By Kate J. Hart and Brian Hoffman

On June 7, 2007, the California Supreme Court addressed head-on the issue of whether or not cities may use their planning and zoning powers to directly impact economic competition. The case is Adrian Hernandez v. City of Hanford (June 7, 2007) 2007 Cal.Lexis 5586. This case affirms the ability of cities to impact economic competition in a direct and intended manner because it allows just such an impact so long as the primary purpose of the zoning action is to achieve a valid public purpose and not simply to serve an impermissible anti-competitive private purpose.

The case involves the City of Hanford (“City”) and two of it’s residents, Tracy and Adrian Hernandez (“Hernandez”).  Hernandez challenged a city ordinance prohibiting the sale of furniture in the Planned Commercial (“PC”) district by any stores other than large department stores (defined as “stores containing 50,000 square feet or more”). Furniture sales in the large department stores were limited to an area of 2,500 square feet. Hernandez was cited for violating the ordinance while operating a bedroom furniture store within the PC district. Hernandez, who operated a small bedroom furniture store in the PC district, challenged the ordinance on two fronts: (1) the ordinance was invalid because it was enacted for the primary purpose of regulating economic competition, and (2) the ordinance violated the equal protection clause because it treated large department store owners and small furniture store owners differently. 

The City passed the ordinance for two purposes: (1) to protect the economic viability of the downtown commercial district by prohibiting furniture retail activity in the PC district; and (2) to attract and retain large department stores in the PC district, thus ensuring its economic viability. The City was concerned that if stores within the PC district engaged in furniture sales the downtown district would begin to deteriorate. The City viewed furniture sales in the PC district as threatening because sales in the PC district would be subtracted from sales in the downtown district. The City felt there was not enough demand for furniture sales to support the PC district and the downtown district. The downtown district has historically engaged in furniture sales and the City wanted to protect the downtown district’s economic viability by restricting furniture sales outside the downtown district. In addition, the City wanted to ensure the PC district remained economically strong and retained its important economic players, the large department stores.     

The Supreme Court began its analysis by asking whether the ordinance was an invalid regulation of economic competition. Previous decisions left determinations of what constituted an invalid impact on economic competition unclear. In 1971, the Third District Court of Appeal held that “cities may not use zoning ordinances to regulate economic competition…but land use and planning decisions cannot be made without some impact on the economy of the community.” (Van Sicklen v. Browne (1971) 15 Cal.App.3d 122, 127). This statement confused many because of its apparent contradiction. On the one hand, it appears to indicate that a city cannot directly regulate economic competition, but on the other it says in order to make planning decisions a city will likely impact economic competition. “So long as a the primary purpose of a zoning ordinance is not to regulate economic competition, but instead has a valid objective pursuant to its police powers such an ordinance is not invalid even though it has an indirect impact on economic regulation.” (Van Sicklen, supra, 15 Cal.App.3d 122). This led many to the conclusion that a city may not intend to or directly impact economic competition, even if the ordinance serves a valid public purpose. Yet many times, zoning ordinances or planning decisions do have direct and intended impacts on economic competition. Other appellate court decisions have upheld zoning laws with direct impacts on economic competition. These impacts have included a zoning classification regulating where within a city, businesses may be developed (Ensign Brickford Realty Corp. v. City Council (1977) 68 Cal.App.3d 467) and prohibiting “discount superstores” (discount stores with grocery sales) in all districts while permitting “big box” discount stores in selected districts to avoid urban/suburban decay. (Wal-Mart Stores, Inc. v. City of Turlock (2006) 138 Cal.App.4th 273).

Hernandez holds that so long as the primary purpose of the zoning action, “its principal and ultimate objective,” is to achieve a valid public purpose rather than simply to serve an impermissible anti-competitive private purpose of thwarting economic competition, the ordinance is valid. In this case, the City’s prohibition on furniture sales did have a direct impact on economic competition by prohibiting Hernandez from selling furniture. However, the City enacted the ordinance to promote the legitimate public purpose of preserving the economic viability of downtown Hanford. Thus, the Court held that the ordinance served the traditional zoning objective of regulating where a business may locate in a city and was not an invalid restriction on economic competition. 

With respect to the equal protection clause issue, the Supreme Court reversed the appellate court’s determination that the ordinance’s unequal treatment to large department stores and other furniture stores was not rationally related to its stated goal of protecting the downtown district. The Supreme Court focused on the fact that the ordinance was enacted to serve two purposes, not just protection of the downtown district. Because the ordinance was enacted for multiple purposes, only one legitimate purpose needed to be rationally related to the ordinance. The Supreme Court determined that the ordinance was rationally related to the purpose of attracting and retaining large department stores in the Planned Commercial district. Therefore, the ordinance was held to be constitutionally valid and enforceable against Hernandez. 

Let’s hope that cities do not view law offices as equally undesirable as furniture stores.

Kate Hart is an associate and Brian Hoffman is a law clerk with Abbott & Kindermann, LLP.  For questions relating to this article or any other California land use, environmental and planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.