11th Circuit Strikes Down “Formula Retail” Prohibition as a Violation of the Dormant Commerce Clause

The 11th Circuit of the U.S. Court of Appeals struck down a Islamorada, Florida – a village of six islands in the Florida Keys – local ordinance that essentially prohibited national chain retail stores as a violation of the Dormant Commerce Clause with no legitimate local purpose.

Keep reading for GZB’s summary of Island Silver & Spice, Inc. v. Islamorada, U.S. District Court of Appeals, 11th Circuit, Case No. 07-11418, decided on September 8, 2008.

In 2002, the Florida township of Islamorada enacted an ordinance prohibiting “formula restaurants” and restricted “formula retail” establishments to limited street level frontage and total square footage.  The local ordinance defined “formula retail” as:

a type of retail sales activity of retail sales establishment . . . that is required by contractual or other arrangement to maintain any of the following: standardized array of services or merchandise, trademark, logo, service mark, symbol, decor, architecture, layout , uniform, or similar standardized feature.

When the prohibition was passed, Island Silver & Spice, Inc. owned and operated an independent retail store in Islamorada.  Six months after the prohibition was enacted, Island Silver & Spice entered into a contract to sell its property to a developer seeking to open a Walgreen’s drug store within the exact same footprint of the existing Island Silver & Spice building.

When the developer was told by Islamorada that the proposed Walgreen’s was prohibited by the “formula retail” ordinance it withdrew its contract with Island Silver & Spice. 

Island Silver & Spice sued the city to strike down the prohibition and to recover damages from the city.

The 11th Circuit agreed with the district court and affirmed its award of monetary relief to Island Silver & Spice and the invalidation of the prohibition for violation of the Dormant Commerce Clause.

The Dormant Commerce Clause prohibits regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.

The 11th Circuit found that while the Islamorada ordinance did not discriminate on its face against interstate commerce, it did by its effects. 

The ordinance’s frontage and square frontage maximums  essentially prohibited nationally and regionally branded formula retail stores because the limits were too small for the chain stores. 

Accordingly, the Court held that the ordinance’s elimination of all new interstate chain retailers has the “practical effect of . . . discriminating against” interstate commerce.  As such, the ordinance could only survive it there was “a legitimate local purpose that [could not] be adequately served by reasonable nondiscriminatory alternatives.”

The stated purpose of the ordinance was:

the preservation of “unique and natural” “smalltown” 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.”

While the 11th Circuit agreed that “preserving small town community is a legitimate purpose,” the Court held that Islamorada could not demonstrate “that it has any small town character to preserve.” 

Islamorada had a number of pre-existing “formula retail” businesses, was not a Historic District, contained no historic buildings, allowed local retail establishments to exceed the frontage and square footage maximums of the ordinance, was not “uniquely relaxed or natural,” and that there was no “pre-dominance of natural conditions and characteristics over human intrusions.”  The stated traffic and garbage purposes were already covered by other local ordinances.

As such, the 11th Circuit held that Islamorada failed to indicate a legitimate local purpose to justify its ordinance’s discriminatory effects and struck down the ordinance as a violation of the Dormant Commerce Clause.

A pdf of the decision in Island Silver & Spice, Inc. v. Islamorada, U.S. District Court of Appeals, 11th Circuit, Case No. 07-11418, decided on September 8, 2008 can be found here.

The “formula restaurant” portion of the Islamorada ordinance was not challenged or struck by this case; however, it is being challenged in Joseph Cachia v. Islamorada, U.S. District Court for the Southern District of Florida, No. 06-10061-CV-KM.  The 11th Circuit recently reversed the dismissal of the Cachia lawsuit and sent it back to the district court for further proceedings.   A pdf of the decision in Joseph Cachia v. Islamorada, U.S. District Court of Appeals, 11th Circuit, Case No. 06-16606, decided on September 8, 2008 can be found here.

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6 responses to this post.

  1. […] You can read about the case on the Law of the Land blog, 11th Circuit Finds Formula Based Retail Regulations Violate Dormant Commerce Clause, and the Georgia Zoning Blog, 11th Circuit Strikes Down “Formula Retail” Prohibition as a Violation of the Dormant Commerce Cl…. […]

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