#25897-a-JKK

2011 S.D. 63

                             IN 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
#25897

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 . . .)
                                           -1-
#25897

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.

                                          -2-
#25897

[¶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


                                          -3-
#25897

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.




                                           -4-
#25897

[¶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


                                           -5-
#25897

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


                                          -6-
#25897

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 . . .)
                                              -7-
#25897

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.

                                           -8-
#25897

             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



                                          -9-
#25897

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.

                                          -10-
#25897

[¶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.




                                          -11-
#25897

[¶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.




                                          -12-
