[Superman]

You made the right decision on the possum thing, IMHO.

It seems clear that the undersized pipe is the cause. I wonder how that pipe size got decided. I wonder what the building permit looked like (there is probably a copy at City Hall), and whether a PE was required to sign off on the design. I wonder whether the City approved the design. After gathering as much information as you can, then I think some meetings/discussions are in order. And letter-writing. Once there is a written record, and once the nature of the problem becomes known to the organizations that caused it, they may be willing to discuss a solution that avoids the lawsuit thing. The solution is (probably) going to involve some heavy equipment, materials and labor. The City has that stuff. If they were in a hurry, that pipe could probably be replaced in a couple of days. If they were serious.

Again, it's always good to inform people so they know what's coming and can help shape the solution.