Developer Brad Hoyt won a Pyrrhic victory on Tuesday in his lawsuit against Minneapolis over his 2004 proposal to build a 21-story condo tower on Loring Hill.

A Minnesota Court of Appeals panel ordered the City Council to rehear Hoyt's request for a permit and variances to build his tower, agreeing with his contention that he was denied a fair hearing.

But the judges also found that the council was within its authority to deny Hoyt's Continental Property Group the approvals he sought for the project, which suggests that a new hearing is unlikely to change matters.

In addition, the three judges stripped Continental of attorney fees and out-of-pocket costs that it previously had been awarded for wrongful denial of a land-use permit. A lower court had ruled that Hoyt was due $523,000. For its part, the city had sunk the $700,000 into fighting the case when the appeal was filed.

The judges also upheld a lower court ruling by now-retired Hennepin County District Judge Stephen Aldrich that Hoyt wasn't due $11 million in lost profits he claimed.

At the same time, the decision found fault with Council Member Lisa Goodman, in whose ward the project is proposed. The judges agreed with Aldrich that Goodman not only improperly showed a closed mind on the proposal but lobbied her colleagues against it in what should be a quasi-judicial proceeding.

The council showed that it was arbitrary and capricious, Judge Heidi Schellhas wrote for the panel. 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 said, it should hear Hoyt's proposal again.

Council members sometimes walk a fine line when pressed by constituents to oppose a development project. City lawyers advise the council to maintain impartiality because it decides on developer appeals of rejected permits in a quasi-judicial role. In ordering the new hearing, the court found that Goodman crossed that line.

She could not be reached for comment. Hoyt's attorney, William Skolnick, said he and Hoyt are considering an appeal. Another hearing on the proposal is really no remedy given how markedly the market has shifted away from condo construction since 2004, Skolnick said.

City Attorney Susan Segal said the city was pleased by the ruling and had previously suggested that Hoyt resubmit his proposal.

"Minneapolis welcomes development, but it's important the development is appropriate for the neighborhood under the zoning plan," Segal said.

Steve Brandt • 612-673-4438