Possible settlement in the works for 2022 Tap House lawsuit against city

ROCHESTER — A local business’ 2022 federal lawsuit against the city of Rochester appears to be headed toward a settlement.

“The parties have engaged in settlement negotiations, and counsel for both parties are recommending to their respective clients that they enter into an agreement to settle the case for a particular dollar amount,” attorneys representing the city and Tap House Real Estate LLC stated in a Jan. 3, 2025, message to the court.

The lawsuit was initially filed in Olmsted County District Court on Feb. 15, 2022. Tap House claimed that $102,500 in city fees it paid for street construction in 2019 were calculated arbitrarily and unjustly enriched the city. The case was later moved to federal court.

The fees were connected to street development for The Tap House West End, 2365 Commerce Drive NW.

The charge to the business was imposed through a transportation improvement district, which the city created to address development needs in the area since existing streets failed to meet the needs of the anticipated growth and related traffic.

The practice was established through a 2004 Rochester ordinance that looked to find ways to fund street improvements ahead of regular schedules, without delaying scheduled street maintenance in other parts of the city.

A related development agreement between the city and developers in the district defined the split of infrastructure costs leading to the Tap House fees. Without the agreement, related street work would have been addressed under existing city schedules, which could have delayed construction.

Citing a recent ruling in the Minnesota Supreme Court, attorneys for Tap House Real Estate argued that cities are not allowed to use voluntary contracts to “strongarm developers into paying unauthorized transportation infrastructure fees.”

The lawsuit states the fees were coercive because the city did not send the bill until midway through the development process, when developers have already invested substantial time and money into a project.

With attorneys indicating a potential settlement is in the works, U.S. District Court Judge Eric Tostrud has canceled a planned Feb. 4, 2025, trial on the issue, with the attorneys ordered to provide an update to the court by Jan. 29, 2025.

The Rochester City Council is slated to go into a closed session on Monday, following its 3:30 p.m. study session, to discuss the lawsuit and potential settlement.