Court of Appeals Rules for City of East Lansing in BWL Case, Saving the City a Bundle
The Michigan Court of Appeals has ruled in favor of the City of East Lansing in the case brought over the BWL franchise fees. The overturning of the lower court’s finding against the city is a big deal for the city’s finances, as City Attorney Tony Chubb told City Council at Tuesday’s meeting (April 18).
“This [appeals court ruling] is really important for the budget of the city,” Chubb said. “The damages sought were over $5 million and previously received fees that were collected [over $7 million] and it also would have forced us to stop collecting about $1.5 million a year going forward.”
The city didn’t have an easy way to pay $12 million or to cut that $1.5 million per year out of its budget. Now, it looks like it won’t have to.
A previous Council voted in 2017 to adopt this “franchise fee” on BWL bills. This added a 5% surcharge on the bills of East Lansing BWL customers, money that was collected by BWL and then passed on to the city. As ELi has reported for years, this revenue stream has made a big difference as East Lansing has faced financial hardships.
In April 2020, the lawsuit challenging these fees was brought by plaintiff James Heos against East Lansing. The case was turned into a class action suit, sweeping in all East Lansing BWL customers except those who specifically took action to opt-out.
The plaintiffs alleged the fee constituted an illegal tax under Michigan law. Michigan’s law limits what kinds of taxes a municipality may impose.
In the case, the city tried to argue this was not a tax — it was a legally permissible fee imposed to upkeep the right-of-ways (including East Lansing streets and sidewalks) used by BWL for its equipment.
Whether the money was really being used for infrastructure was a key point of contention in the case.
In the years after adopting the franchise fee, East Lansing officials had talked about the revenue helping with the city’s pension debt. But, once it became clear Delta Township was struggling to defend itself in a similar lawsuit, East Lansing city officials pivoted to framing the fee as helping with East Lansing’s infrastructure.
In fact, just four months before the suit against East Lansing was filed, the city suddenly decided to take on the $3.5 million Evergreen Avenue sewer project. That project had been put off repeatedly for over a decade in anticipation of some development project taking care of that infrastructure need with a tax-capture plan. The project improved a right-of-way that involved BWL infrastructure, spending the equivalent of several years’ worth of revenue collected through the franchise fee.
But the Court of Appeals decision focused on when the lawsuit against East Lansing was filed. In essence, the court ruled the case had to have been brought within one year of the fees being imposed.
Chubb told Council this week he anticipates the plaintiffs will appeal to the Michigan Supreme Court.
“We do expect that there will be an appeal,” Chubb said. “But in my opinion I don’t think that it’s very likely that the Supreme Court will take it up. And so I think this does provide a lot more clarity as we go into the budget [season], and we can presume that that $1.5 million [in revenue] will continue.”
Chubb helped ELi ascertain the legal costs to city taxpayers from this case by referring the request for that figure to the City Clerk’s office. Material returned by the City Clerk’s office under the Freedom of Information Act (FOIA) shows the total comes to about $129,000 so far.
The record of those costs documents how many city attorneys the city has gone through since the case of Heos vs. City of East Lansing started.
When it was filed, Tom Yeadon of the McGinty firm was the city attorney, and that firm was paid $8,375 for work on this case from April to September 2020.
At that point, the firm of Foster Swift was hired to be the city’s attorney, and they ended up doing most of the defense, working from October 2020 through the present day, to the tune of $117,635.
In February 2022, City Council decided to hire Chubb’s firm – Giarmarco, Mullins & Horton – to replace Foster Swift. Chubb’s advice in the case has cost $3,146 so far. (Incidentally, Council seems pleased with Chubb’s performance, having made no noises about seeking a new city attorney since he took on the work.)
If the case of Heos vs. City of East Lansing is appealed, the legal bills could continue. The Council officially starts its annual budget talks next Tuesday, April 25.
Heos, an attorney in East Lansing practicing with the Abood law firm, made news for a different matter concerning the Michigan Court of Appeals in 2021. At that time, he was fined for having appeared to give the middle finger to a panel of three Court of Appeals judges.