Duluth awarded legal win over stormwater fee class action suit

DULUTH – A class action lawsuit pitting the city of Duluth against hundreds of ratepayers over millions in stormwater fees has been dismissed by a St. Louis County judge.

Sixth Judicial District Judge Eric Hylden granted summary judgment to the city this week in a suit filed in 2021 by two Duluth businesses.

Bakery equipment manufacturer Moline Machinery and Walsh Building Products alleged the city overcharged them when assessing stormwater service fees, while undercharging or not charging others. They say the city used an inappropriate method to calculate payments for commercial properties when considering the amount of impervious surface of each and claimed the city benefited from “unjust enrichment.”

Eligible plaintiffs included anyone who paid stormwater service fees to the city for non-residential structures since Sept. 8, 2015, a date chosen because of statute limitations.

The businesses asked Hylden to certify the suit as class action in 2023.

Hylden wrote in his Nov. 12 ruling that the heart of the case was whether the city’s methodology to calculate payments was equitable and compliant with state statute and its own ordinances. He found that the city didn’t benefit from the rate payments, since the money went toward building and operating costs.

“The facts are undisputed that the city of Duluth did not ‘retain’ any of the overcharges paid by the [plaintiffs],” Hylden wrote, and is “really just ‘breaking even’ with its stormwater utility.”

Shawn Raiter, attorney for the two businesses, has said the average plaintiff could have received thousands of dollars, with the total amount at issue in “the millions.”

He did not return a message on Friday.

A spokeswoman for the city declined to comment on the case, but Mayor Roger Reinert said in a interview before his election that the suit had the potential to bankrupt the city.

The businesses had alleged the city violated its own code for years by giving discounts to some commercial and multifamily properties while failing to charge others. For example, until 2021, the city gave steep discounts to waterfront properties, which amounted to more than $1 million annually, or 20% of its stormwater utility budget. Duluth collected about $5.2 million in stormwater fees in 2020, and businesses paid nearly half of that, the lawsuit says, at a rate higher than those in comparable cities.

More than 1,500 properties were billed at commercial rates in 2020, according to court documents, a number that also includes discounted properties.

In court filings, attorneys for the city said it had begun reviewing and fixing its billing practices long before the 2021 lawsuit was filed, a process that was completed this year and included remeasuring the impervious surfaces of thousands of properties. That process did find some properties weren’t correctly charged, some because the city wasn’t aware of changes to amounts of impervious surfaces.

A trial had been scheduled for February. It is unclear whether an appeal will be filed.