Formula Business Restriction – Arcata, CA

In June 2002, Arcata, a city of 17,000 about 5 hours north of San Francisco, enacted the following ordinance, which limits the number of formula restaurants in the city to no more than nine at any one time. (The city already had nine formula restaurants. If one closes, the ordinance allows another formula restaurant to take its place.) A formula restaurant is defined as one that shares the same design, menu, trademark, and other characteristics with twelve or more other establishments.

In an analysis prepared for the Planning Commission, the city’s senior planner endorsed the measure, noting that it fulfilled several goals of Arcata’s comprehensive plan. These include reducing auto-dependent activity and related pollution, protecting the community’s character, encouraging sustainable development, and fostering local investment in food establishments that meet local needs. The comprehensive plan states, “Arcata’s economy reflects the efforts of our many entrepreneurs, artisans and small businesses; the support of citizens who value local investment; and those who offer value-added products from locally available resources.”

The Planning Commission endorsed the measure, as did Arcata Main Street, the city attorney (whose memorandum on the legality of a formula restaurant cap is included below), and a mock city council comprised of high school students.

Theformula restaurant cap is the first formal proposal to emerge from the Committee on Democracy and Corporations. The committee was created following the passage of a voter referendum on the power of corporations in 1998. The referendum, called Measure F, won 60 percent of the vote and read in part: “the people of Arcata request that the city government of Arcata immediately act to establish, through the creation of an official committee, policies and programs which ensure democratic control over corporations conducting business within the city, in whatever ways are necessary to ensure the health and well-being of our community and its environment.”




The City Council of the City of Arcata does hereby ordain as follows:

SECTION 1. Amendment of Various Code Sections and the Appendix of the Land Use and Development Guide.

The following amendments to Title IX are hereby adopted:

A. Add to the Definitions Section, Appendix A, “Restaurant” to read as follows:

Any retail establishment whose principal business is the sale of meals, including food and beverage, which is eaten on or off the premises.

B. Add to the Definitions Section, Appendix A, “Restaurant, Formula” to read as follows:

A retail establishment primarily devoted to the on-site preparation and offering of food and beverage for sale to the public for consumption either on or off the premises and which is required by contractual or other arrangement to offer any of the following: standardized menus, ingredients, food preparation, decor, uniforms, architecture, signs or similar standardized features and which causes it to be substantially identical to more than eleven (11) other restaurants regardless of ownership or location.

C. Modify Section 1-0216.1 Permitted Uses, (a) Commercial Uses to read as follows:

Restaurants (except Formula Restaurants; no new stand alone, combined or operated with another business unless an existing Formula Restaurant is replaced.)

D. Modify Section 1-0217.1 Permitted Uses, (b) Commercial Uses to read as follows:

Restaurants (except Formula Restaurants; no new stand alone, combined or operated with another business unless an existing Formula Restaurant is replaced.)

E. Modify Section 1-0218.1 Permitted Uses, (a) Commercial Uses to read as follows:

Restaurants (except Formula Restaurants; no new stand alone, combined or operated with another business unless an existing Formula Restaurant is replaced.)

F. Modify Section 1-0219.2 Conditionally Permitted Uses, Reviewable by Zoning Administrator,

(a) Commercial Uses to read as follows:

Restaurants/Bars (except Formula Restaurants; no new stand alone, combined or operated with another business unless an existing Formula Restaurant is replaced.)

Bus or Truck Terminals (except Formula Restaurant within a terminal.)

G. Modify Section 1-0220.1 Permitted Uses, (a) Commercial Uses to read as follows:

Auto and Truck Service, Storage and Repair – includes tire recapping, body and fender shops, spray painting, bus and truck terminals, etc. Does not include wrecking yards or Formula Restaurants within a bus or truck terminal.

Section 2. Formula Restaurants Limitations

The number of Formula Restaurants in Arcata shall be limited to nine (9) establishments from the date of the adoption of this ordinance. A new Formula Restaurant shall only be allowed if it replaces an existing Formula Restaurant in one of the following business districts: Janes Road [1], Northtown [1], Uniontown [2], and Valley West/Giuntoli Lane [5]. The allowed number of Formula Restaurants per business district has been indicated in the brackets, and replacement Formula Restaurants are allowed within the business district boundaries as identified in Attachment 1. All other business districts, as labeled in Attachment 1, shall not allow Formula Restaurants.

Section 3. Findings of Approval

Based on information received in the public hearing, including the staff report and attachments, the following findings are hereby adopted.

1. The proposed amendment is consistent with the General Plan in accordance with the California Government Code, Section 65860.

2. The public health, safety, and general welfare require the adoption of the proposed amendment.

Section 4. Exemption from CEQA

The amendments herein are hereby declared exempt from the California Environmental Quality Act (CEQA) per Section 15061(b)(3) of the CEQA Guidelines. In this Section, CEQA exempts a project if it can be found with certainty that the activity in question has no possibility to cause a significant effect on the environment. This activity is covered by the general rule that CEQA applies only to projects that have the potential for causing a significant effect on the environment. The text amendments, through their restrictive nature, do not promote significant new construction or growth issues for the community. The ordinance language involves a limitation on the number of existing formula restaurants which caps growth within that specialized market area.

Section 5. Severability

If any court of competent jurisdiction invalidates any provision of this ordinance, the remaining provisions shall not be affected and shall continue in full force and effect.

Section 6. Limitation of Actions

Any action to challenge the validity or legality of any provision of this ordinance on any grounds shall be brought by court action commenced within ninety (90) days of the date of adoption of this ordinance.

Section 7. Effective Date

This ordinance shall take effect thirty (30) days after its adoption by the City Council.

DATED: June 5, 2002


To: Tom Conlon, Director Community Development
Cc: Dan Hauser, City Manager, Michael Mullen, Senior Planner
From: Nancy Diamond, City Attorney
Date: January 17, 2002
Re: Legal Restrictions on Formula Restaurant Ordinances

Atyour request, the following provides an overview of the legal parameters relevant to the enactment of a formula restaurant ordinance.

Ingeneral, police powers conferred to local governments allow a city to enact comprehensive zoning regulations. (California Constitution Article XI; Birkenfeld v Berkeley (1976) 17 Cal.3d 159; Euclid v Ambler Realty Company(1926) 272 U.S. 365, 47 S. Ct. 114.) Land use regulations fall within the police powers if they are reasonably related to the public welfare.(Associated Homebuilders, Inc. v City of Livermore (1976) 18 Cal.3d 582.)

Inexercising the police powers, a city must act within all applicable statutory provisions so there will be no conflict with general laws. Of relevance in the present context is the existence of the Federal Commerce Clause, which grants to Congress the power to “regulate commerce. . . among the several states. . . ” (U.S. Constitution, Art. 1, Sec. 8, Cl. 3). Under the commerce clause, state are prohibited from interfering with free trade among the states. This limitation, referred to as the “dormant” commerce clause doctrine, subjects local legislation to a two-pronged inquiry: First, a determination if the local regulation discriminates against inter-state commerce in favor of local business or investment, or second, whether nondiscriminatory regulations impose only incidental effects on interstate commerce. (Oregon Waste Systems, Inc. v Department of Environmental Quality of Oregon(1994) 511 U.S. 93, 99.) If the ordinance falls within the first test, it will be found invalid per se with the exception of a narrow class of cases where the city can demonstrate that it has no other means to advance a legitimate local interest. However, under the second test, the ordinance is analyzed using a more flexible and deferential balance of the local regulation’s burdens and benefits.

Inthe zoning context, land use regulations are generally considered nondiscriminatory when the regulation bears a reasonable relation to the general welfare. (See Associated Homebuilders, Inc. v. City of Livermore(1976) 18 Cal.3d 582.) Moreover, although direct regulation of interstate commerce is prohibited as a discriminatory practice, a zoning regulation that applies equally to interstate and intrastate commerce is generally upheld. (People v. Hutchinson (1989) 211 Cal.App.3d supp. 9.) The present ordinance proposes capping the number of formula restaurants within the City in a manner that would apply equally to interstate and intrastate restaurants. Accordingly, it appears that the proposed ordinance would not directly regulate interstate commerce nor have a discriminatory impact, and would be subject to analysis under the second (“balancing”) test above.

TheCommittee on Democracy and Corporations has identified numerous local benefits to regulating formula restaurants within Arcata such as protecting the City’s rural, small town character and encouraging sustainable economic development. These types of goals are generally considered legitimate bases for the exercise of police power zoning regulation. (Penn Central Transportation Co. v. New York (1978) 438 U.S. 104; Metromedia Inc. v. City of San Diego(1980) 26 Cal.3d 348.) Thus, zoning regulation of formula restaurants based on the above-stated reasons appears to bear a reasonable relation to recognized general welfare concerns.

Whenbalancing the impacts of an ordinance upon interstate commerce against punitive local benefits, the legislation will generally be upheld unless the burden so imposed is “clearly excessive.” (Pike v. Bruce Church, Inc.(1970) 397 U.S. 137.) The proposed ordinance does not seek to ban the entry of formula restaurants into the City, but rather to cap their existence. As noted above, this cap would apply equally to interstate as well as local and intrastate restaurants. The burden that would be imposed on interstate commerce thus appears not to be “clearly excessive.”

Based on the above discussion, it is the City Attorney’s opinion that an ordinance which would cap the number of allowable formula restaurants in a manner as proposed by the Committee on Democracy and Corporations is permissible under the City’s police powers.

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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.