Opinion
No. A06-2043.
Filed November 13, 2007.
Appeal from the District Court, Ramsey County, File No. C3-04-12054.
David W. Larson, Martin Squires P.A., (for appellants).
James F.X. Jerskey, (for respondent).
Considered and decided by Peterson, Presiding Judge; Lansing, Judge; and Klaphake, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2006).
UNPUBLISHED OPINION
Appellants, Cash-N-Pawn of Minnesota, Ltd. and Pawn America Minnesota, LLC, brought this declaratory judgment action against respondent City of St. Paul, challenging the city's decision to increase the fee imposed on pawnshop transactions from $1.50 to $3.00 per transaction. On appeal from the district court's grant of summary judgment to the city, appellants challenge the validity of the ordinance increasing the fee, arguing: (1) the city council failed to consider any evidence regarding "the costs of processing transactions" when it decided to increase the fee, as required by St. Paul, Minn., Legislative Code § 344.02 (2007); and (2) the fee represents an invalid tax on pawnshops because it is used to finance general law enforcement. Because our review of the city's exercise of its legislative authority is limited and because the increased fee is neither unreasonable nor excessive, we affirm.
DECISION
On appeal from a grant of summary judgment, this court asks whether there are any genuine issues of material fact and whether the district court erred in its application of the law. Cummings v. Koehnen, 568 N.W.2d 418, 420 (Minn. 1997). "A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law." Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993); see Minn. R. Civ. P. 56.03.
I.
Appellants argue that the district court erred in concluding that the city met "minimal procedural requirements," because the city has failed to show that it considered any evidence regarding the "cost of processing transactions" before increasing the transaction fee. See St. Paul, Minn. Legislative Code § 344.02(b) (2007) ("The billable transaction fee shall reflect the cost of processing transactions as determined by the director of the Office of License, Inspections and Environmental Protection . . . and the chief of police . . . or their designees.").
A city acts in a legislative manner when it enacts an ordinance setting a fee. See Minneapolis St. Ry. v. City of Minneapolis, 251 Minn. 43, 62-63, 86 N.W.2d 657, 670 (1957) (setting rates charged by street rail companies is legislative function performed by city commission). A city enjoys broad discretion when acting in a legislative capacity and may rely upon its general knowledge to support the rationality of a legislative decision. See White Bear Docking Storage, Inc. v. City of White Bear Lake, 324 N.W.2d 174, 177 (Minn. 1982) (city council may rely on its own experience, competence, and capacity to measure impact of special use permit on property values); Honn v. City of Coon Rapids, 313 N.W.2d 409, 415 (Minn. 1981) ("city council has broad discretion in legislative matters," and courts will not "interfere" as long as "rational basis exists" to support decision). The burden is on the party challenging the validity of an ordinance, and it will be presumed that a city acted "with full knowledge of all the facts essential to valid legislation." Lyons v. City of Minneapolis, 241 Minn. 439, 446, 63 N.W.2d 585, 590 (1954).
Here, the city claims that it relied on its general knowledge of the city's budget shortfall, as well as its general knowledge of the costs of the Automated Pawnshop System (APS), a computerized system developed by the City of Minneapolis to electronically record all pawnshop transactions. The city submitted two documents to the district court to show that the fee increase was rationally related to the cost of processing transactions: a "green sheet" explaining the proposed increase for the city council's agenda that was distributed to the department director and to the city attorney, and an affidavit prepared by a budget analyst from the police department. These two documents establish that the fee increase was directly related to the costs associated with APS, which include $1.00 per transaction paid to the City of Minneapolis under an APS licensing agreement and staffing costs for an APS jurisdiction manager and administrator. Given our limited review of the city's legislative action, we conclude that the city properly considered the "cost of processing transactions" when it increased the fee.
II.
Appellants argue that the ordinance imposes an invalid tax on pawnshops for the purpose of financing general law enforcement. Appellants insist that, even if the city is acting as a legislative body, it cannot single out a business and impose a tax on that business in order to support a general duty to protect the public. See Klein Bancorporation, Inc. v. Comm'r of Rev., 581 N.W.2d 863, 866 (Minn.App. 1998) (stating that only legislature has authority to assess and collect taxes, which may be levied, assessed, and collected "in the method expressly established by statute").
The city, however, has broad authority to regulate pawnshops and has enacted specific ordinances to do so. See Minn. Stat. § 325J.01-.13 (2006) (involving pawnshop regulations, requiring municipalities to record and maintain certain information involving pawn transactions, and authorizing local law enforcement agencies to review that information); St. Paul, Minn., Legislative Code §§ 344.00.1-.06 (2007) (pawnshop regulations). Because a pawnshop has the potential to develop into a nuisance that involves law enforcement problems, the protection of the public welfare may justify the imposition of license fees large enough to operate as a restraint on that type of activity. See, e.g., Lyons, 241 Minn. at 443, 63 N.W.2d at 588 (distinguishing between business with potential to develop into nuisance and "lawful trade or business in the nature of a gasoline filling station"); Crescent Oil Co. v. City of Minneapolis, 177 Minn. 539, 542, 225 N.W. 904, 906 (1929) (stating that "[a] clear distinction is drawn between the amount of a license fee which may lawfully be imposed upon a business which is of a questionable nature and on one which is not" and that "[t]here is a marked distinction between police protection of an unquestionable business and police supervision of a questionable business").
In general, a license fee "should be intended to cover the expense of issuing it, the services of officers, and other expenses directly or indirectly imposed." State v. N. Raceway Corp., 381 N.W.2d 526, 528-29 (Minn.App. 1986), review denied (Minn. Mar. 27, 1986); see St. Paul, Minn., Legislative Code § 310.09(b) (2007) (requiring fees to cover direct and indirect costs and expenses, "such as salaries, wages, benefits and all personnel costs including . . . expenses of investigations and inspections, handling of inquiries and requests for assistance"). A fee cannot be set so high that it produces substantial revenue beyond what it actually costs to regulate a business or activity. See Crescent Oil, 177 Minn. at 542, 225 N.W. at 906 (holding $100 fee charged to filling stations unreasonably high). But a fee may still be reasonable, even if it yields some revenue beyond the amount spent on regulation and related expenses. See Minneapolis St. Ry. v. City of Minneapolis, 236 Minn. 109, 120-21, 52 N.W.2d 120, 126 (1952) (recognizing that while license fee may not be imposed for revenue purposes, it may incidentally yield some return in excess of the amount necessary to reimburse city for its police services of inspection, supervision, and regulation of business).
Appellants challenge the amount of time actually spent by the jurisdiction administrator and manager on processing APS transactions, and contend that charges to reimburse the city for law enforcement, pawnshop regulation, or reviewing and correcting input errors are not expenses associated with processing. But as the green sheet and the affidavit prepared by the budget analyst show, the increased transaction fee is directly related to the increasing costs associated with APS. And, contrary to appellants' claims, the transaction fee is not intended to cover general law enforcement; rather, it is directly related to the costs of regulating pawnshops, which have been historically linked to stolen property and can be considered questionable businesses.
We therefore affirm the district court's grant of summary judgment to the city.