Evidence did not support denial of permit for video casino

by Melanie Thwing

M.G. Oil Company v. City of Rapid City
(Supreme Court of South Dakota, January 26, 2011)

M.G. Oil Company, who owns and operates 25 local businesses, applied to the City of Rapid City, South Dakota for a conditional use permit (CUP) to operate a video lottery casino with an on-sale liquor establishment. This casino would be placed in a newly constructed strip mall that is zoned commercial. After correct completion of the application and notification process the Growth Management Department and other agencies including the police department reviewed the application. It was recommended for approval with stipulations about maintenance of the facility.

Although there is another video lottery casino just north of the property, the Growth Management Department stated that they found no undue concentration “which would cause blight or deterioration or diminish land values in the surrounding area;” standards required to be addressed by the Rapid City zoning ordinance.  Even given this Mario Rangel, a nearby property owner, appealed the decision.  Mr. Rangel stated he wanted the city to support “positive” development.  The issue was placed on the City Council’s agenda.  The matter was eventually sent to the Legal and Finance Committee so that the public would have additional time to comment.

At the next Legal and Finance meeting the applicant, six proponents, and two opponents commented on the proposal. One opponent spoke about safety concerns in the area, but was unsure if the increase of crime she experienced was directly related to the existing video casino located only a block away. To this claim M.G. Oil presented the security measures of the company. This included at least six security officers, with at least two having a history in law enforcement. Also, two women employees of M.G. Oil spoke on behalf of the effectiveness of the security.

Alderman Kroeger voiced his opinion that the area did not need a new casino a block away from an existing one, even though there were greater concentrations of casinos in other parts of town. Due to this, another alderman requested the police department present an analysis of the relation between calls to the police for service and casinos. The proposal was thus returned without recommendation to the City Council to allow time for this analysis. Ultimately, the police chief stated that the results for casinos were “statistically neutral.”

Before the proposal was voted on, the City Attorney told the council that they would have to make a finding based on the ordinance if they wished to deny the application. This falls under SDCL 11-4-4.1 which states:

“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 permit.”

Given this, Alderman Kroeger again spoke on the issue, stating that he would deny the license because he believed it would cause blight and diminish property values but gave no facts to support this. Alderman Olson also stated she would vote to deny the CUP because the neighborhood was entitled to positive growth, and that as member of the City Council they were entitled to use discretion when determining an undue concentration, regardless of the fact that there were more casinos in other areas. The CUP was ultimately denied on the grounds that it would cause an undue concentration of casinos, resulting in blight and deterioration, and substantial diminution of property values.

M.G. Oil filed a writ of mandamus with the circuit court.  After noting that a writ of mandamus is an appropriate remedy to compel performance of discretionary functions when the particular entity (in this case, the City Council) abused its discretion, the circuit court reversed the decision of the City Council and ordered the city to approve the CUP. The court stated: (1) there was no evidence up0n which the City Council could make a determination that the CUP would substantially diminish or impair property values, (2) no evidence to prove blight, (3) the decision of the City Council was “arbitrary, capricious, and an abuse of discretion.”

The City appealed to the Supreme Court arguing that the circuit court abused its discretion when it found that the City Council acted arbitrarily and capriciously. The Supreme Court made the following observations concerning the circuit court’s analysis:

The Rapid City zoning ordinance states that a CUP, “must be issued if… the proposed use will not create an undue concentration of similar uses.” The circuit court found no evidence from the council meetings that approving the CUP would result in an undue concentration of video casinos. 

Although at the motion hearing the City Council had heard testimony about concerns of adding an additional establishment with a liquor license in the area, the circuit court could not find in the record that the City Council considered this when looking for a claim of undue concentration. All the record showed was Alderman Olson’s statement about discretion when determining an appropriate concentration for an area. There is no substantial evidence that the CUP would diminish property values, and even Alderman Kroeger, a realtor, never addressed this subject.

Further, mere opinions presented through public comment do not, by themselves, satisfy the standards required in the zoning ordinance. The Supreme Court has always held, “[predictions] 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 entitle thereto.”

Finally, there is no proof that the casino would cause blight. The casino itself was intended to be a high-end establishment, with a short bar to deter patrons from staying long periods of time and no alternate form of entertainment other than the video casino games. The court fails to see how this would cause blight.

City Council records prove that the criteria in ordinance SDCL 11-4-4.1 was only considered at the end of the discussion, and the language was merely repeated when the decision was issued.

The Supreme Court concluded that the factual record was insufficient to support the City Council’s decision. Based on this the circuit court was correct in their findings, and did not abuse its discretion.

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