Both sides in a lawsuit, filed by three local bars against the City of Brookings, gave oral arguments Monday in Brookings County Circuit Court. The owners of 9 Bar and Nightclub, Cubby's Sports Bar & Grill and Skinner's Pub claim that the 2008 city ordinance and resolution creating and setting the fee for new restaurant-only liquor licenses do not follow state law.

For the new liquor licenses, the Brookings City Council decided to charge $18,504 each, or $1 per person living within city limits.

State law says the price of the new licenses should be "at or above fair market value," based on the documented price of the on-sale license most recently sold between Jan. 1, 2003, and Jan. 1, 2008

The plaintiffs in the case say that with the purchase of 9 Bar and Nightclub in March 2006, Nine Inc. also purchased and transferred an on-sale liquor license. Don McCarty, attorney for the plaintiffs in the case, says the city's ordinance and resolution substantially reduce the value of the plaintiffs' licenses and overall resale value of their businesses.

As a local option community , Brookings' current onsale liquor licenses are actually operating agreements. The city holds the only license and leases agreements to serve liquor to local businesses for $1,500 per year. The number of current full-service operating agreements available here is limited based on population. Licenses leased here

The city says that because Brookings is a local option community, there has never been a liquor license sold here, so it should defer to the minimum restaurant license fee allowed by state law. The bar owners want to keep the city from issuing the new licenses at the price previously adopted. The city wants the lawsuit dismissed.

In court this week, McCarty said the state Legislature, in creating the law that allowed for the new restaurant liquor licenses, tried to strike a balance to stimulate economic development and not crush the current market.

McCarty said the state has the monopoly power to regulate liquor, and the city has to follow its rules. The state law says the new licenses "shall" be sold for fair market value, and Brookings was "never given express authority to sell them for less than that," he argued.

McCarty claims the city found a loophole in the law, but "the state legislature never intended for us to do it this way." Loophole closed

The loophole for local option communities has since been closed in the 2009 legislative session, McCarty said, and Brookings should follow the law as it is written today. "The city never had the power to do what it did."

McCarty said businesses that have liquor operating agreements in Brookings have always been treated less than what they would be in other communities, where businesses actually own their liquor licenses. South Dakota Codified Law 35-1 .1-1 says holders of liquor operating agreements are licensees. If a quota and limit on the number of licenses applies to Brookings, so should fair market value, the attorney argued. Did city low-ball price?

McCarty said the city moved quickly and set a low price on the new restaurant liquor licenses because it wanted an economic advantage over other cities, but the action also hurts businesses already using liquor operating agreements here.

The attorney asked Circuit Judge David Gienapp to determine that "fair market value" is not consistent with the Brookings ordinance or resolution and that that the price set for the Brookings licenses is not consistent with state law and strike it down.

Jack Hieb of Aberdeen, attorney for the City of Brookings, argued that setting a license fee based on "fair market value" means using the "documented price of the more recently sold license" here. Doing that here requires the city to imply power and to read into language not in the state law.

"The city was following the express language of the state statute. The city applies the law in the way it's written . … The city took great pains to walk through the statute and set an amount."

Hieb added that operating agreements are not the same as liquor licenses, and it's wrong to say they are. "We haven't implied anything. The transfer of a license from one business to another is different than the transfer of an operating agreement." Action appropriate

Hieb added that the city did not jump into anything to take advantage of a loophole . "( Brookings) followed the language of the statute and set the fee appropriately ."

In his rebuttal, McCarty said the "city chose to interpret the statute in a way that 'fair market value' didn't apply. There's no question under South Dakota statute that 'fair market value' can and should apply to Brookings."

Circuit Judge David Gienapp told the parties in the case that he would consider both arguments and get back to them with a decision as soon as possible, but he warned, "You're not first in line."