COA strikes fee collection statute drafted to benefit Bloomington, West Lafayette

A fee collection statute the city of Hammond alleged was enacted for the benefit of only two Indiana cities must be struck from Indiana law after the Indiana Court of Appeals determined Monday the statute violated special legislation restrictions in the Indiana Constitution.

In City of Hammond v. Herman & Kittle Properties, Inc., 49A04-1612-PL-2784, the city of Hammond enacted an ordinance in 1961 establishing an inspection program for local hotel and rooming houses, which were required to pay an annual inspection fee of $5. The annual fee rose over the years to $80 in 2010, while operators of the rental units were also required to register their properties annually.

Then in 2014, the Indiana General Assembly amended Indiana Code section 36-1-20-5 to allow for annual registration fees of no more than $5, unless a city had created a rental registration and inspection program prior to July 1, 1984. The statute was amended again in 2015 to change the definition of a “rental registration or inspection program” in such a way that excluded Hammond from the fee exemption. Only Bloomington and West Lafayette were covered by the fee exemption under the 2015 legislation.

Meanwhile in 2014, Hammond sought to collect $85,840 from Kerman & Kittle Properties, Inc. — a local rental property management company — for unpaid registration fees. The property management disputed that amount, telling the city it assumed the $80 fees would be pro-rated after June 30, 2014, when the $5 fee restriction was set to go in place.

Hammond responded with a declaratory judgment action, alleging that because its rental registration or inspection program was created before July 1, 1984, it was covered by the fee exemption. When the amended statute went into effect in 2015, the city added two new counts alleging I.C.36-1-20-5 violated Article 4, Sections 22 and 23 of the Indiana Constitution.

In a summary judgment motion, Hammond alleged the exemption was intended to benefit only Bloomington and West Lafayette, an unconstitutional position that led to the 2015 amendment. The Marion Superior Court granted the city’s summary judgment motion as it related to its first complaint, finding Hammond was entitled to collect fees from HKP in 2014.

However, the court granted HKP’s summary judgment motions on the constitutional claims, finding the “fees” referenced in the Indiana constitution were not the same as the fees in question here, and that “Bloomington and West Lafayette are unique in ways that justified their exemption from the Fee Restriction” considering their extensive rental housing markets. Hammond appealed, and the Indiana Court of Appeals reversed the grant of summary judgment to Herman Kittle Properties in a 56-page opinion on Tuesday.

Judge Margret Robb, writing for the unanimous panel, initially noted Hammond had standing to bring its constitutional challenge because it had a direct stake in the outcome of the litigation and would sustain an injury if the statute is upheld. She then agreed with the city that I.C. 36-1-20-5 violates of Article 4 Section 22, writing that caselaw related to Section 22 has found that fees set by the state should apply uniformly.

“Section 36-1-20-5 relates to fees for rental registration programs and allows Bloomington and West Lafayette and only Bloomington and West Lafayette to charge a fee different than all other political subdivisions in the state,” she wrote. “Section 36-1-20-5 therefore runs afoul of Article 4, Section 22, which prohibits special laws relating to fees or salaries.”

Similarly, the court determined the statute violates Article 4, Section 23, with Robb writing the legislative amendments were intentionally passed to subject every city except Bloomington and West Lafayette to the fee restriction.

“Here, the alleged ‘unique characteristics’ offered to justify the fee exemption being applicable to only Bloomington and West Lafayette are their positions as home to the largest college campuses in the state with the highest percent of both rental housing generally and rental housing occupied by ‘unsophisticated, first-time renters’ in particular, and ‘by far the longest history of regulating all landlords in their housing markets via rental registration and inspection programs,’” Robb wrote.

“While it may be true those are circumstances unique to Bloomington and West Lafayette, there is no obvious connection between those characteristics and the statute allowing those cities and those cities alone to charge any rental registration fee they want, while restricting all others to a very minimal fees,” she continued.

Finally, the court determined the legislative history of I.C. 36-1-20-5 would not have passed without the exemption, so the entire statute, not just the exemption, must be stricken. The judges remanded the case for further proceedings.