This story was updated at 9:10 p.m. on Friday, Nov. 1, 2019, with more information.

The city of Chattanooga was all but absolved at a Friday hearing on a lawsuit claiming the formation of the controversial Business Improvement District downtown was illegal.

Hamilton County Chancellor Jeffrey Atherton presided over the third and likely final hearing of the lawsuit, which was filed against the city by six property owners after a special district was formed on its second pass through the city council this summer.

The judge sided with the city on all four counts in the summary judgment order filed by plaintiff and attorney Charles Paty, which included accusations of improper notice, questionable financial liability of the city and improper ordinance formation regarding the city's July approval of the district. The district will assess around $1 million in fees from property owners for visual and safety improvements in central Chattanooga.

While the judge sided easily with the city on the other three matters, he struggled to come to a conclusion on whether reintroducing the district as a resolution immediately after the petition that first brought it to the council violated state law. That law requires a year between attempts to form a Business Improvement District.

What is the BID?

Commercial and nonprofit landowners in the district will pay an annual assessment of 9 cents per square foot, of either the lot or building size, whichever is greater, plus $4.95 per linear foot of lot frontage. Residential property owners with townhouses or condominiums would pay a flat annual fee of $150 per unit.

"It sure does smell bad, doesn't it?" Atherton said of the city's approach to the ordinance during the nearly two-hour hearing Friday. The judge ultimately determined that state law did not expressly prevent reintroduction of the ordinance by a council after a citizens' petition.

"Everything in my gut tells me I should rule in favor of the plaintiffs on this," Atherton said. "But, even though [the formation ordinance] seems like an end-around, it doesn't seem to violate statute."

Charles Paty, one of the siblings listed as plaintiffs and an attorney at Paty, Rymer and Ulin P.C., is representing the group in the lawsuit after watching the Business Improvement District process this summer.

"I read the statute at the beginning and I followed what they were trying to pass the first time," Paty said when he filed the suit. "The biggest defect I saw at that time was the choice to assess fees on square footage, when in the statute it should have been assessed value."

Atherton hinted that counsel on both sides should consider advising the state Legislature to clarify the BID legislation for the "next poor" judge who presides over a similar case.

The defendants are working on a motion to dismiss the case that will be filed Monday, according to Sam Elliot, counsel for the city. Elliot also told the Times Free Press after the hearing that the decisions Friday likely nullify the next hearing date of Dec. 5, echoing Paty's comments at the end of the hearing, since a motion to dismiss only allows 30 days for the plaintiff to respond and both sides seemed in agreement during the hearing.

Contact Sarah Grace Taylor at 423-757-6416 or or on Twitter @_SarahGTaylor.