The debate over so-called "big box" or "superstore" retail centers has dominated local land use politics in recent years. The "not in my backyard" opponents of big box development champion land use regulations limiting superstore development, citing the industry’s high-volume, deep-discount business model as a cause of the perceived demise of Main Street America. Other communities welcome large retail businesses and have relaxed land use restrictions to attract the sales tax revenues and employment opportunities such projects offer. Both often advocate special zoning and land use treatment for such stores. However, a local government’s ability to regulate such large retail development is not unlimited, as California’s Fifth District Court of Appeal recently concluded in two published cases discussed below.
Wal-Mart v. City of Turlock: Anti-Big Box Okay
In 2003, the City of Turlock enacted a zoning ordinance prohibiting development of retail "superstores" that exceed 100,000 square feet and devote more than 5 percent of sales-floor area to nontaxable items such as groceries. In doing so, the city found that superstores pose an unreasonable economic threat to the continued vitality of the city’s neighborhood commercial centers. Wal-Mart challenged the city’s action, claiming, among other things, that the city’s ban on superstores was not reasonably related to the public welfare and, therefore, exceeded the city’s land use authority. The lower court rejected the argument, and Wal-Mart appealed.
The Court of Appealupheld the lower court decision, concluding that the city’s superstore restrictions are a valid exercise of the city’s police power to prevent economic harm to its local economy. The court explained that "a land use restriction is valid if it is fairly debatable that the restriction in fact bears a reasonable relation to the general welfare." In the court’s view, substantial evidence appeared in the record to support the city’s conclusion, in adopting the ordinance, that big box grocers present a "unique threat" to Turlock’s neighborhood commercial centers because of their inclusion of discount retail and full-service grocery under a single roof. The court rejected Wal-Mart’s argument that the ordinance served to control economic competition, concluding that the anticompetitive effect was incidental to the ordinance’s purpose of addressing urban/suburban decay. In sum, the court held that the city could legitimately choose to manage development within its borders by using neighborhood shopping centers and the ordinance was related to protecting that land use choice.
Hernandez v. City of Hanford: Big Box Exemption Invalid
The City of Hanford regulated retail activity in its Planned Commercial Zoning District (PC zone) through an ordinance that prohibited the sale of furniture in the PC zone by stores smaller than 50,000 square feet in size, but specifically permitted such sales in larger stores, provided the total floor space area dedicated to such sales did not exceed 2,500 square feet. Based on this ordinance, the City cited the Country Hutch Home Furnishings and Mattress Gallery (Country Hutch) with a zoning violation when it sold furniture in a portion of its 4,000 square feet of leased retail space.
In 2002, Country Hutch sued the City on the claim that the ordinance violated the equal protection clause, which prohibits discriminatory treatment of similarly situated persons without a rational relationship to a legitimate state purpose. The trial court rejected the argument, concluding the City had a legitimate interest in (1) preserving the vitality of the City’s downtown commercial district, and (2) not discouraging large retailers from locating in the PC zone. Moreover, the trial court determined that the zoning ordinance did not violate equal protection guarantees because, by virtue of its size, the relatively small Country Hutch was not similarly situated to the much larger big box stores. Accordingly, the trial court upheld Hanford’s zoning ordinance. Country Hutch appealed.
The Court of Appeal disagreed with the trial court’s determination that, based on size, Country Hutch was not similarly situated to the PC zone’s large retail operations. The Court of Appeal reasoned that Country Hutch and the PC zone’s big box retailers both desired to sell furniture in the PC zone and, therefore, were similarly situated. Accordingly, to be valid, the PC zone’s size restrictions must bear a rational relationship to the statute’s legislative purpose. According to the court, "with the blanket 2,500 square foot restriction on furniture sales in the PC zone, the small retailer poses the same potential threat, if any, to the downtown merchants as the larger store. Thus, limiting the furniture sales exception to stores with more than 50,000 square feet is arbitrary." In the court’s view, a rational relationship between the ordinance’s size classification and the goal of protecting downtown did not exist.
The Hernandez court was not persuaded by the City’s argument that the statute’s size restrictions were justified on the basis that they were rationally related to the City’s legitimate interest in preserving the economic viability of the PC zone by encouraging big box development. As explained by the court, since there was no evidence in the record indicating that small furniture retailers were detrimental to the PC zone, prohibiting such businesses from selling furniture was not reasonably related to the city’s goal of promoting the economic viability of the PC zone. On this basis, the court invalidated Hanford’s size restrictions on furniture sales in the PC zone.
While these recent cases may suggest that anti-big box ordinances will find more support in the courts than zoning that allows for large-scale retail development, that is not the case. In deciding these cases, the Court of Appeal determined that a city may regulate big box retail development on the basis of store size, provided such classification is reasonably related to the public welfare. Wal-Mart is clear that it is within a city’s police power to enact store size zoning restrictions for the purpose of protecting the economic viability of that city’s commercial districts. Hernandez, however, is equally clear that such restrictions will be overturned if the city cannot articulate a reasonable justification for limiting retail activity on the basis of store size. The California Supreme Court recently granted review of Hernandez, but declined to take up Wal-Mart. This could suggest a willingness by the Court to afford local governments broad authority in regulating the size of businesses within their jurisdictions. In any event, both decisions will undoubtedly be cited frequently by opponents and proponents of big box development.
Wal-Mart Storesv.City of Turlock,138 Cal. App. 4th 273 (2006).
Hernandezv.City of Hanford, 137 Cal. App. 4th 1397 (2006).