Holiday Inns Franchising, Inc. v. Branstad

• Citation: 537 N.W.2d 724
• Decision Date: 20 September 1995
• Docket Number: No. 94-954,94-954
• Parties: HOLIDAY INNS FRANCHISING, INC., and Holiday Inns, Inc., Plaintiffs, v. Terry BRANSTAD, John Q. Hammons, and Omaha Hotel, Inc., Defendants, Iowa Franchisee Association, Intervenor.
• Court: United States State Supreme Court of Iowa

Page 724

537 N.W.2d 724

HOLIDAY INNS FRANCHISING, INC., and Holiday Inns, Inc., Plaintiffs, v. Terry BRANSTAD, John Q. Hammons, and Omaha Hotel, Inc., Defendants Iowa Franchisee Association, Intervenor.

No. 94-954.

Supreme Court of Iowa.

Sept. 20, 1995.

John G. Parker, Ronald T. Coleman, and Kim M. Shipley of Paul, Hastings, Janafsky & Walker, Atlanta, Georgia, and Edward W. Remsburg of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for plaintiffs.

Thomas J. Miller, Attorney General, Gordon E. Allen, Deputy Attorney General and Mark Hunacek, Assistant Attorney General, for defendant Terry Branstad.

Brent R. Appel and David S. Steward of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines, for intervenor.

Considered by HARRIS, P.J., and LARSON, CARTER, LAVORATO, and SNELL, JJ.

SNELL, Justice.

This case is considered pursuant to the Uniform Certification of Questions of Law Act, Iowa Code chapter 684A (1993). The United States District Court for the Southern District of Iowa has certified to us questions of Iowa law which we now address.

I. Factual Background

The Iowa Franchise Act took effect on July 1, 1992. On July 2, 1992, Holiday Inns Franchising, Inc. and Holiday Inns, Inc. (collectively "Holiday Inns") filed suit in the United States District Court for the Southern District of Iowa challenging the act on numerous grounds. McDonald's Corporation brought a separate action in the same court which challenged the act and named as defendants two McDonald's franchisees operating McDonald's restaurants in Iowa. Holiday Inns' complaint sought a declaratory judgment on the following grounds: (1) the act violates the United States and Iowa Constitutions because it impairs Holiday Inns' existing contracts with its Iowa franchisees; (2) the act violates the commerce clause by discriminating against and unduly burdening interstate commerce; (3) the act is unconstitutionally vague in its prohibitions and applications; (4) the act otherwise violates federal and state due process and equal protection clauses; and (5) the act constitutes an impermissible special law.

Holiday Inns' petition named three defendants: Terry Branstad, the current governor of the State of Iowa, and two franchisees, John Q. Hammons, and Omaha Hotel, Inc. Hammons operates a hotel in West Des Moines, Iowa pursuant to a Holiday Inn licensing agreement. Omaha Hotel, a Kansas corporation with its principal place of business in Kansas, holds Holiday Inn licenses for two hotels: one in Council Bluffs, Iowa and the other in Davenport, Iowa. Holiday Inns named Governor Branstad as a defendant in his capacity as representative of the State of Iowa.

Holiday Inns' complaint alleged standing to bring this action on the ground it faces immediate monetary damages due to the defendants' impending enforcement of the act. The State of Iowa intervened in the McDonald's action in order to defend the constitutionality of the act and the Iowa Franchisee Association intervened in both actions for the same purpose.

Holiday Inns and McDonald's each filed separate motions for partial summary judgment challenging the application of the act to pre-existing contracts. The federal district court ruled on both motions simultaneously. The court granted the plaintiffs' motions and held the application of certain portions of the act to pre-existing contracts would substantially impair both plaintiffs' contractual rights in violation of the Contract Clauses of the United States and Iowa Constitutions. McDonald's Corp. v. Nelson, 822 F.Supp. 597, 607 (S.D.Iowa 1993), aff'd, Holiday Inns Franchising, Inc. v. Branstad, 29 F.3d 383 (8th Cir.), cert. denied, Iowa v. Holiday Inns Franchising, Inc., --- U.S. ----, 115 S.Ct. 613, 130 L.Ed.2d 522 (1994).

Holiday Inns subsequently filed a second motion for partial summary judgment which challenged prospective application of the act. In this motion, Holiday Inns asserted that the act violates the Commerce Clause of the United States Constitution for two reasons: (1) the act's applicability clause discriminates on its face against interstate commerce because it expressly excludes the dealings of Iowa franchisors with out of state franchisees; and (2) the act's encroachment provisions have the practical effect of regulating commerce in states other than Iowa. In addition, Holiday Inns contended the act's encroachment provision was unconstitutionally vague.

The State of Iowa and the Iowa Franchisee Association resisted Holiday Inns' motion and each entered cross-motions for partial summary judgment. The State and the association argued the act is constitutional and Holiday Inns' position represented a misinterpretation of the act. In ruling on both sides' motions, the district court rejected Holiday Inns' vagueness arguments. The court determined, however, Holiday Inns' Commerce Clause challenges involved questions of Iowa law on which Iowa appellate courts have not previously ruled. The federal court therefore, on its own motion, certified to this court two questions of state law pursuant to Iowa Code chapter 684A (1993), and Local Rule 23 of the Local Rules of the United States District Court for the Northern and Southern Districts of Iowa. The certified questions are as follows:

(1) Does the last sentence of Iowa Code section 523H.2 mean that an Iowa franchisor, when dealing with an out-of-state franchisee who operates a franchise within Iowa, need not comply with Iowa Code chapter 523H?

(2) Does the first sentence of section 523H.6(1) apply to a franchisor who seeks to establish "a new outlet, company-owned store, or carry-out store" located in a state other than Iowa but within an "unreasonable proximity of an existing franchisee" located in Iowa?

II. Scope of Iowa Code Section 523H.2

Iowa Code section 523H.2 (1993), "Applicability," provides:

This chapter applies to a new or existing franchise that is operated in the state of Iowa. For purposes of this chapter, the franchise is operated in this state only if the premises from which the franchise is operated is physically located in this state. For purposes of this chapter, a franchise including marketing rights in or to this state, is deemed to be operated in this state only if the franchisee's principal business office is physically located in this state. This chapter does not apply to a franchise solely because an agreement relating to the franchise provides that the agreement is subject to or governed by the laws of this state. The provisions of this chapter do not apply to any existing or future contracts between Iowa franchisors and out-of-state franchisees.

(Emphasis added.) Holiday Inns argues the last sentence of section 523H.2 unambiguously means an Iowa franchisor need not comply with the act's provisions when it deals with an out of state franchisee, even if the out of state franchisee is operating a franchise located within the state of Iowa. Holiday Inns further asserts because the express language of section 523H.2 is unambiguous, we may not turn to rules of statutory construction to aid us in determining the meaning of the section's language.

The defendants argue section 523H.2 is ambiguous because the literal import of the language conflicts with the intent of the legislature. Therefore, the defendants argue, we may resort to rules of construction in interpreting the statute and such rules demonstrate the sentence in question merely states Iowa franchisors need not comply with the act with regard to out of state franchisees where the out of state franchisee operates a franchise outside of the state of Iowa.

We will not ordinarily resort to rules of statutory construction when the language of a statute is "so clear and free from obscurity that its meaning is evident from a mere reading." Kruck v. Needles, 259 Iowa 470, 476, 144 N.W.2d 296, 300 (1966); accord Woodbury County v. City of Sioux City, 475 N.W.2d 203, 205 (Iowa 1991); State v. Green, 470 N.W.2d 15, 18 (Iowa 1991); State v. Perry, 440 N.W.2d 389, 391 (Iowa 1989); Casteel v. Iowa Dep't of Transp., 395 N.W.2d 896, 898 (Iowa 1986); Lorentzen v. Deere Mfg. Co., 245 Iowa 1317, 1322, 66 N.W.2d 499, 502 (1954). However, even where statutory words have an ordinary and commonly understood meaning, we will search for an alternative meaning if adherence to the strict letter of the law would lead to an unreasonable, unjust, impracticable, or absurd outcome or where a literal reading would cause provisions to contradict. Woodbury County, 475 N.W.2d at 205; Perry, 440 N.W.2d at 391; State v. Schlemme, 301 N.W.2d 721, 723 (Iowa 1981); Thompson v. Joint Drainage Dist. No. 3-11, 259 Iowa 462, 468, 143 N.W.2d 326, 330 (1966); Chicago, Burlington & Quincy R.R. v. Iowa State Tax Comm'n, 259 Iowa 178, 183, 142 N.W.2d 407, 410 (1966).

A statute is ambiguous if reasonable minds could differ or be uncertain as to the meaning of the statute. Green, 470 N.W.2d at 18; Schlemme, 301 N.W.2d at 723. Ambiguity may arise in two ways: (1) from the meaning of particular words; or (2) from the general scope and meaning of a statute when all its provisions are examined. Thompson, 259 Iowa at 468, 143 N.W.2d at 330; Chicago, Burlington & Quincy R.R., 259 Iowa at 183, 142 N.W.2d at 409-10.

Our ultimate goal in interpreting statutes is to determine and give effect to legislative intent. Iowa Fed'n of Labor v. Department of Job Serv., 427 N.W.2d 443, 445 (Iowa 1988); Schlemme, 301 N.W.2d at 723. When a statute is ambiguous, in order to ascertain the legislature's intent, we look to the spirit of the statute as well as the words and give a "sensible, workable, practical, and logical construction." State v. Bartusek, 383 N.W.2d 582, 583 (Iowa 1986) (quoting Hansen v. State, 298 N.W.2d 263, 265-66 (Iowa 1980)); accord Kroblin Refrigerated Xpress, Inc. v. Iowa Ins. Guar. Ass'n, 461 N.W.2d 175, 178 (Iowa 1990). In order to arrive at a reasonable construction which will best affect rather than defeat the...