This article originally appeared in the May 2023 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.
For most people in America, tax season is over. The annual ritual of filing tax returns and hoping for a refund is a recurring reality of life. Some of you had to pay more money; some of you received money back. All of you would prefer never to pay taxes again. In the words of the famous Peanuts cartoon character, Snoopy: “Dear IRS, I am writing to cancel my subscription. Please remove my name from your mailing list.”
Snoopy’s plan is folly, but, sometimes, taxpayers get their revenge. So it was in the fascinating class action lawsuit entitled, White, et al. v. City of Cincinnati, et al.
Plaintiffs Andrew White, Vena Jones-Cox, Cincinnati Property Management Ltd., Tashaz LLC, and Proffitt Real Estate Services Inc., filed a complaint in the Hamilton County Court of Common Pleas against the City of Cincinnati and Sonya Walker (the Alarm Administrator for Cincinnati), challenging the constitutionality of the city’s ordinances regulating alarm systems.
The Background: A Closer Look at the Local Ordinance
In 1986, Cincinnati enacted Ordinance 448-1986 to regulate security alarm systems because of the high cost of responding to false alarms. That ordinance established registration fees for “alarm businesses” (those that sell/install/monitor/maintain alarm systems) and “alarm users” (those who use such systems at residential or non-residential properties).
The law required alarm businesses to pay a registration fee of $250 and to register with the False Alarm Reduction Unit (FARU) of the Cincinnati Police Department. If an alarm business fails to register, the city imposes a $1,000 civil penalty for each request for a police response related to an alarm system by an unregistered alarm business, or for each request by an alarm user for registration of an alarm system installed by an unregistered alarm business.
Alarm users must also register with FARU before an alarm system is activated. Residential alarm users must pay $50 every two years, and non-residential alarm users must pay $100 every two years. The city imposes a $100 civil penalty on an alarm user for using an unregistered alarm system, but the penalties may be waived if the alarm user completes registration within 21 days of the first notice of a violation. All fees imposed on both alarm businesses and alarm users are nonrefundable, nontransferable and location-specific.
The law also sets forth penalties for repeated false alarms. After the first and second false alarm, FARU will issue a warning but not a penalty. After the third false alarm, it imposes a $50 fee, which may be waived if the violator takes an educational class offered by the police. The fees continue to escalate for further false alarms to a maximum of $800 for each false alarm after the 10th.
The plaintiffs in the litigation are alarm businesses and alarm users in the city. They alleged that the law violates their rights to free speech, to petition the government for redress, and to defend themselves and their property. They also alleged that the regulatory scheme was an unconstitutional tax. The plaintiffs asked the trial court to declare the law unconstitutional and to grant a preliminary and a permanent injunction prohibiting the city from enforcing it.
Finally, they sought damages, including the return of fees they had already paid.
The Litigation and Decision
In the initial stage of the case, the trial court actually ruled in favor of defendants; however, an intermediate appellate court reversed and remanded the case back to the trial court for further disposition. The Ohio Supreme Court declined to intervene – rendering final the decision of the intermediate appellate court.
After more than four years of litigation, the law was deemed unconstitutional, and a class action settlement was approved. That settlement established a common fund of $3,277,802.25 – representing the alarm registration fees collected by the City of Cincinnati from 2014 to 2021.
The appellate court reasoned that police protection is a basic function of government, and that the city does not provide the alarm businesses or the alarm users with any services over and above what it already provides for taxpayers in general. Paying a fee did not entitle alarm business and alarm users to any particular response from the city or give them the right to any particular response. The city has not given anything to them for which it can ask for the assessments in return. The assessments – particularly the registration fees – do not bear a reasonable relationship to protections, benefits or opportunities provided by the city to those paying the assessments.
Therefore, the appellate court held that the registration fees imposed by Cincinnati violate the Due Process Clauses of the Ohio and United States Constitutions.
Among the evidence in the case was a sworn statement presented by a local alarm business. The owner of that business stated that her company must pay the annual registration fee to operate and that if all jurisdictions imposed an annual registration fee, “it would make it impossible for small local alarm businesses to operate profitably and stay in business.” Finally, she stated that based on her experience and expertise, “the alarm user registration fees do nothing to reduce the number of false alarms within a city, except for the possibility that those fees may cause fewer homeowners to install security alarms in the first place.”
The appellate court restrained the city from amending the current ordinance or passing another ordinance regulating alarm systems and false alarms. Instead, it held that any further regulation by the city must be done in a manner that assures that the assessments constitute a fee rather than a tax.
Notwithstanding this substantial victory for the plaintiffs, there remains a chance that Cincinnati (and other municipalities across the country) will re-draft their alarm regulations to comply with the directives of the court, and any new regulations may be subject to additional legal challenge. However, with properly crafted language, municipalities should be able to devise a regulatory framework that does not unduly tax citizens for services they do not receive.
Like Snoopy and his hilarious request to be removed from mailing list of the IRS, taxpayers prefer to avoid taxes whenever possible. In Cincinnati, they succeeded…for now.
Timothy J. Pastore, Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, Mr. Pastore was an officer and Judge Advocate General (JAG) in the U.S. Air Force and a Special Assistant U.S. Attorney with the U.S. Department of Justice. Reach him at (212) 551-7707 or by e-mail at [email protected].