Hanig v. City of Winner

• Decision Date: 19 January 2005
• Docket Number: No. 23208.,23208.
• Citation: 2005 SD 10,692 N.W.2d 202
• Court: South Dakota Supreme Court
• Parties: Tony HANIG, Plaintiff and Appellant, v. CITY OF WINNER, Defendant and Appellee.

692 N.W.2d 202

2005 SD 10

Tony HANIG, Plaintiff and Appellant, v. CITY OF WINNER, Defendant and Appellee.

No. 23208.

Supreme Court of South Dakota.

Considered on Briefs November 15, 2004.

Decided January 19, 2005.

George F. Johnson of Johnson, Eklund, Gregory, South Dakota, Attorneys for plaintiff and appellant.

Michael A. Henderson of Cadwell, Sanford, Deibert & Garry, Sioux Falls, South Dakota, Attorneys for defendant and appellee.

MEIERHENRY, Justice.

[¶ 1.] Hanig's application for the renewal of his liquor license was denied by the City of Winner. Hanig believed the public hearing on the matter was conducted improperly, and he petitioned the trial court for a writ of mandamus to compel the Winner City Council to give him a fair and impartial hearing. The writ was denied on summary judgment. We reverse.

FACTS

[¶ 2.] Hanig had leased and operated the "Peacock Bar" in Winner, South Dakota since 1992. In 2002, Hanig decided to open a new steakhouse and lounge. Because there were no liquor licenses available in the City of Winner, Hanig purchased a piece of property outside of the city limits and sought a liquor license from the Tripp County Commissioners. The Tripp County Commissioners granted Hanig a liquor license for the property. Hanig experienced difficulties with acquiring a sewer easement across a neighbor's property and asked the City of Winner to annex his property in order to attach to the city's sewer system. The city council approved the annexation. Under the law, Hanig's liquor license remained in effect until its expiration at the end of 2002.¹ Approximately a month before the license expired, Hanig applied to the City for renewal. The City scheduled a public hearing.

[¶ 3.] On the day of the hearing Hanig submitted a building permit application to the City. His building permit application was for a restaurant and lounge to be built on the annexed property. At the liquor license hearing that evening, the city building inspector informed the city council that he was denying the building permit application because the site plan submitted by Hanig was inadequate and incomplete. When council members asked Hanig about the intended nature of the business, Hanig indicated he planned to open a steakhouse and lounge employing eight to ten people. Some of the details of his business plan had not been finalized, including whether he would employ "exotic dancers."

[¶ 4.] The city council consisted of six members. One of the council members was employed as a part-time waitress at a competitor steakhouse in Winner. The owner of the steakhouse, the council member's employer, spoke to her and wrote a letter to her urging denial of Hanig's license renewal. She and all other members of the council voted to deny Hanig's liquor license renewal. According to the minutes, the decision was made because "questions remained about the business plan and suitability of the location[.]"

[¶ 5.] Hanig petitioned the trial court for a writ of mandamus to compel the Winner City Council to give him a new hearing, contending his initial hearing was not "fair and impartial." Hanig claims the city council member employed by the competitor steakhouse had a conflict of interest. He further asserts the council denied the license based upon inappropriate considerations. The City moved for summary judgment on the petition, asserting that it had followed the appropriate procedure in reviewing and denying the renewal of the license, and that the decision to deny was based on appropriate considerations, i.e. the lack of an adequate business plan and the resulting inability to assess the suitability of the location. Summary judgment was granted and Hanig appeals.

STANDARD OF REVIEW

[¶ 6.] The determinative facts in this case are undisputed. Ultimately this appeal concerns whether the circuit court applied the correct legal standard to these facts. "Questions requiring application of a legal standard are reviewed as are questions of law — de novo." Voeltz v. John Morrell & Co., 1997 SD 69, ¶ 9, 564 N.W.2d 315, 316 (citing Phipps Bros. Inc. v. Nelson's Oil & Gas, Inc., 508 N.W.2d 885, 888 (S.D.1993)) (additional citations omitted).

ISSUE

Whether the trial court erred in denying Hanig's request for Writ of Mandamus for a new hearing on the renewal of his liquor license before the City Council.

DECISION

Due Process Requires a Fair Tribunal

[¶ 7.] Under South Dakota law, a municipality has the authority to grant a retail liquor license. SDCL 35-2-1.2. The city commission's obligation or duty is to approve or disapprove an application for a license based upon the suitability of the applicant and the suitability of the proposed location. Id. The law provides:

All applications for retail licenses except those set forth in § 35-2-1.1 shall be submitted to the governing board of the municipality within which the applicant intends to operate, or if outside the corporate limits of a municipality, to the board of county commissioners of the county in which the applicant seeks to operate. The application shall be accompanied by the required fee. The governing board shall have discretion to approve or disapprove the application depending on whether it deems the applicant a suitable person to hold such license and whether it considers the proposed location suitable.

Id. The law also requires a public hearing on the application.²

[¶ 8.] Hanig asserts that the City Council had a legal duty to perform the ministerial act of providing him a "fair and impartial" liquor license hearing free of arbitrary, capricious, or personal or selfish motives. Hanig seeks the issuance of a Writ of Mandamus to compel the city council to provide a fair hearing.

[¶ 9.] A Writ of Mandamus is appropriate if there is "a clear legal right to performance of the specific duty sought to be compelled and the respondent must have a definite legal obligation to perform that duty." Baker v. Atkinson, 2001 SD 49, ¶ 16, 625 N.W.2d 265, 271 (citing Sorrels v. Queen of Peace Hosp., 1998 SD 12, ¶ 6, 575 N.W.2d 240, 242 (citations omitted)). We have approved a writ for a denial of a liquor license by a city commission when its action, "has been arbitrary or capricious, or based on personal, selfish, or fraudulent motives, or on false information, or on a total lack of authority to act[.]" Hendriks v. Anderson, 522 N.W.2d 499, 501 (S.D.1994) (citations omitted).

[¶ 10.] We have also said: "[a]n individual's constitutional right to due process includes fair and impartial consideration" by a local governing board. Riter v. Woonsocket Sch. Dist., 504 N.W.2d 572, 574 (S.D.1993) (citing Moran v. Rapid City Area Sch. Dist., 281 N.W.2d 595, 600 (S.D.1979)). Due process also requires a fair tribunal. As we have previously stated:

A fair trial in a fair tribunal is a basic requirement of due process. This applies to administrative agencies which adjudicate as well [as] to courts. Not only is a biased decision maker constitutionally unacceptable, but our system of law has always endeavored to prevent even the probability of unfairness.

Strain v. Rapid City Sch. Bd., 447 N.W.2d 332, 336 (S.D.1989) (citations and quotations omitted). We have further stated that "the `very appearance of complete fairness' must be present." Northwestern Bell Tel. Co., Inc. v. Stofferahn, 461 N.W.2d 129, 133 (S.D.1990) (citing Mordhorst v. Egert, 88 S.D. 527, 223 N.W.2d 501, 505 (1974) (quoting Wall v. American Optometric Assn., Inc., 379 F.Supp. 175 (N.D.Ga.1974))); see also South Dakota Real Estate Com'n. v. Haggar, 446 N.W.2d 66, 68 (S.D.1989) ("`Appearance of fairness' is of course sought in each case, but the standard to be applied is `due process.'").

[¶ 11.] Hanig has the right to due process including a fair and impartial hearing. In an adjudicative proceeding, the test we have applied in determining whether an applicant received a fair and impartial hearing is whether there was actual bias or an unacceptable risk of actual bias.³ Voeltz, 1997 SD 69, ¶ 12, 564 N.W.2d at 317; see also Strain, 447 N.W.2d at 336

. As we stated in Strain,"[t]he standard to be applied is whether the record establishes either actual bias on the part of the [ ] [tribunal] or the existence of circumstances that lead to the conclusion that an unacceptable risk of actual bias or prejudgment inhered in the [ ] [tribunal's] procedure." Id. Thus to prove his hearing was not fair and impartial, Hanig need only show an unacceptable risk of actual bias, and he is not necessarily required to show actual bias.

Conflict of Interest

[¶ 12.] Hanig claims that he did not receive a fair and impartial hearing because of a conflict of interest of the city councilwoman who worked for a competitor. He points out that the councilwoman was pressured from her employer to deny the renewal. He also claims that she may have been affected financially if Hanig's business successfully took business away from her employer. He argues that since she received part of her wages from tips, reduced patronage had the potential of reducing her income. The question is whether the undisputed facts constitute a conflict of interest sufficient to disqualify the councilwoman from voting on Hanig's renewal. We believe it does.

[¶ 13.] We have established that due process is denied when an unacceptable risk of actual bias exists. If a governmental official has a conflict of interest, an unacceptable risk of actual bias will normally exist and the official should not participate in the proceedings. In order to determine when and under what circumstances a conflict of interest disqualifies a local official by creating an unacceptable risk of actual bias, we first look for guidance from the legislature.

[¶ 14.] The legislature has addressed disqualification of officials in certain circumstances. For example, the law prohibits a "mayor, alderman, commissioner, or trustee" who holds a liquor license from voting "on the issuance or transfer of any such...