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Bar owners win liquor license lawsuit

 

       A judge has ruled against the City of Brookings in a lawsuit filed by the owners of three local bars. Circuit Judge David Gienapp says a 2008 city ordinance and resolution creating and setting the fee for new restaurant-only liquor licenses do not follow state law.
       They are "invalid to the extent that the ordinance and resolution attempt to establish the fee for new full service onsale restaurant licenses in an amount less than current fair market value." In other words, the fee set by the city last year was too low, and that will hurt businesses that already have liquor operating agreements here. Gienapp has enjoined the city from issuing any of the restaurant licenses pursuant to the current version of the city ordinance and resolution .
        The owners of 9 Bar and Nightclub, Cubby's Sports Bar & Grill and Skinner's Pub filed the lawsuit against the city in late 2008, after the Brookings City Council decided to charge $18,504, or $1 per person living within city limits, for the new class of liquor license created by the state Legislature.
        State law says the price of the new licenses should be "at or above fair market value," based on the documented price of the on-sale license most recently sold between Jan. 1, 2003, and Jan. 1, 2008
        The plaintiffs in the case argued that with the purchase of 9 Bar and Nightclub in March 2006, Nine Inc. also purchased and transferred an on-sale liquor license. Don McCarty, attorney for the plaintiffs, says the city's ordinance and resolution substantially reduce the value of the plaintiffs' licenses and overall resale value of their businesses.
        As a local option community, Brookings' current on-sale liquor licenses are actually operating agreements. The city holds the only license and leases agreements to serve liquor to local businesses for $1,500 per year. The number of current full-service operating agreements available here is limited here based on population. Argued local option
       City officials argued that because Brookings is a local option community, there has never been a liquor license sold here, so it should defer to the minimum restaurant license fee allowed by state law. The Brookings City Council set the fee based on population, not fair market value.
        But Gienapp said the city's position was incorrect. Municipalities have only the powers granted to them by the state Legislature, and the state law creating the new licenses did not give Brookings the express authority to sell them for less than fair market value.
       "The legislature expressly stated " that the price for a license shall be set at or above the current fair market value. This indicates that there is no implied authority for the City of Brookings to sell for less than the fair market value," the judge wrote in his legal analysis.
        Gienapp also said that the 2008 state law considers an entity that has entered into an operating agreement with a municipality a licensee.
       "Essentially, the City of Brookings is putting form over substance by trying to distinguish between 'licensee' and 'operating agreement,'" he said.
        Gienapp continued, "It is clear that the Legislature wanted to drive economic development , but not hinder existing value at the same time.
       "Brookings did not comply with these provisions when the city ignored the fair market value when setting the price for these new licenses.
        "Furthermore, allowing Brookings to price these new licenses at far below fair market value will have a very negative impact on the existing value of current entities entered into operating agreements with the city."
       McCarty on Thursday said he was pleased with Gienapp's ruling. "I'm certainly glad the court made the decision it did and that the law will be enforced as it's written and as the Legislature intended."
        McCarty said the judge's decision mirrors his and his clients' argument entirely. It acknowledges that the city's previously set fee would affect the value of the bar owners' businesses. Now the city should go back and establish fair market value for the new liquor licenses, he added. City will review options
        City Attorney Steve Britzman said Gienapp's decision will help the city move forward. The city council still needs to review the ruling and decide what action to take, he explained. The judgment can be appealed, but it's up to the elected officials to decide whether to do that.
         Britzman said the court's decision has clarified state law, and that was one of the goal's of the case, which requested a declaratory judgment.
        "Part of the difficulty was that the intent of legislature and the statute were vague. Before, this law was highly debatable. It's helpful to have this."
        Mayor Tim Reed said Thursday afternoon that he was disappointed to hear the city lost the case but had not had time yet to review the ruling.
       It's the city council's decision on what to do next, but members need time to absorb the information, and it might not come up for discussion at next week's meeting, he added.
       City Manager Jeff Weldon said he also needed time to look at the ruling before commenting on it.

 

 

 

Legal Q & A

If a municipally owned liquor store with a PL which was located in a grocery store would they are able to put a wine display in the food section of the grocery store?   It would depend on what area of the business is licensed under the package liquor license, the wine display would only be allowed on the licensed premise.  The licensee should check with their local governing body to make sure there are no local ordinances that would prohibit the placing of the wine display in the food section of the store. 

If an independently owned grocery store owned a RW license could they display wine in with the food products?  

If the licensed premise is the whole store there would be no State restriction on the wine display, the licensee should contact their local governing body to see if there are any local ordinances that would restrict the placement. 

If a video lottery casino owned a RW license what hours could they serve wine?   Current State law states that a RW licensee can serve wine from 7:00 a.m. to 2:00 a.m.  The licensee should contact their local governing body to see if there are any local ordinances that would be more restrictive than State law. 

If a chain grocery store owned 4 stores and held PL licenses for all of them, could they all place alcohol in the food area of the stores?   The current State law allows a chain grocery store to own three alcohol licenses in any size city; when they are granted the fourth package liquor license there are some restrictions on the alcohol.  The fourth and subsequent package liquor licenses must be issued within a first class city; there must be more the 50% of the annual gross receipts from the sale of food, prepared food and food ingredients at the location of fourth and subsequent package liquor licenses and there must be walls of some type separating the wine and spirits from the rest of the store and therefore the wine display would need to be within those walls.  The original three locations with package liquor licenses could allow the wine displays anywhere on the licensed premise, the licensee would need to check with their location governing body to make sure of the licensed premise and to find out if there are any local ordinances that would restrict the placement of the wine display.

Q: What is a temporary license and are there any restrictions?

A: The 'temporary' transfers that take place are the same thing as site transfers that can be done under SDCL 35-2-7. It is just that the city or county allows them to transfer for just the one day (or whatever amount of time). They also have to transfer the license back to the original location (no selling, serving or consuming at the original location while the license is transferred). Cities do both transfers at the same time. It costs $150.00 each time a license is transferred, therefore it will cost $300.00 to site transfer a license from its original location and back again. If an establishment transfers their license off site, the machines cannot be played during that time frame. Furthermore, if those machines are out of service for more than 48 hours, the operator needs to remove them from the establishment.

Q: What licenses can be transferred.

A:Again the law to look at is SDCL 35-2-7, it states that any license issued under Title 35 may be transferred to a new person or a new location. Title 35 includes the following licenses: On-sale liquor, Off-sale liquor, On/Off Malt Beverage, Off-Sale Malt Beverage, On-sale Wine


(Last Update: 10-13-08)

2008 Liquor Laws

AGE TO CONSUME

 

21            A person must be at least 21 years of age to consume alcoholic beverages in South Dakota.

18-20       A person who is at least 18 but not 21 years of age may be sold or given an alcoholic beverage if they are in the immediate presence of a parent, spouse (who is 21) or guardian.

A person who is less than 18 years of age may not be served or consume alcoholic beverages on a licensed premises under any circumstances.

 

REASONABLE ATTEMPT TO INVESTIGATE AGE

Any person charged with a violation of 35-9-1 or 35-9-1.1 may offer evidence, as a defense, that he/she made a reasonable attempt to investigate the age of the person by examining an age-bearing identification document that would have appeared valid to a reasonable and prudent person.

 

SERVING DAYS AND TIMES

On-Sale Liquor:                          7 am - 2 am seven days a week.  (Sunday 7 am - 2 am with local government approval).  No sales Memorial Day after 2 am or at any time on Christmas Day.

Off-Sale Liquor:                          7 am – 12 midnight every day except Sunday.  (Sunday same hours if local government allows).  No distilled spirits or wine sales on Memorial or Christmas Day.  May sell malt beverages on these days.

On/Off Malt Beverage:                        7 am – 2 am seven days a week including Memorial & Christmas Day.

Off-Sale Malt Beverage:                      7 am – 2 am seven days a week including Memorial & Christmas Day.

On-Sale Wine:                                      7 am – 2 am seven days a week.  Restaurants only.  Includes Sundays, Memorial and Christmas Day.

 

AGE OF SERVERS

On-Sale Liquor:                           21 to tend bar or draw or mix alcoholic beverages.  18 may sell or serve if a 21-year employee on premises & 50% or more of gross business is from the sale of food.

Off-Sale Liquor:                                    21 is minimum age to sell alcohol in business with off-sale liquor license.

On/Off Malt Beverage:                        21 to tend bar or draw or mix alcoholic beverages.  21 if less than 50% of the sales of food.  18 if 50% or more of the gross sales business is from the sale of food.

Off-Sale Malt Beverage:                      21 if less than 50% of business gross sale is beer.  NO MINIMUM AGE to sell package beer if alcoholic sales less than 50% of the gross business sales.  No requirement to have someone 21 present. 

On-Sale Wine:                                      21 to dispense, sell, or serve wine in on-sale wine license only.

 

OFF-SALE NOT TO DELIVER

No off-sale license shall make any delivery of alcoholic beverages outside of the premises.

 

KEGS OF MALT BEVERAGE-RETAIL SALE RECORDS

All keg sales must record the name and address of the person to whom the keg is sold and has provided identification of the keg.  Records must be kept one year and are available for any law enforcement agency upon request.  The identification of each keg shall not permanently damage the structure of the keg.

 

PENALTIES FOR ALCOHOL VIOLATIONS

If an employee sells to an underage individual, the business will be assessed a $500.00 fine for the first violation, a $1,000.00 fine for the second violation, and can have their alcohol license suspended or revoked for the third violation within a 24 month time period.  If the employee is not certified by a nationally recognized training program approved by the SD Dept of Revenue the fine will double for the first and second violation. The employee may face fines of up to $500, 30 days in jail, and loss of their driving privileges for 30 to 365 days.

 

MINOR MISREPRESENTS AGE

It is a Class 2 misdemeanor for any person under the age of 21 years to purchase, attempt to purchase or consume alcoholic beverages and misrepresent his age with use of any document for the purpose of such from any licensee.

(Class 2 Misdemeanor: 30 Days in Jail and/or $500.00 fine)

 

ADULTS WHO BUY ALCOHOL FOR UNDERAGE PERSONS

It is a Class 1 misdemeanor for any person twenty-one years of age or older to purchase or otherwise acquire alcoholic beverages from a retail establishment and to give or resell the alcoholic beverages to any person under the age of twenty-one years.  (Class 1 Misdemeanor: 1 year in Jail and/or $1000.00 fine)

 

 
 
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