A judge has ruled against the City of Brookings in a lawsuit filed by the owners of three local bars. Circuit Judge David Gienapp says a 2008 city ordinance and resolution creating and setting the fee for new restaurant-only liquor licenses do not follow state law.

They are "invalid to the extent that the ordinance and resolution attempt to establish the fee for new full service onsale restaurant licenses in an amount less than current fair market value." In other words, the fee set by the city last year was too low, and that will hurt businesses that already have liquor operating agreements here. Gienapp has enjoined the city from issuing any of the restaurant licenses pursuant to the current version of the city ordinance and resolution .

The owners of 9 Bar and Nightclub, Cubby's Sports Bar & Grill and Skinner's Pub filed the lawsuit against the city in late 2008, after the Brookings City Council decided to charge $18,504, or $1 per person living within city limits, for the new class of liquor license created by the state Legislature.

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 argued 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, 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 on-sale 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 here based on population. Argued local option

City officials argued 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 Brookings City Council set the fee based on population, not fair market value.

But Gienapp said the city's position was incorrect. Municipalities have only the powers granted to them by the state Legislature, and the state law creating the new licenses did not give Brookings the express authority to sell them for less than fair market value.

"The legislature expressly stated " that the price for a license shall be set at or above the current fair market value. This indicates that there is no implied authority for the City of Brookings to sell for less than the fair market value," the judge wrote in his legal analysis.

Gienapp also said that the 2008 state law considers an entity that has entered into an operating agreement with a municipality a licensee.

"Essentially, the City of Brookings is putting form over substance by trying to distinguish between 'licensee' and 'operating agreement,'" he said.

Gienapp continued, "It is clear that the Legislature wanted to drive economic development , but not hinder existing value at the same time.

"Brookings did not comply with these provisions when the city ignored the fair market value when setting the price for these new licenses.

"Furthermore, allowing Brookings to price these new licenses at far below fair market value will have a very negative impact on the existing value of current entities entered into operating agreements with the city."

McCarty on Thursday said he was pleased with Gienapp's ruling. "I'm certainly glad the court made the decision it did and that the law will be enforced as it's written and as the Legislature intended."

McCarty said the judge's decision mirrors his and his clients' argument entirely. It acknowledges that the city's previously set fee would affect the value of the bar owners' businesses. Now the city should go back and establish fair market value for the new liquor licenses, he added. City will review options

City Attorney Steve Britzman said Gienapp's decision will help the city move forward. The city council still needs to review the ruling and decide what action to take, he explained. The judgment can be appealed, but it's up to the elected officials to decide whether to do that.

Britzman said the court's decision has clarified state law, and that was one of the goal's of the case, which requested a declaratory judgment.

"Part of the difficulty was that the intent of legislature and the statute were vague. Before, this law was highly debatable. It's helpful to have this."

Mayor Tim Reed said Thursday afternoon that he was disappointed to hear the city lost the case but had not had time yet to review the ruling.

It's the city council's decision on what to do next, but members need time to absorb the information, and it might not come up for discussion at next week's meeting, he added.

City Manager Jeff Weldon said he also needed time to look at the ruling before commenting on it.

Contact Jill Fier at jfier@brookingsregister .com.