UPDATE: The Minnesota Supreme Court is set to hear a critical legal battle concerning the city of Duluth and its stormwater utility fees, a decision that could cost the city millions. The court granted a review of a class-action lawsuit initiated in September 2021 by Moline Machinery LLC and Glass Merchant Inc., trading as Walsh Windows, claiming the city imposes unfair charges on local businesses.
The lawsuit alleges that Duluth’s fee structure is inequitable, overcharging as many as 1,500 businesses for stormwater runoff since 2015. This could lead to potential refunds totaling up to $14.85 million. The case is escalating, with the Minnesota Court of Appeals reviving the matter last September after finding that the city may unjustly retain benefits from excessive fees.
In November 2024, Judge Eric Hylden ruled in favor of the city, stating that the utility rates are designed to merely “break even.” However, the appellate court disagreed, highlighting that questions of fact remain that could justify a jury’s or judge’s reassessment of the fees.
The stormwater utility fees are calculated based on the amount of impervious surface on a property. The plaintiffs argue that the city’s system unfairly burdens businesses compared to other property types, like multifamily housing developments. They assert that certain properties received discounts while others were overcharged, leading to significant financial disparities.
Moline claims it has been overcharged between $28,818 and $32,569 annually. The lawsuit suggests that the city’s fee structure, based on an “Equivalent Residential Unit” (ERU), fails to accurately represent the stormwater impact of businesses.
Despite adjustments made to the ERU value in January 2024, the businesses are fighting for compensation for their alleged past overpayments. The Supreme Court’s decision to review the case is seen as a pivotal moment, with implications that could reshape stormwater fee regulations across Minnesota.
In a recent filing, Assistant City Attorney Elizabeth Sellers Tabor argued that the appellate ruling sets a troubling precedent and could jeopardize municipal utilities already struggling to cope with climate change and aging infrastructure. Tabor stated, “The Court of Appeals’ decision has detrimental consequences for Minnesota municipal utilities.”
Conversely, attorneys Shawn Raiter and J.D. Feriancek, representing the businesses, maintain that the ruling improperly extends ratemaking principles to municipal utility charges. They urge the Supreme Court to protect against narrowing the equitable unjust enrichment remedy, emphasizing that the responsibility to evolve legal frameworks lies with the Supreme Court, not lower courts or the Legislature.
The court also allowed the League of Minnesota Cities to file an amicus brief, as the outcome could significantly affect stormwater management across the state. Attorney Paul Merwin stressed that a ruling will influence how cities fund their stormwater programs, which are often mandated by state and federal laws.
In a coordinated effort, attorneys are requesting a series of written briefs and responses to be submitted through May, after which oral arguments are anticipated to be scheduled by the Supreme Court.
This developing story is crucial for businesses and municipalities alike, as the implications of the court’s decision could resonate far beyond Duluth, affecting stormwater management practices statewide. Stay tuned for further updates as the situation unfolds.
