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December 21, 1989

Robert A. Warder, Attorney at Law
107 Elm Street
P.O. Box 10
Hill City, SD 57745

OFFICIAL OPINION NO. 89-37

Video lottery licensing of municipal liquor establishments

Dear Mr. Warder:

You have requested an official opinion from this office based upon the following factual situation:

FACTS:

Hill City has four on-sale liquor licenses issued to it under SDCL ch. 35-4. Hill City has entered into agreements pursuant to SDCL 35-4-21 for the operation of four on-sale liquor businesses. Recently, the State Lottery Commission has licensed the operators of the Hill City on-sale establishments as video lottery machine operators. The State Lottery Commission has stated that it is legally authorized to license operators and need not license or seek the approval of Hill City for the purpose of providing video lottery machines at these on-sale liquor premises.

Based upon the above facts, you have asked the following questions:

QUESTIONS:

1. Is the State Lottery Commission authorized to license only the operator of an on-sale liquor business in which the municipality is an on-sale liquor license holder?

2. If the State Lottery Commission is authorized to only license the operator, what jurisdiction does a municipality have as it concerns video lottery operations and the individuals who are conducting business under an on-sale operating agreement?

3. What is a municipality's potential liability, if any, where it is a holder of an on-sale liquor license entered into an operating agreement concerning video lottery operations where the State Lottery Commission only licenses the operator of the establishment?

IN RE QUESTION NO 1:

It is my opinion that the State Lottery Commission may legally license only the proprietor/operator of an on-sale liquor establishment for business being conducted pursuant to an operating agreement under SDCL 35-4-21. It is further my opinion, that pursuant to SDCL ch 42-7A and ARSD ch. 48:02:02 the State Lottery Commission has the authority to license individuals as video lottery licensees who are not on-sale liquor license holders. There is nothing in the statutory or regulatory scheme that can be inferred to require the State Lottery Commission to license only the holder of an on-sale liquor license. The State Lottery Commission's licensing of the proprietor of a municipal on-sale business is thus proper and consistent with the Lottery's purpose.

IN RE QUESTION NO 2:

Traditionally, the regulation of gambling was part of the inherent general police powers of a municipality. In 1987, however, the South Dakota Legislature determined to limit a municipality's police powers to regulate and suppress gambling as it pertains to state owned and operated lotteries. SDCL 9-29-5 now states:

Any municipality may suppress gambling, gaming, and gambling houses, and lotteries, and all fraudulent devices, practices used for obtaining money or property. Any municipality may enter any place where any such activity is practiced or allowed to be practiced, and seize and destroy any instrument, device or thing used for such purpose found therein. The provisions of this section do not apply to any lottery owned and operated by this state. (Emphasis added.)

The amendment of SDCL 9-29-5 is a clear expression of the South Dakota Legislature's intent to prohibit a municipality from utilizing its general police powers to suppress or regulate state lottery operations. This is consistent with the Legislature's creation of the State Lottery Commission with its extensive enforcement and regulatory powers as it relates to the operation of the State lottery.

Though a municipality may not use its general police powers to suppress or regulate state-run lotteries, it is my opinion that a municipality, through its contractual relationship with the operators of municipal on-sale liquor businesses, may suppress and regulate lottery operations. SDCL 35-4-19 through 35-4-23, inclusive, were intended to allow municipalities to enter into operating agreements with individuals to operate both on-sale and off-sale establishments. Any provision pertaining to the operation of the video lottery machines within on-sale liquor premises that is consistent with State law can be mutually agreed upon by the parties. This would include provisions concerning placement of machines on the premises, the number and type of machines and the division of revenues and even prohibition of the machines. From a review of the provisions of SDCL ch 42-7A there appears no intent on the part of the South Dakota Legislature to prohibit a municipality from exercising its contractual rights under SDCL ch. 35-4. As the license holder of the on-sale liquor license, a municipality has the legal ability to condition the operation of business under that license in any legal matter authorized or empowered under SDCL ch. 35-4.

IN RE QUESTION NO 3:

I cannot specifically respond to your question regarding what a municipality's potential liability may be from the operation of the video lottery machines on premises where the municipality is the holder of the on-sale liquor license. The answer to this question depends upon the contents of the operating agreement, the source and nature of the potential liability and the actions taken by the municipality through its officers. Absent any specific facts, any statements that I would make are sure speculation.

Respectfully submitted,

ROGER A. TELLINGHUISEN
ATTORNEY GENERAL

RAT:cs

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