Suit against Duluth for overcharging stormwater fees certified as class action

DULUTH — The city of Duluth faces a class-action suit over stormwater fees, potentially pitting it against hundreds of plaintiffs.

Two longtime Duluth businesses asked Judge Eric Hylden to certify the case in May. He said this week in St. Louis County District Court that the case met class-action requirements.

Bakery equipment manufacturer Moline Machinery and Walsh Building Products sued in 2021, alleging 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.

Eligible plaintiffs now include anyone who paid stormwater service fees to the city for non-residential structures since Sept. 8, 2015, a date chosen because of statute limitations, Hylden wrote in court filings.

"You're trying to resolve these claims efficiently," said Shawn Raiter, an attorney for the two businesses. "We're just saying, 'You should do this once and only once.' And [Hylden] agreed."

This type of class-action lawsuit requires people to opt out rather than opt in, he said, and potential plaintiffs will be notified by Raiter's office. If successful, the average plaintiff could receive thousands of dollars, he said.

Exclusions include owners of waterfront property who received discounts for their location before 2021, and owners of multifamily properties.

A spokeswoman for the city declined to comment on the case, citing ongoing litigation.

"The total amount at issue is millions," Raiter said. "There were businesses that were getting credit for $100,000 a year. That essentially means that the remainder of commercial properties were subsidizing that, and you do that over time and that adds up."

The businesses allege 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 argue that stormwater discounts for best practices are indeed allowed, and that the city 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.

Hylden encouraged the two sides to settle the case through mediation, with the next hearing scheduled for September.