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Contractors Nailed By Higher Building Permit Fees

Class action could hamstring towns’ attempts to boost revenues

By CHRISTIAN NOLAN

There probably aren’t many town politicians familiar with the Connecticut Unfair Trade Practices Act. But that may change soon.

Those five letters – CUTPA – could spell trouble for municipalities that might have drastically raised the fees for building permits or other permits and used the funds generated to pay off debts. Such a scenario is what’s alleged in the town of Madison, where a lengthy legal battle has made its way to the state Supreme Court.

“This is definitely a significant case,” said attorney John W. “Jack” Bradley Jr., whose Rome McGuigan practice includes municipal law. “I think that all towns should be concerned about it. Towns are strapped for revenues and are constantly looking for new revenue sources.”

CUTPA prohibits businesses from engaging in unfair methods of competition and deceptive acts or practices in the conduct of trade or commerce. It is common in commercial litigation, explained Bradley, but has never been proven against a municipality.

“[Lawyers] are always trying to expand the breadth of CUTPA,” said Bradley, president of the Connecticut Association of Municipal Attorneys. “The further the government gets away from basic services and the more they look like a business, you’re more apt to get into this unfair trade practice.”

Bradley said it’s the “entrepreneurial” efforts of a town that could get officials in trouble, providing the example of a town renting out its hockey rink at rates similar to what private rinks charge.

Whether Madison’s building permit fees are being used to generate revenue or strictly defray costs associated with issuing licenses and performing subsequent inspections is still up for debate. In 2003 the town raised the cost of a building permit from about $2,000 to just over $4,000, Guilford attorney William Andrew “Drew” Lichtenfels said.

Lichtenfels, who later filed a lawsuit on behalf of five builders that includes a CUTPA claim, said state law requires that such permits only cover the licensing costs.

“They doubled the building fees to essentially raise revenue for the town,” said Lichtenfels.

Governmental Act?

The town, through its attorney in this case, Thomas Gerarde, of Hartford’s Howd & Ludorf, denies doing anything wrong. “The town of Madison does not make a profit on these fees that they could then circulate the money into a general fund,” said Gerarde. “We’ve provided all those numbers to the other side during the course of discovery.”

Despite the fact that the case has lingered for six years, Gerarde said he has history on his side. “We cited the cases from Connecticut. We cited cases from other states,” said Gerarde. “No one allows a CUTPA claim against a municipality.”

After a trial court granted the plaintiffs class action certification, Gerarde appealed to the state Supreme Court. He not only challenged the certification but also asked the justices to dismiss the case altogether because he says the town’s fee increase is a “classic governmental act” not within the framework of CUTPA.

But in a recent ruling, the state’s highest court decided to send the case back to the complex litigation docket and allowed the litigation to proceed. The next step in the lengthy legal battle will likely include Gerarde filing a motion for summary judgment.

Lichtenfels said no matter the eventual outcome of this case, the decision from the state Supreme Court was a victory. “[The decision] opened the door to just about every town hall in the state to have their practices in terms of setting fees looked at under the scope of CUTPA and that was not present before,” said Lichtenfels.

He said anyone who acquired a building permit in Madison since 2003 could be eligible to join the class. If the suit is successful, he said the class stands to win as much as $6 million. He estimated more than 5,000 permits have been issued since 2003 and said that the town continues to charge the higher rate.

The case is now generating interest from municipal lawyers statewide.

“As a former town attorney, it would certainly cause me to raise my eyebrows and sit with the mayor and finance officials to review those issues,” said Lawrence C. Sgrignari, of Gesmonde, Pietrosimone & Sgrignari LLC in Hamden.

Sgrignari said a favorable verdict for the builders in this case could end up changing the way towns sit down and do their budgets. Sgrignari said the case could become a “potential nightmare” for towns.

Matthew Hausman, a Trumbull solo who is assisting Lichtenfels, said he received several phone calls from lawyers in other towns who are paying close attention to this case. He said Lichtenfels has also had similar calls.

“I think there are many nervous towns,” said Lichtenfels. “I think a lot of towns are keeping their head down and being very quiet because they don’t want to draw attention to what they’ve done.” •