Lawsuit ignores property owners

In 2012, a few years after the city of Hayden raised its sewer hookup fee, the North Idaho Building Contractors Association filed suit against the city because the association claimed it and its members were harmed by what they felt was an unjustified increase in the “capacity” (cap) fee the city charged to hook up a new construction to the city sewer. The case was initially decided in favor of the city, and was then appealed to the Idaho Supreme Court. In 2015, the Supreme Court overturned the lower court decision, finding the fee was really a disguised tax and therefore illegitimate and sent it back to be heard in greater detail.

One of the concerns the Supreme Court wanted answered by additional district court proceedings was who actually has standing to seek a refund: Is it the builder who wrote the city a check, or is it the person who now owns the property and likely paid more because the builder passed the cost of the fee on when they sold the home to the buyer?

At this point, neither the city nor the builders have filed a motion asking the court to answer this question. The question was briefly touched on during one court hearing, but it appears to have been skirted by the attorney for the builders who told the court, “My clients don’t pass these on to the homeowners.” From reading the court transcript, it appears he was making the outrageous claim that the builders for years paid to build the sewer infrastructure and also paid additional sewer fees to the city and the treatment facility of around $10,000 per home and it all came out of the builder’s profit! It looks to me like neither the builders nor the city want the court to delve too deeply into the question about if the builders already passed the fee on to the end purchaser, for reasons that advance their respective positions but impair justice.

The city is arguing the builders received a benefit because the fee was partly used to expand capacity for future availability for more hookups, and so in fairness, the builders shouldn’t be allowed a refund. There may or may not be merit to this position, but this claim could not be used against the current property owners who ultimately reimbursed the builders already, and who have no interest to gain in having wrongfully paid thousands of dollars each to make sure the city sewer lines are sufficiently sized to allow for future expansion. It seems clear the builders haven’t raised the issue of who should get a refund because if they did, the court would likely find that any refund awarded should be returned to the current property owners, just as the state law requires of impact fee funds that must be refunded. Both impact fees and sewer cap fees become appurtenant to the land when paid. Why wouldn’t they be treated the same way if refunds are required?

This past fall, the lawsuit was certified as a class action and only one builder opted out. I contacted John Young, of Young Construction Group of Idaho, Inc., and asked him why his companies opted out. One of his concerns was that the builders like his company don’t have standing to seek a refund, because their claim transferred to the new buyers when the property was sold. He told me the builder’s right to recover the fee would pass to the buyer when the property closed escrow, and most building contracts would have shown the fee as a line item in the sales documents. He told me he has been waiting for one of the parties to raise a hand and point this out in court, but neither has.

At this point, the city and the builders have spent close to a million dollars in attorney fees, with the city trying to keep money they wrongfully collected and the builders demanding money back they likely have no claim to, except on properties they have not yet sold. Justice, on the other hand, sits quietly wondering how this lawsuit made it this far without being thrown out for failure to include the property owners in the lawsuit.

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Larry Spencer is executive director of the Idaho Property Owners Association. He can be reached at [email protected]