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Disputing The 5 Percent Solution
by Ron Davis

Efforts to protect a California city’s downtown furniture stores from suburban shopping center and major retail competitors have largely succeeded.

The city is Hanford, and the protection was afforded by city planners in the form of a law aimed primarily at such large retailers as Wal-Mart and Target. But that law also inhibits smaller retailers that want to sell furniture in the outlying areas of Hanford.

The stated objective of the law is to prevent competitors from attracting customers away from the 13 regionally well-regarded downtown furniture stores in Hanford. As a concession to shopping centers and major retail stores, however, the law allows large suburban retailers to offer a limited amount of furniture, not to exceed 5 percent of each store’s floor space.

Small furniture retailers hoping to operate stores in the suburban area protested that the law unfairly restricts them. And they sued, arguing that the law violates the equal protection clauses of the U.S. and California constitutions.

A California appellate court agreed that the Hanford law is unfair, explaining, “When all retailers limit the furniture display space,...the difference in total floor space between the retailers is largely irrelevant. Thus, the disparate treatment of these similarly situated retailers based on square footage is not rationally related to the purpose behind the law in question and is unconstitutional as a violation of equal protection.”

The city of Hanford challenged that ruling, contending that the law has two legitimate purposes: (1) protecting and preserving the economic viability of the city’s downtown commercial district and (2) attracting to, and retaining within, the outlying area the type of large department stores that the city views as essential to the economic welfare of Hanford.

The California Supreme Court, in reversing the appellate court, explained, “The zoning law’s general prohibition on the sale of furniture–although concededly intended, at least in part, to regulate competition–was adopted to promote the legitimate public purpose of preserving the economic viability of Hanford’s downtown business district, rather than to serve any impermissible private anticompetitive purpose.

“Furthermore,” the justices added, “the zoning law’s restrictions are aimed at regulating where, within the city, a particular type of business generally may be located, a very traditional zoning objective. Under these circumstances, the zoning law cannot be found invalid as an improper limitation on competition.” (Hernandez v. City of Hanford, 159 P.3d 33)

Decision: June 2007
Published: July 2007



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