POCATELLO — A district judge has awarded $1.1 million in legal fees to the attorneys who litigated a class-action lawsuit regarding illegal fees on utilities collected by the City of Pocatello.
Courts have found the city collected illegal fees on its water, sewer and sanitation services from 2005 into Fiscal Year 2014. In July, the city and attorneys for the class reached a settlement covering two years of illegal collections, plus interest.
Sixth District Judge Stephen Dunn entered a $4.5 million judgment in the case on Oct. 24. In a Nov. 7 ruling, Dunn ordered the city to pay $1.1 million of the total to the plaintiffs’ attorneys. The sum was well below the 40 percent the attorneys were specified to receive in their original contract with plaintiffs, which would have totaled $1.8 million, explained Nathan Olsen an Idaho Falls attorney representing the plaintiffs.
“In a class-action lawsuit, the court has the opportunity to review fee requests and determine what’s reasonable,” Olsen said.
Olsen estimates he’s personally worked about 1,700 hours on the case since it was filed and is pleased it’s finally come to a resolution.
Dunn sought to strike a balance in his ruling between offering a fair payment to the plaintiffs’s attorneys and considering the best interests of the class: “The work done here by plaintiffs’ counsel was excellent and deserves to be adequately compensated, but the ratepayers also deserve full return of the amount they were required to improperly pay.”
Dunn also awarded the plaintiffs’ $3,200 for litigation expenses. The judge denied a request by the city for nearly $20,000 to compensate for mailing, advertising and costs of administering the settlement.
Current utility customers who had city services during the two-year settlement period — between April 2012 and April 2014 — will not be required to file any paperwork to receive a check. Former utility customers who have moved away or no longer use city services have one full year remaining to contact the city to request a refund.
None of the current city leaders were in office in 2005, when the city decided to operate its utilities as for-profit entities, like private utilities. The city added an extra charge on utility bills, which it called a “return on equity” fee, and moved the profits to its general fund, where they could be applied toward unrelated expenses.
The city generated additional funding through a tax on its own utilities which it called “payment in lieu of taxes,” or PILOT.
“Under this scheme, the city-owned water and sewer departments were required to pay ‘property taxes’ to the city as if they were private entities, and the departments then passed this cost on to their customers,” the Idaho Supreme Court wrote in a Sept. 6, 2017, ruling, reversing a prior decision by Judge Dunn that the city shouldn’t have to repay fee payers. “The property taxes were then paid into the city’s general fund.”
Pocatello retained both the fee and tax until Fiscal Year 2012, when it stopped collecting the “return on equity” fee.
On Dec. 9, 2011, the Building Contractors Association of Southeast Idaho challenged the PILOT tax, and Judge Dunn ruled it was unlawful. Dunn prohibited the city from collecting the PILOT tax near the start of Fiscal Year 2014, resulting in a 10 percent decrease in utility bills, according to court documents.
On April 15, 2014, Logan Robinson, who was the owner of Hill-Vu Mobile Home Park in Pocatello, filed suit to force the city to refund both the PILOT tax and the “return on equity” fee. His attorneys, Olsen and Michael Gaffney, both of Idaho Falls, argued the city is legally allowed only to collect fees sufficient so that its services “shall be and always remain self-supporting,” which may include reserves but prohibits transfers for unrelated uses.
“This has been a long time coming,” Olsen said. “I really hope this not only helps people recover some of what should never have been taken, but it will also cause the city and other governmental entities to think twice about their revenue collection policies and whether they’re going to try to bend the rules or not.”
A city spokesman said city officials were off for the Veterans Day holiday on Monday and were unavailable for comment.