Judge issues final order in fire fee case
Judge Robert Hodges speaks during the $80 million City of Ocala Fire Fee lawsuit hearing at the Marion County Judicial Center in Ocala on Tuesday, May 10, 2022. More than 250 concerned citizens packed courtroom 1 for the final hearing of the lawsuit at the courthouse. [Bruce Ackerman/Ocala Gazette] 2022.
In follow up to the final hearing held on May 10, Marion County Circuit Judge Robert W. Hodges entered an order that outlines how the city must pay out almost $80 million in refunds to past and present City of Ocala utility customers.
The case stems from a long-running class-action suit that was filed in 2014 over the approximately $15 a month that more than 89,000 Ocala residents and businesses paid for fire services as an add on to their Ocala utility bills. During the trial, the city’s attorney explained Ocala implemented the tax in 2006 to spread the cost of fire services across a broad group of citizens who wouldn’t usually be paying them because they didn’t own real property or were tax-exempt. An appellate court found the fees constituted an illegal tax, and in October, Hodges ordered the city to establish a common fund to refund the fees.
Due to the 5th District Court of Appeal’s ruling, the refunds equal the amount of money received in fire fees by the city from residents and businesses via city utility bills from 2010 until the beginning of 2021, when the city stopped charging it.
In the May 16 order, which can be read in its entirety here, the judge awards the plaintiffs who lead the class action suit, Discount Sleep of Ocala, LLC and Dale W. Birch, $50,000 each as compensation for services they provided the class bringing the class action suit.
All utility customers who paid the fees should be receiving up to 91% in refunds of the money they paid in illegal taxes by check through the mail at the same address they received their notice of final hearing within sixty days.
For those that received the notice of hearing by mail, there is no additional claims process to navigate.
However, if one of the 89,000 class member’s notices of the May 11 hearing was returned “undeliverable” to the city because the claimant had moved or was deceased, then class members or an estate representative may file a claim form during the claim period that runs from July 1, 2022 through July 1, 2023.
After the one-year claim period passes, any remaining funds unclaimed will be subject to a “second distribution to those class members who have cashed their refund checks as part of the first distribution.”
This second distribution, depending on how much money is unclaimed, translates to class members getting refunded more than the initial 91% anticipated by the Court’s order.
The judge also awarded $6,393,188.37 (approximately 8.06% of total refunds) to the firm Bowen|Schroth in attorney’s fees. In the order, the judge outlines the factors considered in determining reasonable attorneys fees to include amongst other things “novelty and difficulty of the question involved.”
And novel it was because the issue had not previously been considered or decided by a higher court.
A case of first impression
In 2006, the city began exploring how to fund an estimated $5 to $8 million budget shortfall to fund fire services.
At the time, city council was made up of Daniel Owen, Mary Sue Rich, Kent Guinn, Kyle Kay, Charles Ruse, Jr., and Randall Ewers was mayor.
The city manager was Paul K. Nugent, and the city attorney was Patrick G. Gilligan.
The council commissioned a fire service fee study from Burton & Associates to explore funding fire services through fire service fees and fire service impact fees, rather than the customary way of ad valorem taxes or special assessments.
Included in the study, dated January 8, 2007, was a legal opinion from Terry E. Lewis of the firm of Lewis, Longman, & Walker.
Lewis tested the validity of the city’s fire service fees against eight factors established by the Florida Supreme Court to determine whether a specific charge was a “user fee” or a “special assessment.”
While many of the factors were met, his report cautioned that two of the eight factors were problematic: namely “whether the charge is for a traditional utility, and whether the charge is statutorily authorized as a fee.”
As to whether fire fees could be charged as traditional utilities, Lewis explained, “The term, ‘traditional utility,’ is usually defined by examples [such] as the provision of electricity, natural gas, water, trash disposal, and sewer services, and [an] argument may be made that fire protection falls within the category of municipal services.”
As to whether statutes gave the city authority to impose a fee, he found “no specific grant of statutory authority to the city to impose a fee for fire protection services. The city must rely on its general constitutional grant of home rule powers and Section 166.201, Florida Statutes (which is a broad, general grant of authority, which doesn’t mention fire service fees), to adopt the fee.”
Lewis expressed concern that the charge could be considered an assessment, or a tax, based on whether it was considered a voluntary charge or not. Lewis plainly cautioned, “The fire service fee proposed by the city appears to be mandatory.”
In Lewis’s opinion, the firm interpreted the city’s proposed fire fee “a valid user fee”; however, “we have found no case law specifically validating such a scheme by a municipality or county. The fire service fee can be challenged with a claim [that] it is actually a special assessment or tax, which must be adopted by the city through the procedures outlined in Chapter 197, Florida Statutes, or by referendum approval. While we believe the analysis above and case law support a favorable result for the city, if a legal challenge arises, we reiterate that no Florida court has directly addressed this issue of whether a fee may be charged or provide municipal fire services, and such a case would be one of first impression.”
The city’s attorney, Patrick G. Gilligan, issued an opinion on the fire protection service user fee on July 14, 2006, to then-city manager, Paul Nugent, echoing agreement with Lewis for the most part, but taking one exception to his “analysis of the mandatory nature of the fee.”
Gilligan felt the concern was mitigated by how caselaw defined the word “mandatory.”
He explained, “Property owners can avoid the fee either by not developing the property or renting out the property-making the fee arguably voluntary.”
There were a few changes to the ordinance through the years, but in December 2013, Gilligan received a letter from Schroth’s firm, notifying the city of their representation of Discount Sleep of Ocala, LLC, d/b/a Mattress Warehouse, and all other City of Ocala water utility customers. The letter requested city records and demanded the city “rescind the ordinance, and any amendments thereto, and refund all fire user fees paid by the putative class within 45 days.”
The letter from Schroth offered to work out the dispute in pre-suit mediation “in an effort to avoid the time and expense of litigation.”
On February 2, 2014, Schroth filed a lawsuit against the City of Ocala for a declaratory judgment, challenging the basis for the city’s home rule authority to collect the mandatory fire fees and asking for a common fund to be established for paying refunds and attorney’s fees.
At the time the litigation was filed, John McLeod, Jay Musleh, James Hilty, Brent Malever, and Mary Sue Rich made up the council, and Kent Guinn had transitioned to his role as mayor.
The city manager was Matthew Brower, and Gilligan was still the city’s attorney.
Charles Ruse, the only attorney to sit on the council since the ordinance was enacted, testified during deposition on July 17, 2018 that he expressed concerns to the city attorneys at the time- but not publicly.
The reasons for passing the ordinance, according to Ruse’s testimony was increased need for fire services due to the annexation of property into the city limits, and need to find money in the budget to meet those service needs.
During the deposition, city attorney Patrick Gilligan asked about Ruse’s concerns, “You said you had a concern about the City maybe being sued in class action. Was the concern actually getting sued, not necessarily the underlying validity of whether the user fee was legal, or not?
“My concern was that if — it was a risk. They could get sued. If they lost it would be $40, $50 billion, plus tax, tag and title. And that would have been more than they have in the coffers out there. I didn’t think it was an appropriate risk to take.”
To which Gilligan responded, “Okay. But given the fact you actually voted in favor of the user fee, is it fair to assume that you weighed that risk at that time and thought that it was a risk worth taking?
“I don’t recall why we voted for it. It seemed as if it was something that was a large gorilla in the room that didn’t get spoken about. And I don’t remember back then.”
Pressed, later on in the deposition, Ruse gave more clarification about what didn’t sit right with him about the ordinance, “Paul Nugent initially brought it to my attention, I don’t know if I was pro tem, at the time, or ex tem, at the time, or whatever. But somehow he pigeonholed me in his office. And he said the purpose of the fire fee was to get money from entities that normally — or that aren’t paying enough. And one of the things he used to talk about is the Sears, or the big boxes, and stuff like this, people from around town that don’t vote, that use fire services.”
“The other thing is he talked about people who don’t pay property taxes because of homestead exemption, or otherwise. And that was my opposition to the fire fee. I thought based on what Paul was telling me was going on, that it was improper to do that to people that the State of Florida had determined to be financially under the radar, they couldn’t pay, they had homestead exemption under — anything, the constitution or the law, 222, or whatever it is of the Florida statute. You know, I just — that was a problem I had. And probably part in parcel with what Kyle was saying out there. Let’s have enough intestinal fortitude to look the horse in the mouth, as opposed to go beat around the bush. And that’s what we were doing, in my opinion, in this stuff. So that was my big concern with that,” testified Ruse.
As to why Ruse didn’t voice these concerns at the time during public meetings on the ordiance, he said under oath, “Well, there are two. The paramount, or the overarching thing is I didn’t want to state in public my concerns because I feared: Sub A, some not so bright, if I put the — if we put the dots closer together, a not-so-bright attorney could connect them. If we spread the dots out a little further they would be harder to connect. Sub B, we were subjecting ourselves at substantial risk for a class-action suit, like this. And if it were successful it could have a potential for bankrupting the City.”
In the end
In June 2020, after six years of litigation, the initial concern was that the fire fee did not qualify as a “user fee,” and thus, an invalid tax was confirmed by the appellate court.
The court found that the fee was mandatory since “the only options to avoid payment were to forgo the city’s water, sewer, and electric services-all unrelated to fire service-or to move outside of the city. Neither presents a real choice.”
The appellate court remanded the case back to the circuit court and Hodges was newly assigned to the case with direction to handle the issues contemplated in today’s order.
Even after the mandate from the appellate court, for more than a year the attorneys for the city maintained that they were entitled to another trial to present evidence in support of their set-off defense, which would reduce how much they had to refund citizens. The set-off defense argues the city should get a credit to set-off the damages the court awarded if the fund was used for services of value to citizens. Hodges rejected that argument in his ruling on Oct. 11, 2021.
“I do agree that the 5th DCA’s mandate was the final judgment in this case,” he noted in his ruling. “I think you start from the idea that [the] government can’t raise money from people other than from a constitutional tax. [I]f that tax is unconstitutional, then the government doesn’t have a right to that money and has to return it. That is the law in Florida, and, of course, I am bound to follow the law in Florida.”
“I am also bound to follow the mandate of the 5th DCA. I simply have no choice in the matter,” he added. “The 5th DCA found that the tax was unconstitutional, and essentially, found that the city did not have the right to take that tax in the manner that they did, so they had no right to the money. Thus, it must be returned.”
Q & A with Dale Birch
How long have you lived in Ocala?
Dale: I’ve lived in Ocala my entire life. My mother’s family goes all the way back to before the civil war here in Marion County. I live in the same house my parents bought when I was five years old.
What do you think the citizens of Ocala need to know about what happened in the eight years of litigation?
Dale: Well, it was crazy because when I got started with this and Derek Schroth subpoenaed all the paperwork from those city- they sent us like 75 boxes of stuff that included everything from water reports to you name it, lame stuff. They were just trying to bury us in paperwork. And he [Schroth] had a whole team of people to go through that. And in those boxes of worthless information was a letter that the city’s own attorney had sent the city questioning the legality of what they were doing. They knew it was wrong, their attorney knew it was wrong, and yet they continued to do it.
Eight years is a long time to litigate. Did you ever want to give up?
Dale: We survived 3 appeals. I know that’s unheard of. But the answer is- no I didn’t.
Derek worked so hard on this. And I applaud him. He was actually paid less than 10% of the proceeds. Lawyers usually take 30%- but Derek did not.
I’m proud of what we did. I think it was good for all of Ocala.