Thousands of East Lansing residents have now received a notice in the mail notifying them that they will become part of a class action suit against the City of East Lansing unless they indicate in writing that they want to opt out.
The case involves a “franchise fee” that the East Lansing City Council voted in March 2017 to impose on the electric bills of BWL customers within the City’s borders. The franchise fee adds five percent to these electric bills, money collected by BWL that then goes back to the City of East Lansing.
If the City of East Lansing loses the suit, the financial implications for its finances could be huge. Since the franchise fee started to show up on BWL bills in East Lansing, the funding mechanism has had a major impact on the City’s finances, as it has been bringing in about $1.4 million each year.
The City’s Finance Director has repeatedly named it as a significant boon to the City’s bottom line.
The suit could lead not only to the cessation of the fee, but also to the City having to pay back the fees already collected. That would mean to the City both the loss of the annual revenue, and having to find a way to pay back millions of dollars.
The named plaintiff in the case is James Heos, an East Lansing resident and attorney. He is represented in the case by the Kickham Hanley law firm out of Royal Oak and by Andrew Abood of the Abood Law Firm of East Lansing.
The City is defended by Foster Swift Collins & Smith, the Lansing-based firm hired under the City Attorney’s contract last fall after Lisa Babcock, Aaron Stephens, and Jessy Gregg voted in July to fire Tom Yeadon of the McGinty firm.
The firing of Yeadon led to the immediate resignations from Council of Ruth Beier and Mark Meadows, who had been on Council when the franchise fee was voted through.
ELi’s Michael Teager broke the story in May 2016 that the Council was considering this franchise fee as a way to try to deal with the City’s financial crisis, caused chiefly by decades of underfunding the City’s pensions.
In 2017, we ran an “Ask ELi” column responding to a customer who asked whether this fee was basically a tax, something the lawsuit now essentially asserts is the case.
State law limits the taxes a municipality’s council can simply vote to impose. Which parts of state law apply in this instance is one of the things that will be worked out in the case.
Kickham Hanley recently brought a similar suit against Delta Township, a case that resulted in a settlement in which Delta Township had to pay out $2.3 million.
According to a press release from the township, “The Township contends that the franchise agreement is legal. However, in order to mitigate the risk of a larger judgement and to be judicious with taxpayer funds, the Township Board of Trustees decided to settle this class action lawsuit in August 2020.”
Delta Township had saved up some of the franchise fee revenue, collected since 2017, to use for capital improvements. So, it had money set aside that could be used for the settlement. Still, the revenue hit to the township will be significant. There, it had been bringing in about $2.5 million per year.
East Lansing has not set aside the funds it has collected from its BWL franchise fee.
The East Lansing suit was filed in Ingham County Circuit Court in March 2020 and was assigned to Judge Wanda M. Stokes. Stokes ruled that the case could proceed as a class action suit, and this is why BWL customers whose bills are implicated have been sent notice by the Kickham Hanley firm that they will be included unless they opt out.
Being included in the lawsuit won’t cost people anything. If Heos wins the suit, checks will likely be issued to those whose bills were involved, with the size determined by what they paid in franchise fees. Anyone who opts out will not be eligible to be paid if Heos wins the suit.
Why might someone take the trouble to opt out of the class action suit, when staying in it costs them nothing? They may wish to do so “to retain their right to file a separate action against the City,” according to the letter sent by Kickham Hanley. A person might also have some other reason for not wanting to be part of the class action suit.
Regardless of what happens, the City General Fund will be used to pay for the City’s legal defense. Foster Swift Collins & Smith will bill the City hourly for that defense work, because litigation representation is not covered in the annual $500,000 contract cap. (See the contract.)