertising. Since 1971, Sambo's has spent over $31 million in national advertising to familiarize the public with its product. In December, 1971, in accordance with the Ann Arbor City Ordinance Code, Sambo's Restaurants acting through its wholly owned subsidiary, Restaurant Properties, Inc., filed an application with Ann Arbor for site plan approval for the construction of a Sambo's Restaurant within the city limits. In Ann Arbor, approval by the City Council is a condition precedent to construction of a restaurant. In accordance with the Ordinance Code, a site plan is first submitted to the Planning Commission for a recommendation. Although the Code provides that the Planning Commission shall make its recommendation to City Council within 60 days after the filing of a site plan proposal, and that the City Council shall take final action within 30 days of the Commission's recommendation, subject to extensions of 30 day periods if necessary for adequate review, the Sambo's site plan was not presented to City Council until November 13, 1972. The plan offered by Sambo's complied with all applicable city ordinances and regulations when it was submitted.

While the parties agreed that the name Sambo's was not and is not intended to be insulting, degrading or offensive, they also stipulated that the word "Sambo" is offensive to some black people if directed at them, and that the use of the name "Sambo's" in connection with the restaurant is offensive to some people, but that others, including blacks, are not so offended.

During the fall of 1972, Sambo's learned that some members of the City Council and the Mayor objected to the use of the name "Sambo's" in connection with the restaurant because of its offensive connotations. 2 The plan was submitted to the City Council for approval, together with the proposal for a Ponderosa Steakhouse, at a meeting on November 13, 1972. At that time the Mayor recommended approval for both site plans because the City Council had no legal basis for denying the plans. During the course of that meeting, however, one member of the City Council, Norris Thomas, stated that he could not support the proposal on the basis of the name alone, and that he would personally lead an economic boycott of the restaurant if it were erected under the name "Sambo's." The Mayor echoed support for these comments as did other council members. Although the Ponderosa site plan was approved at that meeting, the Sambo's Restaurant site plan and shopping center plan were tabled. Based upon the statements made by the Mayor and other City Council members at the November 13 and other public meetings, the attorneys for Restaurant Properties believed that the site plan would not be approved by City Council unless the name "Sambo's" was not used in connection with the restaurant. This understanding was in turn conveyed to Sambo's. As a direct result of this apprehension, Sambo's decided to concede the name issue. On November 21, 1972, Restaurant Properties stated on the site plan proposal that: "It is agreed that the name " Sambo's" will not be used in regard to this restaurant." Restaurant Properties would not have made this statement but for its belief that the site plan would be rejected under the name "Sambo's." At the December 4, 1972 meeting of Council-almost one year after submission of the application-the restaurant site plan was approved by a seven to four vote. Following approval, Sambo's Restaurants constructed the restaurant and operated it under the name "Jolly Tiger."

The operation of the restaurant under the name "Jolly Tiger" proved unprofitable, and in 1978 it lost more than $18,000.00. That experience was not isolated; in 1978, Sambo's operated 14 Jolly Tiger Restaurants which averaged a net loss of $11,687.00 per restaurant. As a result of the financial losses, on December 6, 1978, Sambo's Restaurants instructed Michigan Signs, Inc., to make an application on its behalf to the Ann Arbor Building Department for sign permits for two building signs displaying the name "Sambo's" to be erected on the restaurant. On December 19, 1978, sign permits were issued by the City of Ann Arbor, and on December 28, 1978, the two "Sambo's" signs authorized by those permits were erected. On January 2, 1979, the City of Ann Arbor revoked the sign permits on the grounds that the use of the name "Sambo's" violated the 1972 "agreement" with the City.

Following revocation of the sign permits, the City threatened to cite Sambo's for violation of the city sign ordinance and to take whatever further steps were necessary to force Sambo's to remove the signs. The institution of or continuation of threatened criminal or other sanctions to prohibit the use of the Sambo's name would have resulted in the inestimable loss of and good will and reputation to Sambo's.

Sambo's did not petition the city to amend the site plan but rather instituted the present action on February 1, 1979 seeking declaratory and injunctive relief. Specifically, it sought a declaratory judgment holding the City's revocation of the sign permits invalid and seeking approval for the continued operation of the Ann Arbor restaurant under the name "Sambo's." Sambo's also sought preliminary and permanent injunctive relief to enjoin the city from taking any action to prohibit or restrict its use of the name "Sambo's" in connection with the restaurant.

In its answer, the city asserted several defenses, based principally upon the claims that the use of the name "Sambo's" was not entitled to First Amendment protection and that Sambo's was barred from using that name because the site plan approved by the City Council in 1972 contained a binding agreement that the name "Sambo's" would not be used. Ann Arbor also filed a counter-claim seeking an injunction against continued use of the name "Sambo's." The City agreed, however, not to take any action to enforce the revocation of the sign permits pending a determination by the district court on Sambo's motion for a preliminary injunction. Pursuant to a stipulation by the parties, the trial on the merits was consolidated with the hearing on the preliminary injunction.

The district court subsequently found that the "agreement" executed by Sambo's contained a valid and enforceable provision proscribing use of the name "Sambo's" and that it was not induced by economic coercion. The court also found that Sambo's had knowingly waived any constitutional rights it may have had regarding use of the name "Sambo's." Accordingly, the court did not consider whether plaintiffs' use of the trade name "Sambo's" merited First Amendment protection. The court therefore denied Sambo's requests for declaratory and injunctive relief. The court also declined to assume jurisdiction over the city's state law counter-claim, leaving that matter to be pursued in state courts. The City has permitted the continued operation of...

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