Law v. City of Sioux Falls

#25897-a-JKK
2011 S.D. 63IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
RICK LAW, Plaintiff and Appellee,
v.
CITY OF SIOUX FALLS, Defendant and Appellant,
v.
SOUTH DAKOTA LOTTERY,
A DIVISION OF THE DEPARTMENT OF
REVENUE AND REGULATION,
STATE OF SOUTH DAKOTA, Intervenor and Appellee.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SECOND JUDICIAL CIRCUIT
MINNEHAHA COUNTY, SOUTH DAKOTA
****
THE HONORABLE PATRICIA C. RIEPEL
Judge
****
WILLIAM E. BLEWETT
MARK V. MEIERHENRY of
Meierhenry Sargent, LLP
Sioux Falls, South Dakota Attorneys for plaintiff
and appellee Rick Law.
MARK J. ARNDT of
May & Johnson, PC
Sioux Falls, South Dakota Attorneys for defendant
and appellant.
ANDREW L. FERGEL of
South Dakota Department of Revenue
and Regulation
Pierre, South Dakota Attorney for intervenor
and appellee South Dakota
Lottery.
****
ARGUED ON AUGUST 24, 2011
OPINION FILED 09/21/11
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KONENKAMP, Justice
[¶1.] The City of Sioux Falls enacted a zoning ordinance controlling the
location of new on-sale alcoholic beverage businesses seeking to place video lottery
machines in their establishments. In a declaratory action, the circuit court ruled
that the City exceeded its authority when it enacted the ordinance. The court
concluded that South Dakota’s constitutional and statutory scheme indicated that
the State intended to fully occupy the field of video lottery, to the exclusion of
municipal regulation. We affirm.
Background
[¶2.] On February 8, 2007, Rick Law filed an application with the City of
Sioux Falls to be on its waiting list for an on-sale alcoholic beverage permit under
SDCL 35-4-2(4). On July 10, 2009, the City offered Law a liquor license. Between
the time Law was placed on the waiting list and when the City offered him a
license, the City adopted Zoning Ordinance 60-80, Section 6, to become effective
June 5, 2008. This ordinance modified certain sections of Appendix B of the Sioux
Falls Code of Ordinances related to conditional use permits for on-sale alcoholic
beverage establishments. 1 In particular, the ordinance required that an on-sale
1. An on-sale alcoholic beverage establishment may be permitted provided it is
found that the location:
(1) Will not create an undue concentration of similar uses.
(2) It is not in an area where unattended children could be
expected to frequent, patronize, or recreate.
(3) It is compatible with characteristics of surrounding uses, and
not injurious to surrounding properties.
(continued . . .)
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alcoholic beverage business seeking to place video lottery machines in the
establishment must meet certain location requirements and apply for a conditional
use permit with the City Planning Commission.
[¶3.] Aware of this new ordinance, Law conditionally accepted the license,
but did not apply for a conditional use permit because he believed each of his
proposed locations would fail under the requirements of Ordinance 60-80. Law
brought a declaratory action against the City to determine the constitutionality of
Ordinance 60-80. He alleged that the City exceeded its authority when it enacted
the ordinance, as the State had fully occupied the field of video lottery regulation,
preempting any municipal regulation. The City countered that Ordinance 60-80
does not regulate video lottery, but is a zoning ordinance, enacted through a valid
exercise of the City’s police powers. The South Dakota Lottery, a Division of the
Department of Revenue and Regulation, was permitted to intervene in the action.
__________________
(. . . continued)
(4) Video lottery machine placement is not within 2,000 feet of
any city park, other video lottery machine placement, or any
elementary or secondary school within the city as measured
from the closest point of the outside wall of either of such
buildings or tenant space or the boundary of any park. The
provisions of this section shall apply to any new video lottery
placement authorized after June 1, 2008, unless a valid
application for a conditional use permit, including video lottery
terminals, shall have been filed with the City prior to that date
for an alcoholic beverage license authorized pursuant to SDCL
35-4-2(4) for which the applicant received notice of eligibility in
2008.
Ordinance 60-80, Section 6.
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[¶4.] After a hearing, the circuit court issued a memorandum opinion and
findings of fact and conclusions of law. The court ruled that the City exceeded its
authority when it enacted Ordinance 60-80, because the Legislature intended that
the State “occupy the field of video lottery regulation to the exclusion of municipal
regulations as shown by the Constitution and the broad statutory scheme regarding
video lottery regulation.” The City appeals.
Analysis and Decision
[¶5.] Interpretation of an ordinance and related constitutional provisions
present questions of law, reviewed de novo. City of Marion v. Schoenwald, 2001
S.D. 95, ¶ 8, 631 N.W.2d 213, 216-17 (citations omitted). We must decide anew
whether Ordinance 60-80 is a valid exercise of municipal power.
[¶6.] The City advances multiple reasons why the court erred in deeming
Ordinance 60-80 unconstitutional. First, it argues that Ordinance 60-80 is valid
because South Dakota law authorizes municipalities to adopt zoning ordinances
regulating and restricting the location and use of buildings for the “purpose of
promoting health, safety, or the general welfare of the community[.]” See SDCL 11-
4-1. In the City’s view, Ordinance 60-80 does not regulate video lottery, but
controls, through zoning, the location and use of buildings housing video lottery
machines in order to protect the health, safety, and general welfare of City
residents. Along the same lines, the City also asserts that because Ordinance 60-80
does not undermine or conflict with the Legislature’s video lottery statutory scheme,
it is a valid municipal regulation under the concept of home rule, whereby a home-
rule chartered municipality may impose stricter standards than those imposed by
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state law. See SDCL 6-12-5. Third, the City argues that although there is a
comprehensive legislative scheme regulating video lottery, the Legislature enacted
no law controlling the specific location of video lottery machines. Therefore,
according to the City, it is unreasonable to infer that the Legislature intended to
occupy the entire field of video lottery regulation, preempting any municipal
regulation restricting the location of video lottery machines. Finally, the City
maintains that if this Court finds that the Legislature has occupied the field of
video lottery to the exclusion of municipal regulation, the Legislature violated
article III, section 26 of our constitution when it delegated control of video lottery
machine location within a municipality to a special commission, the South Dakota
Lottery Commission.
[¶7.] In response, Law asserts that the only reasonable interpretation of the
South Dakota Constitution and the video lottery legislative scheme is that the
Legislature intended to solely occupy the field of video lottery, preempting any
municipal regulation. Law points out that until 1986, video lottery was illegal in
South Dakota. See S.D. Const. art. III, § 25. When our constitution was amended
to allow gambling, the constitution made clear that it would be “regulated by the
state of South Dakota[.]” Id. Law points to the statutes enacted by the Legislature
related to video lottery. See SDCL ch. 42-7A. In his view, those statutes give only
state agencies the power to control, manage, and regulate video lottery. Thus,
relying on the constitution and SDCL ch. 42-7A, Law maintains that the
Legislature made no room for supplementary municipal regulation.
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[¶8.] The Lottery, in agreement with Law’s arguments, further points out
that the Legislature intended to fully occupy the field of video lottery regulation
because the “Legislature has crafted only two exceptions that allow a municipality
to influence video lottery machine placement.” See SDCL 42-7A-64. When issuing
an on-sale alcoholic beverage license under SDCL 35-4-2(12) and (16), a
municipality may consider certain criteria related to video lottery placement. See
SDCL 42-7A-64. In light of the “narrow circumstances (i.e. two types of alcohol
licenses) in which a municipality may assert its influence upon video lottery
location,” the Lottery contends that the Legislature understood “that the regulation
of video lottery — including its location — is a field occupied by the State.” The
Lottery also argues that the Legislature did not improperly delegate power to a
“special commission” in violation of article III, section 26: the Lottery is a division of
the South Dakota Department of Revenue and Regulation, not a special
commission. Moreover, it contends that by delegating control of video lottery to the
Lottery, the Legislature has not interfered with any municipal function, as
municipalities maintain their zoning authority to control the location of alcoholic
beverage establishments.
[¶9.] A municipality may exercise any power or perform any function not
prohibited by our constitution and laws. S.D. Const. art. IX, § 2. Yet we have
repeatedly noted that municipal corporations possess only those powers given to
them by the Legislature. State ex rel. Jackley v. City of Colman, 2010 S.D. 81, ¶ 5,
790 N.W.2d 491, 493; Elkjer v. City of Rapid City, 2005 S.D. 45, ¶ 9, 695 N.W.2d
235, 239; Olesen v. Town of Hurley, 2004 S.D. 136, ¶ 15, 691 N.W.2d 324, 328; City
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of Rapid City v. Rensch, 77 S.D. 242, 246, 90 N.W.2d 380, 383 (1958). Therefore,
while a municipality clearly has the power to enact zoning ordinances, SDCL 9-19-
3; SDCL ch. 11-4, no municipality may enact a law regulating a subject where the
State has wholly occupied the field of that subject, to the exclusion of any local
regulation. See Minn. Agric. Aircraft Ass’n v. Twp. of Mantrap, 498 N.W.2d 40, 42
(Minn. Ct. App. 1993). It is of no consequence that a municipality’s regulation
coincides with or is complementary to the state law; a municipality is precluded
from enacting any regulation related to the subject preempted. Id.[¶10.] Field preemption by state law can be either express or implied.
Sarasota Alliance for Fair Elections, Inc. v. Browning, 28 So. 3d 880, 886 (Fla.
2010); Fogle v. H & G Rest., Inc., 654 A.2d 449, 464 (Md. Ct. App. 1995); Minn.
Agric. Aircraft Ass’n, 498 N.W.2d at 42. Express preemption occurs when there is a
specific legislative enactment reflecting the Legislature’s intent to preempt any
local regulation. Sarasota Alliance, 28 So. 3d at 886. Implied preemption, on the
other hand, exists when the legislative scheme “is sufficiently comprehensive to
make reasonable the inference that” the Legislature “‘left no room’ for
supplementary” local regulation. In re Yankton Cnty. Comm’n, 2003 S.D. 109, ¶ 16,
670 N.W.2d 34, 39 (citation omitted) (quoting Hillsborough Cnty. v. Automated Med.
Labs., Inc., 471 U.S. 707, 713, 105 S. Ct. 2371, 2375, 85 L. Ed. 2d 714 (1985)); see
also Jackley, 2010 S.D. 81, ¶ 10, 790 N.W.2d at 494. Because there is no specific
enactment expressing the Legislature’s intent to preempt local regulation of video
lottery, we must review the legislative scheme for implied preemption. In doing so,
we look to the provisions of the entire law, and not any particular statute in
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isolation. See Sarasota Alliance, 28 So. 3d at 886. We also will consider the object
sought to be attained by the laws, the nature and power exerted by the Legislature,
and the character of the obligations imposed by the statutes. See id.; see also Idaho
Dairymen’s Ass’n, Inc. v. Gooding Cnty., 227 P.3d 907, 913 (Idaho 2010).
[¶11.] Gambling was illegal in South Dakota until our constitution was
amended in 1986. The amendment legalizing gambling specifically provided that it
would be “regulated by the State of South Dakota[.]” See S.D. Const. art. III, § 25.
Under that authority, the Legislature enacted SDCL ch. 42-7A. After defining
certain terms, the Legislature specifically provided that “[t]he overall management
of the state lottery and control over the operation of its games shall rest solely with
the South Dakota Lottery,” which is a division of the Department of Revenue and
Regulation. SDCL 42-7A-2. The Legislature also provided that an executive
director shall administer the state lottery as set forth in SDCL ch. 42-7A. Id. In so
administering, “[t]he executive director may approve or disapprove any application
for license . . . depending upon . . . whether the executive director considers the
proposed location suitable.” SDCL 42-7A-57 (emphasis added). There is no similar
statute creating municipal administration, operation, or control over the lottery. 2
2. The remaining statutes indicate only legislative control. The Legislature
defined the functions of the executive director, SDCL 42-7A-4, -6, -8, -10, gave
the executive director the right to consider the suitability of a proposed
location when making a license decision, SDCL 42-7A-57, enacted many
regulations related to the sale of lottery tickets, including identification of
crimes, SDCL 42-7A-24; SDCL 42-7A-30 to -34, created the South Dakota
Lottery Commission, giving it the power to establish a policy for the
operation of the state lottery, SDCL 42-7A-17 to -21, established a video
lottery operating fund, SDCL 42-7A-41.1, allowed for the employment of
investigative personnel to enforce licensing and rules, SDCL 42-7A-25, -26,
(continued . . .)
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See Idaho Dairymen’s Ass’n, Inc., 227 P.3d at 913 (some regulation power given to
counties). In fact, in SDCL 9-29-5, the Legislature expressly stated that
municipalities may not suppress lotteries “owned and operated by this state.” From
the whole law, it is reasonable to infer that the Legislature intended the State to
have all power to control, regulate, and manage video lottery.
[¶12.] The object sought to be attained by the laws also confirms that the
Legislature intended to fully control video lottery. The Legislature mandated that
“[i]n all decisions, the executive director and commission shall take into account the
particularly sensitive nature of the lottery, and shall act to promote and ensure the
integrity, security, honesty, and fairness of its operation and administration.”
SDCL 42-7A-2. This manifest objective appears also in SDCL 42-7A-56:
(1) The success of the South Dakota Lottery is dependent upon
public confidence and trust that it is conducted honestly and free
from criminal and corruptive elements;
(2) Public confidence and trust can only be maintained by strict
regulation of all persons, locations, practices, associations, and
activities related to the sale of lottery products and the
operation, manufacturing, and distribution of video lottery
games and equipment; and
(3) No applicant for a license or other affirmative commission
action has any right to a license or to the granting of the
approval sought. Any license issued or other commission
approval granted pursuant to the provisions of this chapter is a
__________________
(. . . continued)
identified the requirements for licensing video lottery establishments,
restrictions on such establishment, fees for licensing, and other
requirements, SDCL 42-7A-37 to -40; SDCL 42-7A-41.2 to -44; SDCL 42-7A-
49 to -52, identified certain crimes related to video lottery, SDCL 42-7A-45 to
-48, declared the public policy of the State related to South Dakota Lottery,
SDCL 42-7A-56, and requirements related to licensing applications, SDCL
42-7A-57 to -59, -64.
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revocable privilege, and no holder acquires any vested interest
or property right therein or thereunder.
[¶13.] Although there is no express legislative directive controlling video
lottery to the exclusion of local regulation, the scope and power exerted by the
Legislature and the character of the obligations imposed by its statutes reflect
legislative intent to be exclusive in the field. As previously stated, the Legislature
created the South Dakota Lottery and required an executive director to operate,
manage, and control the Lottery. To guide the Lottery and executive director, the
Legislature enacted requirements for video lottery machines, SDCL 42-7A-37, and
restrictions on licensed establishments, SDCL 42-7A-37.1. It specifically gave only
the executive director the power to approve or disapprove any application for a
license. SDCL 42-7A-57. In doing so, it provided that the director consider the
application’s proposed location. Id. The Legislature also limited the amounts that
can be played on the video lottery machines, and the amount of prizes awarded.
SDCL 42-7A-38. The Legislature required that any person licensed as a video
lottery machine manufacturer, distributor, operator, or lottery retailer submit to a
background investigation. SDCL 42-7A-43. It also dictated the number of lottery
machines that may be in a licensed establishment, the placement of such machines,
SDCL 42-7A-44, the age limit for players, and the permitted hours of operation,
SDCL 42-7A-48. In only one statute is a municipality given any power with regard
to video lottery. SDCL 42-7A-64 allows a municipality to consider, when issuing
two types of on-sale alcoholic beverage licenses, certain factors relevant to the
placement of video lottery machines. Municipalities, however, are not given any
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power to license video lottery establishments, or otherwise control the location of
such establishments. See SDCL 42-7A-64.
[¶14.] Based on the character of the obligations imposed by the Legislature,
we see no delegation of power or responsibilities to municipalities and no entrusting
to municipalities the control video lottery. Rather, the statutes place all burdens
upon the State. Thus, we conclude that South Dakota’s legislative video lottery
scheme is sufficiently comprehensive to make reasonable the inference that the
Legislature left no room for supplementary regulation of video lottery by
municipalities. It is immaterial that the City is governed by a home-rule charter or
empowered to enact zoning regulations. Once the City enacted Ordinance 60-80,
regulating the placement of video lottery machines, the City exceeded its authority.
Of course, if we have misread the intent behind the video lottery statutes, the
Legislature remains free to amend its enactments to clarify its intent.
[¶15.] Lastly, the City argues that if this Court finds that Ordinance 60-80 is
preempted by state law, the Legislature improperly delegated control of video
lottery placement to the South Dakota Lottery Commission in violation of article
III, section 26 of our constitution. That section provides,
The Legislature shall not delegate to any special commission,
private corporation or association, any power to make, supervise
or interfere with any municipal improvement, money, property,
effects, whether held in trust or otherwise, or levy taxes, or to
select a capital site, or to perform any municipal functions
whatever.
S.D. Const. art. III, § 26 (emphasis added). From the City’s perspective, SDCL ch.
42-7A interferes with municipal property by delegating to the Lottery the City’s
power to control zoning for a particular industry, in this case video lottery.
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[¶16.] The Lottery, on the other hand, argues that the Legislature did not
delegate any powers to a “special commission.” Rather, the power to control,
manage, and regulate video lottery is vested with the South Dakota Lottery, a
division of the Department of Revenue and Regulation. The Lottery asserts that, as
a division of the Department of Revenue and Regulation, it is much like the
Department’s Motor Vehicles Division, Property Tax Division, Business Tax
Division, and Special Taxes Division. The Lottery also maintains that no municipal
function has been delegated by the Legislature through the video lottery regulatory
scheme, since the City is still empowered to zone and dictate where alcoholic
beverage establishments may or may not be located.
[¶17.] We need not decide whether the South Dakota Lottery Commission is
the type of special commission prohibited in article III, section 26 of our
constitution. There is no evidence that the Legislature has interfered with any
municipal property or function by its enactments. Nor has the Legislature
conferred upon the South Dakota Lottery Commission any ordinary municipal
function. Municipalities do not have the freedom or power to regulate video lottery,
as the South Dakota Constitution specifically reserves that right to the State of
South Dakota. And the City has presented no evidence that the regulation of video
lottery is uniquely a municipal concern. In accord with SDCL ch. 42-7A,
municipalities still have the power to control, through zoning, the location of
alcoholic beverage establishments.
[¶18.] Affirmed.
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[¶19.] GILBERTSON, Chief Justice, and ZINTER and SEVERSON, Justices,
and SABERS, Retired Justice, concur.
[¶20.] SABERS, Retired Justice, sitting for MEIERHENRY, Retired Justice,
disqualified.
[¶21.] WILBUR, Justice did not participate.
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