Wal-Mart Stores, Inc., et al. v. City of Turlock
In Wal-Mart Stores, Inc., et al. v. City of Turlock, (2006) 138 Cal.App.4th 273, the California Court of Appeal for the Fifth Appellate District upheld a City of Turlock zoning ordinance which amended the City’s general plan to bar the development of “big box” retail stores containing full service grocery departments. Under the ordinance, the City banned the development of “discount superstores,” which it defined as discount stores that exceed 100,000 square fee of gross floor area and devote at least 5 percent of the total sales floor area to the sale of nontaxable merchandise, often in the form of a full-service grocery department. In Wal-Mart’s appeal of its earlier Superior Court defeat, it argued that the ordinance was an unconstitutional use of the City’s police power and that the ordinance failed to comply with the California Environmental Quality Act (CEQA).
Wal-Mart contended that the ordinance was an unconstitutional use of the City’s police power because it “targets Wal-Mart, is designed to suppress economic competition, and was not reasonably related to the public welfare…” The Court disagreed, stating that the restrictions in the ordinance bore a reasonable relationship to the general welfare and, thus, the City constitutionally exercised its police power. Citing the City’s contention that the ordinance is a valid measure designed to protect against urban/suburban decay, increased traffic, and reduced air quality, the Court stated the administrative record was replete with evidence of “the city’s concerns with traffic and [urban/suburban decay]” that might arise from the development of discount superstores. The Court cited Associated Home Builders etc., Inc. v City of Livermore (1976) 18 Cal.3d 582, 604-605, which stated that “[i]n deciding whether a challenged ordinance reasonably relates to the public welfare, the courts recognize that such ordinances are presumed to be constitutional, and come before the court with every intendment in their favor.”
Using this standard of review, the Court stated that the ordinance was a constitutional exercise of the police power because “(1) a city may exercise its police power to control and organize development within its boundaries as a means of serving the general welfare, (2) the City made a legitimate policy choice when it decided to organize development using neighborhood shopping centers dispersed throughout the city, (3) the ordinance was reasonably related to protecting that development choice, and (4) no showing was made that the restrictions significantly affected residents of surrounding communities.”
California Environmental Quality Act (CEQA)
Wal-Mart also sought to have the ordinance overturned on grounds that it failed to comply with CEQA. The Court rejected this argument as well, stating that further environmental review under CEQA was unnecessary because the zoning amendments were consistent with the City’s general plan and were covered adequately by the prior environmental impact report prepared for the general plan. Specifically, the Court noted that the City availed itself of Section 15183 of State CEQA Guidelines, which creates a streamlined environmental review for qualifying projects that are consistent with a general plan for which an environmental impact report (EIR) was certified. Section 15183 provides in part:
"CEQA mandates that projects which are consistent with the development density established by existing…general plan policies for which an EIR was certified shall not require additional environmental review, except as might be necessary to examine whether there are project-specific significant effects which are peculiar to the project or its site. This streamlines the review of such projects and reduces the need to prepare repetitive environmental studies”
In its appeal, Wal-Mart did not argue that the ordinance was inconsistent with the City’s general plan, but rather challenged the City’s ability to rely on the streamlining procedures provided under the section by attacking the City’s conclusion that the prior EIR had adequately analyzed (i) the significant environmental effects peculiar to the ordinance and (ii) the potentially significant off-site impacts.
In deciding whether there would be significant environmental effects peculiar to the ordinance, the Court stated that none of the physical changes advocated by Wal-Mart as reasonably foreseeable were peculiar to the ordinance in the sense that those changes were “characteristic of only” the ordinance or belonged exclusively or especially to the ordinance. In elaborating, the Court stated, “(t)he only project-specific result that is peculiar to the adoption of the ordinance is the elimination of one type of development, discount superstores.” The Court further stated, “(b)ecause the relative probability of the remaining development possibilities is unaltered by the ordinance, when and if any one of those alternatives actually comes into being, it cannot be described by an alternative that was peculiar to the ordinance for purposes of Guidelines Section 15813.”
The Court also disposed of Wal-Mart’s argument that the ordinance would result in significant off-site impacts by noting that Wal-Mart failed to introduce sufficient evidence into the administrative record to establish such an assertion as reasonably foreseeable.
Hernandez v. City of Hanford
The police power result in Wal-Mart provides an interesting contrast to the almost contemporaneous decision of the same Court of Appeal in Hernandez v. City of Hanford (2006) 137 Cal.App.4th 1397. In Hernandez, the Court overturned an ordinance that was intended to encourage big box retail to locate in a certain zone but that also attempted to discourage smaller retailers from locating in the same zone in order to preserve those uses downtown.
The challenged zoning ordinance allowed department stores with 50,000 or more square feet of floor space to sell furniture on a limited basis (up to 2,500 square feet) in a “Planned Commercial Zoning District” while excluding the sale of home furnishings within the PC district except by such stores. In other words, Hanford had created two classes of retailers in the PC zone who devoted a portion of their display to furniture. A retailer with over 50,000 square feet of store space could sell furniture but a retailer with less than 50,000 square feet could not, even though neither retailer would use more than 2,500 square feet for the furniture display.
The objective of the ordinance was to permit the limited sale of home furnishings in the PC zone in order to encourage the larger department stores to locate in the PC district while at the same time keeping large furniture stores downtown and protecting the economic viability of Hanford’s downtown commercial zone. However, the court found that although the legislation was presumptively valid and apparently reasonably related to a legitimate governmental purpose, it failed on equal protection grounds.
The Court found that the classification based on size did not bear a rational relationship to the goal of protecting downtown. Both the larger stores and the smaller ones wanted to devote a portion of their floor space to furniture. Under those circumstances, the Court concluded the difference in total floor space was largely irrelevant, and the retailers were in similar situations. Accordingly, in order for the ordinance to comply with equal protection principles, the classification based on size had to bear a rational relationship to the legislative goal, i.e., the preservation of downtown Hanford.
But with the blanket 2,500 square foot restriction on furniture in the PC zone, the small retailer posed 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 was arbitrary.
The City attempted to justify this disparate treatment on the ground that the department store exception benefited the community by making the PC zone attractive to large retailers. However, the Court rejected the argument, pointing out that was not a detriment to have smaller retailers in the PC zone. Thus, the goal of promoting the PC zone did not validate the ordinance.
(Wal-Mart attempted to raise the Hanford decision in the Wal-Mart case discussed above. However, the Wal-Mart Court in footnotes 21 and 24 declined to address any equal protection arguments on the grounds that (a) the Turlock ordinance was reasonably related to furthering a legitimate policy choice for organizing development within Turlock; (b) no equal protection claim had been raised; and (c) Wal-Mart was pursuing equal protection and other Constitutional claims in federal court.)
For more information please contact Michael Wilmar and Michael Leake. Michael B. Wilmar is special counsel in the Real Estate, Land Use and Natural Resources Practice Group in the firm’s San Francisco office. Michael Leake is an associate in the Real Estate Practice Group in the firm’s Del Mar Heights office.