A decision by the California Supreme Court two days ago in a 4 year old case has reinforced the right of cities and towns to regulate the size and location of big box stores — as long as they have defined a clear public purpose in doing so. Even though a small merchant appears to have lost in this case — small merchants everywhere have won. Here are the basic facts in the case, Hernandez v City of Hanford: In 1989, the city of Hanford, California created a new commercial district of several hundred acres of land called the “Planned Commercial” district — designed for large, big box stores. City officials wanted to create a zone that would allow big stores, but not have a negative impact on the downtown commercial district. Specifically, the city did not want to allow the big box zone to have uses that were already prominent in the downtown, because they wanted those uses to remain downtown — such as furniture stores, banks, car dealers, and professional offices. The new PC district allowed department stores to sell furniture — but did not extend that right to furniture stores. The city allowed “home furnishings” accessories to be sold in retail stores in the PC district, but furniture stores could not sell furniture. Stores like Wal-Mart, Home Depot and Sears, which came to the PC district, were selling furniture. In 2002, a downtown furniture merchant tried to open up a furniture store in the big box district. When the new store opened, a city inspector instructed the merchant to remove all furniture from the store, and the owner complained that the zoning code was being enforced in a discriminatory fashion, because department stores in the PC district were being allowed to sell furniture, but he could not — in the same district. After conducting a series of study sessions, the city decided to change its code in 2003 to allow department stores over 50,000 s.f. to sell furniture only in one location within the store, and no larger than 2,500 s.f. of floor area. The PC zone was rewritten to state, “the sale of furniture is prohibited in the PC district except by department stores.” The merchant who had opened a furniture store in the PC district then sued the city, arguing that the ordinance regulated economic competition, and violated the equal protection clause of the federal and state Constitutions. The lower court ruled against the plaintiff, noting that the purpose of the ordinance was not to limit competition, but to preserve the vitality of the Hanford downtown district. The court said that treating large stores differently than smaller stores was not a violation of equal protection, because the city was trying to lure big stores to the PC district. The merchant appealed this ruling, and the Court of Appeals sided with the merchant, saying that limiting furniture sales to stores in excess of 50,000 s.f. in the PC zone was arbitrary, and “a rational relationship between the size classification and the goal of protecting downtown simply does not exist.” The Appeals Court said it was not a detriment to have smaller retailers in the PC zone. The City of Hanford then appealed to the California Supreme Court, which ruled this week. The Court quoted case law going back to 1971, which said: “so long as the primary purpose of the zoning ordinance is not to regulate economic competition, but to subserve a valid objective pursuant to a city’s police powers, such ordinance is not invalid even though it might have an indirect impact on economic competition.” The Supreme Court noted that “all zoning has some impact on competition.” The court added that zoning ordinances can have a direct impact on competition, as long as its “principal and ultimate objective..is to achieve a valid public purpose, such as furthering a municipality’s general plan for controlled growth or for localized commercial development.” Any community can cite “controlling growth” or “protecting the downtown district” as legitimate public purposes for limiting store size and location.
The Supreme Court also cited in this case the zoning code in Turlock, California, which limited big box stores with a grocery component. Wal-Mart sued Turlock, and lost. Turlock passed the ordinance because it said “discount superstores (are) likely to negatively impact the vitality and economic viability of the city’s neighborhood commercial centers by drawing sales away from traditional supermarkets located in these centers.” In the Turlock case, the court ruled that cities are empowered “to control and organize development within their boundaries as a means of serving the general welfare.” Avoiding “urban/suburban decay” is a legitimate public interest. In the Hanford case, the Supreme Court said that even though the furniture sales ban regulated competition, its primary purpose was to “promote the legitimate purpose of preserving the economic viability of the Hanford downtown business district, rather than to serve any impermissible private anticompetitive purpose.” The Supreme Court also found that equal protection was not violated, because the Hanford ordinance served multiple purposes, one of which was attracting big box stores, which normally sell furniture. Allowing smaller retailers to come to the PC zone and sell up to 2,500 s.f. of furniture would have undermined the city’s attempts to attract big stores. Even though a local merchant lost his appeal in this case to locate in a big box zone, this decision in California helps opponents of big box stores argue that if a legitimate public purpose has been articulated, local police powers can be used to create a cap on the size of buildings throughout a community to serve the general welfare of the area. Companies like Wal-Mart can complain about the impact on competition, or the impact on equal protection under the law — but they will lose. For earlier stories, search by “cap” or “Turlock.” For a copy of the Hanford decision, contact info@sprawl-busters.com
