UPDATE: The Minnesota Supreme Court has just agreed to hear a pivotal case concerning stormwater utility fees imposed by the city of Duluth. This legal dispute, initiated by local businesses in September 2021, could cost the city millions of dollars in refunds if the plaintiffs succeed.
The court’s decision comes in response to a class-action lawsuit led by Moline Machinery LLC and Glass Merchant Inc., operating as Walsh Windows. These businesses allege that Duluth’s stormwater fee system is inequitable and overcharges approximately 1,500 businesses by relying on a flawed calculation method. They are seeking refunds dating back to 2015, with claims of overpayments amounting to a staggering $14.85 million.
In November 2024, Judge Eric Hylden ruled in favor of the city, stating that the fee structure was designed to merely “break even” and did not constitute “unjust enrichment.” However, the matter was revived by the Minnesota Court of Appeals in September, which found sufficient grounds to reassess the case. Their ruling suggested that a jury or judge could determine that Duluth unjustly retains benefits from excessive fees.
Businesses are charged based on the amount of impervious surface on their properties, which directly affects stormwater runoff. Plaintiffs argue that they unfairly shoulder a larger financial burden compared to other properties, including multifamily housing developments. They claim the city has offered “sweetheart deals” to certain properties, leading to significant revenue loss from underbilling.
Moline claims it has been overcharged between $28,818 and $32,569 annually, further fueling the urgency of the lawsuit. The city adjusted its stormwater fee structure in January 2024 following recommendations from an engineering firm, but businesses are demanding compensation for past overpayments.
The Supreme Court’s decision to take on this case is particularly significant as it addresses the broader implications for municipal utilities across Minnesota. The League of Minnesota Cities has been granted permission to file an amicus brief, highlighting that the outcome will influence stormwater management practices statewide.
Assistant City Attorney Elizabeth Sellers Tabor criticized the appellate court’s ruling as a departure from established legal standards, arguing that municipalities must have regulatory authority over stormwater utilities without the threat of refund mechanisms. She warned that the appellate decision could hinder municipal utilities’ ability to operate effectively amid rising climate challenges.
Conversely, attorneys representing the businesses, Shawn Raiter and J.D. Feriancek, assert that the case is vital for ensuring equity in municipal utility charges. They argue that the courts should not impose a higher legal burden on plaintiffs merely because the fees are used for city reimbursements.
In light of the court’s recent actions, a series of written briefs and responses are expected to be filed through May, after which oral arguments will be scheduled. The urgency of this developing story cannot be understated, as it impacts not only the businesses involved but potentially reshapes the funding and regulatory framework for stormwater management throughout Minnesota.
Stay tuned for more updates on this landmark case that could redefine how municipalities assess utility fees.
