The Minneapolis City Council acted arbitrarily and capriciously in how it denied a developer's proposal to erect a Loring Hill residential tower and must rehear the matter, an appeals court ruled Tuesday.

But the Minnesota Court of Appeals decision otherwise agreed with the city's arguments in the case, eliminating the chances that the city will pay millions of dollars in damages to developer Brad Hoyt, absent a further appeal.

Nevertheless, the decision poses a political embarrassment for Council Member Lisa Goodman, in whose ward Hoyt proposed his project. The three-judge panel agreed with a trial court that Goodman not only improperly showed a closed mind on the proposal but lobbied her colleagues against it.

The panel found that the council was within its legal right to deny a conditional-use permit and variances for the 21-story project because they fall within the council's discretion. But because the council gave weight to Goodman's advocacy against the project as the area's council member and relied on factors that it wasn't allowed to consider, the panel ordered the council to hear Hoyt's proposal again.

The court said that Hoyt's Continental Property Group isn't due attorney fees and out of pocket costs for wrongful denial of a land use permit, reversing the lower court ruling that he was due $523,000, or less than the $700,000 the city had sunk into fighting the case when the appeal was filed. But it upheld the lower court ruling by now-retired Hennepin County District Judge Stephen Aldrich that Hoyt wasn't due $11 million in lost profits he claimed.

The appeals panel found that the council wouldn't have been arbitrary in its quasi-judicial consideration of Hoyt's applications "had it not allowed a biased councilmember to participate in the decision." It rejected arguments by attorney William Skolnick that Hoyt's substantive and procedural due process and equal protection rights were denied.

Neither the city attorney's office, Goodman nor Skolick returned Star Tribune calls immediately.

Steve Brandt • 612-673-4438