ALBANY, N.Y. (CN) - New York's highest court criticized zoning codes that exclude check-cashing businesses by focusing on the property's user rather than its use.
The Long Island town of Hempstead had enacted a zoning ordinance in 2006 that relegated check-cashing businesses to sites outside the central business district for social and public-safety reasons.
In a memorandum on the ordinance, the deputy town attorney had used the word "seedy" to describe such businesses, which cash checks and make payday or short-term loans. He likened them "to pawnshops and strip clubs," and said they "tend to cater disproportionately to minorities and pop up predominately in minority neighborhoods, keeping its patrons in the cash economy, to their detriment."
The ordinance, known as Section 302(K), limited check-cashing businesses to areas of the town zoned for industrial and light-manufacturing use. Any located outside those districts immediately became nonconforming uses and had to vacate their sites within five years.
Sunrise Check Cashing & Payroll Services Inc., one of several downtown businesses affected by the new regulation, sued the town in Nassau County Supreme Court in 2008, claiming state law pre-empted the ordinance. It also said the law was not a valid exercise of town zoning power and was unconstitutional.
The trial court granted the town summary judgment, but a panel of the Appellate Division reversed in 2011, finding the ordinance invalid under the doctrine of "conflict preemption," which occurs when local law curtails a state law right or benefit.
State banking law regulates check-cashing services, and the superintendent of banking determines who will be licensed to offer those services and where they will be located, according to the ruling from the Second Judicial Department in Brooklyn.
New York lawmakers also underscored those responsibilities in 1994 with amendments to the banking law that identified check cashers as providing "important and vital" services.
"Pursuant to the banking law, and to the regulations promulgated by the superintendent, where a license is granted, the successful applicant has demonstrated that it is appropriately located based upon community needs, economic development plans, and geographic patterns," the appellate justices said.
By limiting check-cashing businesses to industrial and light-manufacturing zones, the town zoning ordinance "purports to divest the superintendent of the authority to 'determine whether there is a community need for a new licensee in the proposed area to be served,'" the justices said, quoting banking law.
"Accordingly, we conclude that the town's attempt to control the determination of the appropriate locations of these establishments by enactment of Section 302(K) is in conflict with existing state law," they added, finding the law cannot stand.
The Court of Appeals affirmed Thursday on different grounds.
"The challenged provision is not a proper exercise of the zoning power," Judge Robert Smith wrote for the unanimous court.
A town's power to zone comes from state law that authorizes town boards to regulate "the location and use of buildings, structures and land for trade, industry, residence or other purposes," he added.
This zoning power, however, "is not a general police power but a power to regulate land use," Smith wrote.
Precedent holds that "it is a fundamental principle of zoning that a zoning board is charged with the regulation of land use and not with the person who owns or occupies it."
The Hempstead law stood that principle on its head, according to the ruling.
"It is clear from the memorandum of the deputy town attorney that Section 302(K) was directed at the perceived social evil of check-cashing services, which were thought to exploit the younger and lower-income people who are their main customers," Smith wrote. "Whatever the merits of this view as a policy matter, it cannot be implemented through zoning."
Despite the reference to pawnshops and strip clubs in the memorandum, the town did not try to put check-cashing businesses into the same category as "adult entertainment" establishments, which can be zoned into particular districts based on their "negative secondary effects" on the surrounding community, Smith noted.
The town did try, though, to say the ordinance served a public-safety good by protecting against armed robberies, pointing to court observations in a 1981 case that "the risk of robberies inherently exists in the check-cashing business."
"There is no evidence that the Town Board of Hempstead, when it enacted Section 302(K), was worrying about armed robbery," Smith wrote. "But the town, relying on the presumption of validity accorded to zoning legislation argues that, if any valid purpose for the enactment can be imagined, the body enacting it must be deemed to have had that purpose in view."
The court rejected that argument.
"The record here clearly refutes the idea that Section 302(K) was a public-safety measure," Smith wrote. "Assuming, without deciding, that a concern about armed robberies would justify a zoning regulation, this one cannot be justified on that ground."
Chief Judge Jonathan Lippman and Judges Victoria Graffeo, Susan Read and Eugene Pigott conccured. Judge Jenny Rivera, the latest addition to the court, took no part.
Jeffrey Stark of Forchelli, Curto, Deegan, Schwartz, Mineo & Terrana in Uniondale argued for Sunrise Check Cashing. Peter Sullivan of Berkman, Henoch, Peterson, Peddy & Fenchel in Garden City represented the town.
Matthew Grieco wrote an amicus brief for the superintendent of financial services. The state's Banking Department and Insurance Department merged in late 2011 to form the Department of Financial Services.
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