DULUTH — City councilors went into closed session earlier this week to discuss the status of a long-running and increasingly costly legal dispute over the city’s method of assessing stormwater fees.
Following that briefing, the City Council unanimously passed a resolution authorizing the expenditure of up to $260,000 for outside legal counsel to defend the city against what could become a class-action lawsuit. To increase its odds of a successful outcome, Duluth has retained the services of Greene Espel, a Minneapolis-based law firm.
The case was filed in September 2021 by two local businesses : Moline Manufacturing LLC and Glass Merchant Inc., doing business as Walsh Windows. They claim to have been overcharged for stormwater runoff from their properties.
Shawn Raiter, an attorney for the businesses, explained Monday why he believes the suit should be certified as a class action case, allowing the pool of plaintiffs to be vastly expanded. Raiter works for the St. Paul-based Larson King law firm.
At a Zoom hearing before Judge Eric Hylden, Raiter argued that his clients were far from unique, and many other local businesses had been forced to overpay for storm sewer services, carrying an undue financial burden, while other property owners were grossly undercharged. He estimated that more than 1,500 owners of non-residential properties had been subject to similar fees and were also due reimbursement for years of paying inflated charges.
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Raiter cited internal city communications acknowledging problems with the existing fee model, including an email from Tom Johnson, a senior city engineer, that read: “The current billing system for storm is highly flawed.”
Johnson went on to note that the assessment system was not equitable with some properties being “grossly underbilled,” and called for further review.
"Not sure where this process broke down and when, but this re-evaluation was much needed," he wrote.
Attorney Katherine Swenson, representing the city, told Hylden: “The plaintiffs are oversimplifying the facts, and they are oversimplifying the legal issues to create an illusion that class certification might be appropriate.”
While Raiter would have the court believe the city’s fee system was clearly unfair and that a large number of property owners were owed repayments, Swenson said: “If you perform the required rigorous analysis, you will see that things are not as cut and dried as the plaintiffs claim.”
She questioned whether the complaint filed by Moline and Walsh was representative of claims that could be brought by other property owners as well.
“This is not a one-size-fits-all type of case. There are too many variables at play," Swenson said.
Hylden gave the city’s legal team a week to file an additional legal memo and said he would decide whether to certify the case as a class action lawsuit as soon as he could after that.
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The case is scheduled for more than a weeklong jury trial in February.
At the heart of the dispute is a disagreement over how the city has calculated stormwater fees on the basis of how much impervious surface may be found on a property. The suit finds fault with the method by which Duluth calculated the measurement it uses, called an “equivalent residential unit,” or ERU.
Plaintiffs suggest the city was wrong to include multi-family housing in establishing its ERU value, resulting in undersized ERU measurements and higher fees for non-residential properties.
The city has since revisited its calculation of what constitutes an ERU, raising it from 1,708 to 2,228 square feet of impervious surface, which the plaintiffs contend is still too small, due to the methodology used.
Swenson defended the methodology.
While city code said Duluth would “endeavor to investigate and reestablish” its ERU calculation every five years, the complaint notes that it remained unchanged for 24 years.
The suit also faults Duluth for exempting waterfront properties from stormwater fees and offering discounts for property owners found to have employed best management practices, again allegedly increasing the financial burden placed on other non-residential properties.
The complaint says Duluth collected about $5.2 million in stormwater fees in 2020.
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