reversing the dismissal of a discriminatory-effects claim because the complaint alleged that the challenge ordinance did “not simply raise the costs of operating a [chain] restaurant in Islamorada, but entirely prohibit[ed] such restaurants from opening”
How later courts described this case
- reversing the dismissal of a discriminatory-effects claim because the complaint alleged that the challenge ordinance did “not simply raise the costs of operating a [chain] restaurant in Islamorada, but entirely prohibit[ed] such restaurants from opening”
- applying elevated scrutiny test to dormant Commerce Clause challenge of similar “formula business” prohibition ordinance because it “has the practical effect of discriminating against interest state commerce”
- reversing the dismissal of a discriminatory- effects claim
- facially neutral ordinance whose effect was “to exclude national chain restaurants from competition in the local market” was subject to heightened scrutiny
Written by the judges who cited it.
The opinion
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
U.S. COURT OF APPEALS
No. 06–16606 ELEVENTH CIRCUIT
SEPT 8, 2008
THOMAS K. KAHN
CLERK
D.C. Docket No. 06-10061-CV-KMM
JOSEPH CACHIA,
Plaintiff–Appellant,
versus
ISLAMORADA, VILLAGE OF ISLANDS,
Defendant–Appellee.
Appeal from the United States District Court
for the Southern District of Florida
(September 8, 2008)
Before TJOFLAT and BLACK, Circuit Judges, and RESTANI,* Judge.
RESTANI, Judge:
Plaintiff-Appellant Joseph Cachia (“Cachia”) appeals an order of the United
*
Honorable Jane A. Restani, Chief Judge, United States Court of International Trade,
sitting by designation.
States District Court for the Southern District of Florida granting dismissal in
favor of Defendant-Appellee Islamorada, Village of Islands (“Islamorada”).
Cachia challenges an Islamorada zoning ordinance on the grounds that its
“formula restaurant” provisions violate the Dormant Commerce Clause. We
reverse and remand to the district court for further proceedings.
BACKGROUND
In January 2002, Islamorada enacted Ordinance 02-02, which prohibits
“formula restaurant[s]” and limits the size of “formula retail” establishments. (See
Ordinance 02-02 §§ 6.4.3–4(a–b), available at R.E. Tab 2 at 22 (“Ordinance
02-02” or “the ordinance”).) The ordinance defines a formula restaurant as:
[a]n eating place that is one of a chain or group of three (3) or more
existing establishments and which satisfies at least two of the
following three descriptions: (1) has the same or similar name,
tradename, or trademark as others in the chain or group; (2) offers any
of the following characteristics in a style which is distinctive to and
standardized among the chain or group: i. exterior design or
architecture; ii. uniforms, except that a personal identification or
simply logo will not render the clothing a uniform; or iii. has a
standardized menu; or (3) is a fast food restaurant.
(Id. at § 6.4.1(d).) The ordinance states that “[f]ormula restaurants shall not be
permitted in any zoning district of [Islamorada].” (Id. at § 6.4.3.)
Cachia is an owner and operator of an independent retail store in
Islamorada. See Cachia v. Islamorada, No. 06-10061, slip op. at 1 (S.D. Fla. Oct.
2
13, 2006). In 2005, Cachia entered into a Letter of Intent to sell his property to a
corporation planning to convert the property into a Starbucks coffee shop. Id. at 2.
When the corporation was informed by Islamorada that such use would be
prohibited by the ordinance, it notified Cachia that it no longer intended to
purchase the property. Id.
Cachia brought a complaint against Islamorada before the district court
seeking damages and injunctive relief on the grounds that the ordinance’s formula
restaurant provisions violated the Equal Protection, Due Process, Privileges and
Immunities, and Commerce Clauses of the United States Constitution, as well as
the terms of the Florida Constitution.1 Id. With respect to the claim arising under
the Dormant Commerce Clause, Cachia alleged that the ordinance “effectively
prohibits ‘Formula Restaurants’ in any zoning district within [Islamorada’s]
geographical limits,” (Compl. ¶ 5), “the primary purpose of the Ordinance is
economic protection of small, single unit, locally-owned businesses,” (id.), the
ordinance “directly regulates or discriminates against interstate commerce and
favors in-state economic interests over out-of-state interests,” (id. at ¶ 17), and the
ordinance “does not advance a legitimate local purpose that cannot be adequately
1
Cachia’s arguments on appeal address only the district court’s dismissal of the claim
arising under the Dormant Commerce Clause. (See Cachia Br. xi, 1.)
3
served by reasonable nondiscriminatory alternatives,” (id.).
On October 13, 2006, the district court granted Islamorada’s Motion to
Dismiss, finding, inter alia, that Cachia failed to state a claim because the
ordinance’s formula restaurant provision does not violate the Dormant Commerce
Clause. Cachia, at 6–8. The district court found that the ordinance has only an
indirect effect on interstate commerce, is supported by a legitimate state interest,
and the burden on interstate commerce does not exceed local benefits. Id. at 8.
Cachia appeals.2
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction over the appeals of final decisions of the district court
pursuant to 28 U.S.C. § 1291. We exercise de novo review over the district
court’s decision to grant a motion to dismiss. Doe v. Pryor, 344 F.3d 1282, 1284
(11th Cir. 2003).
DISCUSSION
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
2
This appeal was consolidated for oral argument with Island Silver & Spice, Inc. v.
Islamorada, No. 07-11418, which is disposed of in a separate opinion, filed concurrently with
this opinion.
4
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 is directed equally at interstate and local businesses, and
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 restaurant provision
does not facially discriminate against interstate commerce. See Cachia, at 7. The
district court also found that the ordinance equally targets restaurants “regardless
of their state of citizenship or the locations of their other stores,” and that any
effect on interstate commerce is therefore “indirect.” Id. at 8. Cachia challenges
the district court’s approach, arguing that the provision should instead be subject
to elevated scrutiny because it favors in-state interests by eliminating the
5
economic advantages of operating a national chain restaurant.
Cachia’s argument relies on Hunt v. Washington State Apple Advertising
Commission, 432 U.S. 333 (1977), which applied elevated scrutiny to a North
Carolina statute requiring the use of a USDA grading system for apples sold
within the state because the regulation had “the practical effect of . . .
discriminating against” growers from Washington, who routinely applied a
superior grading system. Id. at 350. Hunt found that the requirement
impermissibly “rais[ed] the costs of doing business in the North Carolina market
for Washington apple growers and dealers, while leaving those of their North
Carolina counterparts unaffected.” Id. at 351. In the instant case, the ordinance’s
formula retail provision does not simply raise the costs of operating a formula
restaurant in Islamorada, but entirely prohibits such restaurants from opening.
(See Ordinance 02-02 § 6.4.3.) Although the ordinance also prohibits formula
restaurants that originate from within the state of Florida, the regulation serves as
an explicit barrier to the presence of national chain restaurants, thus preventing the
entry of such businesses into competition with independent local restaurants.
Islamorada asserts that the ordinance is not subject to elevated scrutiny
because it does not prevent all out-of-state restaurants from entering the local
market, and targets only those meeting the “formula restaurant” definition set forth
6
by the regulation. Islamorada points to Exxon Corp. v. Governor of Maryland,
437 U.S. 117 (1978), which held that the fact that the burden of a regulation fell
onto a subset of out-of-state retailers “[did] not, by itself, establish a claim of
discrimination against interstate commerce.” Exxon, 437 U.S. at 126. Exxon
found that, where in-state companies would “have no competitive advantage over
out-of-state [companies],” the elevated scrutiny approach used in Hunt did not
apply.3 Id.
Although Exxon rejected the notion “that the Commerce Clause protects [a]
particular structure or methods of operation in a retail market,” id. at 127, the
ordinance’s complete prohibition of chain restaurants sharing certain
characteristics amounts to more than the regulation of methods of operation, and
serves to exclude national chain restaurants from competition in the local market.
While the ordinance does not facially discriminate between in-state and
out-of-state interests, its prohibition of restaurants operating under the same name,
trademark, menu, or style is not evenhanded in effect, and disproportionately
3
The Maryland statute challenged in Exxon provided “that a producer or refiner of
petroleum products (1) may not operate any retail service station within the State, and (2) must
extend all ‘voluntary allowances’ uniformly to all service stations it supplies.” Exxon, 437 U.S.
at 119–20. In particular, Exxon targeted “vertical organization in the petroleum industry,” and
did not “discriminate against interstate petroleum producers and refiners in favor of locally based
competitors because . . . there were no such local producers or refiners to be favored.” Lewis v.
BT Inv. Managers, Inc., 447 U.S. 27, 41, 40–41 (1980).
7
targets restaurants operating in interstate commerce. (See Ordinance 02-02
§ 6.4.3; Compl. ¶ 5.) The ordinance’s prohibition therefore imposes more than an
indirect burden on interstate restaurant operations, and has the practical effect of
discriminating against interstate commerce. Accordingly, the elevated scrutiny
test applies. See Hunt, 432 U.S. at 353.
Under the elevated scrutiny test, the burden is on the local government to
show both that the regulation is supported by a legitimate local purpose and that
there are no reasonable nondiscriminatory alternatives adequate to serve that
purpose. Id.; Bainbridge, 311 F.3d at 1109. Cachia’s complaint alleges that “the
primary purpose of the Ordinance is economic protection of small, single unit,
locally-owned businesses,” (Compl. ¶ 5), which is not a legitimate local purpose,
and that the ordinance “does not advance a legitimate local purpose that cannot be
adequately served by reasonable nondiscriminatory alternatives,” (id. at ¶ 17).
Although the district court noted that “[t]he Ordinance itself articulates the
Village’s interests in enacting [it],”4 Cachia, at 8, the district court did not fully
4
The ordinance states the main purposes for its enactment, including the preservation of
the “unique and natural characteristics of the community”; encouragement of “small scale uses,
water-oriented activities, a nationally significant natural environment, quiet shorelines and
passive relaxation opportunities”; maintenance of “a small town community”; and avoidance of
“‘auto-urban’ development influences” and the threat of “the potential proliferation of ‘formula’
restaurants and retail establishments . . . [which] diminish the unique character of the Village by
offering standardization of architecture, interior design and decor, . . . [and] are more likely to
(continued...)
8
consider, and could not consider on the record at this stage: 1) whether the
ordinance’s stated interests constitute a legitimate local purpose; 2) whether the
prohibition of formula restaurants adequately serves such purpose; or 3) whether
Islamorada could demonstrate the unavailability of nondiscriminatory alternatives,
such as zoning ordinances or building codes, to fulfill the same needs. See id.
The complaint adequately states a claim for relief, and further proceedings are
necessary to develop a record upon which these issues may be properly considered
by the district court.
CONCLUSION
Accordingly, we REVERSE the district court’s grant of dismissal in favor
of Islamorada and REMAND for further proceedings consistent with this opinion.
4
(...continued)
increase the traffic congestion on the already overcrowded streets and increase litter, garbage and
rubbish offsite.” (Ordinance 02-02 at Preamble.)
9