Pawn America Takes License Fight to Minnesota Supreme Court

Posted on 10. Jan, 2011 by admin in Winter 2010

By RICHARD WEATHERINGTON

There is little doubt that local governments are given a lot of room in controlling land use and businesses within their local jurisdictions. But what happens when a local government’s changes take aim at a very specific pawnshop project?

Pawn America Minnesota applied to the City of St. Louis Park on June 7, 2007, for a license to operate a pawnshop.

The city’s assistant zoning administrator issued a zoning verification letter confirming that the intended use of the property as a pawn store complied with the city’s zoning code, but noted that other requirements, such as a certificate of occupancy and registration of land use, could be necessary.

On the same day Pawn America applied for the license, an operating affiliate entered into a purchase agreement to acquire the property for the pawnshop. The affiliate planned to lease the property to Pawn America, and the closing on the property was set for Oct. 31, 2007.

A contingency provision in the purchase agreement provided that the agreement could be canceled and the $30,000 in earnest money refunded if final governmental approvals and licenses could not be obtained by July 16, 2007.  If a cancellation occurred between July 16 and Aug. 31, 2007, $7,500 of the earnest money was nonrefundable.

With the deadline approaching, Pawn America’s attorney contacted the city’s inspections supervisor on July 13 to inquire about the status of the license application.

On July 16, the inspections supervisor sent an e-mail to the attorney stating that “everything looks great for the license. I cannot, however, physically issue this license until the store is ready to be open, but as far as we are concerned, the paperwork is in order and the license will be issued as soon as the store is ready for business.”

The inspections supervisor also left a voicemail for the attorney indicating that she could not issue a pawnbroker license until Pawn America had a signed lease or had the property in its name.

Opposition Emerges

In September 2007, residents near the location expressed to a City Council member their opposition to a pawn shop at that location.

The council member contacted the City Manager and the community development director on September 23 to relay these concerns and inquire about the status of the license application.

The council member wrote in an e-mail that if there were any available pawnbroker licenses, “let’s lower the number allowable asap.” The City Manager told the inspections supervisor to wait before approving the application, but the inspections supervisor did order the required background check.

On Sept. 24, 2007, the City Council held a regularly scheduled meeting, and the City Manager initiated discussion about the pawnbroker’s license application. The mayor expressed opposition to the application. A council member expressed opposition to pawnshops in general, and in particular, to one at that location.

On September 26, the City Attorney told the pawnbroker that on October 1 the City Council would have a first reading of an interim ordinance and would impose a moratorium on opening new pawnshops.

Because of this information, and because the inspections supervisor indicated in July that a license would be issued when the pawnbroker had a lease or title to the property, the affiliate entered into a lease agreement with the owner of the property on September 27, and entered into a sublease agreement with Pawn America.

License Refused

The next day, Pawn America submitted a signed certificate of occupancy and land use registration application, and asked for the issuance of the license. The city refused because of the pending moratorium and because the background check hadn’t been completed.

On October 1, the City Council adopted the first reading of an interim zoning ordinance that temporarily prohibited new pawnshops and passed a resolution directing a study to determine how the city should regulate pawnshops.

The City Charter required that every ordinance have two public readings with seven days between the first and second, be published in the city’s official newspaper, and become effective 15 days after publication.

On October 3, before the second reading of the ordinance, the city sent the interim ordinance to the newspaper for publication on October 11, making October 26 the effective date of the interim ordinance.

On October 4, Pawn America brought a suit in District Court seeking an order to compel the city to issue the pawnbroker license. The court issued an alternative order requiring the city to issue the license or appear before the court on October 8 to show cause why the city had not issued a license pursuant to the broker’s June 7 application. At the hearing, the court denied the petition for a peremptory order.

The City Council held a special meeting on October 8 and adopted the second reading of the interim ordinance, proposed to last nine months.

Two days later, Pawn America filed an amended petition that asked the court for relief and requested a temporary restraining order, seeking to stop the enforcement of the moratorium. On October 22, the District Court denied the temporary restraining order, and the interim ordinance went into effect.

Zoning Study

The zoning study on pawnshops was completed on Dec. 5, 2007 and the city adopted a permanent ordinance that became effective on Feb. 22, 2008.

The permanent ordinance amended the zoning code to make pawnshops conditional uses and included a distance separation requirement between pawnshops, gun shops, liquor stores and certain other businesses, prohibited pawnshops from being located within 350 feet of residentially zoned property, and prohibited firearm transactions.

Because the property at issue abutted a single-family neighborhood, a pawnshop was not permitted there under the permanent ordinance.

Pawn America then asked the court for a summary judgment, arguing that the interim ordinance was invalid because it was adopted for the improper purpose to delay or prevent it from opening a pawnshop. It asked the court to declare that it was entitled to a license and to order the city to issue it.

The city filed a cross-motion for a summary judgment and asked for dismissal of the claims because the interim and permanent ordinances did not allow a pawnshop at the property.

The District Court denied the pawnbroker’s motion for a summary judgment, but granted the city’s requests. The court explained that state law authorized a municipality to enact an interim ordinance and that the city’s adoption of the interim ordinance was not arbitrary or capricious because it was permissible to preserve the status quo pending further study of zoning.

The court concluded that the mere adoption of an interim ordinance after learning of a particular proposed use of property did not, in itself, mean that enactment of an ordinance was arbitrarily enacted to delay or prevent the project.

Pawn America appealed, but the Court of Appeals affirmed. It concluded that the city met the statute’s requirements when it adopted the interim ordinance.

On to State Supreme Court

Pawn America then appealed to the Minnesota Supreme Court, arguing that the District Court was wrong in concluding that the city’s interim ordinance was valid.

The argument required the court to interpret Minnesota Statute Section 462.355, which gives authority to a municipality, under certain conditions, to adopt an interim ordinance and in part provides that if a municipality is conducting studies or has authorized a study to be conducted or has held or has scheduled a hearing for the purpose of considering adoption or amendment of a comprehensive plan or official controls, the governing body of the municipality may adopt an interim ordinance applicable to all or part of its jurisdiction for the purpose of protecting the planning process and the health, safety, and welfare of its citizens.

Pawn America first argued that the statute required that a study be under way or authorized before a city could adopt an interim ordinance, based on the statutory language “is conducting studies or has authorized a study to be conducted.” Because the city authorized the study at the same time it adopted the first reading of the interim ordinance, the pawnbroker argued that the interim ordinance was invalid.

The statute does not specify, said the Supreme Court,  whether the study must be authorized before the adoption of the first reading of an interim ordinance, or before the final adoption of an ordinance; it merely provides that a “municipality may adopt an interim ordinance.”

Purpose of Ordinance

Pawn America next argued that the interim ordinance was invalid because the city didn’t adopt the ordinance “for the purpose of protecting the planning process and the health, safety and welfare of its citizens.”

The company claimed that the sole purpose of the interim ordinance was to prevent it from obtaining a license and that this was evidenced by numerous events, including the city’s delay in processing the application and its efforts to make the effective date of the ordinance as early as possible.

Pawn America also contended that the city delayed commencing the background check, and noted that the city sent the interim ordinance to the newspaper for publication after the first reading on October 1 instead of after the second reading on October 8.

Implicit in the statutory language, said the Supreme Court, is a requirement that a municipality not act unreasonably, arbitrarily or capriciously.

In this sense, said the court, the statutory language arguably embodies the Almquist v. Townof Marshan good-faith requirement. The court said it reviewed the validity of an interim ordinance by determining whether it was reasonably related to the planning process and the public health, safety and welfare, or whether it was unreasonable, arbitrary or capricious.

Says City Arbitrary

The thrust of Pawn America’s argument, said the court, was that the city acted arbitrarily and impermissibly by aiming its actions only at it.

The pawnbroker relied heavily upon the Court of Appeals’ decision in the 1992 case of Medical Services, Inc. v. City of Savage, where the court said that “a municipality may not arbitrarily enact an interim moratorium ordinance to delay or prevent a single project,” and struck down an interim ordinance as arbitrary.

However, the Supreme Court said that the Court of Appeals opinion in Medical Services was different.

Further, noted the court, the city did in fact complete the study on Dec. 5, 2007, and adopted a permanent ordinance on Feb. 4, 2008, based on that study. These facts, said the Supreme Court, supported the conclusion that the city was not acting arbitrarily.

Deliberate Move

At the same time, noted the court, there was little doubt that there was hostility about locating a pawnshop at the proposed site, or that the city also intended the interim moratorium to apply to Pawn America.

Nevertheless, noted the Supreme Court, nothing in the statute precluded the city from adopting the interim ordinance when the city knew that the ordinance would affect only Pawn America, and further, nothing in the statute prevented the city from adopting the interim ordinance in an effort to preserve the status quo in response to the pending application.

Because of the broader purpose of protecting the planning process and the health, safety and welfare of its citizens, the Supreme Court said the city’s actions were not unreasonable, arbitrary, or capricious, and the interim ordinance was validly enacted.

The Supreme Court, therefore, ruled that the District Court was not wrong in concluding that the city was not required to issue a pawnbroker license to Pawn America.

Pawnbrokers who would like a free copy of this case sent electronically should send an E-mail to cases@cnsus.org with “Taking Aim” in the subject line.

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