North Myrtle Beach prevails in yearslong legal case over franchise policy

NORTH MYRTLE BEACH, S.C. (WBTW) — A North Myrtle Beach-based rental company locked in a yearslong legal dispute with the city over its franchise business practices was defeated in court this week.

U.S. District Court Judge Joseph Dawson III on Friday refuted Cherry Grove Beach Gear’s claims that North Myrtle Beach violated federal antirust and regulatory taking laws through its longstanding policy.

Dawson dismissed the case without prejudice in a 30-page decision, meaning it can be refiled in court.

“North Myrtle Beach is a flourishing community and a highly sought after destination for millions of visitors,” the city said in a Saturday news release. “We want all businesses to thrive in our community, but they must adhere to laws and regulations put into place for the safety and well-being of our citizens and visitors.”

The closely watched legal dispute could have changed North Myrtle Beach’s economy. In July 2022, Derek and Jacqueline Calhoun sued the city over its long-standing ordinance giving the city or authorized franchisees exclusive rights to set up rental equipment on its shores.

The Calhouns, who launched their business in 2020, have said in court they’ve twice asked city leaders for a franchise so they can continue operations but were denied both times. Their initial 20-page motion accused North Myrtle Beach of violating antitrust laws.

The city’s actions “intentionally and flagrantly targeted Plaintiffs by enacting an amendment to North Myrtle Beach City Ordinance 5-24 in order to render Plaintiffs’ lawful and existing business practices unlawful, without establishing any amortization period during which Plaintiffs could recover their business investment,” the lawsuit reads.

The lawsuit claims the city’s actions were “positive, aggressive, illegitimate, unlawful, unreasonable, and taken without constitutional, statutory, or regulatory authority.”

The business owners are also suing for defamation, libel and slander, saying that the city is damaging the business’ reputation by publishing statements about the company, according to the lawsuit.

The city has restricted private commerce on its sands since 1981 when council members first required vendors to obtain a franchise agreement. The law was most recently updated in 2010 when authorized hours and rules for the placement and size of shading devices and removal of equipment were added.

City attorneys have repeatedly pointed to a 25-year-old section of state law giving coastal communities broad powers to adopt ordinances regulating beach safety, including granting franchise agreements.

“It has existed since long before Plaintiffs started doing business in 2019. Other beach equipment companies comply with the law by delivering items to where their customers are staying. But Plaintiffs don’t like the law , so they refuse to comply with it, city attorneys wrote in an August 22 response to the suit. “And they have turned their ongoing violations of the law into a marketing tactic, gleefully announcing each citation on social media under the hashtag #outlawbeachlife and asking people to chip in for the fines they are deliberately incurring.”

The city makes between $1.5 million to $3 million in revenue annually from beach rentals, which is used to offset tax increases and pay for beach safety initiatives, officials say. Marilyn Hatley, North Myrtle Beach’s five-term mayor, said at a July 2022 city council meeting that the franchise agreements were an additional source of revenue since a percentage of their sales flow back to the city.

North Myrtle Beach owns and maintains roughly 2,800 beach chairs and 1,500 umbrellas that are set up by municipal employees trained on proper installation, its attorneys said in a November filing.

Other entities including Hilton Head Island, Isle of Palms, Horry County and Myrtle Beach all have similar regulations in place that restrict private companies from setting up equipment on public beaches.

In September 2022, a federal judge denied Cherry Grove Beach Gear’s request for a preliminary injunction to bar the city from enforcing its ordinance, saying the company failed to show that it would likely succeed in the lawsuit.

The city in December then asked for the entire case to be dismissed.

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