Residential Property Owner Entitled to Refund for Unlawful Business Improvement District Assessments

A recent Wisconsin Court of Appeals decision, DJK 59 LLC v. City of Milwaukee, No. 2015AP2046 (Nov. 22, 2016), entitles the owners of Juneau Village Towers, an exclusively residential apartment complex located in downtown Milwaukee, to a refund from the City of Milwaukee for previously paid Business Improvement District (“BID”) assessments. Juneau Village Towers falls within BID No. 21 and the owners paid over $470,000.00 in BID assessments between the years 2005 and 2012. The decision confirms that BID assessments cannot be assessed against property that is used exclusively for residential purposes.

The owners of the apartment complex filed a complaint against the City of Milwaukee alleging they were entitled to a full refund of the amounts they paid pursuant to the BID special assessments on the grounds that the special assessments were illegal and wrongful. The owners argued that the collection of the BID payments at issue violated Wis. Stat. § 66.1109(5)(a), which provides that “Real property used exclusively for residential purposes . . . may not be specially assessed for purposes of the [BID statute].” The City of Milwaukee asserted two affirmative defenses against the owners’ claims: (1) that the voluntary payment doctrine, which prevents recovery of voluntary payments unless an objection or challenge is made before or at the time of voluntarily making payment, barred the owners’ claims, and (2) that the six-year statute of limitations set forth in Wis. Stat. § 893.93(1)(a) partially bars the owners’ recovery. The court of appeals affirmed the trial court’s decision that the voluntary payment doctrine does not apply, but reversed on the statute of limitations issue holding that a six-year statute of limitations applies.

While examining the voluntary payment doctrine, the court noted that a necessary component of the BID statute is that “BID funding may only be collected from businesses” and not property used exclusively for residential purposes. The court determined that the application of the voluntary payment doctrine in this case would allow the City to retain the special assessments paid and “consequently allow the City to do exactly what the legislature forbid it from doing: collecting special assessments from properties used exclusively for residential purposes to fund BIDs.” This would undermine the manifest purpose of the BID statute and leave the property owners with no recourse to address the violation of Wis. Stat § 66.1109(5)(a). Therefore, the court held that the voluntary payment doctrine does not apply in this case.

While examining the statute of limitations issue, the court examined both Wis. Stat § 893.72, which provides a one-year statute of limitations that applies directly to the recovery of special assessments, and Wis. Stat. § 893.93(1)(a), which provides a six-year statute of limitation for “an action upon a liability created by statute when a different limitation is not prescribed by law.” The court held that “893.72’s one-year statute of limitations does not apply in a case such as this were the City lacked power to impose the special assessments at issue in the first instance.” Because Wis. Stat § 893.72 does not provide a different limitation and no other limitation is prescribed by law that would apply in this case, the court concluded that the six-year limitation under Wis. Stat § 893.93(1)(a) applies and the owners’ recovery must be limited to the applicable six-year period.

As this is a court of appeals decision, it is subject to further appeal to the Wisconsin Supreme Court. However, it is unknown at this time if the parties will appeal the decision or how the Wisconsin Supreme Court would rule on the issues. Moreover, this case may influence the legislature to amend Wisconsin law that would dictate a different conclusion, such as an amendment to Wis. Stat § 893.72 so the one-year statute of limitations applies in an effort to limit municipalities exposure for having to refund paid assessments. However, until then, BID assessments assessed against real property used exclusively for residential purposes may be recoverable by an owner, subject to the six-year statute of limitations.

If you have any questions regarding this article or need assistance regarding a BID or a BID assessment, please contact an attorney at Mallery & Zimmerman, S.C.