UPDATE: The Minnesota Supreme Court will hear a crucial case regarding stormwater utility fees imposed by the city of Duluth. The court’s decision, expected to unfold in the coming months, could have major financial implications for the city and its businesses, affecting utility charges dating back to 2015.
The legal dispute centers around a class-action lawsuit initiated in September 2021 by Moline Machinery LLC and Glass Merchant Inc., commonly known as Walsh Windows. These businesses allege that Duluth’s stormwater fees are excessive and unfairly distributed. They seek refunds that could total up to $14.85 million for nearly 1,500 businesses.
In November 2024, Judge Eric Hylden ruled in favor of the city, stating that the utility provider’s rates were intended to break even rather than generate profit. However, the Minnesota Court of Appeals revived the case in September, asserting that there are unresolved factual questions that warrant further examination. This renewed scrutiny could potentially lead to a jury trial to determine if the city is unjustly retaining benefits from inflated fees.
The stormwater fees in question are calculated based on the amount of impervious surface on properties and their contribution to runoff. Plaintiffs argue that they face an unfair cost burden compared to other property types, including multifamily housing. They claim the city has provided discounts to select properties while compensating through higher fees for others.
Moline Machinery contends that it has been overcharged between $28,818 and $32,569 annually due to the city’s pricing structure. The lawsuit alleges that the city’s fee calculation—based on an “Equivalent Residential Unit” (ERU) system—has led to significant overpayments for businesses.
In January 2024, following recommendations from an engineering consulting firm, the city adjusted its ERU calculations. However, the plaintiffs are adamant that these changes do not address the overpayments for past years.
Assistant City Attorney Elizabeth Sellers Tabor argues that the appellate court’s ruling sets a troubling precedent that could undermine the financial stability of municipal utilities across Minnesota. She emphasizes that the state legislature grants cities the authority to regulate stormwater utilities and that there is no established mechanism for refunding fees through the courts.
On the other side, attorneys Shawn Raiter and J.D. Feriancek maintain that the appellate court’s decision improperly applies ratemaking principles to municipal utility fees. They advocate for the Supreme Court to clarify the law to prevent restricting equitable remedies for unjust enrichment claims.
The court has also allowed the League of Minnesota Cities to file an amicus brief, highlighting the statewide significance of the case for stormwater management funding. Attorney Paul Merwin stated that the decision will affect cities of all sizes and their ability to manage stormwater systems as mandated by state and federal laws.
Looking ahead, the Supreme Court has permitted both parties to submit written briefs and responses through May 2025. Following this exchange, oral arguments are expected to be scheduled, which will further clarify the path for Duluth and its business community regarding stormwater fees.
As this case unfolds, the implications for municipal utilities and local businesses in Duluth—and potentially across Minnesota—are profound. Stay tuned for updates on this developing story.
