M.G. Oil Co. v. City of Rapid City

CourtListener 902112Sd26.01.2011

Gesamter Gesetzestext

#25613-a-DG

2011 S.D. 3

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

M.G. OIL COMPANY, Petitioner and Appellee,

v.

CITY OF RAPID CITY, ALAN HANKS,
in his official capacity as Mayor, RAPID
CITY COMMON COUNCIL, City Council
Members DEB HADCOCK, in her official
capacity, RON WEIFENBACH, in his
official capacity, KAREN GUNDERSEN
OLSON, in her official capacity, PATTI
MARTINSON, in her official capacity, SAM
KOOIKER, in his official capacity, RON
KROEGER, in his official capacity, LLOYD
LACROIX, in his official capacity, MALCOM
CHAPMAN, in his official capacity, AARON
COSTELLO, in his official capacity, BILL
WAUGH, in his official capacity, Respondents and Appellants.

* * * *

APPEAL FROM THE CIRCUIT COURT
OF THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA

* * * *

HONORABLE JOHN J. DELANEY
Judge

* * * *

CONSIDERED ON BRIEFS
ON NOVEMBER 15, 2010

OPINION FILED 01/26/11
EDWARD C. CARPENTER
STEVEN C. HOFFMAN of
Costello, Porter, Hill,
Heisterkamp, Bushnell
and Carpenter, LLP
Rapid City, South Dakota Attorneys for petitioner
and appellee.

JOEL P. LANDEEN
Assistant City Attorney
Rapid City, South Dakota Attorney for respondents
and appellants.
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GILBERTSON, Chief Justice

[¶1.] M.G. Oil Company (M.G. Oil) applied to the City of Rapid City (City)

for a conditional use permit to operate a video lottery casino. The Rapid City

Common Council (City Council) denied the permit. M.G. Oil next sought a writ of

mandamus, seeking an order that the City Council grant M.G. Oil the permit. The

circuit court issued the writ, finding that the City Council’s decision to deny the

permit was “unreasonable, arbitrary, capricious and an abuse of discretion.” The

City appeals.

FACTS

[¶2.] M.G. Oil filed a petition for a conditional use 1 permit to operate an on-

sale liquor establishment as part of a planned video lottery casino. 2 The casino was

to be located in a newly constructed strip mall on Haines Avenue in north Rapid

City, zoned general commercial. Staff in the Growth Management Department for

the City reviewed the application, which included circulation to City agencies. After

all the agencies, including the police department, reviewed the application without

1. “Conditional use” is defined at SDCL 11-4-4.2 as:
any use that, owing to certain special characteristics attendant
to its operation, may be permitted in a zoning district subject to
the evaluation and approval of the approving authority specified
in § 11-4-4.1. A conditional use is subject to requirements that
are different from the requirements imposed for any use
permitted by right in the zoning district.

2. On-sale liquor establishments are conditional uses in the City’s general
commercial zone districts. Rapid City Municipal Code § 17.18.030(17). M.G.
Oil also sought to transfer a license to sell liquor to the proposed location. In
order to operate a video lottery casino, the owner must have both a liquor
license and a conditional use permit. This writ does not address the liquor
license transfer.

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objection, the staff recommended approval of the permit with stipulations. 3 The

staff’s report found “there is one video lottery casino that is located approximately

470 feet to the north of this property. It does not appear that this request for on-

sale liquor use will constitute an undue concentration which would cause blight or

deterioration or diminish land values in the surrounding area.” The Rapid City

Planning Commission approved issuance of the permit with the stipulations.

[¶3.] A nearby property owner, Mario Rangel, owner of Munoz/Rangel, LLC,

appealed the Planning Commission’s decision. The matter was placed on the City

Council’s agenda. At the next City Council meeting, Rangel told the City Council he

wanted the City to be “supportive” of “positive” development on Haines Avenue.

There was some discussion on whether the neighborhood, in particular a nearby

trailer park, had received proper notification of the proposed use. Applicant Troy

Erickson and City Attorney Jason Green verified M.G. Oil had completed the

correct application and notification process. Alderman Ron Kroeger discussed the

history of the area and the nearby trailer court. He questioned whether there

would be any response from those residents as most of the trailers were rented and

the tenants “wouldn’t care” about a casino in the area. After more discussion, the

City Council referred the appeal to the Legal and Finance Committee to allow

additional time for public comment.

3. The stipulations required the applicant to, in part, obtain the proper building
permits, maintain a minimum number of parking spaces, have the signage
approved, maintain certain landscaping requirements, and comply with
certain lighting and fire standards.

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[¶4.] At the next Legal and Finance Committee meeting, the applicant, six

proponents, and two opponents commented on the proposed casino. Erickson

reiterated that he had complied with all requirements and would not serve alcohol

at his casinos if a liquor license was not required by law. Three members of M.G.

Oil’s security team, Dan Nagel, Bill Floor, and Wayne Jackson, discussed M.G. Oil’s

security measures. 4 Collectively they stated that M.G. Oil employed at least six

security officers to ensure the safety of both employees and customers of M.G. Oil’s

25 businesses in the area. Three to four officers are on patrol every night,

responding to calls and working with police to keep all of M.G. Oil’s establishments

orderly. Security officers issue written warnings, keep a log of their enforcement

activities, and maintain a “picture book” of over 600 “unwanted” customers. At

least two of the men had a career history in law enforcement. The men also noted

that no other casinos in the area had this level of security. Two other M.G. Oil

employees, Cheryl Hovick and Penny Jones, spoke in support of the permit. The

women stated that the security made their customers feel safe and that they did not

tolerate inappropriate behavior in the locations where they worked. Jones also

noted that she had always lived in north Rapid City and noticed how much it had

“cleaned up” in the past few years. A resident of the nearby trailer court, Heather

Turango, also supported the permit. She stated that she had lived there for over

two years and was “appalled and outraged” at Alderman Ron Kroeger’s comments

at the City Council meeting regarding the trailer court. She stated that, contrary to

4. No transcript of the meetings was provided. The record of the meetings
consists solely of video recordings.

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his statements, 70 of the 75 trailers were owner occupied and residents were

working as a community to improve the neighborhood.

[¶5.] Two people at the Legal and Finance Committee meeting opposed the

permit. Jami Al-Haj owns property across from the current casino on Haines

Avenue, also owned by M.G. Oil. She testified she was concerned because she had

experienced an increase in vandalism, break-ins, and littering since around the

time the current casino had opened. She stated she did not know if the problems

she was experiencing were directly a result of the casino, but was concerned that

the problems may increase if another casino opened nearby. She commented that at

times she had safety concerns for herself and her customers at night and that she

did not want anything to harm the value of her property. James McCoy, a member

of the neighborhood watch and North Rapid Civic Association, also spoke against

the permit. He stated it had taken the Association 14 years to clean up the area

and there had been more trouble recently. Alderman Kroeger discussed living in

the area for 32 years and the improvement during that time. He stated the area did

not need another casino only one-and-a-half blocks away from an existing casino.

Another alderman requested that Rapid City Chief of Police Allender conduct an

analysis of the relation between calls to the police for service and casinos. In order

to receive this information from the Chief of Police, the application was returned to

the City Council without recommendation.

[¶6.] At the City Council’s next meeting, six people commented in favor of

the permit and two commented against. While five of the proponents were the same

as before, there was one additional person who spoke in favor of M.G Oil’s request.

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The two opponents had not given public comment at the previous meetings. Joan

Kettlewell, a nearby business owner, expressed her concern that a casino right off a

major exit would not give a good impression of the city. She also worried about

having four liquor licenses within two blocks. Alice McCoy testified she was the

Vice President of the North Rapid Civic Association and that a poll of her members

found a majority were against this type of business. Police Chief Allender reported

that, having conducted an analysis of the calls for police assistance to casinos in

Rapid City, he thought the results were “statistically neutral.” Rapid City had 130

casino licenses, and 47 of those casinos were housed in their own buildings. Of

those 47 casinos, the current Haines Avenue casino made 51 calls the previous year,

which was the fourth highest. The record indicates three letters were also

submitted to the City Council expressing opposition to the permit.

[¶7.] A council member made a motion to deny the conditional use permit.

City Attorney Jason Green told the City Council that the ordinance5 [as it relates to

conditional use permits] was very specific and that the City Council would have to

5. Rapid City Municipal Code § 17.50.185 provides:

An on-sale liquor establishment must be issued if:
A. The requested use will not adversely affect the use of any place used for
religious worship, school, park, playground or similar use within a 500-
foot radius.
B. The requested use is sufficiently buffered with respect to residential
areas so as not to adversely affect the areas.
C. The proposed use will not create an undue concentration of similar
uses, so as to cause blight, deterioration or substantially diminish or
impair property values.
D. The proposed use complies with the standards of §§ 5.12.140 and
17.54.030 of this code.

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make a finding based on the ordinance in order to deny the application. He told the

City Council he believed that subsection C of the ordinance was the most relevant to

the comments they had heard. Alderman Ron Weifenbach stated he did not

understand how the City Council could find that two casinos on the street would

constitute an “undue concentration,” especially given the more concentrated casinos

in other parts of town. Alderman Kroeger stated he had been on the City Council

for 13 years and had denied applications before and would deny this license because

he believed it would cause blight in the area and diminish property values.

Alderman Karen Olson stated she would vote to deny the application because the

neighborhood is entitled to be safe and see positive growth. She also commented

she believed that the members of City Council were required to use their discretion

as elected officials to determine if there was an undue concentration in a particular

area and it did not matter if there were more casinos in other areas.

[¶8.] The City Council voted 8-1 to deny the conditional use permit, with one

alderman abstaining due to a personal conflict. The grounds for the denial were

that the proposed use would cause an undue concentration of similar uses, so as to

cause blight, deterioration or substantially diminish or impair property values.

[¶9.] M.G. Oil sought a writ of mandamus against the City. The circuit

court issued the writ, ordering the City Council to approve the issuance of a

conditional use permit to M.G. Oil to allow an on-sale liquor establishment with

video lottery, subject to the stipulations set forth by the Rapid City Planning

Commission.

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[¶10.] The City appeals, raising the following issue:

Whether the circuit court abused its discretion in finding that the City
Council acted arbitrarily and capriciously and abused its discretion
when it denied the issuance of a conditional use permit to M.G. Oil.

STANDARD OF REVIEW

[¶11.] We review a circuit court’s issuance of a writ of mandamus for an

abuse of discretion. Black Hills Cent. R.R. Co. v. City of Hill City, 2003 S.D. 152, ¶

9, 674 N.W.2d 31, 34; Hendriks v. Anderson, 522 N.W.2d 499, 502 (S.D. 1994) (“The

granting of a writ of mandamus is not a matter of absolute right, but is vested in

the sound discretion of the court.”) (citing Anderson v. City of Sioux Falls, 384

N.W.2d 666, 668 (S.D. 1986)).

ANALYSIS AND DECISION

[¶12.] We begin by reviewing the remedy of a writ of mandamus. South

Dakota law provides:

The writ of mandamus may be issued by the Supreme and
circuit courts, to any inferior tribunal, corporation, board, or
person, to compel the performance of an act which the law
specially enjoins as a duty resulting from an office, trust, or
station; or to compel the admission of a party to the use and
enjoyment of a right or office to which he is entitled, and from
which he is unlawfully precluded by such inferior tribunal,
corporation, board, or person.

SDCL 21-29-1 (emphasis added). In addition, SDCL 21-29-2 provides that a “writ of

mandamus must be issued in all cases where there is not a plain, speedy, and

adequate remedy, in the ordinary course of law.”

[¶13.] Generally, mandamus is available to compel performance of

ministerial duties. Black Hills Cent. R.R. Co., 2003 S.D. 152, ¶ 14, 674 N.W.2d at

34. Mandamus is also appropriate to compel discretionary functions, provided the

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particular entity abused its discretion. Id. “Abuse of discretion is the most

deferential standard of review available with the exception of no review at all.” In

re SD Microsoft Antitrust Litig., 2003 S.D. 19, ¶ 27, 657 N.W.2d 668, 678 (citations

omitted). A standard definition of abuse of discretion has not been adopted by this

Court. As early as 1932, this Court stated that “discretion must be exercised under

the established rules of law, and it may be said to be abused . . . where the action

complained of has been arbitrary or capricious.” 6 State v. Richards, 61 S.D. 28, 38-

39, 245 N.W. 901, 905 (1932) (citations omitted). The analysis of Burley v. Kytec

Innovative Sports Equip., Inc., 2007 S.D. 82, ¶ 12, 737 N.W.2d 397, 402, provides

guidance. “Although we have repeatedly invoked stock definitions, the term ‘abuse

of discretion’ defies an easy description. It is a fundamental error of judgment, a

choice outside the range of permissible choices, a decision, which, on full

consideration, is arbitrary or unreasonable.” Id. (citing Arneson v. Arneson, 2003

S.D. 125, ¶ 14, 670 N.W.2d 904, 910). In this case, M.G. Oil alleged, and the circuit

court agreed, that the decision by the City Council was an abuse of discretion

because it was arbitrary and capricious.

[¶14.] We have previously discussed the writ of mandamus as it applies to

the denial of a liquor license by a city council and found it to be an appropriate

remedy. Hendriks, 522 N.W.2d at 501; Hanig v. City of Winner, 2005 S.D. 10, ¶ 9,

6. Other actions would also constitute an abuse of discretion, such as acting on
false information or a total lack of authority. Richards, 61 S.D. 28, 245 N.W.
at 905. However, arbitrary and capricious is the only argument that the
parties address and that is applicable in this case.

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692 N.W.2d 202, 205. Today we determine it to be an appropriate remedy when

considering a denial of a conditional use permit. 7

[¶15.] In reviewing the factual record, it is clear that the circuit court did not

abuse its discretion in issuing the writ of mandamus. The circuit court examined

the record to determine “whether there was substantial evidence supporting [the

City Council’s] decision and whether the decision was reasonable and not

arbitrary.” The circuit court cited Olson v. City of Deadwood, 480 N.W.2d 770, 774-

75 (S.D. 1992), for this standard. The use of the “substantial evidence” review was

7. In Hanig, this Court reviewed the decision of a city commission’s denial of a
liquor license and the circuit court’s affirmance. 2005 S.D. 10, ¶ 9, 692
N.W.2d at 205. In Hanig, we stated, “We have approved a writ for a denial of
a liquor license by a city commission when its action, ‘has been arbitrary or
capricious, or based on personal, selfish, or fraudulent motives, or on false
information, or on a total lack of authority to act[.]’” Id. (citing Hendriks, 522
N.W.2d at 501). However, in 1999 this Court stated that an “arbitrary and
capricious action is: based on personal, selfish, or fraudulent motives, or on
false information, and is characterized by a lack of relevant and competent
evidence to support the action taken.” Coyote Flats, LLC v. Sanborn Co.
Comm’rs, 1999 S.D. 87, ¶ 14, 596 N.W.2d 347, 351 (citing Tri Co. Landfill
Ass’n v. Brule Co., 535 N.W.2d 760, 764 (S.D. 1995)). The language
regarding what is to be considered “arbitrary and capricious” has devolved
over time from Richards, 61 S.D. 38-39, 245 N.W. at 905, which states:
The discretion must be exercised under the established rules of
law, and it may be said to be abused within the foregoing rule
where the action complained of has been arbitrary or
capricious, or based on personal, selfish, or fraudulent motives,
or on false information, or on a total lack of authority to act, or
where it amounts to an evasion of a positive duty, or there has
been a refusal to consider pertinent evidence, hear the parties
when so required, or to entertain any proper question concerning
the exercise of the discretion, or where the exercise of the
discretion is in a manner entirely futile and known by the officer
to be so and there are other methods which if adopted would be
effective.
(emphasis added).

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correct to determine whether there was substantial evidence to support the City

Council’s findings. 8 Abild v. Gateway 2000, Inc., 1996 S.D. 50, ¶ 6, 547 N.W.2d 556,

558; Therkildsen v. Fisher Beverage, 1996 S.D. 39, ¶ 8, 545 N.W.2d 834, 836. After

reviewing the City Council’s proceedings, the circuit court made the following

findings:

a. There is no evidence upon which the City Council could
make a determination that granting this condition[al] use
would substantially diminish or impair property values.
b. Substantial evidence does not exist to support the decision
that the granting of this conditional [use] would cause blight
or deterioration to occur.
c. Absent such evidence, the decision of the Council is
unreasonable, arbitrary, capricious and an abuse of
discretion.

Upon reviewing the record, we conclude the circuit court did not abuse its

discretion.

[¶16.] The language of the ordinance in this case significantly limits the

discretion the City Council has in denying an application for a conditional use

permit involving an on-sale liquor establishment. The ordinance states the

conditional use permit “must be issued if . . . the proposed use will not create an

undue concentration of similar uses.” Another way to say this is that the permit

must be issued unless the proposed use will create an undue concentration. The

8. Although the circuit court was correct in reviewing to determine if
substantial evidence supported the City Council’s “findings,” we want to be
clear that a review for substantial evidence does not supplant the necessary
determination that an entity’s actions were arbitrary and capricious. The
substantial evidence examination, discussed in detail in Olson, 480 N.W.2d at
774-75, looks at whether substantial evidence supports an entity’s factual
findings, not whether there is substantial evidence to support the action of
the entity.

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circuit court correctly stated that “absent this finding, or sufficient evidence to

support the finding, the Council has no discretion and must allow the establishment

of an on-sale liquor enterprise.”

[¶17.] At a motions hearing, the circuit court heard testimony that two stores

have liquor licenses within a few blocks of the proposed location, in addition to the

pre-existing Haines Avenue casino. The other two stores do not have on-sale liquor

licenses. Before the City Council, one nearby business owner remarked that this

would be the fourth liquor license in the vicinity. There was no additional evidence

regarding the other licenses. However, there is no indication that the City Council

considered those licenses to find an “undue concentration of similar uses,” as it was

not addressed by any City Council member. There was virtually no discussion by

the City Council regarding the actual ordinance. Alderman Ron Weifenbach did

question the city attorney and pose the question to the other members of the City

Council, whether there was any basis to find an “undue concentration” here.9 In

the discussion following his question, Alderman Karen Olson stated she did not

think it mattered what the concentration of similar uses was in other areas because

the City Council had to make a judgment call on what concentration was

appropriate for each area. Besides those few comments, there was no other

discussion before the City Council members voted.

9. Arguably, under the ordinance language and construction, the City Council
was required to find an undue concentration before determining whether that
concentration will cause blight, deterioration, or substantially diminish or
impair property values. Under the language, an undue concentration of
similar uses is permissible unless it causes blight, deterioration, or
substantially diminishes or impairs property values.

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[¶18.] The opinions presented through public comment to the City Council do

not satisfy the language in subsection C of the ordinance. The discussion leading up

to the vote indicates that the decision by the City Council was not made based upon

the criteria specified in the ordinance. The action by the City Council was factually

unsupported. “[V]ague reservations expressed by [Council] members and nearby

landowners are not sufficient to provide factual support for a Board decision.”

Olson, 480 N.W.2d at 775. We have also stated that “[p]redictions and prophecies

by neighboring property owners that a building when completed will likely become a

nuisance and annoyance . . . [cannot] serve as a legal reason for [local governments]

to deny a . . . permit to persons otherwise entitled thereto.” Breckweg v.

Knochenmus, 81 S.D. 244, 133 N.W.2d 860, 866 (1965). In this case, it appears from

the record that the City Council denied the permit solely based on a few neighbors’

general concerns that a new casino might cause problems.

[¶19.] The City Council did not link the public comments or any other

evidence back to the ordinance language. SDCL 11-4-4.1 provides:

A municipal zoning ordinance adopted pursuant to this chapter
that authorizes a conditional use of real property shall specify
the approving authority, each category of conditional use
requiring such approval, the zoning districts in which a
conditional use is available, and the criteria for evaluating each
conditional use. The approving authority shall consider the
stated criteria, the objectives of the comprehensive plan, and the
purpose of the zoning ordinance and its relevant zoning districts
when making a decision to approve or disprove a conditional use
request.

(Emphasis added.) The City Council only considered the ordinance’s stated criteria

at the very end of its discussion and it amounted to little more than repeating the

ordinance’s language as part of a motion. There was no discussion of any

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comprehensive plan or its objectives. Neither did any of the City Council members

talk about the purpose of the zoning ordinance. Accordingly, there is a want of the

evidentiary basis the City Council is required to make by SDCL 11-4-4.1 under the

ordinance in order to deny the permit. Because of the City Council’s failure to

indicate that it made the proper considerations, the City Council cannot establish

that the circuit court abused its discretion.

[¶20.] The City Council offers an explanation for its decision without any

evidence in its hearings and record to support it. There is no indication in the

record that the proposed use will “substantially diminish or impair property

values.” One nearby business owner mentioned in her comments that a decrease in

property values in the area would be an issue for her. She did not say, however,

that she believed this casino would cause such a decrease. As to the remark made

by Alderman Kroeger, who is a realtor, he did not mention property values in the

area until after the city attorney told the City Council that he believed the City

Council could make a decision based on subsection C of the ordinance. Thereafter,

when Alderman Kroeger was speaking, he made a summary statement that he

would vote to deny the permit because it would cause blight and diminish property

values in the area. In essence, he simply repeated the language of the ordinance.

The circuit court noted in its memorandum opinion that “there is no evidence of

diminished property values.” We agree.

[¶21.] Additionally, there is no evidence that the casino would cause blight or

deterioration. Erickson testified that he was opening a “high end” casino that

would serve high priced beer and have fancy décor. In the plans he presented to the

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City Council, he pointed out that there was a shorter bar to deter patrons from

staying for extended periods of time and no entertainment other than the video

lottery. We fail to see from this factual record how a legally operated business

under these circumstances will cause blight. Furthermore, the casino was to be

located in a newly constructed strip mall that M.G. Oil would be leasing. There

were also stipulations recommended by the Planning Commission on the quality

and type of signage and landscaping for the location. Provided Erickson complied

with these stipulations, there is no specific evidence in the record as to how the

location of the casino in this new building would cause any “deterioration” to come

to the neighborhood. The circuit court examined the evidence under various

definitions of “blight,” as the term is not defined in the ordinance. Neither is

“deterioration” defined. The circuit court found that there was no evidence that

blight or deterioration would result from the proposed casino. The court went on to

state:

[I]f the Council is applying some other standard, the [circuit
court] cannot find it. The Council provides no definition; the
ordinances provide no definition; the other City offices provide
no definition . . . The definitions of blight and deterioration
sufficient to deny a license cannot be made of the unarticulated
differing views of the various council members. An applicant
has the right to know what is permitted and what is not; why
the application fails and what can be done to correct it.

The City Council left virtually no factual record for the circuit court or this Court to

examine its decision. With no definitions or indication by the City Council as to the

meaning of the language in the ordinance, the task of reviewing its decision

becomes even more difficult.

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[¶22.] We agree with the circuit court’s analysis of the proceedings and

comments such that “[the Council] renders a decision so implausible that it cannot

be ascribed to a difference in view or the product of agency expertise.” Johnson v.

Lennox Sch. Dist. #41-4, 2002 S.D. 89, ¶ 10 n.2, 649 N.W.2d 617, 621 n.2. As we

stated earlier, the City Council failed to show how the public comments and other

knowledge or evidence before the City Council satisfied the requirements of the

ordinance. Accordingly, its decision is an abuse of discretion based on the record it

made.

[¶23.] The City argues the circuit court improperly considered “facts and

conclusions beyond those in the record of the proceeding below.” “We presume until

the contrary is shown that the ‘court did not rely on improper evidence.’” In re B.Y.

Dev., Inc., 2000 S.D. 102, ¶ 9, 615 N.W.2d 604, 609 (citing State Highway Comm’n v.

Foye, 87 S.D. 206, 205 N.W.2d 100, 103 (1973)). After reviewing the record, it

appears the circuit court relied only on evidence the City Council considered in

making its decision and other evidence that was properly judicially noticed. See id.

CONCLUSION

[¶24.] “The Supreme Court’s function in reviewing matters which rest in the

discretion of the [circuit] court is to protect litigants from unreasonable

conclusions.” Hendriks, 522 N.W.2d at 502. We cannot conclude, based on this

record, that the circuit court reached an unreasonable conclusion. The circuit court

did not abuse its discretion. The record supports the circuit court’s holding that the

City Council acted arbitrarily and capriciously. M.G. Oil has carried its burden to

overcome the presumption that the City Council acted within its discretion.

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[¶25.] Affirmed.

[¶26.] ZINTER, MEIERHENRY and SEVERSON, Justices, and MILLER,

Retired Justice, concur.

[¶27.] MILLER, Retired Justice, sitting for KONENKAMP, Justice,

disqualified.

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