California Supreme Court Bolsters Local Authority to Control Retail

Date: 8 Jun 2007 | posted in: Retail | 0 Facebooktwitterredditmail

In a unanimous decision yesterday, the California Supreme Court fortified efforts by cities across the state to restrict the development of big-box stores, favor small-scale retailers, and protect the vitality of downtowns.

The ruling (Hernandez v. City of Hanford) upholds the authority of cities to adopt planning and zoning ordinances that have a direct impact on economic competition and that treat businesses differently based on the scale of their stores.

Ironically, the case was brought by a local furniture retailer who had sought to operate a store in the “Planned Commercial” (PC) district of the city of Hanford. The city created the PC zone in 1989 to accommodate and encourage the development of large retail stores. Furniture stores were barred from the district on the grounds that they would undermine the economic vitality of the downtown, which is home to numerous furniture stores (other uses common in the downtown, such as banks, were also prohibited in the PC zone).

But, in order to attract big-box department stores, which typically carry some furniture, the city’s ordinance allows stores of 50,000 square feet or more to sell furniture on up to 2,500 square feet of their floor area.

A local furniture dealer who wanted to open a small furniture store in the PC district challenged the city’s policy in court, arguing that it was enacted for the primary purpose of regulating economic competition and that it violated the equal protection clauses of the federal and state Constitutions by discriminating against small stores.

A district court sided with the city, but the city lost on appeal. The appellate court concluded that the policy did not exceed the city’s authority to regulate competition, but it did find merit in the claim that the ordinance violated equal protection principles by drawing an unwarranted distinction between large and small stores. The case was appealed to the California Supreme Court, which agreed to hear it last year.

Although the appellate court decision did not say that the city illegally interfered with competition, the Supreme Court devotes more than one-third of its ruling to a discussion of the extent of municipal authority to use zoning rules to control and regulate economic competition.

This part of the court’s ruling is particularly valuable, as many people, including many city officials, mistakenly believe that zoning ordinances that impact economic competition are either unconstitutional or otherwise beyond the authority of local governments. Citizens groups seeking to enact ordinances that restrict or prohibit big-box or chain retailers often encounter this argument.

The justices explain their decision to discuss this issue at length in their ruling by noting, “Our court has not previously had occasion to address the question of whether a municipality, in order to protect or preserve the economic viability of its downtown business district or neighborhood shopping areas, may enact a zoning ordinance that regulates or controls competition by placing limits on potentially competing commercial activities or development in other areas of the municipality.”

The Supreme Court’s ruling strongly endorses the authority of cities to enact zoning policies that have a direct impact on competition. It reviews three previous appellate court rulings, all of which upheld municipal zoning laws that affected competition among retailers. The court not only seconded these rulings, but put forward an even more expansive interpretation of local authority.

The court held that a municipal zoning law is valid even when “regulation of economic competition is a direct and intended effect” of the policy, provided that “the primary purpose of the ordinance or action-that is, its principal and ultimate objective-is not the impermissible private anticompetitive goal of protecting or disadvantaging a particular favored or disfavored business or individual, but instead is the advancement of a legitimate public purpose-such as the preservation of a municipality’s downtown business district for the benefit of the municipality as a whole-the ordinance reasonably relates to the general welfare of the municipality and constitutes a legitimate exercise of the municipality’s police power.”

The court cited several valid public purposes that might be served by such a zoning law, including maintaining the vitality of the downtown and neighborhood retail districts, preventing urban decay, controlling the location and scale of development, limiting the number and intensity of particular uses, and allowing only as much retail growth as residents can support without undermining existing businesses.

The Supreme Court specifically referenced and affirmed an appeals court ruling last year that upheld an ordinance in the city of Turlock that banned supercenters (i.e., large general merchandise stores that have a full grocery department). The court said Turlock’s goal of preventing vacancy and decay in neighborhood shopping centers anchored by grocery stores was a valid public purpose for the ban.

After concluding their discussion of local authority to regulate economic competition, the justices then go on to overturn the lower court’s ruling that the city of Hanford’s ban on small furniture stores in the PC district violated equal protection principles.

The appellate court had concluded that there was no rational basis for allowing big stores to sell some furniture, but not small ones. Whether the stores were big or small would not make a difference with regard to the city’s stated purpose of protecting the downtown.

But the Supreme Court noted that the city had articulated a second public goal: to encourage large department stores to locate and remain in the PC district. The Supreme Court concluded that, because most large department store chains carry some furniture, allowing them to do so within the PC district, as an exception to an overall ban on furniture sales, was a legitimate and rational approach to satisfying both of the city’s policy objectives. It is not up to courts to determine whether a particular municipal policy is effective or beneficial, but simply whether it is rationally related to the city’s stated public purpose.

This part of the ruling reaffirms the authority of cities to adopt ordinances that treat businesses differently based on the scale of their buildings, and thus bolsters grassroots efforts underway throughout California to block or regulate big-box development.

The Supreme Court’s decision may be downloaded as a PDF file or a Word document.


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Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.