12-6010-16747-3
STATE
OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE CITY OF
|
In the Matter of |
FINDINGS OF FACT, CONCLUSIONS OF LAW AND RECOMMENDATION |
The above-entitled matter came on for hearing before
Administrative Law Judge
Larry F. Cooperman,
This Report contains a recommendation and not a final
decision. The final decision will be
made by the Minneapolis City Council, which may affirm, reject, or modify the
Findings and Conclusions contained herein.
The Council will consider the evidence in this case and these
recommended Findings of Fact and Conclusions, but will not consider any factual
testimony not previously submitted to and considered by the Administrative Law
Judge. The Licensee will have an
opportunity to present oral or written arguments alleging error on the part of
the Administrative Law Judge in the application of the law or interpretation of
the facts and may present argument related to the recommendation. To ascertain when the Council will consider
this matter, the parties should contact the City Clerk, Council Information
Division,
STATEMENT OF ISSUE
Whether
the amortization period the City provided to Respondent is reasonable to
reimburse Respondent for termination of its nonconforming use.
Based
upon all of the files, records and proceedings herein, the Administrative Law
Judge makes the following:
FINDINGS OF FACT
1.
Under a September 21, 1981, contract for deed (CD), Donald and
Shirley Moore sold and Rahim A. and Mathilde Amirani purchased property located
at
2.
Glenn Peterson is
the president and shareholder of O&P, Inc. (“O&P”).[4]
O&P was initially owned by Robert
Olson and Peterson.[1] Following Olson’s death, Peterson brought
Olson’s interest and assumed full ownership and responsibility for O&P.[5]
3.
On December 10,
1982, O&P agreed to purchase the property at
4.
The terms of the
sale compelled O&P to make substantially higher payments to Moore and the
Amiranis during the first years after the sale.
By
December 10, 1983, the end of the first year of operation, O&P was
obligated to pay at least $46,000 on the two CDs. This consisted of $36,000, payable in 12
monthly payments of $3,000 per month, plus $5,000, representing the second
anniversary payment principal payment, for the assumed Moore CD, and an
additional $5,000 payment for the Amirani CD.[11] During the second year of operation of the
bar, O&P was again obligated to pay $46,000 in CD payments. In 1985 and 1986, the third and fourth years
of operation, O&P’s CD obligations decreased to $41,000 per year because the
Moore CD no longer required additional principal payments.[12] By December 1986, the end of the fourth year
of operation, the Amirani CD was to be paid in full.[13] Beginning in January 1987, the fifth year of
operation of the bar, O&P’s annual CD payments decreased to $36,000 per
year.[14]
5.
At some point,
O&P changed its name to
6.
The bar has had a
Class A liquor license from the City since December 1982 which enables it to sell
alcohol and have live entertainment.[17] The business offers a hamburger menu. Most of the bar’s income has been derived from the
sale of alcohol.[18] During the initial two years of operation,
7.
There were two or three efforts to cancel the CDs during the
early years of operation of the bar.[21]
8.
In 1984,
9.
Prior to 1986, Peterson believed that the City was
overtaxing
10.
In 1986,
11.
Respondent has renovated
the bar to accommodate added food service and topless dancing.
12.
Eight to ten years ago, Peterson obtained an $80,000
personal loan that he used to improve the financial condition of
13. Between 1996 and 2004,
14. On February 21, 1992, nearly ten years after the
15.
16. On April 13, 2002, the City Council again amended Ordinance
549 to establish a one-year amortization period to discontinue nonconforming
uses such as
(c) Adult
entertainment centers. Adult
entertainment centers existing on April 13, 2002, and not otherwise governed by
an earlier amortization requirement, shall be permitted to operate as a
nonconforming use in accordance with the provisions of Chapter 531, Nonconforming
Uses and Structures, provided that the uses that do not conform to the zoning
distances requirements of section 549.350 (a) shall become unlawful on and
after May 1, 2003.
(d) Extension
of Time. The city council may extend the date upon which a nonconforming
use becomes unlawful under this section where it is established that the
amortization period is unreasonable as applied to a particular use.
(1)Procedure for requesting extension of
time. Any person with a legal or equitable interest
in the use to be amortized may seek an extension by making a written request to
the zoning administrator together with supporting information, such as purchase
agreements, leases, property appraisals, evidence of costs of improvements to
the property, or business records or tax returns that the applicant would like
to be considered. The burden of proving
that an amortization is unreasonable is on the applicant.
(2) Determination.
In determining whether such date should be extended, the City Council
may consider information relating to the useful life of the nonconforming use
and any other factors or information relevant to the determination of
reasonableness of the amortization period.
Information relative to the useful life of the nonconforming use may
include: The cost of the property and its improvements, the tax depreciation
status of the property or use, the condition of the structures on the property,
the potential for alternative use of the property and the potential cost to
relocate the use or otherwise bring the use into compliance with the zoning
district requirements.[42]
17.
On August 15, 2003,
18.
On September 4, 2003, Peterson applied for an extension to
the amortization period.[45]
19.
On August 4, 2004, the City’s attorney requested information
about 22nd Ave. Station in order to evaluate the request for
extension of the amortization period.[46] The
City requested a history of the operations of the business, including its use
as an adult entertainment establishment, the manner of operation, hours of
operation and employees, analysis of annual revenues by source, documentation
related to the original purchase price of the property, tax returns, financial
statements, property used in connection with the nonconforming use, cost of
improvements, diagrams of the business, appraisals, and any expert reports
regarding valuation of the adult entertainment use of the property, its useful
life or reasonable amortization period.[47]
20.
On January 19th and 25th, 2005, 22nd
Ave. Station, by its attorney, provided tax returns, financial statements, an
officer salary schedule, a depreciation schedule for the $360,000 loan and
other business records to the City, including the CDs between O&P and Moore
and Amirani.[48] The City was not provided with any information
about when
21.
Using the available
information provided by Respondent, Marshall Besikof, a CPA hired by the City
to provide an accountant’s opinion, concluded that between 1996 and October
2004, 22nd Ave. Station had provide a 454% return on investment if
the $47,926 unpaid loan to Peterson was ignored.[50] If the loan to Peterson was recognized as an
asset of
22.
Respondent has continued its nonconforming use of the
property from April 13, 2002 until October 11, 2005, the date of the hearing.
Based upon the
foregoing Findings of Fact, the Administrative Law Judges makes the following:
CONCLUSIONS
1.
The Minneapolis City Council and the Administrative Law
Judge have authority to consider the application for an extension of the
amortization period based on § 549.360 of the Minneapolis Code
of Ordinances.
2.
The City of Minneapolis received a timely and appropriate
application for an extension of 22nd Avenue Station, Inc.’s nonconforming
usage of their adult entertainment activities, as required by § 549.360(d)(1) of the Minneapolis Code of Ordinances.
3.
Pursuant to § 549.360(d)(2) of the
Minneapolis Code of Ordinances, the City Counsel of Minneapolis has the
authority to determine the reasonableness of granting Respondents an extension
to the amortization period.
4.
Under Minneapolis Ordinance § 549.360(d) (1) Respondent has the burden of proving that the one year amortization
period is an unreasonable period of time.
5.
Respondent has failed to demonstrate that the one year
amortization period was unreasonable.
Based
upon the foregoing Conclusions, the Administrative Law Judge makes the
following:
RECOMMENDATION
IT IS HEREBY RECOMMENDED; That the
Dated:
December 15, 2005
/s/
Steve M. Mihalchick _________________________
STEVE
M. MIHALCHICK
Administrative
Law Judge
Tape
recorded (two tapes) not transcribed
O&P,
Inc., the corporate predecessor to
In
1992, ten years after
Respondent argues that because it was not financially
viable during its initial years of operation, when it did not provide
entertainment by topless female dancers, and because it has only become viable
since it began featuring such entertainment, the value of the business and all
of its assets are completely dependent upon providing adult entertainment. Therefore, according to the Respondent, the
nonconforming use amortization period should be extended until the CD is paid
in full. The argument is without merit.
The terms of the sale imposed significantly greater
financial obligations on the Respondent during the first years of operation of
the bar when it did not provide adult entertainment. Respondent’s poor initial financial
performance was further complicated by a tax dispute with the City which was ultimately
resolved in Respondent’s favor, and the death of a partner of O&P, Inc. For these reasons, it is not correct to
attribute Respondent’s improved financial performance and successful emergence
from bankruptcy after 1987 solely to the introduction and expansion of adult
entertainment since it occurred during the same period when Respondent’s
financial obligations were otherwise changing or decreasing.
Respondent’s contention that the amortization period should
be extended to coincide with the remaining term of the CD is not justified. The useful life of the nonconforming use, in
this case entertainment by topless female dancers, has no direct relationship
to the remaining term of the CD.[53] In addition to the bar, the CD included the
sale of land, bar-related inventory and residential rental property, none of
which have any relationship to the nonconforming use. Moreover, nothing in the CD obligates the
Respondent to continue to operate a nonconforming use business.
Reasonable amortization provisions limit the duration of a nonconforming
use.[54] Extending the amortization period requires
the non-complying owner to provide evidence demonstrating that the one year
period is unreasonable. The undisputed
facts are that
Respondent also
argues that by failing to process its liquor license, the City has prevented
the Respondent from selling and relocating the business. This case concerns a zoning ordinance, not a
liquor license. Because liquor licenses
are not transferable, any prospective buyer of the bar would have to obtain a
license on their own behalf from the City.
The real impediment to any sale of the bar as it currently operates is
its location outside the adult entertainment district. Liquor licensing does not affect Respondent’s
nonconforming use; entertainment by topless female dancers creates the
nonconformity.
Respondent has received not only the one year amortization
period but has also had an additional period since May 1, 2003, approximately
two and one half years. Thus the
effective amortization period has been three and one half years.[55] Respondent’s nonconforming use has been
reasonably amortized. Respondent has
not demonstrated that it is entitled to an extension of the amortization
period.
S.M.M.
[1] Ex. 1, pp. 15-19.
[2] Ex. 1. There
was testimony about CD dates and terms that differed from those stated in the
documents. The information in the
documents is relied upon in these Findings.
[3] Ex. 1, p. 15.
[4]
[5] Testimony of Glenn Peterson.
[6]
[7]
[8] Testimony of G. Peterson.
[9]
[10] Ex. 1, p. 4.
Ex. 1, the CD documents were not submitted to the City for review by its
CPA prior to the hearing. Testimony of G. Peterson’ Ex. 13, App. A.
[11] The 1st anniversary principal payment was
due on September 2, 1982, prior to O&P’s assumption of the Moore
CD. Ex. 1, p. 15.
[12] Ex. 1, p. 15.
[13] Ex. 1, p. 4.
[14] Ex. 1. p. 4.
[15]
[16]
[17]
[18] Testimony of G. Peterson
[19]
[20]
[21] Testimony of G. Peterson.
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]
[30]
[31]
[32] Testimony of G. Peterson.
[33]
[34] Ex. 13, p. 13.
[35] Ex. 11,
[36] Ex. 7;
[37] Ex. 7.
[38] Testimony of G. Peterson; Testimony of G.Wilson.
[39] Ex. 2.
[40] Testimony of G. Wilson.
[41] Ex. 2.
[42] Ex. 7, Ordinance number 2002-0303,
amending Ordinance 549.360.
[43] Ex. 8. The notice was directed to Spencer J.
Sokolowski, a former owner of the property.
Respondent admits that it received notice of the nonconforming use of
the property.
[44]
[45] Ex. 9.
[46] Ex. 4.
[47]
[48] Testimony of M. Besikof; Ex. 13, Appendix A.
[49]
[50] Testimony of M. Besikof; Ex. 13, p. 7. The reported 454% return on investment, which
is dependent upon treatment of the $47,926 loan to Peterson as additional
income, appears to be a typographical error.
The correct return on investment is 445%. The total income to owner is $341,992 +
47,926 (the loan) = $389, 918. Average
total assets of the 22nd Avenue Station, Inc. are $135,491 – 47,926 =
$87,565. $389,918 / $87,565 = 445%.
[51]
[52] Testimony of M. Besikof; Ex. 13, p.10. At the time he prepared his analysis, Besikof
did not have any information linking O&P, Inc.; the corporate entity listed
on the CDs, with
[53] See AVR, Inc.
v. City of
[54] Naegele Outdoor Advertising
Co. of Minn. v.
[55] Klicker v.
State, 197 N.W. 2d 434 (