Posted by: Patricia Salkin | November 26, 2018

TN Appeals Court Affirms Dismissal of Due Process and Equal Protection Claims Challenging Zoning Ordinance Requiring that Alternative Financial Services Providers be Located 1,320 Feet Apart

This post was authored by Matthew Loeser, Esq.


The Code of the Metropolitan Government of Nashville and Davidson County, Tennessee was amended in 2016 to require that businesses offering alternative financial services be located 1,320 feet apart. Conoly Brown and David Hood sought a building permit from the Metropolitan Department of Codes Administration to rehabilitate a building located on their property and open a business on the property that would provide alternative financial services such as check cashing, title loans, deferred presentment loans, and flex loans, as well as money transfers, debit cards, money orders, ATMs, tax preparation, local utility payments, bill payments, and postage. The Metropolitan Department of Codes Administration denied their application due to the fact that the building location was within 1,320 feet of an existing alternative financial services provider. Petitioners then initiated the present action and sought a declaratory judgment that “certain provisions of the Metropolitan Zoning Ordinance (“MZO”) violated their due process and equal protection rights under the Tennessee and United States constitutions.” The trial court granted Metro’s motion to dismiss and petitioners appealed.


On appeal, petitioners claimed court’s ruling on the motion to dismiss was improperly based upon matters outside the pleadings. Specifically, the preamble of Title 17 of the Metropolitan Code referenced a study performed by the Regional Planning Agency of Chattanooga-Hamilton County, an article in the Texas Business Review, and actions taken by the cities of Chattanooga and Memphis. Petitioners argued that the trial court’s consideration of the preamble to the zoning ordinance was inappropriate because the ordinance was not referenced in the Petition and the trial court improperly made “determinative findings of fact based upon hearsay contained in the preambles of the ordinances.” The court rejected this argument and found that the preamble merely set forth the basis upon which the ordinance was passed. As such, the court held no error was committed by the trial court in considering the preamble in determining whether Metro had a rational basis for adopting the ordinance.


As to their due process claim, while the petitioners admitted that “concerns about property values and economic redevelopment were valid concerns and a proper state interest for consideration in enacting zoning regulations,” they argued that the distance requirement was not reasonably related to advancing that interest. The court found the preamble to the ordinance included concerns related to the detrimental effect of clustering alternative financial services on property values. Additionally, the statements in the preamble reflected legitimate legislative purpose of protecting the welfare of economically vulnerable citizens. Accordingly, the court affirmed the dismissal of the Petitioners’ due process claim.


Petitioners next contended that alternative financial services businesses and financial institutions were similarly situated because they provided substantially the same services, in violation of their equal protection rights. The ordinance’s preamble identified specific characteristics of alternative financial services businesses, including: the high fees associated with using alternative financial services; permissive regulations enabling such establishments to charge high interest rates; and the proliferation of alternative financial services businesses. The court found that these facts were reasonably related to the classification and provided a reasonable basis for the difference in treatment of the two types of business. Accordingly, the court affirmed the dismissal of the equal protection claim.


Conoly Brown v Metropolitan Government of Nashville and Davidson County, 2018 WL 6169251 (TN App.  11/26/2018)


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