Minnesota Supreme Court to Review Stormwater Fee Dispute

UPDATE: The Minnesota Supreme Court has just announced it will hear a critical case concerning the city of Duluth’s stormwater utility fees, which could have major financial implications for local businesses. This legal dispute, originating from a class-action lawsuit filed in September 2021, challenges the fairness of utility fees imposed by the city, potentially costing Duluth millions.

The lawsuit, initiated by Moline Machinery LLC and Glass Merchant Inc. (doing business as Walsh Windows), claims that Duluth has overcharged businesses and utilized an inequitable fee structure. The plaintiffs are seeking refunds for approximately 1,500 businesses dating back to 2015, with attorneys estimating a staggering $14.85 million in overpayments.

In November 2024, Judge Eric Hylden ruled in favor of the city, stating that the utility provider had not engaged in “unjust enrichment.” However, the Minnesota Court of Appeals revived the matter last September, ruling that further examination was necessary, as there are questions that could lead to a jury or judge concluding that the city benefits from excessive fees.

The stormwater fees are calculated based on the amount of impervious surface on a property, influencing how much runoff enters the city’s storm sewer system. Plaintiffs argue that they face an unfair cost burden compared to other types of properties, such as multifamily housing developments. They assert that the city has used discounts to underbill certain properties, making up for it by overcharging others.

Moline claims to have been overcharged between $28,818 and $32,569 annually. The system for calculating fees, based on an “Equivalent Residential Unit” (ERU), has drawn scrutiny, particularly after the city adjusted its ERU value in January 2024 following recommendations from an engineering consulting firm.

The Supreme Court’s decision to hear the case reflects the contentious nature of municipal utility fees. In a filing, Assistant City Attorney Elizabeth Sellers Tabor argued that the Court of Appeals’ ruling undermines past Supreme Court precedents and threatens the financial stability of municipal utilities amid climate change challenges. Tabor warned that this decision could lead to an influx of unjust enrichment claims against municipalities across Minnesota.

Conversely, attorneys Shawn Raiter and J.D. Feriancek, representing the businesses, maintain that the appellate court’s ruling improperly applies ratemaking principles to municipal utility charges. They urge the Supreme Court to reconsider the legal standards, asserting that such matters should not be confined to the city’s discretion.

Additionally, the League of Minnesota Cities has been granted permission to submit an amicus brief, emphasizing the statewide significance of this case for cities managing stormwater discharges under state and federal law.

The timeline for the upcoming legal proceedings indicates that written briefs and responses are expected to be filed through May, with oral arguments likely to be scheduled thereafter.

As this situation unfolds, the stakes are high for both Duluth and the businesses involved. The outcome could reshape how stormwater utility fees are assessed, affecting municipal revenue and the financial viability of local businesses. Stay tuned for further developments as this case progresses through the highest court in Minnesota.