By RICHARD WEATHERINGTON
When a pawnbroker wants to open a pawnshop the outcome often hinges on the local zoning codes. But even when everything appears to have a green light, local governments can throw the broker a curveball.
In June 2007, a pawn company entered into a purchase agreement to acquire property located in the City of St. Louis Park, Minn. The purchase agreement provided the property sale was to close on October 31 and the broker could cancel the agreement if it was unable to obtain final government approvals and licenses by the middle of July.
On the day the company signed the purchase agreement, it applied to the city for a license to operate a pawnshop at the property. Pawnshops were a permitted use at that location. Under the city code, the city limited the number of pawnbroker licenses to two; one license was available at the time of the broker’s application.
The city’s assistant zoning administrator immediately issued a zoning verification letter confirming that the broker’s intended use of the property as a pawn store, secondhand goods store, precious metals dealer and an industrial loan and thrift company complied with the zoning code and other applicable city ordinances, but noted that additional applications might be required.
The broker contacted the city on July 13 to determine the status of its license application. The city’s inspection supervisor responded via e-mail and voicemail that everything looked great for the license, but he could not physically issue the license until the store was ready to be open.
He added that as far as the inspectors were concerned, the paperwork was in order and the license would be issued as soon as the store was ready for business.
Things Turn Sour
In September 2007, citizens who resided near the property heard rumors that a pawnshop would be opening and let the city know their opposition.
On September 24, the city council met and the city manager raised the issue of the broker’s pending application for a license.
The city manager noted that in 2002, the council had amended the pawnshop ordinance to create a number of reporting requirements to help curb the sale of stolen goods and to promote communication between law enforcement and pawnshops and that these processes had been successful thus far.
The city’s legal counsel noted that the property was properly zoned for a pawnshop and that one of the two authorized pawnbroker licenses was still available. But legal counsel also indicated that the council could adopt an interim ordinance or moratorium to permit the council to initiate a zoning study to see if the city should put any “additional conditions or restrictions on pawnshops.”
The next day, the city announced that it would consider the adoption of an interim ordinance at the Oct. 1, 2007, meeting requiring a planning study for zoning and land use controls related to pawnshops.
No new pawnshop licenses would be issued during the study period. Study findings and recommendations were to be presented to the council no later than 12 months from the adoption of the interim ordinance.
On September 26, the broker learned of the council’s intent to adopt an interim ordinance. On October 1, the city council passed a resolution adopting the first reading of the interim ordinance temporarily prohibiting pawnshops and directing the city planning staff to conduct a study to determine how pawnshops should be regulated within the city.
The city’s charter required that a proposed ordinance receive two readings at least seven days apart and be published in the local newspaper. An ordinance would become effective 15 days after it was published. Here, although the ordinance had not received final approval, the city forwarded it to the local newspaper on October 3 to be published on October 11, after the second reading, with an effective date of October 26. The city then held another meeting on October 8 for the second reading.
Meanwhile, on October 4, the broker filed a petition with the county district court seeking an order requiring the city to issue a pawnbroker license. The court issued an alternative directive ordering the city to either issue the license or to appear on October 8 and show cause why it had not been issued.
The city did not issue the license and, after a hearing involving both parties on October 8, the court denied the petition. On the same day, the council conducted the second reading and adopted the interim ordinance. As adopted, the interim ordinance prohibited the further consideration and approval of any license applications for new pawnshops, and included a resolution that applications for a business license, building permit, or any other permit for a new pawnshop would not be considered by the city during the interim ordinance period.
On October 10, the broker filed an amended petition that included a complaint for declaratory and injunctive relief relating to the interim ordinance. The broker also filed a motion for a temporary restraining order. The district court denied the motion for a temporary restraining order on October 22, and the interim ordinance went into effect four days later.
The city completed the zoning study on December 5. The zoning report proposed an ordinance amending the city zoning laws to make pawnshops a conditional, rather than permitted, use.
On Jan. 7, 2008, the broker closed on the property, assigning the obligations of the agreement to an affiliated business.
On February 22, the city formally amended its zoning code to limit the location and operation of pawnshops, making them a conditional use and adding 12 specific conditions for issuing a conditional-use permit.
The district court noted that the effect of these changes was that a pawnshop could not be located at the property.
Both parties then filed motions seeking summary judgment. The broker sought a declaration that the interim ordinance was invalid and an order directing the city to issue the pawnbroker license. The city sought dismissal of all of the broker’s claims on the grounds that the interim and 2008 permanent ordinances do not permit a pawnshop at the property.
The district court granted the city’s motion on the basis that the interim ordinance was validly enacted. The broker then appealed to the Minnesota Court of Appeals.
The Appeals Court noted that on an appeal of summary judgment, the reviewing court must view the evidence in a light most favorable to the nonmoving party and determine whether any genuine issues of material fact existed and whether the district court was wrong in applying the law.
A municipal ordinance, said the Appeals Court, is presumed to be valid. The party challenging an ordinance has the burden of demonstrating that it was unreasonable or that the requisite public interest was not involved, and consequently that the ordinance did not come within the police power of the city.
The broker argued that because the city did not initiate its zoning study before the broker submitted its license application, the interim ordinance was invalidity enacted.
The Appeals Court said that the statutory language was not so restrictive. Rather, the terms of the statute expressly permitted a city to adopt an interim ordinance in support of valid public purpose so long as the city was studying the particular zoning issue or had directed such a study.
Here, the city authorized the study process at the same time it adopted the interim ordinance.
The pawnbroker next argued that the district court should have followed the holding in the 1992 case of Medical Services, Inc. v. City of Savage. The Appeals Court said it disagreed.
Medical Services had applied for a conditional-use permit seeking to construct an infectious-waste processing facility. Counsel for the City of Savage advised that the proposed use did not fall within any provision of the zoning ordinance, and the city adopted a resolution that terminated Medical Services’ application.
Shortly thereafter, the city council rejected a proposed amendment to the zoning ordinance that would make an infectious-waste facility a conditional use.
Medical Services commenced a declaratory judgment action and the city subsequently enacted a moratorium on the issuance of building and special-use permits in industrial zones. In granting summary judgment for Medical Services, the district court concluded that the facility was a permitted use and that Medical Services’ application was unaffected by the moratorium.
Says Not the Same
This case, said the Appeals Court, presents different circumstances. After learning of the broker’s application, the city immediately enacted an interim ordinance and commenced a study to determine whether additional regulations should be placed on pawnshops located in the city. Review of the council meeting minutes revealed that a number of city residents objected to the broker’s application.
The city council ultimately placed the moratorium not just on the property, but on the entire city, so that a study could be conducted.
The city in this case, unlike the City of Savage, promptly followed through with the study process and ultimately amended its permanent zoning ordinance based on the study’s recommendations. Also, the interim ordinance was limited in duration and only in effect for four months.
Action Not Arbitrary
The city never denied that it enacted the interim ordinance in response to the broker’s license application. But that did not, said the Appeals Court, by itself make the city’s action arbitrary.
Under the circumstances, said the court, it was appropriate at the time for the city to re-examine all of its pawnshop regulations. Because broader public policy concerns existed, the fact that the broker’s application prompted the ordinance did not make it arbitrary or discriminatory.
The broker pointed to the city inspector’s statement that as far as the city was concerned, the paperwork was in order and the license would be issued as soon as the store was ready for business. The broker claimed that it proceeded with the purchase agreement based on that representation.
And because city employees had advised that there were no application deficiencies, the broker contended that the city council’s later adoption of the interim ordinance was discriminatory.
Statement Doesn’t Matter
But the fact that a city employee says “everything looks great,” did not prevent the city council from exercising its police powers to preserve the status quo and conduct a planning study. The court said that the pawnbroker cited no authority for the proposition that statements made by a municipal employee concerning the permitting and licensing processes deprived a municipality of its broad zoning authority.
Because the interim ordinance was properly enacted and placed a valid moratorium on issuing pawnbroker licenses, the district court was not wrong in concluding that the city was not required to issue a pawnbroker license to the broker and therefore the Appeals Court in an unpublished opinion, affirmed the district court’s decision. The Minnesota Supreme Court recently granted the broker a review of the Court of Appeals decision.Pawnbrokers who would like a free copy of this case sent electronically should send an E-mail to firstname.lastname@example.org with “Moratorium” in the subject line.