UPDATES & ANALYSIS

City of Des Moines Asks Iowa Supreme Court to Reconsider Class Action Ruling

by Ryan Koopmans | April 2, 2012

By Ryan Koopmans

The City of Des Moines wants a redo.  Last month the Iowa Supreme Court decided that Des Moines resident Lisa Kragnes can represent thousands of fellow residents in a lawsuit against the City for illegally charging a franchisee fee for gas and electric services.  That decision will cost the City roughly $40 million, and it’s now asking the Iowa Supreme Court to reconsider. On March 19 the City’s attorney, former Iowa Supreme Court Justice Mark McCormick, filed a petition for rehearing in which he asks Justices Wiggins, Hecht, Appel, and Zager to change their mind and adopt the dissenting opinion of Chief Justice Cady.  (Justices Waterman and Mansfield were recused.)

The City had originally argued that class certification was inappropriate because of a conflict among the class members.  The City implemented the franchisee fee in lieu of raising property taxes, and as a result property owners benefited from the franchisee fee.  Thus, the City argued that property owners are in conflict with non-property owners, and that the two cannot be bundled in a single class.  That argument didn’t resonate with Justice Hecht–the author of the opinion–or Justices Wiggins, Appel, and Zager who joined him.  But it did strike a chord Chief Justice Cady, who wrote:

The representative plaintiff brought this lawsuit not only to force the City to utilize a lawful means to collect its needed revenue, but also to obtain a judgment on behalf of all people who paid the fee equal to the total amount of the revenue that had been collected through the illegal fee.  Class certification allowed her to lump togehter all residents who had paid the illegal tax to elevate the amount of the claim into a substantial judgment. The judgment is so large that the City will now need to raise additional revenue or reduce City services to refund the improper fee to all residents who paid it.  This inevitable result is not speculative.  It is logic.  It is also economic reality based on sound economic principle.  To pay the judgment to the class, the City will need to use existing revenue belonging to the class, tax the class, or cut services provided to the class.  These consequences necessarily divide the class and render its members antagonistic.  There is little utility in suing yourself, especially when the associated attorney fees and litigation expenses of suing yourself will run into the millions of dollars.  Most people would be unwilling to pursue litigation under such circumstances.

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This case is as far from a class action as a case could be.  A single plaintiff should not be permitted to draft nearly an entire community into a lawsuit that seeks a remedy akin to suing yourself . . .  . Moreover, while it is important to provide a financial incentive for legal representation in meritorious litigation, it should not, in the end, become the only benefit of a class action.

In its petition for rehearing, the City claims that Chief Justice Cady was right on the mark, and that his dissenting opinion is supported by a similar case decided by the Nebraska Supreme Court in 1970.

The City also argues that the majority’s decision is in conflict with the U.S. Supreme Court’s recent statements in Wal-Mart v. Dukes.  According to the City, if the Iowa Supreme Court is going to certify a class in which some members may not agree with the litigation, then the Due Process Clause of the U.S. Constitution requires that those members have the choice of “opting out” of the class.

The Iowa Supreme Court–like almost every appellate court–rarely grants petitions for rehearing, although the Court sometimes alters its opinion in response.  There is no deadline for the Court to rule on the petition, which is available here.

Tags: Iowa Supreme Court