New York Appellate Court Finds that a Town of Hempstead Zoning Code Provision Adopted to Regulate the Location of Check Cashing Establishments is Preempted by State Law and Invalid

Land Use, Municipal Law

Recently, in Sunrise Check Cashing & Payroll Servs., Inc. v Town of Hempstead, 2011 NY Slip Op 08745 (Decided Nov. 29, 2011), the Appellate Division, Second Department, issued an opinion on whether a section of the Town of Hempstead Zoning Code enacted to regulate the location of Check Cashing establishments was preempted by New York State Banking Law and, therefore, invalid and unenforceable.  The Town of Hempstead Code provision at issue was Section 302(K) of Article XXXI of the Building Zone Ordinance.  Section 302(K) prohibited check-cashing establishments within the Town in any zoning districts other than industrial and light manufacturing districts.  Further, Section 302(K) provided a five year amortization period, requiring that any check cashing establishments located outside the permitted districts must close or relocate to a permitted location within such time.  The Court held, that based on the doctrine of conflict preemption, the Town Ordinance at issue was preempted by New York State Banking Law, and therefore, invalid. 

The Plaintiffs in this case were the owners of check cashing establishments located in the business district, a district now prohibited.  Plaintiffs commenced an action for inter alia, a judgment declaring that Section 302(K) was void and of no effect. The plaintiffs claimed Section 302(K) was preempted by State law, that it was not a valid exercise of the Town’s zoning power, and that it was unconstitutional.

The Court analyzed each of the grounds for which Plaintiffs claimed the new law was invalid.  However, the holding was ultimately based on the doctrine of conflict preemption.

Under the doctrine of conflict preemption, a local law is preempted by a state law when a right or benefit is expressly given . . . by [ ] State law which has then been curtailed or taken away by the local law’” (Matter of Chwick v Mulvey, 81 AD3d at 167-168, quoting Jancyn Mfg. Corp. v County of Suffolk, 71 NY2d at 97; see New York State Club Assn. v City of New York, 69 NY2d at 217). “Put differently, conflict preemption occurs when a local law prohibits what a state law explicitly allows, or when a state law prohibits what a local law explicitly allows” (Matter of Chwick v Mulvey, 81 AD3d at 168; see Matter of Lansdown Entertainment Corp. v New York City Dept. of Consumer Affairs, 74 NY2d 761, 762-763). “In determining the applicability of conflict preemption, we examine not only the language of the local ordinance and the state statute, but also whether the direct consequences of a local ordinance render[s] illegal what is specifically allowed by State law’” (Matter of Chwick v Mulvey, 81 AD3d at 168, quoting Matter of Lansdown Entertainment Corp. v New York City Dept. of Consumer Affairs, 74 NY2d at 764 [some internal quotation marks omitted]). “The crux of conflict preemption is whether there is a head-on collision between the . . . ordinance as it is applied’ and a state statute” (Matter of Chwick v Mulvey, 81 AD3d at 168, quotingMatter of Lansdown Entertainment Corp. v New York City Dept. of Consumer Affairs, 74 NY2d at 764).

Banking Law § 369 specifically delegates to the Superintendent the task of determining whether particular locations are appropriate for check-cashing establishments. Specifically, this section states:

if the superintendent shall find that the granting of such application will promote the convenience and advantage of the area in which such business is to be conducted, and if the superintendent shall find that the applicant has available for the operation of such business for each location and for each mobile unit specified in the application liquid assets of at least ten thousand dollars, the superintendent shall thereupon execute a license in duplicate to permit the cashing of checks, drafts and money orders in accordance with the provisions of this article at the location or in the area specified in such application. In finding whether the application will promote the convenience and advantage to the public, the superintendent shall determine whether there is a community need for a new licensee in the proposed area to be served. No license shall be issued to an applicant for a license, at a location to be licensed which is closer than one thousand five hundred eighty-four feet (three-tenths of a mile) from an existing licensee, except with the written consent of such existing licensee or pursuant to subdivision three of section three hundred seventy of this article, subject to any restriction or condition as the superintendent may promulgate by regulation . . .The primary business of the licensee, at the location to be licensed, shall be financial services” (Banking Law § 369[1]).

Further, the Court found that pursuant to New York State Banking Law,

[t]he Superintendent has promulgated regulations concerning licensed cashers of checks (see 3 NYCRR part 400), including specific regulations pertaining to the issuance of a license or the change of control of a license (see 3 NYCRR 400.1). Anyone seeking to obtain a license to cash checks, or to acquire control of a licensed check casher, must submit, among other things, a “business plan containing such information as shall permit the superintendent to make a finding that the granting of the license will promote the convenience and advantage of the area in which the business is to be conducted including a determination that there is a community need for a new licensee in the proposed area to be served” (3 NYCRR 400.1[c][7]).

Thus, based on the powers conferred on the Superintendent pursuant to the Banking Law, the Court held that:

We conclude that, under the doctrine of conflict preemption, Section 302(K) is preempted by State law. Accordingly, the Supreme Court should have granted the plaintiffs’ motion for summary judgment on the complaint, and denied the Town’s cross motion. Accordingly, the order is reversed insofar as appealed from, on the law, the plaintiffs’ motion for summary judgment on the complaint is granted, the defendant’s cross motion for summary judgment, in effect, declaring that Section 302(K) of article XXXI of the Building Zone Ordinance of the Town of Hempstead is valid is denied, and the matter is remitted to the Supreme Court, Nassau County, for the entry of a judgment, inter alia, declaring that Section 302(K) of article XXXI of the Building Zone Ordinance of the Town of Hempstead is void and of no effect.

A copy of the full decision is available at the Appellate Division, Second Department’s website, which can be accessed by clicking here.

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