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Zaber vs. City of Dubuque_Franchise Fee Litigation Settlement AgreementTHE CITY OF Dui Masterpiece on the Mississippi Dubuque band AI -America City r 2007 • 2012 • 2013 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: J. Thomas Zaber vs. City of Dubuque (Franchise Fee Litigation) Judgment Bond DATE: May 2, 2014 City Attorney Barry Lindahl is recommending settlement of the Franchise Fee Litigation J. Thomas Zaber vs. City of Dubuque. I support Barry's recommendation. I also want to thank Barry, outside counsel Ivan Webber, and City staff for all of their great work on this lawsuit. Should the City Council approve the settlement, and subsequently the court approve the settlement, the City would need to provide the funds by January 2, 2015, or six months after court approval, whichever is later. For the purpose of these discussions, I am estimating that cost at $2.7 million. A state law change in 2013 allows a city to hold a citizen referendum to exceed the 5% legislative cap on the Utility Franchise Fee by as much as 2.5%, which would put the fee at 7.5% on a temporary basis while the damages are paid/financed. Des Moines had a 5% fee and had an adverse judgment, so in March 2014, Des Moines voters passed a referendum to go to 7.5%. The referendum passed with 85.3% of the vote. I believe Des Moines is going to issue a Judgment Bond and use this revenue source as repayment. The City of Dubuque is in a different position because the Utility Franchise Fee is currently at 3%. The City of Dubuque has some options: 1. Pay for the $2.7 million out of reserves and/or canceling of Capital Improvement projects. I do not believe this is a viable option because it would unreasonably deplete reserves, exposing the City to a lower bond rating and much higher risk if anything unexpected happened and the City reserves were needed. Generally, the City maintains a reserve of 10% of the general fund operating budget, with a policy to increase that to 20% over time. 2. The City could issue a Judgment Bond to pay the $2.7 million. To borrow $2.7 million for 10 years is estimated at $375,000 per year. (The City could issue the debt for a longer term than 10 years.) To pay the Judgment Bond the City has several choices: • Since this is a continuing annual expense, depending on one-time sources of revenue, like canceling CIP projects, does not help. The City could make general fund operating budget cuts that are recurring, like eliminating positions. • The City could raise property taxes through the Fiscal Year 2016 budget process. The Fiscal Year 2015 budget process projected for Fiscal Year 2016 a 3.68% ($70.56) property tax increase impact on the average homeowner. This included a projection of $145,000 to begin debt payments on a Judgment Bond. As mentioned, the payments are projected at $375,000 per year. The additional $230,000 would be an increase of 0.78% ($5.72) property tax impact on the average homeowner (a property tax rate increase of 1.41 % ($0.16618), for a total impact on the average homeowner of an increase of 4.46% ($76.28). • The City currently has a 3% Utility Franchise Fee on electricity and natural gas. The state statutory limit is 5%. The limit stated in the City of Dubuque Gas and Electric Franchise Agreements is 3%. The City could ask Alliant Energy, Maquoketa Valley Electric and Black Hills Energy to agree to amend the Franchise Agreements to allow for a 5% fee, the statutory limit. To pay the debt, the City would need to increase the Franchise Fee about .5% to 3.5%. Should the City choose this option, it would take a public hearing, but no referendum. Citizens could submit a petition through the reverse referendum process and force a referendum. I agree with Barry's opinion that the City should settle this lawsuit. I believe the City should pay for the costs by issuing a Judgment Bond and that the City should pay the 10 years of debt service by increasing the 3% Utility Franchise Fee. I respectfully recommend Mayor and City Council approval to request Alliant Energy, Maquoketa Valley Electric and Black Hills Energy to agree to amend the Franchise Agreements to allow for a 5% Utility Franchise Fee. MCVM:jh cc: Barry Lindahl, City Attorney Mic ael C. Van Milligen 2 THE CITY OF DUB E MEMORANDUM Masterpiece on the Mississippi BARRY LINDAHL CITY ATTORNEY To: Mayor Roy D. Buol and Members of the City Council DATE: May 2, 2014 RE: J. Thomas Zaber vs. City of Dubuque (Franchise Fees Litigation) The purpose of this memorandum is to recommend approval of the attached Settlement Agreement. Franchise Fee Background Since at least 1873, the Iowa Code has given Iowa cities the authority to grant franchises to utilities to use the public rights-of-way. Cities also have the authority to impose franchise fees for such use. Until 2010, the Iowa Code did not limit the amount or basis of franchise fees. However, earlier Iowa supreme court cases indicated that a city's authority to impose a franchise fee was limited to the reasonable costs of regulating, supervising, or enforcing the franchise. The Iowa General Assembly adopted the Home Rule amendment in 1968. The amendment provided: Municipal corporations are granted home rule power and authority, not inconsistent with the laws of the general assembly, to determine their local affairs and government, except that they shall not have power to levy any tax unless expressly authorized by the general assembly. The rule or proposition of law that a municipal corporation possesses and can exercise only those powers granted in express words is not a part of the law of this state. Since there is no law of the general assembly that limits franchise fees, a municipal ordinance providing for franchise fees based on a percentage of gross revenues would not be "inconsistent with the laws of the general assembly", and therefore earlier Iowa court opinions limiting franchise fees to the costs of regulating, supervising, or enforcing the franchise would not be "a part of the law" of Iowa. OFFICE OF THE CITY ATTORNEY DUBUQUE, IOWA SUITE 330, HARBOR VIEW PLACE, 300 MAIN STREET DUBUQUE, IA 52001-6944 TELEPHONE (563) 583-4113 / FAX (563) 583-1040 / EMAIL balesq@cityofdubuque.org Franchise fees are typically based on a percentage of gross revenue of the franchisee. For example, the federal Cable Act of 1984 authorized cable franchise fees not to exceed 5% of gross revenue. The City of Dubuque has been collecting 5% fees on cable services based on gross revenue since at least 1984. In 1994, the City of Dubuque renewed its gas and electric franchises. Both agreements authorized the City Council to impose franchise fees not to exceed 3% of gross revenues of the sales of gas and electricity. The franchise agreements, including and the right to impose franchise fees, were approved by the citizens at an election. However, the city council did not impose any franchise fees on gas and electricity sales until 2003 when it imposed a 2% fee. Franchise Fee Litigation: Kragnes 1 The City of Des Moines has had franchise fees based on gross revenue since 1960. In 2005 Linda Kragnes filed a class action lawsuit against the City of Des Moines claiming that Des Moines' franchise fees were illegal taxes. The Polk County District Court agreed with Kragnes. On appeal, the Iowa supreme court in a 2006 opinion, agreed with the District Court and rejected Des Moines' home rule argument, holding that "any franchise fee charged by a city must be reasonably related to the city's administrative expenses in the exercise of its police power. These expenses include the reasonable costs of inspecting, licensing, supervising, or otherwise regulating the activity the city is franchising." Thus, under the Kragnes rule, "a city has the authority to assess a franchise fee expressed as a percentage of the gross receipts derived from the utility's sale of its services to the public, so long as the charge is reasonably related to the cost of activity that is being franchised." The supreme court did not elaborate on what "costs" a city is entitled to recover. The supreme court sent the case back to the district court to determine whether Des Moines' fees exceeded its costs. Zaber v. City of Dubuque J. Thomas Zaber filed his class action lawsuit against the City of Dubuque in 2006 alleging, like Kragnes, that the city's gas, electric and cable franchise fees were illegal taxes. Very shortly after the Polk County ruling in Kragnes, the City of Dubuque retained Springsted International, a consulting firm specializing in infrastructure costs, to conduct a study to determine the city's "costs of inspecting, licensing, supervising, or otherwise regulating" the gas and electric utilities. Because the supreme court had not provided specific guidance in Kragnes as to what those costs were, we were left to speculate as to what costs to include in the study. Springsted's preliminary report in 2006 indicated that the city's franchise fees were roughly equivalent to the costs of regulating the utilities, based again on what we believed those "costs" might include. 2 The Zaber case was essentially on hold while the Kragnes case was being litigated in the courts. Franchise Fee Litigation: Kragnes II In a subsequent hearing following the Kragnes I appeal, the Polk County district court disallowed a number of Des Moines' costs, which included many of the costs which were part of the Springsted analysis. On appeal from the decision, the Iowa supreme court elaborated on the costs that could be recovered by a city as a franchise fee, allowing some of the costs that the Polk County District Court disallowed but still rejecting many of the costs that had originally been relied upon by Springsted. Following that 2012 opinion, Springsted updated its report and concluded that the City of Dubuque had collected franchise fees in excess of costs by around $2M. Action in the General Assembly While the franchise fees cases were pending, in 2010 the Iowa general assembly authorized cities to collect cable franchise fees of 5% without regard to the cost of regulating the utilities, thus abrogating the Kragnes rule. The cable legislation also was made retroactive. Zaber challenged the constitutionality of the retroactivity provision of the law, but the District Court for Dubuque County agreed with Dubuque that the statute was constitutional. On appeal, the Iowa supreme court upheld that decision. As a result of that change in the law, Zaber's cable fee challenge was dismissed from the case, removing some $3M in cable fees from the lawsuit. In 2010 the Iowa general assembly also authorized gas and electric franchise fees not to exceed 5% without regard to the cost of regulating the utilities. However, the legislature did not make that legislation retroactive, a matter which did not go unnoticed by the Iowa supreme court in Kragnes II. The court said that the legislature "declined to shield the City from the financial impact" of claims like Zaber's. Had the legislature made the gas and electric legislation retroactive, we would not be here today. Back to Zaber After the Iowa supreme court's ruling clarifying what costs are recoverable by a city as franchise fees, the Zaber case has proceeded toward a June 2, 2014 trial date. An interim ruling by the Dubuque County District Court sided with the City's argument that Zaber was not entitled to prejudgment interest on his claims, effectively eliminating a $700,000 claim from the lawsuit. The parties anticipate a two-week jury trial. The costs of the trial alone would be significant. Although the city's evidence will show franchise fees in excess of costs of around $2M, we anticipate Zaber's evidence will show a $6M excess of fees. 3 Regardless of the result of the trial, it is anticipated one or both of the parties would appeal to the appellate courts. Although we continue to respectfully disagree with the Kragnes decision as it applies to this case, it is the law of Iowa. For the past eight years, the City Attorney's Office and our retained counsel from the Ahlers Law Firm have attempted within the limits of the law to eliminate or at least minimize the potential adverse result of this case. Based on the risks and costs of a trial, the costs and further delay of likely appeals, the City Attorney's Office and our retained counsel have concluded that it is in the best interest of the City to settle the case. The Proposed Settlement The relief requested by Zaber in the lawsuit is essentially a refund to the class of gas and electric customers of the franchise fees that exceed the costs the city was authorized to collect between 2005 and 2009 when the law was changed. The parties have reached a tentative settlement which includes the following terms: • $2.6M will be put into an escrow account by the City of Dubuque to fund the franchise fee refund process; • The very significant issues of what the claims process will be and what happens to unclaimed funds after the claims period is closed are preserved for determination by the court; the parties reserve the right to appeal the court's rulings on those issues; • Attorney's fees will be paid out of the $2.6M fund. • A claims administrator will be hired to administer the notice and disbursement of payments (claims process). The costs associated with settlement administration are estimated to be approximately $100,000. These costs will be paid by the City in addition to the settlement fund. The City has until January 2, 2015, or six (6) months after Court approval of the Settlement Agreement, whichever is later, to deposit the money into an escrow account. The Claims Process If the City Council approves the proposed Settlement Agreement, it will be presented to the District Court for Dubuque County for approval. The court will give the required notices and hold appropriate hearings to allow interested persons to object to the settlement. If the Settlement Agreement is approved, the parties will appoint a Settlement Administrator to determine eligibility of customers for refund payments and make payments to class members. 4 I recommend that the City Council approve the attached Settlement Agreement. BAL:tls Attachment cc: Michael C. Van Milligen, City Manager Ivan Webber, Esq. Jim Wainwright, Esq. F:\USERS\isteckle\Lindahl\Zaber, J. Thomas vs. City\MayorCouncil_RecommendApprovalOfSettlement_050214.doc 01017014-1\10422-073 5 RESOLUTION NO 145-14 APPROVING A SETTLEMENT AGREEMENT IN J. THOMAS ZABER, ET. AL V. CITY OF DUBUQUE, IOWA, IOWA DISTRICT COURT FOR DUBUQUE COUNTY, CASE NO. CVCV054663 WHEREAS, J. Thomas Zaber, on behalf of himself and all others similarly situated filed an action in the Iowa District Court for Dubuque County against the City of Dubuque seeking the refund of certain franchise fees collected by the City of Dubuque; and WHEREAS, the parties have engaged in settlement discussions which have resulted in a proposed Settlement Agreement, a copy of which is attached hereto; and WHEREAS, the City Council has determined that the approval of the Settlement Agreement is in the best interest of the City of Dubuque. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF DUBUQUE, IOWA: Section 1. The Settlement Agreement is approved on behalf of the City of Dubuque. The Mayor, City Clerk and the City's legal counsel are authorized to execute the Settlement Agreement. Section 2. The City Manager, City Attorney, and the City's legal counsel are hereby authorized to take all necessary actions to execute the Settlement Agreement Passed, approved and adopted this 5th' day of May, 014 Roy D. B;, ol, Mayor Attest: Kevin(S. Firnstahl, City Clerk F:\USERS\tsteckle\Lindahl\Zaber, J. Thomas vs. City\Resolution ApprovingSettlementAgreement_050514.doc IN THE IOWA DISTRICT COURT FOR DUBUQUE COUNTY J. THOMAS ZABER, on behalf of himself and all others similarly situated, Plaintiff, v. CITY OF DUBUQUE, IOWA, Defendant. Case No. CVCV054663 SETTLEMENT AGREEMENT THIS SETTLEMENT AGREEMENT is entered into as of May , 2014, by and between Plaintiff, J. Thomas Zaber ("Zaber") (individually and on behalf of the Class (as defined below)) and Defendant, City of Dubuque ("City"). (The Plaintiff, the Class and the City are collectively referred to as the "Parties"). I. THE LITIGATION On September 5, 2006, Zaber, a utility customer, commenced this lawsuit (the "Action") in the Iowa District Court for Dubuque County (the "Court") seeking to recover City franchise fees that he was charged on his utility bill. On August 24, 2007, the Court certified the Class and appointed Lane & Waterman LLP as Class Counsel. The parties have engaged in settlement discussions that have resulted in the terms and conditions of this Settlement. II. DEFENDANT'S DENIAL OF WRONGDOING Defendant has denied, and continues to deny, all of the claims alleged by Plaintiff and the Class in this Action. Nonetheless, Defendant has concluded that the further defense of this Action will be protracted and expensive and it is desirable that the Action be fully and finally settled in the manner and upon the terms and conditions set forth in this Settlement. Defendant 1 has taken into account the uncertainty and risks inherent in any litigation, especially in complex cases, and has determined itis desirable and beneficial that this Action be settled upon the terms and conditions set forth in this Settlement. III. CLAIMS OF PLAINTIFF AND THE BENEFITS OF SETTLEMENT Plaintiff believes that the claims asserted in this Action have merit. However, Class Counsel recognizes and acknowledges the expense and length of continued proceedings to prosecute this Action against the Defendant through trial and appeal. Class Counsel also has taken into account the uncertain outcome and the risk of any litigation, especially in complex cases such as this Action, and is mindful of the inherent problems of proof and possible defenses. Class Counsel believes that the settlement set forth in this Settlement confers considerable benefits upon the Class and eliminates the risk of no recovery or a much smaller recovery. Based on its evaluation, Plaintiff, upon advice of Class Counsel, has determined that the settlement set forth in the Settlement is in the best interest of the Class. IV. TERMS OF SETTLEMENT NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among Plaintiff, the Class and Defendant, by and through their respective counsel, that, subject to final court approval, the Action and the Claims shall be finally and fully compromised, settled and released, and that the Action be dismissed with prejudice, upon and subject to the terms and conditions of the Settlement, as provided herein: 1. DEFINITIONS Unless defined elsewhere in the Settlement, the capitalized terms in this Settlement shall have the follo ng definitions: 1.1. "Attorneys' Fees and Expenses" means the amounts set forth in Section 2 8.1, subject to final court approval. 1.2. "Court Ordered Process" - The parties are not in agreement as to the process to be utilized to determine whether a class member will receive a refund, but agree to submit the question to the Court and will request the Court to decide the process to be used prior to holding a final fairness hearing as provided herein and the Rules of Civil Procedure. The Court Ordered Process shall be utilized by the Settlement Administrator to administer and distribute the Settlement Fund to the Class Members. 1.3. "Class" means all Persons, including without limitation, natural persons and corporate or other entities, who were gas or electric utility customers who paid franchise fees to Interstate Power Company (Alliant Energy Company), Peoples Natural Gas (Aquila, Black Hills Corporation) and Maquoketa Valley Electric Cooperative for the period between September 5, 2001 and May 25, 2009. For purposes of this definition, a Person includes the heirs, successors and assigns to any Person who paid franchise fees during the period identified above. 1.4. "Class Member" means a Person who falls within the definition of the Class set forth in Section 1.3. 1.5. "City Counsel" means Ahlers & Cooney, P.C. 1.6. "Class Counsel" means Lane & Waterman LLP. 1.7. "Cy Pres Recipient" means such charitable institutions as hereafter may be determined by the Court to be appropr ate recipients. 1.8. "Effective Date" means two (2) business days after both of the following have occurred: (i) The Court has entered the Final Order and Judgment; and (ii) the Judgment has become Final. 3 1.9. "Escrow Account" means an escrow account established by Plaintiff's Class Counsel and City Counsel at Dubuque Bank & Trust. 1.10. "Escrow Agent" means the entity that shall perform the escrow duties as set forth in this Settlement Agreement. The Escrow Agent shall be determined by the Parties. The Escrow Agent is and shall be subject to the Court's oversight. 1.11. "Fairness Hearing" means the hearing set by the Court in the Preliminary Approval Order to consider whether the settlement is fair, reasonable and adequate and to hear any objections. 1.12. "Final" means (a) if no appeal from the Final Order and Judgment is filed, the expiration of the time for the filing of any appeal; (b) if an appeal from the Final Order and Judgment is filed, the date on which all appeals therefrom, including motions for rehearing and petitions for writ of certiorari, or any other form of review, have been finally disposed of in a manner that affirms the Final Order and Judgment, or the date of dismissal of any appeal the expiration of the time for filing a petition for writ of certiorari or the denial of any such motion or petition for writ. 1.13. "Final Order and Judgment" means the proposed Order and Judgment substantially in the form of Exhibit "D" attached hereto, to be entered by the Court approving and ordering the implementation of this Settlement and all of its terms and conditions in all material respects in conformity herewith. 1.14. "Net Settlement Fund" means the Settlement Fund plus any interest or investment income earned by the Settlement fund, less (i) the costs of Taxes; (ii) Tax Expenses; (iii) Class Counsel's Attorneys' Fees and Expenses; and (iv) Plaintiffs Incentive Award. 1.15. "Notice to the Class" or "Notice" means both the notice to be mailed to 4 Class Members equivalent in all material respects to the form attached as Exhibit "B" and the Publication Notice as defined in Section 1.20. 1.16. "Person" means an individual, corporation, limited liability corporation, professional corporation, limited liability partnership, partnership, limited partnership, association, joint stock company, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity and their spouse, heirs, predecessors, successors, representatives, or assignees. 1.17. "Petition" means the Petition and all amendments thereto filed in the Action. 1.18. "Plaintiff Incentive Award" means the amount set forth in Section 8.1, subject to final Court approval. 1.19. "Preliminary Approval Date" means the date on which the Preliminary Approval Order is entered by the Court. 1.20. "Preliminary Approval Order" means an Order equivalent in all material respects to the form attached hereto as Exhibit "A." 1.21. "Publication Notice" means the form of notice equivalent in all material respects to the form attached hereto as Exhibit "C" to be submitted for publication to newspaper and on the Internet, as described in this Settlement. 1.22. "Released Claims" means any and all claims for relief for causes of action, suits, petitions, or demands in law or equity, direct, derivative, representative, or otherwise, any and all allegations of liability (including any allegations of debts, obligations, promises, guarantees, damages, awards, or for any equitable, legal and administrative relief), and any and all demands for damages or equitable relief (including any claims for rescission, reformation, 5 restitution or all damages of any kind, including those in excess of actual damages and claims for mental anguish), that have been, could have been, may be or could be asserted in any court action, whether federal, state or otherwise, or before any administrative body (including any brought by or on behalf of any state or local insurance, prosecutorial or other organization), tribunal, arbitrator or arbitration panel, or other adjudicatory body, regardless of whether based on federal, state or local law, statute, ordinance, regulation, contract, common law, or any other source, and regardless of whether foreseen or unforeseen, suspected or unsuspected, or fixed or contingent at the time of this settlement, that are based upon, related to, or connected with, directly or statements issue in th_ ndirectly, in whole o n part, (a) the allegations in the Petition n th n any of the decisions or orders of the Court, or (b) any acts or om s Action or with respect to th SS s Act on or the ons that were at s Settlement. The released Claims do not nclude claims for the breach ofthis Settlement. 1.23. "Released Parties" means the City of Dubuque and all of its current or former elected officials, employees, agents, attorneys, representatives, indemnitors, insurers and reinsurers who have assumed or are liable for any obligations on its behalf. 1.24. "Releasors" means the Plaintiff and all Class Members, on behalf of themselves and their respective heirs, executors, administrators, successors, assigns, guardians, attorneys, agents, trustees, fiduciaries, and representatives, in any and all capacities whatsoever. 1.25. "Settlementmeans the terms and conditions of this Agreement, the Exhibits to this Agreement, and the documents, instruments and orders implementing this Agreement. 1.26. "Settlement Administrator," (who shall be determined by the parties) will perform all the functions and have all the obligations set forth in this Settlement. 6 1.27. "Settlement Fund" means the funds paid by the City in the amount of $2,600,000 in cash together with additional cash payments in an amount equal to the costs incurred by the Escrow Agent and the Settlement Administrator as provided in this Settlement, and the costs of delivering Notice to the Class. 1.28. "Taxes" means all taxes (including any estimated taxes, interest or penalties) arising with respect to income earned by the Settlement Fund. 1.29. "Tax Expenses" means the expenses and costs incurred in connection with the calculation and payment of taxes, the preparation of tax returns and related documents (including, without limitation, expenses of tax attorneys and/or accountants, including any costs and expenses relating to the filing or failure to file tax returns). 2. SETTLEMENT TERMS 2.1 The Settlement Fund shall be used for the payment of Taxes, Tax Expenses, Class Counsel Attorneys' Fees and Expenses, Plaintiff's Incentive Award, the costs incurred by the Escrow Agent and the Settlement Administrator, the cost of delivering Notice to the Class, the payment to Class Members and/or the payment to the Cy Pres Recipient, the City or State of Iowa, as provided herein. If any interest or any other investment income is earned on the Settlement Fund while in the control of the Escrow Agent, such interest and income shall be included in the Net Settlement Fund and disbursed as part of the Settlement. 2.1.1 On or before January 2, 2015 or six months after approval of this Settlement Agreement by the Court (irrespective of any subsequent appeal), whichever is later, the City shall cause to be paid into the Escrow Account and controlled by the Escrow Agent, the sum of $2,600,000. Thereafter, the City shall pay in cash such additional payments projected by the Settlement Agent to be adequate to pay the costs of 7 delivering Notice to the Class based upon reasonable estimates provided by the Settlement Administrator and the projected costs to be incurred by the Escrow Agent and the Settlement Administrator in administering the Settlement as provided herein, based upon reasonable estimates provided by the Settlement Administrator. 2.1.2 All funds held by the Escrow Agent shall be deemed and considered to be custodia legis of the Court and shall remain subject to the jurisdiction of the Court until such time as such funds have been distributed pursuant to this Settlement and/or further order(s) of the Court. 2.1.3 Upon ten (10) business days' notice to Class Counsel and City Counsel, the Escrow Agent may pay itself and the Settlement Administrator their costs, reasonably and actually incurred in their role as Settlement Administrator and Escrow Agent. 2.1.4 In the event that the amounts paid by the City to the Settlement Fund are insufficient to pay the costs reasonably and actually incurred by the Escrow Agent and Settlement Administrator in administering the Settlement, upon thirty (30) days' notice, the City shall pay over to the Escrow Agent such additional sums as may be necessary to pay such costs in full. 2.1.5 The Settlement Fund is comprised of the total amount that the City will pay under this Settlement, including, without limitation, to satisfy the claims by the Class Members, the costs of delivering Notice to the Class, and the costs incurred by the Settlement Administrator and Escrow Agent. Class Members shall look solely to the Settlement Fund for settlement and satisfaction of all Released Claims. 2.2 The Settlement shall be allocated among the Class Members as follows: 2.2.1 The settlement fund will be distributed 30% to Class Members for 8 franchise fees paid for natural gas and 70% to Class Members for franchise fees paid for electricity. 2.2.2 Each Class Member who paid a franchise fee included in their gas and electric utility bills during the Relevant Period shall be entitled to a pro rata refund of the franchise fee paid for gas and electric, respectively. The prorated amount payable to each Class Member for their share of gas and electric franchise fees, respectively, shall be the Distribution Amount multiplied by the Distribution Ratio multiplied by the amount of the (gas or electric, as appropriate) franchise fee paid by each Class Member, net of any franchise fees (gas or electric, as appropriate) refunded, rebated or to be refunded or rebated by the City to any Class Member (the "Class Member Payment"). 2.2.3 "Distribution Amount" shall be the Net Settlement Fund to be distributed by the Settlement Administrator to the Class Members, separately calculated as to gas and electric franchise fees. 2.2.4 "Distribution Ratio" shall be the Distribution Amount divided by the total franchise fees collected by the City during the relevant period divided into two classes for gas and electric (net of any franchise fees refunded or rebated or to be refunded or rebated to any Class Members), in amounts to be calculated by the Settlement Administrator and approved by the parties. 2.2.5 The franchise fees paid by each Class Member and any refund or rebate paid or to be paid to each Class Member shall be conclusively determined by the Settlement Administrator and shall be based on the records therefor from the respective public utility companies supplying gas and electric utility services to the Class Members during the Relevant Period and the records of the City concerning any refund or rebate 9 paid or to be paid by the City to any Class Member. 2.2.6 No distribution from the Escrow Account shall be made without prior approval of the Court. In no event shall any funds be distributed to Class Members before the Effective Date. No payment of any Attorneys' Fees and Expenses shall be paid from the Escrow Account except as provided in Section 8 of this Settlement. In addition, unless otherwise specifically authorized in this Settlement, no funds shall be distributed or paid in any manner from the Escrow Account without the express written consent of both Class Counsel and City Counsel or approval of the Court. 2.2.7 All funds held in the Escrow Account shall be deemed to be in the custody of the Court and shall remain subject to the jurisdiction of the Court until such time as the funds are either distributed to Class Members pursuant to the Final Distribution Order, paid to Class Counsel as provided in Section 8 of this Settlement or, if funds thereafter remain in the Escrow Account, as otherwise distributed in accordance with an order of the Court. 2.2.8 Any Escrow Account fees (e.g. bank account fees) may be paid directly out of the Escrow Account without prior approval by the Court. Any funds held in the Escrow Account may be held in an interest bearing bank account or non-interest bearing account as determined by the Escrow Agent. The Escrow Agent is authorized to execute such transactions as are consistent with the terms of this Settlement. 2.2.9 The Parties agree that the Escrow Account is intended to be a Qualified Settlement Fund ("QSF") within the meaning of Treasury Regulation § 1.468B-1. The Escrow Agent, as administrator of the QSF within the meaning of Treasury Regulation § 1.468B -2(k)(3), shall be solely responsible for filing all informational and other tax 10 returns necessary for the Escrow Account and paying from the Escrow Account any Taxes owed with respect to the Escrow Account. The Parties shall have no liability or responsibility of any kind for filing tax returns or paying any taxes with respect to the Escrow Account. 2.2.10 All (a) Taxes on the Escrow Account and (b) reasonable expenses and costs incurred in connection with the taxation of the Escrow Account (including, without limitation, expenses of tax attorneys and accountants) (collectively, "Tax Expenses") shall be timely paid out of the Escrow Account by the Escrow Agent without need for prior Court approval. Further, the Escrow Agent shall be obligated (notwithstanding anything herein to the contrary) to withhold from distribution to Claimants any funds necessary to pay such amounts including the establishment of adequate reserves for any Taxes and Tax Expenses (as well as any amounts that may be required to be withheld under Treas. Reg. §1.468B-2(1)(2)). The Parties agree to cooperate with the Escrow Agent, each other, and their tax attorneys and accountants to the extent reasonably necessary to carry out the provisions of this paragraph. 2.3 To the extent that the Settlement Administrator, after exercising reasonable diligence to locate each Class Member, is unable to distribute payment to each Class Member for any reason (including, without limitation, when a Class Member is deceased and no heirs can be located; the Class Member has moved and no forwarding address can be located; or the Class Member has gone out of business and no successor or owner can be located or, if the Class Member has failed to comply with the Court Ordered Process; or if the Class Member has either declined payment or failed to affirmatively request payment), then, in that event, after the payment of all claims, any remaining funds in the Escrow Account shall be awarded, as cy pres 11 to the Cy Pres Recipients, to the City or to the State of Iowa, as determined by the Court following application by one or both of the parties, notice of hearing, and hearing. 2.4 To the extent that any Class Member paid gas or electric franchise fees to the City and is separately requesting a refund or rebate of all or a part of the amounts of the franchise fees paid, pursuant to Dubuque ordinances 58-03, 59-03, 75-03, 76-03, 7-10, 8-10 and Dubuque Municipal Code sections 11-4-23, 11-5A-23 or 11-5B-23 or otherwise (for example: Ainley Kennels & Fabrication et al v. City of Dubuque now pending in the Iowa District Court for Dubuque County — Case No. 01311 EQCV101386), the Class Member shall not receive any refund in this case for that part of the franchise fees for which a refund is sought unless specifically allowed by the Court. 3. SETTLEMENT ADMINISTRATOR 3.1. The Parties shall jointly appoint the Settlement Administrator to determine eligibility for payments and to make payments to Class Members. The Settlement Administrator will (a) determine whether the Class Member is eligible for payment via the Court Ordered Process; (b) determine the amount that each Class Member is entitled to receive by applying the allocation formula set forth in Section 2; and (c) make payments to those Class Members who are eligible for payment under theCourt Ordered Process. 3.2. The Settlement Administrator will prepare a schedule listing each Class Member who paid franchise fees and the amounts so paid. The City shall promptly obtain the necessary records from each utility company at the City's cost and shall provide such records to the Settlement Administrator to permit the Settlement Administrator to properly perform the administration of the settlement as outlined herein. 3.3. The Settlement Administrator will owe Class Members and City a duty to 12 perform the administration of this settlement fairly. The Parties and their counsel shall have the right to review the administration of the settlement at any time, for the purpose of assuring that the Settlement Administrator is performing its duties in accordance with the terms of this Settlement. The Parties and their counsel shall have the right of access to the information necessary for the Settlement Administrator to perform its duties. 3.4. The Settlement Administrator is authorized to establish a toll-free number dedicated to communicating with Class Members for purposes of the administration of the settlement and to establish an Internet website for the same purposes. 3.5 The Settlement Administrator shall make a cash payment, in the amount of the Class Member Payment as provided herein, in a manner consistent with the Court Ordered Process. 3.5.1 Manner of Payments. Payments shall be made by paper check. 3.5.2 Timing of Payment. The payment shall be distributed to the Class Members within thirty (30) days after the Class Member has become eligible to receive payment under the Court orderedprocess. 3.5.3 Class Members who receive a paper check shall have 120 calendar days within which to cash the check. 3.5.4 If settlement checks are not cashed within the 120 -day period or are returned as undeliverable without a forwarding address, the Settlement Administrator shall make reasonable attempts to locate the Class Member by use of tracing procedures. Remaining funds from checks not cashed within the 120 -day period or funds from checks returned as undeliverable shall be distributed pursuant to Section 2.3. 13 4. NOTICE TO THE CLASS 4.1. At least thirty (30) days prior to the Fairness Hearing, the Settlement Administrator will send to each Class Member whose potential monetary recovery is estimated to exceed one hundred dollars ($100), via first class mail, the Notice to the Class Member at the last -known address contained in the records of the utility companies, as updated by the Settlement Administrator through a check of all address databases customarily checked, including the "national change of address" database. The Settlement Administrator will promptly re -mail any notices returned by the U.S. Postal Service with a forwarding address. 4.2. The Publication Notice will also be made two times before the Fairness Hearing by publ cat on n the "Dubuque Telegraph Herald." The Settlement Administrator will also publish the Notice on the Internet. Plaintiff's Class Counsel may also post the Notice on their firm website and may provide the Notice to the Class to other internet sites. 4.3. City will pay the cost of printing, publishing and mailing Notice to the Class and the costs of the Settlement Administrator in giving Notice. The Settlement Administrator will provide the City with an estimate of said costs in writing thirty (30) days prior to incurring said costs. 5. OBJECTIONS TO SETTLEMENT 5.1. Any Class Member who wishes to object to the fairness, reasonableness or adequacy of the proposed settlement, or to the award of Attorneys' Fees and Expenses, must deliver a statement of objection to Class Counsel and to City Counsel and file it with the Court no later than five (5) days before the Fairness Hearing. The statement of objection must state the specific reason(s), if any, for each objection, including any legal support the Class Member desires to bring to the Court's attention and any evidence the Class Member wishes to 14 introduce in support of the objection. Class Members may so object either on their own or through an attorney hired at their own expense. 5.2. If a Class Member hires an attorney, the attorney must (a) file a notice of appearance with the Clerk of the Court no later than five (5) days before the Fairness Hearing; and (b) deliver a copy of that notice of appearance to Class Counsel and to City Counsel no later than five (5) days before the Fairness Hearing. 5.3. Any Class Member who fails to comply with the provisions of this Section shall waive and forfeit any and all rights that Class Member may have to appear separately, object, and/ or appeal, and shall be bound by all the terms of this Settlement, the releases and covenants herein, and by all proceedings, orders and judgments in this Action. 6. RELEASES AND COVENANTS NOT TO SUE 6.1. In consideration of the money received for settlement, the Class Members described above, acting as Releasors, hereby release Defendant and the Released Parties from any and all Released Claims. 6.2. In connection with the releases set forth herein, the Releasors acknowledge that they are aware that they may hereafter discover claims presently unknown or unsuspected, or facts in addition to or different from those that they now know or believe to be true with respect to the matters released herein. Nevertheless, it is the intention of Releasors, in executing the releases herein to fully, finally and forever settle and release all such matters that exist, hereafter may exist, or might have existed (whether or not previously or currently asserted in any action or proceeding) as set forth above. 6.3. Plaintiff, on her own behalf and on behalf of all Releasors, hereby agrees and acknowledges that the provisions of the releases in this Settlement, individually and 15 collectively, constitute an essential and material term of the Settlement. 6.4. Plaintiff, on her own behalf and on behalf of all Releasors, covenants not to sue or otherwise bring any Released Claims against the Released Parties. 6.5. The releases and covenants not to sue contained in this Settlement shall not compromise or otherwise affect the Class Members other business or affairs with the City or Released Parties; or other claims against the City or the Released Parties that are not the subject of the Released Claims. 7. FINAL DISTRIBUTION 7.1. The Settlement Administrator will be authorized by the Court in the Preliminary Approval Order and the Final Order and Judgment to make all decisions and to resolve all disputes concerning the validity and accuracy of all payments to Class Members, subject to the Court's oversight, review and approval of all such decisions and resolutions prior to entry of the Final Distribution Order. 7.2. No later than thirty (30) days following the receipt of the franchise fee records from the City and utility companies, the Settlement Administrator shall prepare and provide to Class Counsel and City Counsel a final schedule listing each Class Member, by name and address, and setting forth the calculation of the proposed payments to the respective Class Members. 7.3. As soon as possible after receiving the schedule from the Settlement Administrator, but not before the Effective Date, Class Counsel shall submit the schedule to the Court for approval and request the issuance of a "Final Distribution Order" approving the allocation and distribution to the Class. To protect the privacy of Class Members, and because the schedule may contain confidential information, the schedule shall not be filed of record 16 with the Court. 8. ATTORNEYS' FEES AND EXPENSES 8.1. Class Counsel may request approval of the Court to be paid from the Settlement Fund the sum of Eight Hundred Sixty-six Thousand Six Hundred Sixty-six Dollars ($866,666) for all Class Counsel's attorneys' fees, plus an award for counsel's out-of-pocket expenses and costs, and an award of Five Thousand and 00/100 Dollars ($5,000) to Plaintiff to compensate him for his time and effort expended in connection with this Action as the representative of the Class (the "Plaintiff Incentive Award"). The parties acknowledge that the award of Attorneys' Fees and Expenses and the Plaintiff Incentive Award shall be in such amounts as determined by the Court, but shall not otherwise affect the validity of this Settlement. The Settlement may not be terminated regardless of whether the Court approves or disapproves the Attorneys' Fees and Expenses payment and the Plaintiff Incentive Award payment in the above amounts. 8.2 Defendant shall not oppose, or cause to be opposed, Class Counsel's application for court approval of these payments. 8.3. Upon approval by the Court, the Attorneys Fees and Expenses and Plaintiff Incentive Award should be paid to Class Counsel and to Plaintiff, respectively, from the Escrow Account following the Effective Date. 8.4. Plaintiffs agree to file a release and waiver of any judgment lien on any City real estate upon approval of this Settlement by the Court; however the judgment itself shall not be satisfied of record until the settlement is paid in full. 8.5. The failure of the Court to approve the payments in Section 8 of this Settlement, or a decision on appeal reversing, vacating, or modifying the Court's order approving the payments provided in Section 8, will not affect in any way the validity of the 17 Settlement and the releases and covenants not to sue set forth herein, or any other obligations or rights of the Parties hereunder and will not affect in any way the occurrence of the Effective Date. 9. COURT APPROVAL 9.1. As soon as practicable after execution of this Settlement, Class Counsel shall submit the Settlement to the Court and request for entry of a Preliminary Approval Order equivalent in all material respects to the form attached hereto as Exhibit "A." 9.2. The Settlement shall be conditioned on entry of the Final Order and Judgment barring Plaintiff and all Class Members from asserting, in any forum, any claims or causes of actions covered by the releases and covenants not to sue contained in this Settlement. 9.3. The Settlement shall become effective only on the Effective Date. 9.4. In the event that the Settlement is not approved by the Court, the Parties shall be restored to their respective positions in the Action as of the date hereof. 9.5. The terms and provisions of this Settlement may be amended, modified or expanded by written agreement of the Parties and approval of the Court; provided, however, that after entry of the Final Order and Judgment such amendments, modifications or expansions of this Settlement and its implementing documents (including all exhibits hereto) may only be made without further notice to the Class Members if such amendments, modifications or expansions are consistent with the Court's Final Order and Judgment and do not limit the rights of Class Members under the Settlement. 9.6. If this Settlement is not approved by the Court, then: 9.6.1. All funds (including all interest) in the Escrow Account shall be paid to City by the Escrow Agent within five (5) business days. 18 9.6.2. This Settlement shall be null and void and shall have no force or effect, and no Party to this settlement shall be bound by any of its terms; 9.6.3. This Settlement, all of its provisions, and all negotiations, statements and proceedings relating to it shall be without prejudice to the rights of Defendant, Plaintiff or any other Class Member, all of whom shall be restored to their respective positions existing immediately before the execution of this settlement; 9.6.4. Defendant expressly and affirmatively reserves all defenses, arguments and motions as to all claims that have been or might later be asserted in the Action; 9.6.5. Plaintiff and her successors, heirs, agents and assigns expressly and affirmatively reserve all rights and arguments in support of, all claims that have been or might later be asserted in the Action; 9.6.6. Neither this Settlement, nor the fact of its having been made, shall be admissible or entered into evidence for any purpose whatsoever; and 9.6.7. Any order or judgment entered in support of this Settlement shall be deemed vacated and will be without any force or effect. 10. MISCELLANEOUS 10.1. Neither the fact of, nor any provision contained in, this Settlement, or any exhibits to either of them, nor any actions taken under them or any actions, negotiations, statements or court proceedings relating to any of them shall in any way constitute or be construed, offered, received or used as, or be deemed to be, evidence of any kind in this Action, any other action, or any judicial, administrative, regulatory or other proceeding, except a proceeding to approve or enforce this Settlement. Without limiting the foregoing, neither the 19 fact of, nor any provision contained in this Settlement, or any exhibits to either of them, nor any actions taken under them or any actions, negotiations, statements or court proceedings relating to any of them shall in any way constitute, or be construed, offered, received, or used as, or be deemed to be, evidence or an admission or concession of any liability or wrongdoing whatsoever on the part of any Person, including but not limited to Defendant, or as a waiver by Defendant or any Released Party of any applicable defense, including without limitation any applicable statute of limitations or statute of frauds, or as a waiver by Plaintiff or the Class of any claims, causes of action or remedies. 10.2. The Settlement compromises claims that are contested and shall not be deemed an admission by any Party as to the merits of any claim or defense. 10.3. In connection with the implementation of this Settlement, the Parties and their counsel may have access to, or receive from the Settlement Administrator, documents and other information that contains proprietary or confidential business information, or non-public personally identifiable information of individuals who are or may be Class Members. The Parties and their counsel agree to hold all such confidential information in the strictest confidence. The Parties and their counsel agree not to use such confidential information nor to disclose such confidential information to any third parties for any purpose other than the implementation of this Settlement. 10.4. Except as otherwise provided herein, neither the Parties nor their counsel shall have any liability for the administration, allocation, or distribution of any settlement payments ncluding without limitation any act, omission, decision, or other conduct by the Settlement Administrator or the Escrow Agent in connection therewith). 10.5. This Settlement, including all exhibits attached hereto, shall constitute the entire 20 agreement among the Parties with regard to the settlement of the Action and shall supersede any previous agreements and understandings between the Parties. 10.6. All notices required to be given to Class Counsel and City Counsel under this Settlement shall be in writing and shall be delivered personally, by U.S. Mail or overnight courier service, and by concurrently e-mailed Notices, as follows: If to Class Counsel: Terry M. Giebelstein Richard A. Davidson LANE & WATERMAN LLP 220 N. Main St., Suite 600 Davenport, Iowa 52801-1987 tgiebelstein@1-wlaw.com rdavidson@1-wlaw.com If to City Counsel: Ivan T. Webber James R. Wainwright AHLERS & COONEY, P.C. 100 Court Avenue, Suite 600, Des Moines, IA 5 03 09-223 1 iwebber@ahlerslaw.com jwainwright@ahlerslaw.com 10.7. The Parties and their counsel agree to undertake in good faith and to use their best efforts, including all steps contemplated by this Settlement, and any other steps and efforts that may become reasonably necessary by order of the Court or otherwise, to effectuate this settlement and bring about the occurrence of the Effective Date. Each of the Parties reserves the right to appeal from any orders of the court concerning (i) the Court Ordered Process to be utilized to determine whether a class member will receive a refund; (ii) the final disposition of the funds remaining in the Escrow Account pursuant to Section 2.4 hereof; and/or (iii) the award of attorney's fees and expenses to Class Counsel, provided, however, that no appeal shall be 21 taken with respect to the other terms and conditions of the Settlement. 10.8. Class Counsel and City Counsel represent that they are authorized by their respective clients to enter into this Settlement. 10.9. Upon prior notice to and approval by the Court, the Parties may agree to reasonable extensions of time to carry out any of the provisions of this Settlement, as contemplated in the attached Exhibits. 10.10. The failure of any Party to enforce at any time any provision of this Settlement shall not be construed to be a waiver of such provision, or in any way to affect the validity of the Settlement or any part hereof or the right of any Party thereafter to enforce each and every provision. No waiver of any breach of this Settlement shall be held to constitute a waiver of any other breach. 10.11. No opinion concerning the tax consequences of the proposed settlement to individual Class Members is being given or will be given by Defendant, City Counsel, Class Counsel, or the Settlement Administrator, nor is any representation or warranty made by virtue of this Settlement with respect to the tax consequences of any award of remedies under this settlement. Any Notice to the Class shall direct Class Members as follows: "Class Members are directed to consult their own tax advisors regarding the tax consequences of the proposed settlement, including any payments provided hereunder, and any tax reporting obligations they may have with respect thereto. Each Class Member's tax obligation, including the determination thereof, is the sole responsibility of the Class Member, and it is understood that the tax consequences may vary depending on the particular circumstances of each individual Class Member." 10.12. This Settlement shall be binding upon and inure to the benefit of the Class, the 22 Parties hereto, and their respective representatives, heirs, successors, and assigns. 10.13. Following the Effective Date, the Court shall have continuing jurisdiction to interpret and enforce the terms, conditions, and obligations of this Settlement. 10.14. In the event that the Court or any other court is called upon to interpret this Settlement for purposes of effecting rules of construction, no Party or group of Parties shall be deemed to have drafted this Settlement. 10.15. Nothing in this Settlement or the negotiations or proceedings relating to the foregoing is intended to or shall be deemed to constitute a waiver of any applicable privilege or immunity, including without limitation the attorney client privilege, the work product doctrine, or the joint defense privilege. 10.16. This Settlement shall be governed by and construed in accordance with the laws of the State of Iowa, without regard to its laws applicable to choice of law. 10.17. This Settlement may be executed in counterparts, each of which shall constitute an original and shall be deemed to be part of the same document. 1N WITNESS WHEREOF the Parties have executed this Settlement as of the date first written above. PLAINTIFF DEFENDANT CITY OF DU QUE J. Thomas Zaber Terry M. Giebelstein 23 Ivan T. Webber Richard A. Davidson LANE & WATERMAN LLP 220 N. Main Street, Suite 600 Davenport, IA 52801 Telephone: (563) 324-3246 Facsimile: (563) 324-1616 Email: tgiebelstein@1-wlaw.com Email: rdavidson@1-wlaw.com ATTORNEYS FOR PLAINTIFF 24 James R. Wainwright AHLERS & COONEY, P.C. 100 Court Avenue, Suite 600 Des Moines, IA 50309 Telephone: (515) 243-7611 Facsimile: (515) 243-2149 Email: iwebber@ahlerslaw.com Email: jwainwright@ahlerslaw.com ATTORNEYS FOR CITY List of Exhibits A. Preliminary Approval Order B. Mailed Notice C. Published Notice D. Final Order and Judgment 01018423-1\10422-073 25