Court of Appeals Returns Town Zoning Law Prohibiting Check Cashing Service for Insufficient Rationale

May a municipality use its zoning power to restrict businesses because of concern about the social impacts of the business? In a word, the New York State Court of Appeals says “no.”

The Court struck down a Town of Hempstead zoning law that prohibited check cashing establishments in a business district, holding it violated the principle that the zoning power is concerned with the use of land, not the identity of the user. Sunrise Check Cashing and Payroll Services v. Hempstead, 2013 NY Slip Op 00949, No. 12, NYLJ 1202588240256, decided February 14, 2013.

The Town’s law prohibited check cashing establishments in all zoning districts, except for industrial and light manufacturing districts, because the Town believed doing so would encourage young and lower income individuals to establish savings and checking accounts, do their banking at “sound and reputable” banking institutions, and develop credit ratings.

The Town reasoned that prohibiting such uses would eliminate “predatory and exploitative finance enterprises from commercial areas, which is beneficial because these enterprises tend to keep a neighborhood down.” The town attorney offered a memo in support of the law that concluded the legislation “removes a seedy type of operation, akin to pawnshops and strip clubs, from the commercial areas of the Town”, and the record before the Town Board referenced studies which found that check cashing establishments exploit the poor and African-Americans.

Several check cashing establishments challenged the zoning law. The Supreme Court dismissed their challenge, but on appeal, the Second Department reversed that decision, finding that the law was preempted by the State’s regulatory scheme.

The Court of Appeals agreed with the Appellate Division that the law should be invalidated, but offered different grounds, striking down the law “because the challenged provision is not a proper exercise of the zoning power.

While the enabling statutes authorize municipalities to “‘to regulate and restrict the height, number of stories and size of buildings and other structures, the percentage of lot that may be occupied, the size of yards, courts, and other open spaces, the density of population, and the location and use of buildings, structures and land for trade, industry, residence or other purposes'”, the Court observed that the case law is very clear: “the zoning power is not a general police power, but a power to regulate land use.”

On review of the record before the Town Board, the Court found the Town’s policy reasons for implementing the law demonstrated that the law was not concerned with the use of the land but with the business done by those who occupy it. While there are instances where the nature of a business is relevant to zoning because of the “negative secondary effects” the business has on the surrounding community (adult entertainment uses, pawnshops), “the Town has not tried to show and does not argue that check cashing services are in a similar category.”

Although the Town sought to rely on the rule that legislative enactments are generally entitled to a presumption of validity when reviewed by the courts, the Court rejected that argument, with the interesting statement that “[d]eference to legislative enactments, at least where the issue is abuse of the zoning power, does not go as far as the Town would have us go.”

It is unclear whether the Court was responding to the unusual circumstances of this case, or perhaps sending a signal that the Court may be moving to view zoning laws as entitled to less deference than other legislative enactments.

Municipalities can address the issues that were of concern to Hempstead by first considering carefully whether zoning regulations are the right tool to restrict uses that have secondary impacts. At minimum, if municipalities proceed with zoning enactment, they need to prepare a record that clearly articulates the land use considerations that support their zoning rationale.

Whether the enactment relies on the zoning authority or the police power, Sunrise Checking demonstrates that the municipality cannot rely only on judicial deference. The legislative record should evidence the careful consideration of studies and experts to demonstrate and address substantial “negative secondary effects” on other land uses.

Tobias A. Lake is an associate with the firm’s Municipal and Environmental/Land Use Teams, concentrating in land use, municipal and environmental law. He can be reached by phone at 845-778-2121 toll free or 845-778-2121 and by email.