May 15, 2026|Franchise Frontlines
May 15, 2026 | United States District Court for the District of South Dakota | Slip Copy
Executive Summary
In a slip-copy decision, Judge Eric C. Schulte of the United States District Court for the District of South Dakota granted in part and denied in part motions to dismiss filed by Denny’s Corporation, Denny’s, Inc., WKS Restaurant Corp., Sunrise Restaurants, LLC, and two individual restaurant employees in a customer-discrimination lawsuit arising from an alleged refusal of service at a Denny’s restaurant inside a Pilot Flying J travel center in Sioux Falls. Plaintiffs, two African American truck drivers, alleged that a server delayed service, refused to take their order, referred to them as “you people,” removed menus and a drink from the table, and caused police to be called on them. Defendants argued that the allegations did not plausibly show racial intent, that the Denny’s entities were not proper defendants, and that the public-accommodation claim under Title II failed for lack of jurisdiction because plaintiffs had not first provided notice to the South Dakota Division of Human Rights. The court allowed the Section 1981 claim to proceed at the pleading stage, declined to dismiss the Denny’s entities based on the limited record before it, and dismissed the Title II claim without prejudice for failure to satisfy the state-notice prerequisite.
Relevant Background
Plaintiffs Damon Whitfield and Hector Madera worked as cross-country truck drivers. On August 13, 2023, they stopped at a Pilot Flying J in Sioux Falls, South Dakota while transporting a load from Seattle to Pennsylvania. The travel center included a Denny’s restaurant. While Madera showered, Whitfield went to the restaurant to order breakfast for both of them before they returned to the road.
According to the First Amended Complaint, server Anne Fletcher seated Whitfield, gave him menus, took his drink order, and provided orange juice. Whitfield then waited for Fletcher to return so he could place a food order. During that time, he allegedly watched Fletcher seat other customers, take and bring food orders, and serve customers who arrived after him. Approximately thirty minutes later, Madera arrived at the table, and Fletcher still had not returned.
After Madera arrived, the plaintiffs discussed ordering food and waited approximately fifteen more minutes before waving Fletcher over. When they asked to place an order, Fletcher allegedly refused, referred to them as “you people,” and walked away. The plaintiffs alleged that Fletcher later returned, again refused to serve them, referred to them as “you people” a second time, directed them to leave, and said she was calling the police. Plaintiffs further alleged that she removed menus from their hands, grabbed Whitfield’s orange juice from the table, spilled juice on him, and walked away.
Madera then approached Fletcher to ask whether there had been a misunderstanding because the plaintiffs were trying to eat breakfast and return to work. According to the complaint, Fletcher responded that there was no misunderstanding and that police were coming. Plaintiffs alleged that Michael Fletcher called the Sioux Falls Police Department at Anne Fletcher’s direction to have them removed or arrested. Another server allegedly told the plaintiffs that Fletcher wanted them to leave without causing a scene or disrupting other customers. Police officers arrived, escorted the plaintiffs out of the restaurant, and later excused them without arrest after speaking with them.
Plaintiffs asserted two claims against the remaining defendants: denial of the right to contract under 42 U.S.C. § 1981 and denial of public accommodation under 42 U.S.C. § 2000a, Title II of the Civil Rights Act. Defendants moved to dismiss.
Decision
The court first addressed the Section 1981 claim. Section 1981 protects the right to make and enforce contracts regardless of race. In the restaurant context, that right can be implicated when a customer seeks service because dining at a restaurant ordinarily involves a contractual relationship. To state a Section 1981 claim, plaintiffs had to allege membership in a protected class, discriminatory intent, engagement in protected activity, and interference with that activity.
The restaurant operator defendants argued that the allegations did not support a plausible inference of racial bias. They characterized the complaint as alleging only a half-hearted greeting, delay, refusal to take the order, use of the phrase “you people,” and a call to police based on a report of aggressive behavior. They cited cases holding that the phrase “you people,” without more, may be too ambiguous to prove discrimination. Plaintiffs responded that they did not need to prove intent at the pleading stage and that the phrase, when paired with the alleged refusal of service and call to police, plausibly supported discriminatory intent.
The court agreed with plaintiffs at the pleading stage. It recognized that many cases cited by defendants were decided at summary judgment, not on a motion to dismiss. The court also recognized that plaintiffs had not alleged the race of the server or other restaurant patrons, but it drew reasonable inferences in plaintiffs’ favor from the tenor of the complaint. The court found it reasonable, at this stage, to infer that the server and served customers were not African American.
The court then held that the alleged use of “you people” plausibly supported discriminatory intent in context. The court acknowledged that the phrase can carry different meanings, but emphasized that it has historically been used in demeaning ways toward Black men. Because the pleading alleged that Fletcher used the phrase while refusing service, removing menus, and directing plaintiffs to leave, the court found the allegations sufficient to state a plausible Section 1981 claim.
The court next addressed the Denny’s entities’ argument that plaintiffs had sued the wrong corporate defendants. Plaintiffs had alleged that Denny’s Corporation and/or Denny’s, Inc. were the corporate franchisor. The Denny’s entities argued that a separate entity, DFO, LLC, was the franchisor of the Sioux Falls restaurant, that Denny’s Corporation was merely the parent company, and that Denny’s, Inc. was the managing member. To support that position, they asked the court to take judicial notice of a Form 10-K.
The court was not persuaded that the Form 10-K resolved the issue at the pleading stage. The court concluded that the filing showed only that Denny’s Corporation was the parent corporation of entities listed in a table. It did not identify the franchisor of the specific Sioux Falls restaurant. As a result, the court continued to accept as true, for purposes of the motion, the allegation that Denny’s Corporation and/or Denny’s, Inc. were the corporate franchisor.
The Denny’s entities also argued that they had no involvement in the events and that the franchisee was responsible for its employees, owners, managers, and directors. The court found that argument premature because plaintiffs had pleaded, in the alternative, that Anne Fletcher and Michael Fletcher were employed by Denny’s, WKS, or Sunrise Restaurants. At the pleading stage, plaintiffs could allege alternative facts regarding the identity of the individual defendants’ employer. The court also noted that the complaint alleged Michael Fletcher was a regional manager, and that it was plausible that a regional manager could be employed by a franchisor rather than a franchisee. Because Denny’s did not argue that an employer is not liable for employees’ acts, the court declined to dismiss the Section 1981 claim against the Denny’s entities.
The court then dismissed the Title II public-accommodation claim without prejudice. Title II provides for equal enjoyment of places of public accommodation without discrimination based on race, color, religion, or national origin. Restaurants at truck stops fall within the statute. But Title II does not permit damages; it allows injunctive relief and attorneys’ fees. Before filing a Title II claim in federal court, a plaintiff must provide notice to the appropriate state or local authority if the state or locality has a law prohibiting the alleged practice and authorizing relief.
South Dakota has such a law. Under Eighth Circuit precedent, failure to provide the required notice to the state authority is jurisdictional. Plaintiffs did not allege that they gave notice to the South Dakota Division of Human Rights before filing suit. The court therefore dismissed the Title II claim without prejudice for lack of subject matter jurisdiction.
Looking Forward
This decision illustrates the pleading-stage risk that customer-discrimination claims can present in franchised restaurant settings. The court did not find that any defendant discriminated against plaintiffs. It did not decide whether the Denny’s entities were the franchisor of the location, employed the individual defendants, controlled the restaurant, or could be held liable for the alleged conduct. It held only that the Section 1981 allegations were plausible enough to proceed beyond a motion to dismiss.
For franchisors, the entity issue is important. The Denny’s entities argued that plaintiffs had named the wrong corporate defendants and pointed to a Form 10-K. The court found that the filing did not identify the franchisor of the specific Sioux Falls restaurant and therefore did not defeat the complaint’s allegations at the pleading stage. That does not mean public filings are irrelevant. It means that franchisors and franchisees should maintain clear, location-specific records showing who owns the restaurant, who operates it, who employs the staff, who manages the location, and which entity is the franchisor. A general corporate disclosure may not resolve those questions early if it does not address the specific location.
The employment-allegation issue also deserves attention. Plaintiffs pleaded in the alternative that the individual restaurant personnel were employed by Denny’s, WKS, or Sunrise. The court allowed those alternative allegations at the pleading stage. Franchisors should not read that as a merits ruling. But the case reinforces the practical value of maintaining clear employment records, employee handbooks, payroll materials, signage, training materials, and management documentation that accurately identify the employing entity and avoid blurring franchisor, franchisee, and operator roles.
The customer-interaction allegations provide a separate operational lesson for franchisors and franchisees. Courts may assess alleged discriminatory intent by considering words, conduct, sequencing, and context together. Here, the court looked at the alleged delay, refusal to take the order, use of the phrase “you people,” removal of menus and a drink, and call to police as a combined pleading-stage narrative. Franchise systems and restaurant operators should train customer-facing employees and managers to use respectful, specific language, to avoid ambiguous or demeaning phrases, and to handle service disputes through documented, neutral procedures.
Calling law enforcement presents heightened risk. Restaurants and other public-facing franchise locations sometimes need police assistance for safety reasons. But employees should understand when escalation is appropriate, who has authority to make the call, what facts should be reported, and how to document the basis for the decision. A neutral incident-response protocol can help reduce the risk that a customer-service issue is later characterized as discriminatory or retaliatory.
The Title II ruling also matters. The court dismissed the public-accommodation claim because plaintiffs did not allege the required notice to the South Dakota Division of Human Rights. That dismissal was without prejudice, and it did not affect the Section 1981 claim. For defendants, the ruling is a reminder to examine statutory prerequisites early, particularly where a public-accommodation claim seeks injunctive relief rather than damages. Procedural requirements can narrow a case even when other claims remain.
For franchisors, the broader takeaway is not to assume that franchise status alone will end a case at the pleading stage. Courts may allow claims to proceed where the complaint alleges that a franchisor entity, franchisee entity, or related operator employed the relevant personnel, and where the defendant’s public materials do not conclusively resolve the specific relationship. The stronger defensive posture is built before litigation: clear franchise documentation, clean employment records, disciplined public filings, and consistent location-level materials.
At the same time, this decision should not be overread. It does not hold that franchisors are generally liable for franchisee employees. It does not decide whether the plaintiffs can prove racial discrimination. It does not decide agency, employment, control, or vicarious liability. It simply shows that, in customer-discrimination cases, pleading-stage disputes over entity identity and alleged discriminatory context may require factual development.
Franchisors and franchisees can use the decision constructively. Anti-discrimination training, complaint escalation procedures, law-enforcement call protocols, incident reports, and clear entity records are not just compliance exercises. They are practical tools for protecting customers, employees, franchisees, and the brand when a difficult customer interaction becomes a lawsuit.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
