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Thread: 'Formula retail' held unconstitutional

  1. #1

    'Formula retail' held unconstitutional

    The 11th district federal court ruled in a pair of Florida cases that 'formula' retail is unconstitutional. The court held that the use of the zoning ordinance to favor local business over national chains violates the Interstate Commerce Clause.

    I'm trying to find a decent link to the decisions and local reportage. Any of our Florida contingent able to help with that?

    Anybody use an ordinance that attempts to limit or exclude big boxes or national chains? Thoughts?
    Last edited by Gedunker; 09 Sep 2008 at 10:48 AM. Reason: still adjusting to new keyboard

  2. #2
    Cyburbia Administrator Dan's avatar
    Mar 1996
    Upstate New York
    Blog entries
    Quote Originally posted by Gedunker View post
    I'm trying to find a decent link to the decisions and local reportage.
    Island Silver & Spice, Inc. v. Village Council
    Issued Date: 09-08-2008 Case#: 07-11418


    The Dormant Commerce Clause prohibits “regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.” New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273 (1988). To determine whether a regulation violates the Dormant Commerce Clause, we apply one of two levels of analysis. See Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 578–79 (1986). If a regulation “directly regulates or discriminates against interstate commerce,” or has the effect of favoring “in-state economic interests,” the regulation must be shown to “advance[ ] a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” Bainbridge v. Turner, 311 F.3d 1104, 1109 (11th Cir. 2002) (quotations and citations omitted). If a regulation has “only indirect effects on interstate commerce,” we “examine[ ] whether the State’s interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits.” Brown-Forman, 476 U.S. at 579 (citing Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)).

    The district court correctly determined that the formula retail provision does not facially discriminate against interstate commerce. See Island Silver, 475 F. Supp. 2d at 1290 (stating that “the ordinance is facially neutral”). With respect to the provision’s effects, however, the parties stipulated that the ordinance “effectively prevents the establishment of new formula retail stores,” and “[a] facility limited to no more than 2,000 square feet or 50’ of frontage [as required by the ordinance] can not accommodate the minimum requirements of nationally and regionally branded formula retail stores.” (Evidentiary Stipulation, available at Island Silver, No. 04-10097-CV-JLK, Doc. 77-2 at 7 (“Evidentiary Stipulation”).) Although the fact that the burden of a regulation falls onto a subset of out-of-state retailers “does not, by itself, establish a claim of discrimination against interstate commerce,” Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 126 (1978), the ordinance’s effective elimination of all new interstate chain retailers has the “practical effect of . . . discriminating against” interstate commerce, Hunt v. The district court applied both the elevated scrutiny and balancing tests, finding that “[the] ordinance fails both tests: it is discriminatory in impact . . . without an adequate legislativepurpose, and the burden it imposes is clearly excessive in relation to its putative local benefits.”Island Silver, 475 F. Supp. 2d at 1290. We agree that on this record it fails both. Regulations that facially discriminate or have a discriminatory effect on interstate 3 commerce rarely pass the elevated scrutiny test. See Brown-Forman, 476 U.S. at 579 stating that such regulations are “virtually per se invalid”).

    Washington Apple Advertising Commission, 432 U.S. 333, 350 (1977). The formula retail provision is therefore subject to elevated scrutiny. Id. at 353; see 2 also Bainbridge, 311 F.3d at 1109.Under the elevated scrutiny test, a regulation must be supported by “a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” Bainbridge, 311 F.3d at 1109 (quotations and 3 citation omitted). The burden is on Islamorada to justify the ordinance’s discriminatory effects. Hunt, 432 U.S. at 353 (“When discrimination against commerce . . . is demonstrated, the burden falls on the State to justify it both in terms of the local benefits flowing from the statute and the unavailability of nondiscriminatory alternatives adequate to preserve the local interests at stake.”). The ordinance’s stated local purposes include the preservation of “unique and natural” “small town” community characteristics, encouragement of “small scale uses, water-oriented uses, [and] a nationally significant natural environment,” and avoidance of increased “traffic congestion . . . [and] litter, garbage and rubbish offsite.” (Ordinance 02-02 at Preamble.) The parties stipulated, however, that “Islamorada has a number of [pre-existing] ‘formula retail’ businesses,” (Evidentiary Stipulation, at 6 n.3), Islamorada “has no Historic District, and there are no historic buildings in the vicinity of [Island Silver’s] property,” (id. at 6–7), and “[t]he Ordinance is not necessary for preservation of the historic characteristics of any buildings in the Village,” (id. at 7). In addition, because the ordinance “does not address small formula retail stores, which are permitted under the ordinance, but would presumably affect the Village’s small town character as well,” or large non-chain businesses, the district court found that “[r]estricting formula retail stores, while allowing other large [and] non-unique structures, does not preserve a small town character.” Island Silver, 475 F. Supp. 2d at 1292. The district court properly determined that, although “[i]n general, preserving a small town community is a legitimate purpose . . . , in this instance, [Islamorada] has not demonstrated that it has any small town character to preserve.” Id. at 1291.

    With respect to the stated purpose of encouraging small-scale and natural uses, the parties also stipulated that Islamorada’s existing “zoning allows the use of the property as a retail pharmacy . . . and other retail uses,” (Evidentiary Stipulation, at 1), and that Island Silver operated as “a street level business comprising over twelve thousand square feet of floor area,” (id. at 2), which “greatly exceeds the [ordinance’s] dimensional limitations” for formula retail businesses, (id. at 3). The district court correctly found that Islamorada “[did] not explain why the ordinance singles out retail stores and restaurants with standardized features,” Island Silver, 475 F. Supp. 2d at 1292, and that the record did not indicate that Islamorada is “uniquely relaxed or natural,” or that there is “a pre-dominance of natural conditions and characteristics over human intrusions,” id. at 1291.

    Similarly, the stated purposes of reducing traffic and garbage are undermined by the parties’ stipulations that Islamorada has existing “land development regulations, other than the Ordinance, that govern and control traffic generation of retail uses,” and “that limit the dimensions, location, and use of buildings and signs.” (Evidentiary Stipulation, at 7.) The district court therefore properly concluded that Islamorada failed to provide a legitimate local purpose to justify the ordinance’s discriminatory effects, and that even if such purpose had been shown, “the ordinance does not serve this interest.” Island Silver, 475 F. Supp. 2d at 1292.

    Islamorada’s failure to indicate a legitimate local purpose to justify the ordinance’s discriminatory effects is sufficient to support the district court’s determination that the formula retail provision is invalid under the Dormant Commerce Clause. See id. (“Because the ordinance clearly fails the first two prongs of the [elevated scrutiny] test, the Court does not need to reach the merits of the third prong of the test. Whether [Islamorada] can show that no adequate, non-discriminatory methods were available is therefore immaterial.”). It should be noted, however, that Islamorada does not assert that the stated purposes of the ordinance cannot be furthered by reasonable nondiscriminatory alternatives, such as Islamorada’s existing land development regulations. (See, e.g., Evidentiary Stipulation, at 7.) Even under the balancing approach advocated by Islamorada, the stipulated facts indicate that the formula retail provision’s disproportionate burden on interstate commerce, such as the effective exclusion of interstate formula retailers, clearly outweighs any legitimate local benefits. Accordingly, the district court did not err in concluding that the ordinance’s formula retail provision violated the Dormant Commerce Clause.
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  3. #3
    Cyburbian boiker's avatar
    Dec 2001
    West Valley, AZ
    Thanks, I forwarded this along to the planners in my office. I wonder how this effects big-box restrictive ordinances. It appears that if there are not standards restricting sq ft among the different sized "formula" stores, then the local ordinance is invalid.
    Dude, I'm cheesing so hard right now.

  4. #4
    Feb 2002
    Boiker--I think you are right. its a question of fairness. You can't permit a 100,000 sq. ft. "Acme Stereo" owned locally and then prohibit a 100,000 sq ft Best Buy.

    If it is a question of the design/architecture of chain/formula stores, then I suspect the land use regulations can be designed and implemented to get desired outcome. But again, they have to apply to everyone.

    Rightly so.

  5. #5
    Cyburbian Plus
    Jun 2003
    Interesting Coverage -

    Restrictions on Pharmacy Locations

    These cases demonstrate that it is essential for anyone wanting to open any kind of retail establishment, including a pharmacy, to carefully review zoning laws and any restrictions on the kinds of businesses that are permitted in certain areas. It is especially interesting to note that in the first and second cases, the towns had specific use restrictions, yet the results in the two decisions were diametrically opposed.

    Because the Islamorada ordinance was designed to favor local merchants over regional or national retailers that were perceived as competitive threats. In addition, there were multiple national businesses already operating before the village was incorporated. In point of fact, there was already a CVS store near where the Walgreens was supposed to have operated. With no "small town atmosphere" to preserve, as applied, the ordinance ran afoul of the Commerce Clause.

    In the second case, there was no violation when the town described what kinds of businesses could be owned and operated within a specified business area. There was no competition to be thwarted and no discrimination to be found: The town did not want any pharmacies in this area. Why the town would want to exclude a pharmacy is a question that was not addressed and will therefore have to go unanswered for now.

    The third case, while similar in concept, dealt with a restrictive covenant that private parties agreed to. The case wound up in court because the parties failed to anticipate developments that would occur in the future that could cause ambiguities and uncertainties. The pharmacy that wanted to open in the same mall as the Thrifty Drugstore never even had the opportunity to compete.

  6. #6
    Cyburbian Otis's avatar
    Mar 2002
    Upper left edge
    I generally agree with gkmo62u. As I read the opinion it still would be easy, under the tests the court applied, to keep small town character through neutral design standards and other means. Other communities have done this and done it well.

    One thing to remember is that the 11th Circuit has jurisdiction only over Florida, Georgia, and Alabama. I suspect the 9th Circuit might have reached a different result.

  7. #7
    Feb 2007
    San Francisco, CA
    Quote Originally posted by Otis View post
    One thing to remember is that the 11th Circuit has jurisdiction only over Florida, Georgia, and Alabama. I suspect the 9th Circuit might have reached a different result.
    I was about to say something similar. It will be interesting to see how this plays out in other areas, if at all. I'm not a fan of the Chain Store Ordinance in San Francisco (adopted by ballot initiative), mostly because of how it is enforced, and would love to see it struck down - but I'm not holding my breath.

  8. #8
    Aug 2007
    Town of Brookline, MA
    Here's one from Nantucket that was passed a couple of years ago. I haven't followed up on how it's working out for them. Much like their strict design standards, it falls under the purpose of presevation of historic character.

    ARTICLE 42 (Zoning Bylaw Amendment: Formula Business Overlay District)

    Part 1: To see if the Town will vote to amend the zoning bylaw as follows:

    Amend 139-2 Definitions and Word Usage by adding:

    Formula Business – A type of retail sales establishment, restaurant, tavern, bar, or take-out food establishment which along with 14 or more other establishments maintains two or more of the following features:

    (1) Standardized menu or standardized array of merchandise with 50% or more of in-stock merchandise from a single distributor bearing uniform markings.

    (2) Trademark or service mark, defined as a word, phrase, symbol or design, or a combination or words, phrases, symbols or designs that identifies and distinguishes the source of the goods from one party from those of others, on products or as part of store design.

    (3) Standardized interior décor including but not limited to style of furniture, wall-coverings or permanent fixtures.

    (4) Standardized color scheme used throughout the interior or exterior of the establishment.

    (5) Standardized uniform including but not limited to aprons, pants, shirts, smocks or dresses, hat, and pins (other than name tags).

    Amend 139-3E Districts Enumerated by adding:

    Formula Business Overlay District (FBOD)

    Amend 139-9 A. 1 as follows:

    Retail sales, including on premises light manufacturing or fabrication clearly ancillary to the retail sales, except for Formula Business within the FBOD.

    Amend 139-9 A. 4 as follows:

    Restaurants, except for Formula Business within the FBOD.

    Amend 139-10 B. 2 as follows:

    Retail sales and personal services, except for Formula Business within the FBOD.

    Amend 139-10 B. 4 as follows:

    Restaurants, hotels, motels and inns, except for Formula Business within the FBOD.

    Add 139-12H in Overlay Districts by adding:

    H. Formula Business Overlay District (FBOD)

    Statement of purpose. The purpose and intent of the Formula Business Overlay District (FBOD) is to address the adverse impact of nationwide, standardized businesses on Nantucket's historic downtown area. The proliferation of formula businesses will have a negative impact on the island's economy, historical relevance, and unique character. These uses are therefore prohibited in order to maintain a unique retail and dining experience. Formula businesses frustrate this goal by detracting from the overall historic island experience and threatening its tourist economy.

    Part 2: And to amend the bylaws of the Town of Nantucket to allow for an administrative review process for retail licensing.

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