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Nine, Inc. D/B/A 9 Bar v. City of Brookings

April 20, 2011

NINE, INC. D/B/A 9 BAR AND NIGHTCLUB; AND GDT, INC. D/B/A CUBBY'S SPORTS BAR & GRILL; AND SKINNER'S, INC. D/B/A SKINNER'S PUB,
PLAINTIFFS AND APPELLEES,
v.
CITY OF BROOKINGS,
DEFENDANT AND APPELLANT.



APPEAL FROM THE CIRCUIT COURT OF THE THIRD JUDICIAL CIRCUIT BROOKINGS COUNTY, SOUTH DAKOTA HONORABLE DAVID R. GIENAPP Judge

The opinion of the court was delivered by: Zinter, Justice

CONSIDERED ON BRIEFS

ON MARCH 21, 2011

[¶1.] Appellees brought this declaratory judgment action against the City of Brookings. They challenged the method by which Brookings set the fee for new on-sale full-service restaurant alcoholic beverage operating agreements (more commonly referred to as liquor licenses). The circuit court declared the Brookings methodology invalid and enjoined its enforcement. We affirm.

Facts and Procedural History

[¶2.] Appellees own and operate private bar and/or restaurant businesses in Brookings. These businesses are authorized to sell alcoholic beverages under operating agreements with Brookings. Appellees sought a declaration that a Brookings ordinance and resolution establishing the fee for additional full-service restaurant on-sale liquor operating agreements/licenses violated SDCL 35-4-117 because the fee was based on city population rather than the market value of existing operating agreements/licenses. [¶3.] A brief history of the law authorizing municipal liquor licenses is necessary for context. Prior to 2008, municipalities were only permitted to authorize a limited number of businesses to sell or serve alcoholic beverages. In 2008, the Legislature passed statutes authorizing municipalities to issue additional on-sale "licenses" to full-service restaurants. See

SDCL 35-4-110 to -119.*fn1 Under the new legislation, the fee for the new licenses was to be based on the current market value of existing licenses. SDCL 35-4-117 (2008) provided:

Any municipality or county adopting the ordinance pursuant to § 35-4-111 shall set the price of a new full-service restaurant on-sale license, pursuant to § 35-4-116, at or above the current fair market value.

However, such full-service restaurant on-sale license fee may not be less than the minimum on-sale license fee established pursuant to subdivision 35-4-2(4) or (6). For purposes of this section, the term, current fair market value, means the documented price of the on-sale license most recently sold between January 1, 2003, and January 1, 2008, through an arm's-length transaction, less the value of any real or personal property included in the transaction. (Emphasis added.) The Legislature also provided for a minimum fee based on population. SDCL 35-4-116 (2008) provided in part:

Any municipality or county adopting the ordinance pursuant to § 35-4-111 may issue additional on-sale licenses to full-service restaurants. Any municipality adopting such ordinance shall charge at least one dollar for each person residing within the municipality as measured by the last preceding decennial federal census. [¶4.] In response to the 2008 legislation, Brookings decided to authorize additional on-sale liquor licenses. However, the appropriate fee to be charged for the new licenses was complicated by the fact that Brookings is a "local option community." See SDCL 35-3-7.*fn2 In local option communities there is only one liquor "license," and that license is held by the city. Those cities then enter into "operating agreements" with private businesses authorizing the businesses to sell alcoholic beverages. See

SDCL 35-4-19.*fn3 Because there technically are no "licenses" or "license" sales to determine current fair market value in local option communities like Brookings, a question arose whether Brookings's operating agreements should be considered the same as licenses for purposes of determining the fee under SDCL 35-4-117. The 2009 Legislature resolved the question by adopting SDCL 35-4-19.1. That statute provided that "[e]ach operating agreement holder is a license holder for the purposes of §§ 35-4-110 to 35-4-120, inclusive, and when applying these [new licensing] provisions." [¶5.] SDCL 35-4-19.1 was not, however, in effect at the time Brookings enacted its ordinance and resolution. Therefore, Brookings took the position that because there were no "license" sales upon which current market value could have been established under SDCL 35-4-117, the city was authorized to set the new license fee at the minimum amount based on population as provided for in SDCL 35-4-116. Accordingly, Brookings adopted an ordinance and resolution setting the new fee at $18,504, the minimum amount based on population. Appellees subsequently commenced this action.

[¶6.] The circuit court ruled that operating agreements were the same as licenses for purposes of determining the fee under the new statutes. The court declared the new Brookings ordinance and resolution invalid because they established the new license fee in an amount less than current fair market value as required by SDCL 35-4-117. The court did not determine whether SDCL 35-4-19.1 applied retroactively because the issue was moot under the court's interpretation of SDCL 35-4-117. [¶7.] Brookings raises two issues on appeal:

1. Whether Brookings properly set the fee for new full-service restaurant on-sale liquor licenses in accordance with ...


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