Class-action ‘franchise fees’ suit begins with millions at stake for Montana’s largest city

Posted at 8:30 AM, Apr 28, 2021
and last updated 2021-04-28 11:54:50-04

BILLINGS - Nearly four years ago, seven Billings residents decided to take Montana’s largest city to court, alleging that fees it had added to water bills were an illegal sales tax.

Since then, two of the group have died and at least five different judges have touched the case before retired Gallatin County Judge Mike Salvagni was literally called in off the bench to help decide the matter that could involve nearly every household in the city and see a settlement of more than $50 million.

In testimony on Tuesday, Salvagni heard arguments about the franchise fee charges, and also heard motions on why a new slate of class representatives and plaintiffs’ counsel should be substituted, reports the Daily Montanan.

Franchise fees

This case, years in the making, has been certified as a class-action, meaning that scores of people are being represented through this one lawsuit. In testimony Tuesday, attorneys said that 35,000 ratepayers, both residential and commercial, were charged an extra approximately 4 percent of their total fees for 27 years. Before the practice was discontinued in 2018, after the court challenge had been filed, franchise fees brought in roughly $2.5 million.

“The evidence for this illegal sales tax is that the city immediately stopped it after 26 years, and in doing so, forfeited $2.5 million of revenue each year,” said Matthew Monforton, who represents Billings’ ratepayers. “That’s a pretty good indication of what the city thinks.”

Monforton argued the legislature alone has the authority to allow a sales tax, quibbling with the definition of a “franchise fee,” which he said were “untethered” to any real costs, and amounted to a tax on top of actual charges.

Meanwhile, Doug James, an attorney for the city, said that municipalities have the right to recoup incidental fees, and they didn’t have to be precise. He argued the city had held 29 public hearing cases on rates and fees since franchise fees were adopted, and that plaintiffs — or any member of the public — had a right to object to them, leaving several avenues of appeal open. Instead, he said the plaintiffs’ chose not to object.

“The plaintiffs have made much to-do and presented no evidence as to why those fees were eliminated,” James said.

He said the city could charge residents franchise fees, which were a right the city has for lines and services running to houses, beneath roads that are not owned by the city, rather the state.

He said the courts have never decided the issue of franchise fees in Montana.

“The plaintiffs’ case is premised on illegal fees, but no court has determined this issue and no court has determined it’s a tax,” James said.

Attorney Doug James argues on behalf of the City of Billings in a franchise fee ratepaying case before Judge Mike Salvagni

He said until a court determines both of the matters, a class-action case is not “ripe” for the courts. He said that none of the plaintiffs have ever asked or protested or appealed a franchise fee.

“Twenty seven years is a bit too late,” James said.

Monforton said the fees were a cash grab by the city because the fees went from the public services division, which handles water, sewer and garbage and were deposited in the general fund, which could fund police and even travel by the city council and mayor.

Salvagni ordered a series of briefs and replies that will extend through most of May before either deciding issues in writing, in person or via videoconference.

Politics, as unusual

The franchise fees case has bounced through the courts, ping-ponging from Billings to Great Falls back to Billings again. Since then, nine different legal motions have been filed, leaving Salvagni with a raft of decisions to make.

All judges in Yellowstone County have recused themselves because they are all ratepayers of the city of Billings and would be effected by the outcome. That set into motion a series of events that have seen the case bounce from judge to judge — from Judge Greg Pinski, who left the bench in Cascade County, to Judge Michele Reinhart Levine, who recused herself. Levine has since become the only district court judge not to win approval in a state Senate confirmation hearing. When she recused, the case was sent back to Judge Mary Jane Knisely, the chief judge in Yellowstone County, who then asked Supreme Court Chief Justice Mike McGrath to ask a retired judge.

In the intervening time, a third party attempted to intervene in the case, coming to a head on Tuesday.

The court spent the majority of Tuesday morning listening to arguments that centered on the lieutenant governor, Kristen Juras, political conspiracy and a hostile takeover by one former Congressional candidate.

Originally, the class-action was certified by the courts with plaintiffs represented by Monforton, who is also a former Republican legislator from Gallatin County. Last year, though, Billings attorney John Heenan filed an unusual motion with the court seeking to have two other city residents replace the original plaintiffs and have himself replace Monforton as counsel. Heenan ran unsuccessfully as a Democrat against Greg Gianforte for Montana’s at-large Congressional seat and has prior experience as a class-action attorney.

Heenan argued to the court that since the ratepayers — essentially anyone who paid a water bill during the three decades — have not been notified of the class-action, they have not been adequately represented.

Heenan’s clients, attorney Andrew Billstein and business owner Jacob Troyer, said they believe the current plaintiffs are being too stubborn about settlement and taxpayers will likely be on the hook for any fees Monforton wins. A mediator earlier in the process had estimated Monforton and Juras’ four-year expenses at around $800,000. Meanwhile, Heenan has offered to replace Monforton and not charge fees, resulting in a win for the taxpayers.

“Aren’t you a little late to the party,” Monforton asked Billstein on Tuesday.

“I would consider that to be a fair statement,” Billstein replied.

Monforton asked why it took him three years to ask the court to intervene.

“I was unaware at the time that their focus was only pursuing their beliefs. I thought that they were representing me,” Billstein said.

Both Troyer and Billstein expressed disapproval that the plaintiffs’ group had rejected some settlement offers with the city unless it admitted that it illegally charged residents a tax.

Proposed intervenor Jacob Troyer of Billings testifies in court on April 27, 2021

“It feels like objectivity has been lost,” Troyer said. “They’re unwilling to settle and that can’t be good as a whole. This protracted case can’t be good. Taxpayers are on both sides of the legal fees. If we win, we lose and if we lose, we lose twice. There’s no winning anymore, it can only be mitigated.”

Monforton cross-examined the two intervenors and asked why they should replace his clients, who have been fighting the city for years. He pointed out that they didn’t even know the gender of one of the plaintiffs, Terry Houser.

Monforton argued instead his clients had been objecting to franchise fees for years, and shouldn’t be replaced by other residents who waited three years before trying to come into the lawsuit. Monforton presented in court that Troyer had contributed to more than 20 Democratic candidates, including Heenan, and claimed that Heenan’s motion, which was filed just several weeks before the absentee ballots went out in the 2020 general election, was an attempt to smear Lt. Gov. Juras, who had been co-counsel in the case.

“This was never a serious motion,” Monforton told the court. “This made several attacks on the lieutenant governor. This has nothing to do with taxpayers, but it’s about an attack on Lt. Gov. Juras.”

Former State Sen. Roger Webb is part of the plaintiffs who filed suit and said it was important franchise fees never return. He said he’d complained as a property owner for years about what he considered the illegal charges only to be told if he didn’t pay them, his water would be turned off.

Plaintiff Thomas Zurbuchen said he first learned about franchise fees in 2005 when he was hooking up a garage. When he objected, he said he was given the same answer as Webb.

“In 26 years, they stole about $50 million, and I want to help make that right,” Webb said.

Heenan countered that it is Monforton and his clients who are injecting politics into the case.

“This case is a political cause. They’re prosecuting a political agenda,” Heenan said. “We don’t believe the rest of the class would support prosecuting and paying for this political agenda.”

Salvagni asked each of the three attorneys to file orders and conclusions of law supporting their cases to help him determine which attorneys and which class representatives move forward.