110 Wyman, LLC, (A14-1176), Ruby Red Dentata, LLC, (A14-1177) v. City of Minneapolis, Minnesota , 2015 Minn. App. LEXIS 13 ( 2015 )

STATE OF MINNESOTA
IN COURT OF APPEALS
A14-1176
A14-1177
110 Wyman, LLC, et al.,
Appellants (A14-1176),
Ruby Red Dentata, LLC, et al.,
Appellants (A14-1177),
vs.
City of Minneapolis, Minnesota,
Respondent.
Filed March 30, 2015
Affirmed
Kirk, Judge
Hennepin County District Court
File Nos. 27-CV-13-10936 & 27-CV-13-20065
Timothy J. Keane, Todd J. Guerrero, Kutak Rock LLP, Minneapolis, Minnesota (for
appellants)
Susan L. Segal, Minneapolis City Attorney, Sarah C.S. McLaren, Robin H. Hennessy,
Assistant City Attorneys, Minneapolis, Minnesota (for respondent)
Considered and decided by Ross, Presiding Judge; Kirk, Judge; and Reilly, Judge.
SYLLABUS
Service charges that a city imposes under chapter 428A of the Minnesota Statutes are
not subject to the common law special-benefit standard; rather, they are subject to the
standard set forth in Minn. Stat. § 428A.02, subd. 3 (2014), that requires service charges to
be “reasonably related to the special services provided” and proportionate to the cost of
providing the service.
OPINION
KIRK, Judge
These consolidated appeals involve appellant-property owners’ challenge to service
charges that respondent-city imposed under chapter 428A of the Minnesota Statutes on
property owned by the property owners. The district court granted summary judgment to
the city because it concluded that the service charges were not subject to the common law
special-benefit standard. Because we agree with the district court’s conclusion, we affirm.
FACTS
Under chapter 428A of the Minnesota Statutes, a city may adopt an ordinance
establishing a “special service district,” which is “a defined area within the city where
special services are rendered and the costs of the special services are paid from revenues
collected from service charges imposed within that area.” Minn. Stat. §§ 428A.01, subd. 4,
.02, subd. 1 (2014). Chapter 428A does not limit what type of service a city can designate
as a “special service” other than to provide that it “may not include a service that is
ordinarily provided throughout the city from general fund revenues of the city unless an
increased level of the service is provided in the special service district.” Minn. Stat.
§ 428A.01, subd. 3 (2014). The chapter further provides that “[s]ervice charges may be
imposed by the city within the special service district at a rate or amount sufficient to
produce the revenues required to provide special services in the district.” Minn. Stat.
§ 428A.03, subd. 1 (2014).
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Chapter 428A provides several procedural safeguards for property owners within the
proposed special service district. To establish a special service district, a certain percentage
of the property owners that would be subject to the service charges in the special service
district must file a petition requesting its establishment. Minn. Stat. § 428A.08 (2014). The
city must hold a public hearing regarding the adoption of an ordinance establishing a special
service district and provide notice of the hearing to the property owners in the proposed
district. Minn. Stat. § 428A.02, subds. 1, 2 (2014). A property owner who will be affected
by the ordinance may file a written objection and also may appeal the city’s decision
regarding that objection to the district court. Id., subds. 4, 5 (2014). In addition, the
property owners within a newly established special service district may veto the ordinance
designating that area as a special service district if a certain percentage of the owners file an
objection to the ordinance before its effective date. Minn. Stat. § 428A.09, subd. 2 (2014).
After the city establishes a special service district, chapter 428A provides further
protection for the property owners within the district. The city must hold a public hearing
before service charges may be imposed and all property owners within the special service
district must be given notice of the hearing. Minn. Stat. § 428A.03, subd. 1 (2014). The
notice also must include information about the proposed service charges, including the
estimated cost of improvements to be paid with the service charge and the proposed amount
of the charge. Id.
In December 2008, the Minneapolis City Council adopted an ordinance establishing a
special service district in a section of respondent City of Minneapolis’s downtown, called
the Downtown Business Improvement Special Service District (DID). Minneapolis, Minn.,
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Code of Ordinances (MCO) ch. 465 (2013). The ordinance classifies the special services
that are provided in the DID into several different categories: (1) “clean and safe programs,”
which includes cleaning, trash removal, graffiti and poster removal, snow services, and
security services and monitoring; (2) “marketing/promotion/special events,” which includes
events, websites, newsletters, coordination of street vendors, and business recruitment;
(3) “physical enhancements,” which includes providing landscaping services and trash
receptacles; (4) “maintenance of enhanced streetscape components above city standard,”
which encompasses the maintenance of fixtures, sidewalks, electrical and irrigation systems,
and landscaping; and (5) “management and oversight services and administrative services.”
MCO § 465.20(a).
In September 2012, the city council adopted a resolution imposing service charges
for special and enhanced services in the DID for 2013. Appellants 110 Wyman, LLC, et al.,
a group of property owners in downtown Minneapolis (the 110 Wyman property owners),
filed a complaint against the city challenging the service charges. The 110 Wyman property
owners and the city later reached an agreement to settle the lawsuit and the city cancelled
the 2013 service charges for all property owners in the DID. Pursuant to that agreement, the
city re-noticed and re-assessed the properties for the 2013 service charges in accordance
with chapter 428A.
In April 2013, the transportation and public works committee of the city council held
a public hearing concerning readopting the service charges in the DID for 2013. The city
council later passed a resolution approving the service charges. The 110 Wyman property
owners filed a complaint against the city alleging that the service charges the city imposed
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on their properties constituted an unconstitutional taking and violated chapters 428A and
429 of the Minnesota Statutes as well as their rights of equal protection and due process
under the law.
In September, the transportation and public works committee of the city council held
a public hearing regarding the adoption of service charges for 2014. The following month,
the city council passed a resolution adopting the service charges. Appellants Ruby Red
Dentata, LLC, et al., a group of downtown Minneapolis property owners (the Ruby Red
Dentata property owners), which includes many of the 110 Wyman property owners, filed a
complaint against the city alleging the same claims as those asserted in the 110 Wyman
property owners’ complaint.
The city moved for summary judgment against the 110 Wyman property owners in
January 2014. A few months later, the city also moved for summary judgment against the
Ruby Red Dentata property owners.
In May, the district court granted the city’s motion for summary judgment against the
110 Wyman property owners because it concluded that application of the common law
special-benefit standard was not required by either chapter 428A or the Minnesota
Constitution. Approximately two months later, a different district court judge granted the
city’s motion for summary judgment against the Ruby Red Dentata property owners for the
same reason. Both the 110 Wyman property owners and the Ruby Red Dentata property
owners (collectively, the property owners) appealed; we consolidated their appeals.
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ISSUE
Did the district court err by granting summary judgment to the city based on its
determination that service charges that the city imposes pursuant to its establishment of a
special service district under chapter 428A of the Minnesota Statutes are not subject to the
special-benefit standard?
ANALYSIS
Summary judgment shall be entered “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that either party is entitled to judgment as a
matter of law.” Minn. R. Civ. P. 56.03. On appeal from summary judgment, this court
reviews “whether there are any genuine issues of material fact and whether the district court
erred in its application of the law.” STAR Ctrs., Inc. v. Faegre & Benson, L.L.P., 644
N.W.2d 72, 76 (Minn. 2002). When, as in this case, the “district court grants summary
judgment after applying the law to undisputed facts, we review the legal conclusion de
novo.” Westrom v. Minn. Dep’t of Labor & Indus., 686 N.W.2d 27, 32 (Minn. 2004). We
must “view the evidence in the light most favorable to the party against whom summary
judgment was granted.” Id.
The property owners’ challenge to the 2013 and 2014 service charges is based solely
on their argument that the special-benefit standard applies to the service charges that the city
imposes on them because of their location within the DID. The property owners argue that
the district court erred by concluding that the service charges are not subject to the special-
benefit standard.
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Under the special-benefit standard, a city may impose assessments for local
improvements if: (1) the property “receive[s] a special benefit from the improvement”;
(2) the assessment is “uniform upon the same class of property”; and (3) “the assessment
[does] not exceed the special benefit.” Tri-State Land Co. v. City of Shoreview, 290 N.W.2d
775, 777 (Minn. 1980). “[I]f a special assessment exceeds the amount of special benefits to
the property assessed, the assessment is, as to such excess, a taking of private property for
public use without just compensation.” Quality Homes, Inc. v. Vill. of New Brighton, 289
Minn. 274, 280, 183 N.W.2d 555, 559 (1971). A similar standard is codified in chapter 429
of the Minnesota Statutes, which addresses local improvements and special assessments.
Minn. Stat. §§ 429.011-.111 (2014). Under Minn. Stat. § 429.051, “[t]he cost of any
improvement, or any part thereof, may be assessed upon property benefited by the
improvement, based on the benefits received.”
Not all types of assessments that a city imposes are subject to the special-benefit
standard. For example, in Am. Bank of St. Paul v. City of Minneapolis, 802 N.W.2d 781,
783 (Minn. App. 2011), this court concluded that the special-benefit standard applies to
assessments collected under a city’s taxing power but does not apply to assessments
collected under the city’s police power, which are instead subject to a reasonableness test.
In Am. Bank, the City of Minneapolis ordered a property owner to remove an areaway,
which is a below-grade area extending beneath the street, because it interfered with
Hennepin County’s right-of-way and a street construction project. 802 N.W.2d at 783-84.
When given the choice, the property owner, a limited-liability company, chose to have the
city remove the areaway and assess the cost rather than removing the areaway itself. Id. at
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784. The city completed the areaway removal and assessed the cost of the removal against
the property. Id. The property owner appealed the assessment to the district court, arguing
that it exceeded the value of the benefit conferred on the property. Id. The district court
upheld the assessment amount. Id.
On appeal to this court, the property owner argued that the district court erred by not
applying the special-benefit standard and instead only considering the costs that the city
incurred in removing the areaway. Id. at 785. This court first considered whether the
special-benefit standard was the correct standard to apply. Id. In conducting that analysis,
we examined the Minnesota Supreme Court’s decision in Country Joe, Inc. v. City of Eagan,
560 N.W.2d 681, 686 (Minn. 1997), in which it “recognized that a city may collect
regulatory service fees under the police power provided that the fees are not general
revenue-raising measures.” Id. at 786. We also noted that assessments collected under the
police power are subject to fairness and due process protections. Id. As a result, this court
concluded that the special-benefit standard does not apply to assessments collected under
the city’s police power. Id. at 787.
We next considered whether the assessment was imposed under the city’s police
power. Id. As part of that analysis, we reviewed the Minnesota statutes that allow cities to
collect assessments to defray the costs of regulatory services and determined that those
types of assessments “are not collected to raise revenue under a city’s taxing power; rather,
they are collected to recover unpaid regulatory service fees under a city’s police power.” Id.
We further noted that the cost of removing nuisances is a regulatory service fee that is
collectable by assessment and determined that the city’s assessment for the areaway removal
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was “for the removal of a nuisance and is more akin to a regulatory service fee than to a
local improvement.” Id. at 787-88. This court concluded that the city’s assessment for the
removal of the areaway was a regulatory service fee imposed under the city’s police power,
and not a revenue-raising measure imposed under the city’s taxing power. Id. at 788. After
applying the reasonableness standard, we affirmed the assessment. Id.
Here, the property owners argue that the service charges the city imposed in this case
are distinguishable from the assessment imposed under the city’s police power in Am. Bank
for two reasons. First, they argue that in Am. Bank the assessed property received an actual
benefit through the removal of a nuisance, whereas in this case the city has not determined
whether the property owners receive any benefits from the DID services. Second, the
property owners argue that the assessment in Am. Bank was imposed against an individual
property for an isolated incident and, in contrast, the service charges in this case affect many
different properties and are applied on an annual basis. Thus, the property owners contend
that the service charges at issue in this case are assessments collected under the city’s taxing
power, requiring application of the special-benefit standard. See id. at 787.
The city also distinguishes Am. Bank from this case, but for a different reason. The
city argues that Am. Bank is inapplicable because it addresses special assessments that were
imposed by the city for the cost of removing a nuisance condition, while this case does not
involve an assessment. Instead, this case involves service charges that were imposed by the
city in accordance with chapter 428A.
We agree that the facts of this case are distinguishable from the facts of Am. Bank. In
Am. Bank, the city assessed one property owner with the cost of removing a nuisance on its
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property. Id. at 784. In contrast, there is no nuisance condition present in this case. And
although the service charges the city imposed affect multiple property owners, they are not
imposed upon the general population. Instead, the city imposed service charges on specific
property owners within a defined area of the city for the enhanced city services it provided
to those property owners. See Minn. Stat. § 428A.01, subd. 4 (defining a special service
district); MCO § 465.30 (explaining that services are provided primarily to properties within
the DID, not the city as a whole); cf. Country Joe, 560 N.W.2d at 686 (concluding that the
assessment at issue was a revenue-raising measure benefiting the public in general in part
because the court found it significant that the revenue collected was not earmarked for
certain projects, but instead used to fund all major street construction).
However, contrary to the property owners’ argument, the service charges at issue in
this case do not fit within the second category of assessments discussed in Am. Bank—those
collected to raise revenue for the city under its taxing power. See 802 N.W.2d at 787.
There is nothing in the record to suggest that the city was motivated to impose the service
charges as a general revenue-raising measure. Instead, the city ordinance specifically
provides that the revenue generated by the service charges can only be used to provide
special services within the DID. See MCO §§ 465.50 (stating that service charges shall be
levied against the properties within the DID in an aggregate sum which “will equal the
estimated total costs of the city in providing the services”), .80 (describing the procedure for
applying a revenue surplus or deficit to the cost of next year’s services). The service
charges the city imposed in this case therefore are not similar to the assessments imposed
under either a city’s police power or taxing power that this court discussed in Am. Bank.
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Rather, the service charges imposed by the city in this case are a separate category which
the legislature authorized under chapter 428A.
Unlike chapter 429, chapter 428A does not include a special-benefit standard.
Instead, chapter 428A provides a different test for the imposition of service charges within a
special service district. Minn. Stat. § 428A.02, subd. 3, states that “[t]he city may impose
service charges . . . that are reasonably related to the special services provided.” (Emphasis
added.) It further elaborates that “[c]harges for service shall be nearly as possible
proportionate to the cost of furnishing the service.” Minn. Stat. § 428A.02, subd. 3. This is
a different standard than the special-benefit standard discussed in caselaw and chapter 429.
We therefore conclude that the special-benefit standard does not apply to service charges
imposed under chapter 428A, which are instead subject to the standard set forth in that
chapter.1
Our conclusion is supported by a review of the Minnesota appellate opinions that
apply the special-benefit standard. The assessments at issue in Quality Homes and Tri-State
Land were imposed by each respective city under chapter 429 of the Minnesota Statutes.
1
Although the property owners denied in oral argument before this court and in their briefs
to this court that they are challenging the constitutionality of chapter 428A, the city argues
that the property owners’ argument calls into question the constitutionality of chapter 428A
because, if this court accepts the property owners’ argument, then the city will be unable to
apply chapter 428A as the legislature intended without violating the constitution. But we
need not address the city’s assertion because our interpretation of the plain language of
chapter 428A leads us to conclude that the common law special-benefit test does not apply
to service charges imposed under the chapter. Further, even if the property owners raised a
facial challenge to the constitutionality of chapter 428A, we cannot address it because the
property owners did not provide notice to the Minnesota Attorney General. See Minn. R.
Civ. App. P. 144 (requiring a party to notify the attorney general “[w]hen the
constitutionality of an act of the legislature is questioned in any appellate proceeding”).
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Tri-State Land, 290 N.W.2d at 777; Quality Homes, 289 Minn. at 282-83, 183 N.W.2d at
560. In both cases, the supreme court cites Minn. Stat. § 429.051 as providing the city with
the authority to assess properties benefited by a local improvement. Tri-State Land, 290
N.W.2d at 777; Quality Homes, 289 Minn. at 282-83, 183 N.W.2d at 560. Similarly, in Am.
Bank this court cited Minn. Stat. § 429.051 as part of its discussion of the special-benefit
standard. 802 N.W.2d at 785. In that case, this court also analyzed several other sections of
chapter 429 in reaching its conclusion that the city’s assessment of the cost of the removal
of the areaway was a regulatory service fee imposed under its police power. Id. at 786-87.
Specifically, this court cited Minn. Stat. § 429.101, subd. 1, in support of its observations
that “Minnesota statutes permit cities to collect assessments to defray the cost of regulatory
services” and “[t]he cost of removing nuisances is among the regulatory service fees
collectable by assessment.” Id. at 787.
The property owners argue that the distinction between “local improvements” and the
term “service charges” that appears in chapter 428A is illusory. A “[s]pecial assessment” is
defined as “[t]he assessment of a tax on property that benefits in some important way from a
public improvement.” Black’s Law Dictionary 133 (9th ed. 2009). Similarly, a “local
assessment” is defined as “[a] tax to pay for improvements (such as sewers and sidewalks)
in a designated area, levied on property owners who will benefit from the improvements.”
Id.
The sections of chapter 428A that discuss special service districts do not use the word
“assessment,” but instead consistently refer to the imposition of “service charges.” See
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Minn. Stat. §§ 428A.02, subds. 3, 4, .03, subd. 1, .04, .05, .08, .10. Chapter 428A does not
specifically define the term “service charges,” but it explains that
[c]harges for service shall be as nearly as possible proportionate
to the cost of furnishing the service, and may be fixed on the
basis of the service directly rendered, or by reference to a
reasonable classification of the types of premises to which
service is furnished, or on any other equitable basis.
Minn. Stat. § 428A.02, subd. 3. The description of a service charge as a charge that is
directly proportionate to the cost of providing the service is markedly different from the
definition of an assessment, which does not require the amount assessed to be equal to the
cost of the improvement.
Further, as the city argues, applying the special-benefit standard to service charges
imposed on property owners in a special service district would make chapter 428A
ineffectual. The special-benefit standard requires that the special assessment not exceed the
benefit to the property that is assessed. See Quality Homes, 289 Minn. at 280, 183 N.W.2d
at 559. But it would be very difficult to measure the benefit to the property owners in the
DID of the special services provided, which include services such as security, marketing and
promotion, cleaning, maintenance, and administrative services. See MCO § 465.20(a). The
only way to measure these types of services is to calculate the actual costs of providing
them. This court must presume that the legislature does not intend an absurd or
unreasonable result. Minn. Stat. § 645.17 (2014). Thus, we presume that the legislature
intended the standard set forth in chapter 428A to apply to service charges imposed on
property owners in a special service district rather than the special-benefit standard, the
application of which could render the chapter ineffectual.
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DECISION
The special-benefit standard does not apply to service charges imposed on property
owners under chapter 428A, which provides its own standard for imposing service charges.
The district court therefore did not err by granting summary judgment to the city based on
its determination that the service charges the city imposed on the property owners for 2013
and 2014 were not subject to the special-benefit standard.
Affirmed.
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