Michigan Law Firm Making Money Suing Cities Over Sewers
A single law firm based in Royal Oak has won tens of millions of dollars in lawsuits against a growing list of metro Detroit communities – including Detroit, Royal Oak, Ferndale, Birmingham, and the townships of Bloomfield, Waterford and Brighton.
More cases are pending against St. Clair Shores, Taylor, and most recently Harper Woods. The firm did lose a notable case against Westland and appealed another loss to Dearborn.
Mostly, though, these savvy lawyers win. Their claim? From town to township, usually the same. Namely, that some communities improperly charged residents for storm water. That’s the rainfall that spills off roofs, runs off lawns and pours down driveways into storm sewers, before it flows off to treatment plants.
Last year, when the lawyers settled with Birmingham, the judgment was for $2.85 million to cover years of storm-water billings, spread over the city’s thousands of homes and businesses. Many homes and businesses received modest refunds, averaging $230 apiece. But a judge said the firm’s attorneys “were hereby awarded” a total of $999,974 – roughly one nice lunch shy of a million bucks.
Also last year, a judgment in Ferndale came to $4.25 million; one in Royal Oak, $2 million; and in Waterford, $1.4 million. This year, one in Brighton Township was $1.5 million; and in Detroit, a whopping $27.5 million. On Sept. 17, Bloomfield Township was ordered to pay $3.7 million. St. Clair Shores has been sued. Harper Woods lost its case and can expect an adverse multimillion-dollar judgment at any time. More than a dozen communities have been targets.
The upshot? Most communities are forced to pay up, with the law firm typically taking about 33 percent.
Kickham Hanley has won so much money, from so many communities, that two bills are pending in Lansing that aim to stop the firm’s judgment-winning juggernaut. The firm’s lawsuits “are siphoning funds earmarked for badly needed infrastructure repair and maintenance” of local sewer systems, said Oakland County Water Resources Commissioner Jim Nash.
Yet, the law firm has done nothing devious or improper, according to court rulings. Instead, it merely pointed out, with the concurrence of judges, that many communities have violated Michigan’s Headlee Amendment. The local governments imposed storm-water charges that were more like a tax than a fee – a violation of the late Richard Headlee’s famous limit on taxation, as enshrined in the Michigan Constitution. Now, for better or worse, each community that has lost in court must revise how it bills customers.
Typically, after the law firm takes its share of a settlement, the rest gets divvied up to a given community’s water and sewer customers. But homeowners don’t much of a payoff, said Waterford Township Supervisor Gary Wall.
Last year in Waterford, “I think the average person got, like, $22 back for a four-year period – about $5.50 a year,” Wall said.
“When you think about it, that money has to come from the same people getting the refunds. Really, it ends up the residents just paying themselves, besides of course paying the lawyers,” he said.
And one more person.
“The puppet usually gets $10,000,” Wall said, referring derisively to what state law calls “the Plaintiff certified as Class Representative.” That’s usually one person who happens to own property in the community, and who lets the lawyers slap his or her name on top of the lawsuits, functioning on paper as the chief complainer about storm-water rates. The “puppet” stands in for all of the “class,” which in these lawsuits generally means everybody else in the community who pays storm water charges.
Once a community settles and cuts a hefty check to Kickham Hanley, it’s still not over, said Birmingham City Manager Joe Valentine. Each community must invest considerably more to devise an all-new way of charging for storm water, Valentine said.
“The billing methodologies in all these towns were put in place decades ago. The way we’d been doing it was in a lot of cities. We would charge a portion of your water usage to apply as your storm water charge,” he said.
Now, based on Kickham Hanley’s victories, that old billing method doesn’t pass muster with the Headlee Amendment, especially not when the lawyers add arguments from some key Headlee-spawned legal cases, including one that strikes mild terror into many a Michigan mayor, called Bolt versus Lansing.
Who hasn’t heard of taxation without representation? That’s what these storm water charges constitute, the lawyers argue. And judge after judge agrees, said Greg Hanley, a principal with the law firm.
“We’re having a pretty good run of success – I’m fully aware that we’re not popular with a lot of people,” he said.
Many of their critics don’t understand the reasons for high-dollar legal awards, which compensate lawyers for the high risks of taking on such cases, he said. Lawyers routinely are granted fees of 33 to 40 percent of a settlement if they’ve handled the case for free. The storm-water lawsuits are in the category called class actions, in which lawyers accept the risk of earning literally nothing if they lose, even after expending years of effort and sometimes steep costs for research.
“It’s been a unique practice that results from people coming to us and complaining about their utility bills. I don’t know of any other law firm doing this” in Michigan, Hanley said.
The common thread in most of the cases is the argument that some communities used their water and sewer rates to pay for public expenses that should be covered by taxes.
A key but subtle example? In Royal Oak and several other cities of Oakland County, the lawyers showed that the long-term bond payments for a giant, 2.2-mile underground sewer called the George Kuhn Retention Treatment Facility had been buried _ so to speak _ in the cities’ water and sewer charges.
As Hanley put it, when it comes to big infrastructure costs, “Our contention is, it’s inappropriate to charge that in your water and sewer rates. Headlee says, either pay for it out of current funds or go to the people and make your case” for higher taxes; “tell them, `We need a new fire station’ or whatever.
“And Bolt (versus Lansing) says, if this project benefits the public as a whole, not the individual utility rate payers, then it can’t come out of the utility rates.”
As for basing storm-water charges on how much water a customer uses, “What if you and I are neighbors and you live alone but I have four daughters, which I do,” Hanley said.
“My house is using a lot more water, but our lawn and our driveway and roof are not necessarily contributing any more storm water to the system,” he said. Instead, the storm-water volume depends on how much of a given property doesn’t absorb rainfall, what’s called the “impervious surface area.”
Thus, owners of a tiny house and huge lawn shouldn’t pay as much for storm water as folks with the opposite – a large house and tiny yard. The idea is to tailor the fee to exactly how much storm water each property sloshes into the street’s sewer grates.
As costly as these lawsuits have been to community coffers, in virtually every case the local government was able to pay off the settlement from its general fund – no borrowing necessary, Hanley said.
And Kickham Hanley’s legal victories have been the catalyst for getting communities to shift their billing practices. In the firm’s case against Detroit, it was businesses – not residents – who sued to stop tens of millions of dollars in unfair “drainage charges,” according to legal documents. The lawsuit not only won, it drew praise from the court that the law firm had exposed unfair billing practices and “provided a substantial benefit to society,” according to the Final Judgement and Order issued in February by Wayne County Circuit Judge John A. Murphy.
Still, it’s an expensive way to right a wrong, said John LaMacchia of the Michigan Municipal League, a major association of city and village officials. Some of the cases amount to costly nit-picking, said LaMacchia, the group’s assistant director of state and federal affairs.
One nit picker was the recent judgment against Bloomfield Township, LaMacchia said. It requires the township from now on to “explicitly document payment of the cost of water that passes through fire hoses,” and to show that its cost is covered by the township’s general fund, not by residents’ water and sewer charges, according to a judge’s order.
Not so nit picky, however, was the rest of the judge’s order – requiring Bloomfield Township to pay a $3.7-million settlement, of which the law firm can be expected to receive about one-third, after about two-thirds is distributed to the community’s water and sewer customers.
Such lawsuits “are taking advantage of a loophole” that a new state law would close if Lansing’s lawmakers support it this fall, after more than a year of dickering, LaMacchia said. Unfortunately, too many lawmakers have blocked passage because they think the proposed law “would give communities more taxing power – that’s not true,” he said.
Instead, the state House and Senate proposals would create a model that any community could copy for revising its storm water and other utility charges, making them lawsuit-proof, said state Sen. Marty Knollenberg, R-Troy.
Knollenberg, who sponsored the Senate version, Senate Bill 756, said the new law “would create one statewide standard for everyone to follow.”
The sponsor on the House side, state Rep. Mike McCready, R-Birmingham, said his version is House Bill 4100. McCready, the former mayor of Bloomfield Hills, sounded less than generous – but certainly amusing – in how he described the situation, making a pun of the law firm’s name:
“I say kick ’em, hand ’em and steal have been at this for far too long.”