James Hurt is lead counsel for the potential plaintiff class.
James Hurt is lead counsel for the potential plaintiff class. ()

Lawyers this week filed a potential class action against the city of Atlanta, claiming the city illegally charges its own Department of Watershed Management to use the city’s infrastructure—payments that are passed to customers as “secret” bills that are essentially extra taxes.

The money goes to the city’s general fund, according to city records attached to the case filed in Fulton County Superior Court.

“The Franchise Fee Ordinance is illegal, because under Georgia general law and the City of Atlanta Charter, the city of Atlanta may not charge a franchise fee against its own publicly owned water department as if Watershed Management was a separate, private, third-party utility such as AT&T or Comcast,” says the suit. It was brought Wednesday for two property owners by former Court of Appeals Judge Irwin W. Stolz Jr., James W. Hurt, Robert D. Feagin and John F. Woodham. Hurt, of Hurt Stolz, is listed as the lead counsel.

City attorneys would not comment on the case because the lawsuit has not been served, said city spokesman Carlos Campos.

The plaintiffs’ lawyers have successfully challenged the city in other areas. Stolz and Feagin beat the city in long-running litigation about the city’s former occupational tax. The lawyers’ suit, which reached the Georgia Supreme Court on appeal by the city, resulted in a ruling that the tax was an unconstitutional precondition to practicing law. They won $6.1 million in attorney fees, or one-third of the $18.3 million in refunds for attorneys who paid the tax.

Woodham, in a one-man challenge, stopped the city of Atlanta from using public school bond revenue for the Beltline project. The project, which is underway, is a planned 22-mile loop through the city. That case too went to the state Supreme Court. The justices ruled that using $900 million in school bonds violated a constitutional provision that school funds can only be used as “necessary or incidental” to public education.

Woodham entered a new fray with the city in February when he filed a motion to intervene in the $278 million bond issue intended to fund construction for the new Atlanta Falcons stadium. Woodham and former Fulton Superior Court Judge Thelma Wyatt Cummings Moore represent a group of pastors and residents of the area where the stadium is to be built.

The lead plaintiffs, two property owners in Atlanta, ask for the fees to be eliminated and seek a $58.8 million refund of the charges, which they say started in 2009, plus attorney fees.

The suit says that in addition to charging Watershed Management franchise fees for using the city’s water pipes and rights-of-way, the city also demands payment in lieu of taxes for the use of pumping stations, water production plants and sewage treatment plants.

The suit says of the payment in lieu of taxes, commonly known as PILOT, that the “City of Atlanta has no authority under state statute, local law, the city of Atlanta charter, or the Constitution of the state of Georgia to assess a fee constituting ‘payment in lieu of taxes,’ against its own tax exempt property, operated by one of its own departments.”

One of the laws the plaintiffs cite to support their case, O.C.G.A. § 36-35-3, says municipalities cannot take “action adopting any form of taxation beyond that authorized by law or by the Constitution.” The suit maintains the franchise fees and PILOT charges are illegal taxes.

City of Atlanta documents attached to the lawsuit show both sets of fees were voted into ordinance in 1998. They went into effect in 2009, according to the suit. The ordinances cite other cities that apparently have the same fee structures in place, including Dallas, Los Angeles, Memphis and Philadelphia.

The case is Steven J. Newton, SJN Properties and Freda M. Stokley v. City of Atlanta, No. 2014CV245692. Judge Robert McBurney is assigned the case.