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DES MOINES | A state judge on Tuesday halted -- at least temporarily -- construction of the Hard Rock Hotel & Casino Sioux City. The stunning decision sent supporters of the $128.5 million downtown project and state regulators scrambling to decide what to do next.

Polk County District Court Judge Robert Hanson granted a motion by the owner of the Argosy Sioux City riverboat casino to suspend the Hard Rock's state license until the Argosy's litigation against the Iowa Racing and Gaming Commission is resolved.

In granting the stay, Hanson cited the "substantial possibility" that the Argosy would ultimately succeed on the merits of the case.

"We’re grateful to the judge for granting us the stay, which will come as very welcome relief to our employees,” said Karen Bailey, a spokeswoman for Argosy parent Penn National Gaming Co. “We are encouraged and continue to believe in the merits of our claim."

Bill Warner, president of the Hard Rock developer, Sioux City Entertainment, said the company is reviewing the ruling.

"We continue to respect Iowa’s judicial and regulatory processes, and are confident that the correct outcome will prevail," Warner said in a statement late Tuesday.

Sioux City Entertainment, or SCE, is a subsidiary of Las Vegas-based Warner Gaming Co., which manages the Hard Rock Las Vegas Hotel & Casino. The Woodbury County license was jointly awarded to SCE and its local nonprofit partner, Missouri River Historical Development.

MRHD President Mark Monson did not immediately return a call to the Journal Tuesday night.

In September, two months after construction began on the downtown Sioux City casino, Penn petitioned Hanson to overturn a series of IRGC actions that culminated with the Hard Rock group winning Woodbury County's first land-based casino license on April 18.

The Argosy boat, docked on the Missouri River, had been scheduled to be replaced by the Hard Rock upon its completion next summer.

In making its case for a stay, Penn argued that Hard Rock backers would seek to use a new casino to their advantage as the parties continued their legal wrangling over the validity of the license.

Hanson ruled in favor of Argosy's claims that it would incur "irreparable harm" without a stay.

The judge said the evidence also "arguably shows" that the IRGC violated a state statute and Argosy's constitutional rights in regard to its gaming license.

IRGC administrator Brian Ohorilko said Tuesday the regulatory body and the state Attorney General's office were still reviewing the judge's ruling, and evaluating its options.

Ohorilko said the initial read is that Hard Rock could proceed with construction, but could not open as scheduled next July. As things stand now, the opening would have to wait until January 2015, at the earliest, he said. That's because the final hearing in Argosy's judicial review case is scheduled for Dec. 22, 2014.

Work began in July on the Hard Rock project, which revolves around the historic Battery Building at Third and Water streets. Renovations are well underway on the four-story, century-old brick warehouse, which is being converted into hotel rooms, restaurants and back office functions.

The foundation for a new connected structure that will house the 30,000-square-foot casino floor and other restaurants and amenities has been laid, and this month, contractors began erecting the steel frame.

The massive project has produced a major jolt to the local economy, creating hundreds of construction jobs. A number of local subcontractors and suppliers are contributing to the project.

The city also has a huge stake in the project, having borrowed $22 million to help pay for parking and other infrastructure for the casino. The tax-increment financing dollars would be repaid with a share of casino revenues and future property taxes from the complex.

Judge Hanson's ruling Tuesday was the latest development in a nearly two-year legal fight over legalized gambling in Woodbury County.

The IRGC decided in June 2012 to take bids for a land casino after growing frustrated with months of failed contract talks between Penn and its then-nonprofit sponsor, MRHD, on a long-term deal that would have included a land casino.

Since the operating agreement between the two parties expired in July 2012, the IRGC has allowed the Argosy to remain open under what's known as "operation of law."

After MRHD later aligned with Sioux City Entertainment, Penn sued MRHD for breach of contract.

In a split vote in April, the five-member gaming commission selected the Hard Rock group over three other land proposals. It included two different sites for a Hollywood-themed casino offered by Penn and its new nonprofit, Greater Siouxland Improvement Association.

The move was unprecedented in the 25-year history of casino gambling in Iowa. The IRGC has the power to revoke a license due to a serious violation or infraction but had not previously replaced an existing operator as the result of competitive bidding.

Penn, the nation's second-largest gaming operator, later appealed the decision, claiming IRGC violated its own rules, state law, and the company's constitutional protections during the bidding process, and ignored deficiencies in the winning bid.

IRGC officials argued that state law gives the regulatory body broad authority to grant state gaming licenses, which come up for renewal on an annual basis.

In August, the five-member commission formally turned down Argosy's request to renew its license for another year, saying that Argosy no longer had an operating agreement with a licensed nonprofit as required by law.

In his six-page ruling Tuesday, Hanson cited four main factors he considered in deciding to grant the stay. The first three included the likelihood of Argosy prevailing on the merits, and whether the operator or the other party would be irreparably harmed.

The final factor was the public's interest, Hanson said.

"Clearly, the public has considerable interest in ensuring the orderliness and legality of the instant licensing process," the judge wrote. Argosy "has made a substantial showing that a stay would not only further that interest but would also advance the public interests in, among other things, maintaining gambling revenues while avoiding loss of jobs and disruption of existing businesses."

Argosy has more than 300 employees in Sioux City. In the budget year that ended June 30, the casino had $56 million in gross revenues, and paid more than $10.5 million in taxes to the state.

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