Judge sides with Duluth on stormwater case
DULUTH — City officials received welcome news Wednesday when District Court Judge Eric Hylden ruled to dismiss a class-action suit brought against Duluth, alleging that its stormwater utility fees placed an unfair financial burden on commercial property owners.
The case was brought by Moline Manufacturing LLC and Glass Merchant Inc., doing business as Walsh Windows, in September 2021. The plaintiffs' attorneys alleged that up to 1,500 businesses should receive refunds from claims dating back to 2015. If they prevailed, Duluth potentially could have been on the hook for millions of dollars.
"I'm very very disappointed," Gary Moline, executive chairman of Moline Manufacturing, told the News Tribune on Wednesday. As for the possibility of appealing the decision, Moline said his team is still considering its options.
City officials declined to comment on the case until the litigation had been fully resolved.
Even though the city appears to have prevailed in this latest legal round, defending itself has proven to be an expensive endeavor, with more than $700,000 spent between a Twin Cities law firm, Greene Espel PLPP, and an accounting consultant, HKA Global LLC.
Hylden granted Duluth's motion for summary judgment, ruling that the city had not unjustly enriched itself with its stormwater rate structure.
That rate system is based on an "Equivalent Residential Unit," or ERU, calculation meant to represent the average amount of impervious surface of a home in Duluth. In 1998, that ERU was determined to be 1,708 square feet. Businesses were billed on the comparable number of ERUs determined to be on their properties, as calculated by taking the total amount of impervious surface square footage they have and dividing it by 1,708.
The city's ERU value was based on single-family and rental residential properties.
In January 2024, the city adjusted its ERU value to 3,099 square feet at the recommendation of an engineering consulting firm, SEH. Moline considers that a small victory but not one that makes local businesses whole for past overcharges.
In his decision, Hylden wrote: "This is the crux of the case: whether the city of Duluth's methodology for calculating its ERU base value is just and equitable."
Ultimately, Hylden determined that the plaintiffs' claims that the city had engaged in "unjust enrichment" were hollow because the stormwater utility system rates were designed simply to "break even" instead of seeking to turn a profit.
Moline said he respects the court's authority, "but it doesn't solve anything."
"This is still an extremely high-cost place to do business," he said. "It's got the highest stormwater utility rates in the area, and unless you get special favors, you pay to play here. I don't know why businesses would locate here with something like that looming over them."
