The long legal standoff between the city of Palo Alto and a resident who sued the city over its practice of using utility revenues to pay for basic city services reached its official resolution last month, when a Santa Clara County judge approved a settlement that requires the city to issue thousands of refunds.

The ruling that Judge Sunil Kulkarni signed on Dec. 21 paves the way for more than 48,000 gas utility customers to receive refunds from the city, with the average refund totaling $156.32. The settlement covers most of the customers who were billed for gas service between September 23, 2015, and June 30, 2022, according to the ruling.

The formal resolution to the case Miriam Green v. City of Palo Alto has been widely expected since September 2022, when attorneys from the two sides agreed to the settlement terms. Green sued the city in 2016, saying the city acted illegally when it transferred revenues from the city's utility funds to its general fund, which pays for most services not relating to utilities.

While the practice has been in existence for decades, Santa Clara County Court Judge Brian Walsh concluded in 2020 that the transfer of gas utility funds to the general fund constitutes an "illegal tax" and that the city had violated Proposition 26, a state law that limits utility rates to the "reasonable cost" of service provision.

According to Kulkarni's order, the payments will come from a $12.6 million "common fund" that the city had established for refunds as part of the settlement. The settlement also authorizes attorneys representing Green to claim $4.3 million in revenues from the common fund and to get an additional $1.3 million through the "lodestar" method, which is based on how much time the prevailing party's attorneys spend on the case. Green was represented by the firm Kearney Littlefield, LLC.

Kulkarni concluded in the ruling that the fees are reasonable given the "great risk" that Green's legal counsel had spent on an entirely contingent basis, the substantial outlay of time, the "complex and consistently evolving case law," the "exceptional" results and the long delay in being compensated, according to the order.

The settlement allows the utility to issue the refunds in three installments, with the first installment due just after the final settlement order becomes official, the second one due 12 months later and the third payment due 12 months after the second. According to the order, three customers had submitted requests to be excluded from the judgment class and will not receive the payments. Neither will Judge Kulkarni, whose family lives in Palo Alto but who is excluded from the class.

Miriam Green, who launched the litigation, will receive an "incentive award" of $7,500 and reimbursements of $7,598 and $6,960 to cover litigation costs and the notification process for the judgment class.

Kulkarni alluded in the Dec. 21 ruling to a previous preliminary order, which found the "proposed settlement provided a fair and reasonable compromise to the Plaintiff's claims."

"If finds no reason to depart from the findings now, especially considering that there are no objections," Kulkarni wrote. "Thus, the Court finds that the settlement is fair and reasonable for the purposes of final approval." n