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American Legion Home Association Post 22 v. Pennington County

Supreme Court of South Dakota

October 10, 2018

PENNINGTON COUNTY, SOUTH DAKOTA, Respondent and Appellant.



          RODNEY W. SCHLAUGER ALLEN G. NELSON Bangs, McCullen, Butler, Foye and Simmons, LLP Attorneys for petitioner Rapid City, South Dakota and appellee.

          MICHAELE SANDERS HOFMANN Civil Deputy State's Attorney Office of the Pennington County State's Attorney Attorneys for respondent Rapid City, South Dakota and appellant.


         [¶1.] The Pennington County Board of Equalization established an exemption of 32% for the 2017 tax year on real property owned by American Legion Home Association Post 22 (American Legion). American Legion filed an administrative appeal claiming it used the property exclusively for benevolent purposes; therefore, the real property should qualify for a 100% exemption under SDCL 10-4-9.2. The hearing examiner agreed and issued a decision directing that the exemption be increased to 100%. The circuit court affirmed. The County appeals, challenging the circuit court's decision and its separate order awarding attorney fees to American Legion. We affirm in part, reverse in part, and remand.


         [¶2.] American Legion is a patriotic society with a mission to serve veterans and the community. It is organized and exists under the laws of South Dakota. American Legion owns real property in Rapid City, South Dakota, on which it operates a bar and restaurant open to member veterans and the public. The property also contains a meeting hall, which American Legion uses for membership and auxiliary meetings and rents for activities. It is undisputed that American Legion is a benevolent organization as defined by SDCL 10-4-9.2. As such, the County had, for many years, assessed American Legion's property to reflect a tax exemption for its use of the property exclusively for benevolent or charitable purposes.

         [¶3.] For the 2017 tax year, the Pennington County Director of Equalization reevaluated American Legion's exemption percentage. Before reassessing the property, the director visited American Legion and interviewed the person charged with managing American Legion's office and its bar and restaurant. The manager provided information related to American Legion's various uses of the property.

         [¶4.] Based on the information provided by the manager, the director determined the bar and restaurant comprise 43% of American Legion's property, and American Legion uses the other 57% for membership meetings and activities. The director concluded that American Legion's use of the property to operate a bar and restaurant was not benevolent, but that its use of the remaining 57% of the property was benevolent. After calculating the number of hours the bar and restaurant were open on average in a year, the director multiplied that number by 43% to arrive at a total number of days per year of non-benevolent use. Using that number, the director recommended American Legion be given a 12% tax exemption for the 2017 assessment.

         [¶5.] The Pennington County Board of Equalization reviewed the director's recommendation. The Board issued a written report, increasing the exemption to 32%. The Board accepted that American Legion used the meeting hall for benevolent purposes. It further agreed that use of the property to operate the bar and restaurant was not benevolent. The Board likened American Legion to two other benevolent organizations operating bars and restaurants in Rapid City: The Retired Enlisted Association (TREA) and Veterans of Foreign Wars (VFW). TREA had received a 20% exemption and VFW 32%. The Board then contrasted American Legion with Disabled Veterans, Inc., which does not operate a bar and restaurant and which received a 100% exemption.

         [¶6.] American Legion appealed the Board's decision to the South Dakota Office of Hearing Examiners. At the hearing, multiple witnesses testified, including the director of equalization and the first vice commander of American Legion. The County argued it had properly classified and assessed American Legion's property because American Legion did not directly use the bar and restaurant for benevolent purposes. In the County's view, American Legion operated the bar and restaurant to serve food and beverages and to generate income, which purposes it claimed only indirectly benefited veterans.

         [¶7.] In response, American Legion asserted it operated the bar and restaurant to fulfill its mission to help veterans and the community. It claimed the bar and restaurant provides a place for veterans to gather and seek help from American Legion as well as a place to eat and drink. It also asserted that the income-producing character of the use should not be dispositive; rather, the use of that income should be considered.

         [¶8.] The hearing examiner issued a written decision concluding the County improperly assessed and classified American Legion's property. In the hearing examiner's view, American Legion existed solely for benevolent purposes and used its property exclusively for benevolent purposes. The hearing examiner entered an order modifying the County's assessment to reflect a 100% exemption.

         [¶9.] The County appealed the hearing examiner's decision to the circuit court. The County argued that the hearing examiner erroneously interpreted SDCL 10-4-9.2 to permit exemption based on the benevolent nature of American Legion as an organization rather than the direct use of the property. American Legion countered that the hearing examiner correctly interpreted and applied SDCL 10-4-9.2 to determine that it was entitled to a 100% exemption. In its brief, American Legion also indicated that after the court's decision, it would "file a motion for fees and costs along with a supporting affidavit," citing SDCL 10-11-45.1, which provides for an award of attorney fees and costs if the County does not prevail in the appeal.

         [¶10.] The circuit court issued a memorandum decision affirming the decision of the hearing examiner. The court concluded that American Legion's "structure itself" and the proceeds "derived from the operations conducted by Post 22 within the structure are used in total for the benefit [of] those it was chartered to serve." The court adopted the hearing examiner's findings and conclusions "in their entirety[.]" The court directed American Legion to prepare an appropriate order and wrote, "Pursuant to statute, you may submit attorney's fees and costs."

         [¶11.] Counsel for American Legion submitted proposed findings of fact, conclusions of law, and a judgment, which the circuit court entered. American Legion also submitted an affidavit of attorney fees in the amount of $11, 177.18 but did not file a motion requesting attorney fees. The affidavit included information related to the attorney's practice history and recognitions received, his hourly rate, and the total hours he and others in the office spent on the case. But American Legion did not provide an itemization of its attorney fees. The judgment ordered that American Legion recover attorney fees from the County pursuant to SDCL 10-11-45.1 but left the amount of fees to be recovered blank. On the same day, the court wrote "Approved" on American Legion's affidavit but made no findings on the reasonableness of the fees.

         [¶12.] Thereafter, American Legion filed an application for taxation of attorney fees and costs with the clerk of court in the amount of $11, 177.18. In the application, American Legion cited SDCL 10-11-45.1 and SDCL 15-6-54(d) and indicated the circuit court's memorandum decision had approved submission of attorney fees and costs. American Legion requested that the clerk insert the amount of attorney fees into the judgment.

         [¶13.] The County objected, asserting that American Legion's request should be denied because it failed to file a motion for an award of attorney fees, and the clerk was not authorized to tax attorney fees. The court held a hearing on the issue. The County argued that American Legion could not as a matter of law recover attorney fees because it did not follow the procedural requirements of SDCL 15-6-54(d). The County also argued that American Legion failed to provide sufficient information for the court to consider the reasonableness of the fee request.

         [¶14.] The court awarded American Legion's requested fees. The court also awarded, over the County's objection, American Legion's attorney fees incurred to defend the County's objection. The court entered an amended judgment and order awarding ...

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