State v. Buffalo Chip

Decision Date10 November 2020
Docket Number#28916
Citation951 N.W.2d 387
CourtSouth Dakota Supreme Court
Parties STATE of South Dakota, acting THROUGH the ATTORNEY GENERAL, Petitioner and Appellee, v. BUFFALO CHIP, South Dakota, Respondent and Appellant.

[¶3.] Buffalo Chip appeals an order of the circuit court dissolving its municipal incorporation, asserting that the State lacks authority to petition the court for such relief. Buffalo Chip also contends the circuit court erred in holding that it failed to satisfy the residency requirements in SDCL 9-3-1. We affirm.

Facts and Procedural History

[¶4.] At the heart of this case is the validity of Buffalo Chip's status as a newly incorporated municipality in Meade County, South Dakota. The Buffalo Chip is a campground just outside of Sturgis, South Dakota, home of the famous Sturgis Motorcycle Rally. The Rally draws hundreds of thousands of motorcycle enthusiasts to Sturgis each year and is held during the first full week of August.

[¶5.] The controversy giving rise to this case began in February 2015, when area residents petitioned the Meade County Board of County Commissioners (the Board) for incorporation of the Buffalo Chip campground as a city. The Board approved an amended petition on February 27, 2015. At the time, SDCL 9-3-1 provided that: "No municipality shall be incorporated which contains less than one hundred legal residents or less than thirty voters."1 After holding a hearing and considering testimony, the Board concluded that the area of incorporation had more than thirty registered voters and that more than a quarter of the voters had signed the amended petition as required by SDCL 9-3-5. The Board, believing SDCL 9-3-1 had been satisfied, approved the incorporation of Buffalo Chip City. It scheduled an election for May 7, 2015, so the voters in the proposed area could approve or reject the Board's decision. On March 31, 2015, several Meade County residents and the City of Sturgis appealed the Board's decision under SDCL 7-8-27, and Buffalo Chip intervened. The circuit court denied the City of Sturgis's motion to stay the election, so it proceeded as scheduled. The vote was in favor of Buffalo Chip, and, accordingly, on May 20, 2015, it filed its articles of municipal incorporation with the Secretary of State. At the time of incorporation, Buffalo Chip did not have one hundred legal residents, but it did have more than thirty registered voters.

[¶6.] After more than a year of litigation, the circuit court declared the Board's decision, ordering the incorporation of Buffalo Chip (with the assent of the qualified voters), a legal nullity due to deficiencies in the petitioners’ filings and the Board's procedural process. The court ordered that any and all actions taken by Buffalo Chip be "void ab initio." Buffalo Chip and the Board appealed the circuit court's ruling to this Court. See Lippold v. Meade Cnty. Bd. of Comm'rs , 2018 S.D. 7, 906 N.W.2d 917.

[¶7.] In Lippold , we reversed and vacated the circuit court's judgment, holding that Sturgis and the other petitioners lacked standing to challenge Buffalo Chip's incorporation. Id. ¶ 31, 906 N.W.2d at 926. We held that pursuant to SDCL 9-3-20, only the State of South Dakota, or someone acting on its behalf, could challenge the incorporation of a city that is already acting as a municipality.2

[¶8.] On March 14, 2018, the State petitioned this Court, requesting permission to commence an action in the nature of quo warranto and asking this Court to exercise original jurisdiction over the proceedings. We denied the request on May 10, 2018, with leave to file in circuit court.

[¶9.] On May 29, 2018, the State filed a petition for, or in the nature of, a writ of quo warranto with the circuit court seeking a judgment under SDCL chapter 21-28 declaring that Buffalo Chip did not lawfully incorporate as a municipality, and should, therefore, be excluded from its corporate rights, privileges, and franchise, and be dissolved as a municipal corporation.3 The State asserted that SDCL 21-28-2(3) authorizes it "to bring an equitable action against any association or number of persons acting as a corporation without being duly incorporated."4 As additional authority for its right to proceed, the State cited SDCL 9-3-20, which permits the State to inquire into the "regularity of the organization of any acting municipalit[.]"

[¶10.] Buffalo Chip moved to dismiss the lawsuit, contending that SDCL 21-28-12 expressly forbids the State from commencing an action to vacate an existing municipal corporation. That statute provides that "[a]n action may be brought ... for the purpose of vacating the charter or articles of incorporation, or for annulling the existence of corporations other than municipal [.]" SDCL 21-28-12 (emphasis added). The circuit court disagreed that SDCL 21-28-12 applied and denied Buffalo Chip's motion to dismiss, holding that the State qualifies as a person with a "special interest in the action" under SDCL 21-28-2(3) and also has authority under SDCL 9-3-20 as the only entity that may inquire into the regularity of an acting municipality's organization.

[¶11.] In January 2019, the parties filed cross-motions for summary judgment and included in their submissions a stipulated statement of material facts. Buffalo Chip again challenged the State's authority to proceed, arguing that SDCL 9-3-20, while permitting the State to inquire into the regularity of an existing municipality, did not authorize it to take action once the Board approved the municipality's incorporation. The parties also debated the proper interpretation of SDCL 9-3-1, the statute setting certain parameters for incorporation. The State argued Buffalo Chip needed both one hundred legal residents and thirty voters to satisfy SDCL 9-3-1. Buffalo Chip disagreed, arguing that SDCL 9-3-1 required either one hundred legal residents or thirty voters but not both.

[¶12.] The circuit court granted summary judgment to the State, concluding that the dictates of common sense and the plain language of SDCL 9-3-1 require municipalities to have at least one hundred residents and thirty registered voters in order to lawfully incorporate. A contrary interpretation, according to the circuit court, could lead to the absurd result that a municipality could be incorporated if it had no residents but had thirty voters. The court issued a judgment of dissolution, declaring that Buffalo Chip was not a lawfully incorporated municipality and ordered that Buffalo Chip be precluded from "[e]xercising its corporate rights, privileges, and franchises." The court also ordered that the judgment be filed and recorded in the offices of the Secretary of State of South Dakota and the Register of Deeds of Meade County. Buffalo Chip appeals the circuit court's judgment of dissolution, raising the following issues:

I. Whether the circuit court erred by allowing the State to bring this action against Buffalo Chip.
II. Whether the circuit court erred in its interpretation of SDCL 9-3-1.

Analysis and Decision

[¶13.] Questions of statutory interpretation are reviewed de novo. Upell v. Dewey Cnty. Comm'n , 2016 S.D. 42, ¶ 8, 880 N.W.2d 69, 71. Because there are no factual disputes in this case, summary judgment will be affirmed if the circuit court correctly interpreted and applied the law. De Smet Ins. Co. of South Dakota v. Pourier , 2011 S.D. 47, ¶ 4 n.1, 802 N.W.2d 447, 448 n.1.

I. Whether the circuit court erred by allowing the State to bring this action against Buffalo Chip.

[¶14.] Buffalo Chip asserts the circuit court erred in failing to dismiss the State's action because the "Legislature specifically carved out the annulment of the existence of municipal corporations" in SDCL 21-28-12, regardless of the State's authority under SDCL 21-28-2(3) to institute an action against an association or number of persons acting as a corporation. It further contends that SDCL 21-28-12 applies here because SDCL 21-28-2 merely identifies who is entitled to bring a quo warranto action. Buffalo Chip asserts that "who" may bring an action is not the issue; rather, the issue is "[w]hether chapter 21-28 authorizes any action to vacate the articles of incorporation and annul or dissolve the existence of a municipal corporation."

[¶15.] In response, the State asserts that it has both statutory authority (via SDCL 21-28-2(3) and SDCL 9-3-20 ) and common law authority (via an action in the nature of a writ of quo warranto) to institute this direct attack on Buffalo Chip's incorporation. It further asserts that SDCL 21-28-12 does not apply to bar the State's action because the State did not bring suit under that statute and because Buffalo Chip's argument in reliance on this statute assumes that it incorporated in accordance with all applicable laws.

[¶16.] This Court has not before examined the State's authority to institute an action against a municipal corporation under SDCL chapter 21-28.5 However, in a case decided over a century ago, this Court acknowledged the State's authority to institute an action challenging the right or standing of domestic or foreign corporations to transact business in this state. Wright v. Lee , 4 S.D. 237, 55 N.W. 931, 933-34 (1893). The Court explained that the State's authority arises from "its sovereign capacity, as the conservator of the rights and best interests of its citizens." Id. at 933. The Court further concluded that the State's right to institute a civil action under the predecessor statutes, now found in SDCL chapter 21-28, is cumulative to the State's right to proceed against the corporation at common law for a writ of quo warranto. Id. at 934 (holding that the enactments are not exclusive, but cumulative, to the common law writs).

[¶17.] Although Wright was decided in 1893, it appears to be without question, in many jurisdictions, that a state has the authority to challenge the existence of a corporation, including the creation of a municipal corporation.6 See 1...

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