Duluth stormwater fee class-action suit revived by Minnesota Court of Appeals ruling

DULUTH – A long-running lawsuit challenging the city’s stormwater fee system rounds another corner with a Minnesota Court of Appeals decision to send the case back to District Court.

Last November, St. Louis County District Court Judge Eric Hylden dismissed the class-action lawsuit pitting the city of Duluth against hundreds of ratepayers over millions in stormwater fees, granting summary judgment to the city in a suit filed in 2021 by two Duluth businesses. Hylden certified the suit as class action in 2023.

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 that financially.

In a ruling released Monday, the Appeals Court said Hylden erred when he decided the city of Duluth wasn’t “unjustly enriched” by allegedly excessive fees. But it affirmed the lower court’s ruling that the collection of fees didn’t amount to an unjust taking of private property, as the businesses claimed.

The city received the money, so it was enriched by it, regardless of how it was used, wrote Chief Judge Jennifer Frisch.

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.”

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

The businesses alleged the city violated its own code for years by giving discounts to some commercial and multifamily properties while failing to charge others.