A lawsuit that has lingered since 2012 against the city of Gahanna and the Regional Income Tax Agency is expected to be concluded by July.

CORRECTION: An earlier version of this story gave incorrect dollar figures for how much money each affected resident could get. According to attorney Todd Neuman, each resident could get anywhere from less than $1 to more than $100,000.

A lawsuit that has lingered since 2012 against the city of Gahanna and the Regional Income Tax Agency is expected to be concluded by July.

Amy Arrighi, legal counsel for RITA, said the RITA board of trustees on May 16 approved the settlement agreement with the class-action plaintiffs and the city of Gahanna and approved payment of RITA’s portion of the settlement.

“We are glad to soon have this litigation behind us,” she said.

During a special Gahanna City Council meeting May 13, council voted 6-1 to adopt legislation for an agreed-upon resolution with plaintiffs represented by the law firm of Allen, Stovall, Neuman, Fisher & Ashton LLP.

Voting in favor were president Brian Metzbower, Stephen Renner, Karen Angelou, Brian Larick, Jamie Leeseberg and Nancy McGregor. Council member Michael Schnetzer cast the dissenting vote.

It’s a class-action lawsuit that involves more than 17,000 residents and more than $12.7 million, according to the settlement agreement. Each affected resident could get “over a $100,000 or less than a $1,” depending on how much tax credit the resident was shorted, according to attorney Todd Neuman. It will be pro rata based on each class member’s damages, he said.

“Many class members had gross damages under $100,” Neuman said.

According to the settlement agreement, Gahanna would pay $9.1 million and RITA would pay $400,000 to the law firm within 14 days of the Franklin County Court of Common Pleas approving the settlement motion and a fees motion at a fairness hearing that will be held in late June or early July.

Neuman represented Gahanna couple Douglas and Karla LaBorde, who in their 2012 lawsuit said the city and RITA had improperly applied Gahanna City Tax Code Section 161.18 and in doing so failed to refund money rightfully owed to them based upon the full tax credit to which they were entitled for income taxes paid to another municipality.

Under RITA’s Form 37, they said, taxpayers would be entitled to a credit of 83.3% against the lesser of either the tax Columbus collects or their wages times the Gahanna rate of 1.5%. That violated the city’s tax code, according to Neuman.

In an example, the plaintiffs provided a hypothetical example of a taxpayer earning a $100,000 salary and working in Columbus. Columbus would collect $2,500 in taxes based on its 2.5% tax rate. However, under RITA Form 37, Gahanna would give the worker an 83.3% credit on the $1,500 Gahanna would collect based on its tax rate of 1.5%, or $1,250. That same worker still would owe Gahanna $250 instead of receiving the full tax credit.

Under the city tax code, the worker would be entitled to a full tax credit for the amount paid to Columbus, Neuman said.

As a result of this discrepancy, when preparing their returns, the couple’s credits were understated by $347 in 2009, $438 in 2010 and $473 in 2011, according to court documents.

In September 2014, the court sided with the plaintiffs, and the case has gone through the appeals process since then.

Assuming the agreement is finalized by the court, Neuman said, an almost $10 million settlement is meaningful.

“This has been a long journey, almost seven years,” he said. “It was longer than anyone would have anticipated.”

He said the LaBordes believed those working outside Gahanna were getting shorted, and the court agreed.

The council resolution was reached after months of intense negotiation, according to a May 13 news release from Gahanna City Council. The agreement ensures that the city will be able to reduce its legal costs and expenses while bringing closure for many residents affected by the lawsuit, according to the release.

“Citizens of Gahanna can breathe a sigh of relief that this lawsuit is behind us,” Metzbower said. “Now we can fully focus on shaping our community to one in which our children and children’s children will want to raise their own families here.”

“This matter involving multiple parties has been litigated for years, and while RITA and Gahanna may have eventually prevailed in court, the estimated costs of another three to five years of litigation could have potentially resulted in an additional $9 million,” Frank Reed, Gahanna’s legal counsel for the lawsuit, said in the release.

Reed said that in his talks with RITA officials, the city and counsel for the plaintiffs, it was clear there was momentum for an agreed-upon resolution.

“The city is ready to move forward and this resolution closes that chapter while allowing the city to focus on the future,” he said. “This is a responsible decision, and I know city leaders look forward to refocusing on efforts to continue making Gahanna a great place to live, work and raise a family.”

The timing of the proposed settlement came less than a week after voters approved Issue 12, changing the city’s income-tax rate from 1.5% to 2.5% and increasing the tax credit from 83.33% to 100% for those who pay municipal taxes elsewhere.

Issue 12 is estimated to generate about $9 million annually when fully implemented and assuming 100 percent compliance, Schnetzer said.

Negotiations have been going on for months, Metzbower said.

“We just got the final terms and conditions on May 10,” he said. “Until recently, we weren’t able to come to an agreement. We weren’t the only ones involved in this. We had to line schedules up. Sometimes these things just fall the way they do.”

Gahanna’s portion of the damages will be paid for through carry-over reserves accumulated from “prudent spending” from prior years, the release said.

In addition, the city will continue to seek reimbursement from its insurance company that provides insurance for errors and omissions coverage for the city, the release said.

mkuhlman@thisweeknews.com

@ThisWeekMarla