In a major victory for opponents of big-box retail development, the Fifth District Court of Appeal has upheld a City of Turlock ordinance that prohibits a store of more than 100,000 square feet from selling groceries.

Although dozens of jurisdictions have similar ordinances, and retail giant Wal-Mart has fought back fiercely, the court’s ruling is the first published decision in California on such a regulation. The decision could encourage other cities to approve similar ordinances.

“I think it’s very useful to other cities,” Rick Jarvis, Turlock’s attorney in the case, said of the Fifth District decision. “There will be clear authority for other cities to adopt these ordinances without having to face legal challenges. The bottom line test is whether there is a rational basis for the regulation.”

Jarvis said Turlock planning staff’s thoughtful drafting of the ordinance and detailed justification helped win the case.

“They were very careful in the adoption of the findings, and they did an excellent job with the analysis of how the ordinance flows from the general plan,” Jarvis said.

The city’s general plan policy since the 1990s has been to locate grocery stores in neighborhood-serving centers spread across town, explained Community Development Director Charlie Woods. Big-box stores, meanwhile, are limited to regional-serving commercial areas near Highway 99. Woods pointed out that more than 10 years ago the city denied a Target store proposed for a neighborhood-serving center.

City officials feared that a big-box store with groceries would force the closure of neighborhood grocery stores, which would cause neighborhood centers to deteriorate and cause residents to drive farther to buy groceries in the regional retail center.

Of course, the big-box retailer in question is Wal-Mart, which had proposed a 225,000-square-foot supercenter— a store that would have sold groceries. Wal-Mart argued that Turlock officials singled out the company, a contention the city denied and the court rejected.

“[T]he simple fact that Wal-Mart was the first company to feel the effect of the ordinance is not sufficient to establish that Wal-Mart was targeted in any unconstitutional manner,” Justice Betty Dawson wrote for the unanimous three-judge appellate panel.

The issue, said Woods, is the scale and format of stores, not Wal-Mart per se. In fact, Turlock already has a Wal-Mart store.

“The council did what they did for the right reasons,” Woods said. “You have to articulate what your goals are.”

Wal-Mart officials indicated the company would likely ask the state Supreme Court to review the decision.

Three years ago, Wal-Mart began discussing development of a supercenter at Countryside Drive and West Tuolumne Road, near Highway 99. Representatives of labor unions (Wal-Mart employees are nonunion) and local grocery stores asked the city to block the project. In September 2003, the City Council directed the Planning Commission to prepare an ordinance that would limit the ability of big-box retailers to sell nontaxable items such as groceries. In January 2004, over the strenuous objections of Wal-Mart, the City Council adopted an ordinance that prohibits stores exceeding 100,000 square feet from devoting 5% of sales floor area to nontaxable merchandise (seeCP&DR, January 2004).

Wal-Mart responded with a lawsuit alleging that the city violated the California Environmental Quality Act (CEQA) and other state laws, and that the ordinance was arbitrary and capricious.

Stanislaus County Superior Court Judge Roger Beauchesne ruled for the city, finding that the ordinance was not a “project” under CEQA and also was entitled to other exemptions, and that the ordinance was a proper exercise of the city’s police power. Wal-Mart appealed, and the Fifth District upheld the lower court.

The most-watched portion of the case concerned the city’s use of its police power. Wal-Mart argued that the city’s ordinance was designed to suppress economic activity, was not reasonably related to the public welfare, would have effects outside the city, and was not a reasonable accommodation of competing interests. The city countered that the ordinance was a valid attempt to prevent urban/suburban decay that would result from existing grocery stores closing, and to reduce traffic and air quality impacts associated with people having to drive farther to one large store.

In siding with the city, the court cited extensively from a December 2003 staff report by then-Planning Manager Michael Cooke, and from the ordinance’s preamble.

“[W]hile the ordinance likely will have an anticompetitive effect on the grocery businesses in [the] city, that incidental effect does not render arbitrary an ordinance that was enacted for a valid purpose,” Dawson wrote. “While zoning ordinances may not legitimately be used to control economic competition, they may be used to address the urban/suburban decay that can be its effect.”

“[L]ocal governments,” Dawson continued, “need the flexibility to react to specific proposals for a new kind of development not previously contemplated where such a development will or may have harmful consequences to the locality’s legitimate planning objectives.

“In summary, the police power empowers cities to control and organize development within their boundaries as a means of serving the general welfare,” Dawson wrote. “[Turlock] legitimately chose to organize the development within its boundaries using neighborhood shopping centers dispersed throughout the city. The ordinance is reasonably related to protecting that development choice.”

In a footnote, the court distinguished its decision here from a decision issued one week earlier in a different case in which the court struck down a City of Hanford zoning ordinance regulating which stores may sell furniture (see Legal Digest, page 8). In the Hanford case, the regulation was “not rationally related” to the public purpose. In Turlock, “the ordinance is reasonably related to furthering a legitimate policy choice for organizing development,” Dawson wrote in the footnote.

The Fifth District dealt at length with Wal-Mart’s CEQA arguments. The city had declared the ordinance exempt from CEQA because the ordinance was not a public project, it was consistent with a program environmental impact report for the general plan, it was consistent with the general plan, and it was eligible for a categorical exemption as a minor alternation of land use. The city relied on CEQA Guidelines § 15183, which streamlines review of projects that are consistent with general plans for which an EIR was certified. The court upheld the city’s approach.

Wal-Mart’s primary contention was that its proposed store was environmentally superior to other likely development. Wal-Mart argued that if the city rejected its proposal, the company would build outside the city limits, forcing people to drive farther and creating more air pollution. Additionally, the originally chosen site would get developed with many smaller stores, including a grocery store, and these multiple stores would create more traffic than a single supercenter, Wal-Mart contended.

The court, however, said the proper environmental analysis would be a comparison between the current conditions (known as the baseline) and foreseeable future conditions. Wal-Mart was comparing two sets of future conditions and made too many assumptions about the effect of Turlock’s ordinance, the court ruled.

Wal-Mart has also sued Turlock in federal court, arguing that the city’s ordinance violates the equal protection and commerce clauses. That case was argued in U.S. District Court in Fresno on February 6, and a ruling is expected soon.

The Case:
Wal-Mart Stores, Inc. v. City of Turlock, No. F047372, 06 C.D.O.S. 2827, 2006 DJDAR 4019. Filed April 5, 2006

The Lawyers;
For Wal-Mart: Theodore Boutrous, Jr., Gibson, Dunn & Crutcher, (213) 229-7000.
For the city: Rick Jarvis, Jarvis, Fay & Doporto, (510) 238-1400.