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Zaber v. City of Dubuque

Court of Appeals of Iowa

July 6, 2017

MARY PATRICIA ZABER, as successor in interest to J. Thomas Zaber, on behalf of herself and all others similarly situated, Plaintiff-Appellee,
v.
CITY OF DUBUQUE, IOWA, Defendant-Appellant.

         Appeal from the Iowa District Court for Dubuque County, David P. Odekirk, Judge.

         The City of Dubuque appeals from the district court's ruling ordering the remaining funds from a class action settlement agreement be distributed equally among four cy pres recipients.

          Ivan T. Webber and James R. Wainwright of Ahlers & Cooney, P.C., Des Moines, for appellant.

          Richard A. Davidson of Lane & Waterman L.L.P., Davenport, for appellee.

          Heard by Vaitheswaran, P.J., and Tabor and Mullins, JJ.

          MULLINS, JUDGE.

         The City of Dubuque appeals from the district court's ruling ordering the remaining funds held in an escrow account from a class action settlement agreement be distributed equally among four charitable organizations serving Dubuque residents as cy pres recipients. The City argues the district court should have ordered the funds be returned to the City because doing so would serve the best interests of the class, cy pres is not appropriate in this case, the Iowa Rules of Civil Procedure provide the funds should be returned to the City, and, alternatively, even if cy pres were appropriate here, the City is the best cy pres recipient. Upon our review, we affirm.

         I. Background Facts and Proceedings

         In 1993, the residents of Dubuque voted to allow their city council to authorize franchise fees for gas and electric utility services. In 2003 and 2004, the Dubuque City Council adopted ordinances requiring utility companies servicing the City to pay to the City a fee of two percent of the gross revenue from the sale of gas and electricity to customers within Dubuque. The utility companies then passed the two-percent fee onto their customers in their bills. Subsequently, the ordinances were amended to provide for a franchise fee of three percent for gas and electric utilities.

         On September 5, 2006, J. Thomas Zaber[1] filed a class action suit against the City of Dubuque, alleging the City had collected an illegal tax from its residents who had paid franchise fees for gas and electric utilities and cable television services in excess of the reasonable cost of regulating these services. See Zaber v. City of Dubuque, 789 N.W.2d 634, 636-37 (Iowa 2010). Zaber relied on the Iowa Supreme Court's decision in Kragnes v. City of Des Moines (Kragnes I), 714 N.W.2d 632, 642-43 (Iowa 2006), which held franchise fees imposed by the City of Des Moines for gas and electric utility services constituted an illegal tax when the fees exceeded "the reasonable costs of inspecting, licensing, supervising, or otherwise regulating the activity that is being franchised."

         The district court granted the City's partial summary judgment motion requesting dismissal of Zaber's claim for a refund of cable television fees. Zaber, 789 N.W.2d at 637. The supreme court affirmed the district court's decision with regard to the cable television fees on interlocutory appeal and remanded for further proceedings with regard to the claim for a refund of gas and electric utility fees. Id. at 656.

         On July 23, 2014, the parties entered into a settlement agreement in order to avoid the uncertainty and cost of continued litigation. The agreement covered utility customers in Dubuque who paid utilities franchise fees to the City between September 5, 2001 and May 25, 2009. The agreement provided Dubuque would pay $2, 600, 000 into an escrow fund to be divided among class members who paid franchise fees during the relevant period.

         The agreement left two issues to be determined by the court: (1) whether class members should be required to submit a claim form in order to receive a refund; and (2) whether cy pres recipients, the City, or the state, should receive the remaining funds, if any, after all claims had been paid.[2] After a hearing on the first issue in August 2014, the court ordered that each class member seeking a refund must submit a claim form in order to receive a payment instead of receiving a refund automatically.

         On August 28, 2015, the court entered a final order and judgment approving the class action settlement, concluding the terms of the settlement agreement were "fair, reasonable and adequate and in the best interest of" both the class and the City.

         On May 12, 2016, the court entered a final distribution order approving a distribution schedule and directing the settlement administrator to make payments of claims to the class members. The court reserved jurisdiction to determine the final distribution of any funds remaining in the escrow account.

         After all claims for refunds had been submitted and payments made, a total of $601, 985.46 remained unclaimed in the escrow account.[3] On May 31, 2016, the class filed a motion to distribute the remaining funds to four charitable organizations serving Dubuque residents as cy pres recipients, including Operation: New View Community Action Agency, the Iowa Legal Aid Northeast

          Iowa Regional Office, the Community Foundation of Greater Dubuque, and United Way of Dubuque Area Tri-States.[4] The City resisted the class's motion and requested that the remaining funds be returned to it because the city council had already directed that any money returned from the settlement escrow account be used to reduce the judgment bond the City had issued to fund the settlement account.

         The court held an evidentiary hearing on the class's motion and subsequently ordered the remaining funds be equally divided among the four cy pres recipients named in the class's written motion. In its order, the court found "the express language of the settlement agreement does supplant the language which would other[wise] apply under Iowa Rule of Civil Procedure 1.274(3)." The court also found "the group of persons who paid illegal franchise fees are not one and the same with the persons who pay property taxes. Therefore, a return of the remaining funds to the City would not reasonably approximate the interests that were pursued by the class, despite some overlap." The court next determined Dubuque was not an appropriate cy pres recipient because "the City will merely be using the remaining funds to reduce a debt obligation which benefits property tax payers generally without advancing the interests specific to the class." Additionally, the court found the class's alternative suggestion that the court distribute the remaining funds to the City upon the condition that the City use the funds to reduce future electric and gas utility franchise fees in an equivalent amount was inappropriate because it "would be unnecessarily burdensome to the City and confusing to the persons subject to the fees." The court concluded the cy pres recipients proposed in the class's written motion were "most consistent and best represent[] the interest pursued by the class."

         The City appeals.

         II. Scope and Standard of Review

         The parties dispute the standard of review to be applied here. The City contends we should review the district court's decision de novo. See Kragnes v. City of Des Moines (Kragnes II), 810 N.W.2d 492, 498 (Iowa 2012). The class asserts the standard of review is for an abuse of ...


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