North Carolina Land Use Litigator

Hey, Man, I Started the Ruckus—You Can’t Leave me Behind

2016-12-13T16:25:00.004-05:00

Anybody who practices land use law knows that it’s an arcane area with layers of local and state laws (and sometimes federal laws) baked into every proceeding. This is especially true for quasi-judicial zoning (QJZ) proceedings - special and conditional use permits, variances and interpretations hearings.

If you know the term “ruckus” – generally anything loud, confusing and conflicted -- it’s often a dead-on description of a contested QJZ proceeding. Every QJZ proceeding begins with a person filing an application requesting a QJZ decision. The applicant starts the ruckus.

Before 2009, statutes provided only a general outline of procedures for appealing QJZ decisions. Through deciding cases, North Carolina courts filled the gaps in the process by establishing rules and principles to govern it. This law making process, the common law, is flexible and evolving because case law responds to the facts of a specific case.

Big surprise, some folks were unhappy with certain case law decisions and viewed “flexible” as erratic and inconsistent. To that end, they persuaded the General Assembly to adopt a detailed statute dictating the required procedures for appealing QJZ decisions and in 2009 we welcomed N.C.G.S § 160A-393 into North Carolina law.

So now we have consistency -- and a statute chiseled with certainty, - and one must comply fully with its rules or fail. Pass/fail, win/lose, one/zero—they all apply.

The recent case of Hirschman v. Chatham County, 2016 WL 6695810 (November 15,2016) illustrates how this new scheme of rigidity works.

Mr. Hirschman and other property owners opposed issuance of a permit by the Chatham County Board of Commissioners allowing construction a monopole telecom tower on another property owner’s land. They appealed the Board’s decision to issue the monopole permit to Superior Court. They named Chatham County as the party on the other side of the appeal, but (and here’s the rub) neglected to name the applicant for the permit – the party whose application started the ruckus – as a party in their appeal.

Chatham County gave N.C.G.S. §160A-393 a good read. (The statute is five pages long, contains twelve (12) subsections, many of which contain multiple subparts.). The County found that Subsection (e) states, with clarity, certainty (and rigidity): “If the petitioner is not the applicant before the decision-making board whose decision is being appealed, the petitioner shall also name that applicant as a respondent.”

Chatham County filed a motion requesting the Superior Court to dismiss the appeal because the appellants had not named the applicant as a party in their appeal. Given the mandatory “shall” language of N.C.G.S. §160A-393, the Superior Court granted the County’s motion and dismissed the appeal. The North Carolina Court of Appeals then affirmed.

So when a person tells you that a zoning appeal is simple and can be handled on a shoestring, give him a copy of N.C.G.S § 160A-393 to read and ask him to call you in the morning.

Politics and Impartiality = Oil and Water

2016-11-10T17:09:00.001-05:00

Sometimes, the simplest, local example teaches the deepest, global lesson – politics and impartiality do not mix. Under the blanketing fog of politics and internet delivered news, it’s easy to become confused and actually believe you can thread the needle of politics and impartiality, but it can’t be done. It’s like trying to mix oil and water.

Having waited patiently for the polls to close (so no one can accuse me of trying to sway the election), let’s get back to basics.

In my last post, I discussed that good or problematic findings in Superior Court judgments lead to either an easy or difficult path at the Appellate Division for quasi-judicial land use decisions. To illustrate my point, I used two appellate opinions in the same land use controversy, and that same controversy contained the nugget—nugget and impartiality do not mix.

Controversial land use cases are frequently the springboard by which citizens discover their heretofore undiscovered passion—land planning and land use regulations. Being an active and engaged citizen is often the first step on the path to becoming a local politician. Many a local politician can trace his newfound political career to a land use controversy that lit the fire. All of this new found energy can lead to a better, more vibrant and engaged community—a great thing—so long as the community comes together to move forward.

In Campbell v. City of Statesville, __N.C.App.__, 2016 WL576408 (October 4, 2016), a controversy regarding a proposed truck stop had been swirling since 2012. In the four years it took the matter to reach the Statesville City Council for a hearing on whether to approve the truck stop, an active opposition leader had been elected to the Council. Unlike legislative decisions, such as rezonings, the decision that the City Council was tasked to make was quasi-judicial —a decision requiring impartial decision makers.

To no one’s surprise, Love, Inc. the truck stop owner, sought to have this new member of the City Council recused from participating. Unsurprisingly, the newly-elected member claimed he was impartial and wanted to cast a vote. Trust me, I can be impartial!

The Council put their heads together, voted to recuse the new member from participating, and then approved the truck stop. The opponents of the truck stop, fully exercising their rights, appealed the recusal decision to the Superior Court. The Superior Court affirmed the recusal, but, not deterred or persuaded, the opponents sought review at the North Carolina Court of Appeals. In its opinion, the Court of Appeals set forth the basics:

1. A member of a quasi-judicial board shall not participate in a quasi-judicial matter affecting a person’s constitutional right to an impartial decision-maker; and

2. An applicant’s constitutional rights would be violated if the decision-maker had either (a) a fixed opinion prior to the hearing that was not susceptible to change (b) financial interest in the outcome or (c) any other reasons which adversely affect the applicant’s constitutional rights to an impartial decision-maker.

The record showed that the newly-elected member of the Statesville City Council had (1) participated as an opponent to the truck stop in earlier proceedings (2) had purchased an internet domain (Nosvltruckstop.com) devoted to opposing the truck stop and promulgated a message on the website stating that “we are firmly against any action which may lead to approval of a truck stop” on the property and (3) had testified in an earlier proceeding that the truck stop would cause a decline in the value of his home.

The Court of Appeals said that it had “no choice” but to uphold recusal “to keep safe the Constitutional Due Process rights of these Applicants.” Why, no choice?

The issue is not whether the governmental official is truthful when he proclaims impartiality. Instead, the issue is whether the official’s actions demonstrate a lack of impartiality. Whenever such actions exist, recusal is necessary to protect constitutional rights and to preserve the integrity of the judicial process.

Like oil and water, politics and impartiality do not mix. And when you try– you end up with a mess.

Two Roads Diverged in a Yellow Wood… and I took the Smooth, Safe Path

2016-10-28T12:23:00.002-04:00

Robert Frost’s The Road Not Taken is a great American poem about choices. In the poem, the fork where the two roads diverge provides no indication which path is the better path to travel. In life and law, sometimes the better path is remarkably clear, but not everybody takes it. (I guess some like taking risks without any possibility of a higher return.)

Readers of this blog will recall a blog post describing in detail the type of findings which should be included in a Superior Court’s judgment ruling on a judicial review of a quasi-judicial land use decision. If you need a refresher, please see here.

The recent opinion written by North Carolina Court of Appeals of Campbell v. City of Statesville __ N.C. App.__, 2016 WL 574608(October 4, 2016)(unpublished)(Campbell I) proves the point of these earlier posts. Why?

There are two Campbell appellate decisions arising from the same controversial truck stop in the City of Statesville – the opinion of Campbell v. City of Statesville, ___N.C. App.__, 786 S.E. 2d 433 (May 3, 2016), disc. rev. denied, __N.C. ___, ___S.E. 2d ___(August 18, 2016)(Campbell I) and Campbell II.

Put aside any judgment of the outcome in these cases and juxtapose the decisions. What does this exercise tell you?

Campbell I involved a single straightforward legal issue: Is a truck stop a permitted use in a particular zoning district. The opinion is 11 pages and the North Carolina Court of Appeals stated that “the superior court’s analysis introduced considerable confusion into its review of the local government’s board decision that a truck stop is a permitted use.” The Court of Appeals concluded that because the issue in Campbell I “is a question of law, we conduct a de novo review.” In other words, the Court of Appeals stopped looking at the Superior Court judgment and dug into the record to decide the case.

Campbell II involved 4 issues; some required the North Carolina Court of Appeals to dig into the evidence taken at a hearing before a local government board where the board approved development of the truck stop. Other issues did not require review of the evidence, but are significant issues. The opinion is barely 7 pages. In much of the opinion, the Court of Appeals sets out large portions of the findings in the Superior Court judgment, uses them to focus its review of each of the 4 issues and says “we agree.”

The opinions in Campbell I and II are written by the same judge, arise out of the same land use controversy and affirm the local government decisions.

Two roads diverged in a yellow wood… and I took the smooth, safe path of a well-written Superior Court judgment.

Quicksands and Cutting Edges of the Law: Do Municipal Utility Customers possess Due Process and Vested Rights to Continued Sewerage Service?

2016-10-17T12:01:00.001-04:00

Introduction

Sometimes, I read a court’s opinion and put it aside because it is thought provoking beyond its facts and outcome. The case of United States Cold Storage, Inc. v. Town of Warsaw, __ N.C. App. ___, 784 S.E. 2d 575 (April 5, 2016) falls into this category.

Background

United States Cold Storage is interesting from several angles, but this post explores only one - the possibility that governmental utility customers possess due process and common law vested rights to continued utility service.

The facts were simple. United States Cold Storage (USCS) owned a facility located outside the corporate limits of the Town of Warsaw (Town). Through a contract with a county government, USCS secured Town sewer service and a promise that the Town would not annex the facility for seven (7) years.

The Town provided sewer service for seven (7) years. Thereafter, the Town requested USCS to annex its facility into the Town’s corporate limits voluntarily. By annexing the facility into the Town, USCS received other Town services and became obligated to pay property taxes to the Town. In its communication to USCS, the Town stated that if USCS did not voluntarily annex the facility, the Town intended to stop providing sewer service to the facility.

USCS filed a declaratory judgment action requesting the trial court to declare that the Town could not terminate sewer service because USCS had refused to annex the facility into the Town’s limits. After hearing the case, the trial court declared that the Town had no obligation to continue to provide sewer service to the USCS facility. USCS appealed to the North Carolina Court of Appeals.

The majority opinion, written by Judge Dillon, and the dissent, written by Judge Hunter, illustrate two very different understandings of public enterprises – business operations conducted by local governments. The difference is important.

The Two Understandings

The Majority’s Reasoning

The majority opinion relies upon the particular statutes empowering a municipality to own and operate water and sewer systems serving customers within and outside their corporate limits and case law decided under these statutes. The majority concludes that the case of Fulghum v. Selma 238 NC 100 (1953) is a “factually similar case from the middle of the last century.” p. 3. Based upon the majority’s understanding of these statutes and Fulghum, the majority holds that the Town:

1. “[H]as the legal right to discontinue sewerage service to the USCS facility, provided that the Town is not unfairly discriminating between USCS and other non-residents similarly situated who currently receive sewerage service.” Id. (emphasis by the Court); and

2. “[H]as the legal right to condition continued service to USCS’s facility on the voluntary annexation of the facility into the Town’s corporate limits…provided that the Town is not unfairly discriminating between USCS and other non-residents similarly situated who currently receive sewerage service.” Id.

The majority rejects USCS’s contention that Dale v. Morganton, 270 N.C. 567 (1960), another case decided in the last century, applies to USCS. In Dale, the North Carolina Supreme Court held that the Town could not halt utility service to an inhabitant of the Town because of a controversy “which is not related to the service sought.” Dale at 572. The majority observes that the customer in Dale is an inhabitant of Morganton – a municipal taxpayer; whereas, USCS is not an inhabitant and apparently does not want to become a municipal taxpayer. Therefore, like the customer in Fulghum, USCS possesses a right to uninterrupted service only when a town has “obligated itself by contract to provide services.” p. 4 (emphasis by the Court).

The majority’s reasoning understands that public enterprises are unusual statutory creatures - businesses conducted by local governments. As such, the statutes enabling these activities and interpretations of these statutes control.

The Dissent’s Reasoning

Judge Hunter disagrees with the majority’s interpretation of Fulghum and Dale. Specifically, Judge Hunter concludes that Fulghum and Dale stand for the rule that the Town can establish different user rates for inhabitants and USCS, a customer located outside its corporate limits, but the Town cannot stop providing sewer service to USCS for reasons not related to the service sought. Specifically:

[T]he Town of Warsaw did not have a duty to extend sewer services to USCS. However, the Town of Warsaw elected to extend a public utility to an area outside the city. As a result of that decision, the town cannot unreasonably discriminate or discontinue services for a reason unrelated to the provision of the utility itself. p. 6.

If Judge Hunter had ended his analysis at this point, the difference between the judges’ understandings of public enterprises would have been contained within the statutes and case law specifically applicable to public enterprises. But, Judge Hunter provided an additional analysis – the cutting edge theory that the Town had deprived USCS of substantive due process and its common law vested rights.

Judge Hunter’s understanding is that once the Town extended services to USCS, USCS acquired “a protected property right in the continued provision of sanitary sewer service and that the Town of Warsaw arbitrarily or capriciously deprived [USCS] of that property right.” p. 7.

Under Judge Hunter’s analysis, there is no difference between a municipality issuing a permit as a land use regulator and a municipality providing utility service as a business operator. Accordingly:

…[T]the government is wielding its power to achieve its objective, violating the very purpose of due process protections. The government is forcing USCS to submit to “voluntary” annexation or lose access to vital utilities. Such arbitrary and capricious government action is in violation of constitutionally protected due process rights. Id.

Comments

1. The dissent’s understanding that customers of public enterprises possess due process and common law vested rights is thought provoking. It lacks a basis in public enterprise statutes or case law decided under these statutes, but extends, by logic, the theory that due process applies to all types of governmental actions.

2. Judge Hunter’s extension of due process protections to customers of a governmentally owned and operated utility system follows the continuing expansion of common law vested rights by North Carolina appellate courts. Judge Hunter’s phrase of a right “in continued provision of sanitary sewer service” is similar to Justice Newby’s phrase of a right “to continue with an approved use of his land.” See, Town of Midland v. Wayne, ___ N.C. ___, 773 S.E.2d. 301 (2015).

3. The legal implications of due process and vested rights applying to public enterprise customers are significant. Here are a few questions which arise:

i. Does the common law vested right arise out of the federal constitution so that a citizen living in Virginia who receives sewer services from a North Carolina municipality possesses the same vested right? Or does it arise out of the common law of North Carolina and a citizen living in Virginia would not possess it?

ii. Can a municipality, which has a right to form a contract with utility customers not located in the municipality, require the customers to waive due process and vested rights as a condition of receipt of services or coerce these future customers into annexing through hard negotiations? Or is this type of contractual negotiation “a government abuse of power”? p. 7.

iii. If customers possess due process and vested rights to receive continued service, are these customers/citizens protected from the General Assembly “wielding its power” by transferring ownership and control of a municipal water system to a service district without their consent? See, City of Asheville, 777 S.E. 2d 92 (2015)(holding that transfer of existing water system serving customers to sewer service district did not violate Law of the Land Clause or exceed authority to take property).

iv. Assume a town grows rapidly and cannot serve all of the people living in the town. Does the town deny service to new inhabitants and continue to service customers who are not inhabitants because they have due process and common law vested rights?

4. Public enterprises do not fit neatly into a political theory of smaller government - government should not engage in business activities. But, long ago, the people of this State learned that local governments must fill the gap unfilled by the free market in order to have sufficient water/sewer services. Today, most North Carolina citizens receive water and/or sewer service from local governments.

Both the majority and the dissent recognize that “hard cases are the quicksands of the law.” p. 4; 5. Hard cases encourage innovative analysis because judges feel the hardship in the case and seek to achieve justice. At least one appellate judge would extend substantive due process protection and common law vested rights to customers located outside the municipality providing services. But is that fair to those customers who are the inhabitants (and paying municipal taxes)?

A Primer on Zoning Variances in North Carolina

2016-10-13T10:45:00.001-04:00

What is a "variance" in the zoning context? Simply, it is relief from -- or a variation of -- the application of a zoning law to a particular piece of property.

Let's look a little harder at the process in North Carolina, which is quasi-judicial and nuanced.

When and landowner can show a local board (most often a board of adjustment, which is specified in State law, but sometimes a planning board or even a governing board) through a quasi-judicial proceeding that "unnecessary hardships" -- and only "unnecessary hardships" -- will result "from carrying out the strict letter of a zoning ordinance," then the presiding board "shall vary any of the provisions of the [zoning] ordinance upon a showing of all of the following":

1. Unnecessary hardship would result from the strict application of the ordinance. It shall not be necessary to demonstrate that, in the absence of the variance, no reasonable use can be made of the property.

2. The hardship results from conditions that are peculiar to the property, such as location, size, or topography. Hardships resulting from personal circumstances, as well as hardships resulting from conditions that are common to the neighborhood or the general public, may not be the basis for granting a variance.

3. The hardship did not result from actions taken by the applicant or the property owner. The act of purchasing property with knowledge that circumstances exist that may justify the granting of a variance shall not be regarded as a self-created hardship.

4. The requested variance is consistent with the spirit, purpose, and intent of the ordinance, such that public safety is secured, and substantial justice is achieved.

N.C.G.S. 160A-388(d).

Not only must the applicant for the variance show each and all of the foregoing, but the quasi-judicial board must vote as follows to grant a variance: "The concurring vote of four-fifths of the board shall be necessary to grant a variance." N.C.G.S. 160A-388(e)(1).

It is not uncommon for zoning ordinances to provide more detailed standards building upon these State law requirements. However the State law standards above are mandatory; local governments may provide additional guidance and elaboration of these State law standards by way of their local zoning ordinances, but local governments are preempted from adopting standards that contradict or even depart from these State law standards.

Upon granting the variance, the local government may impose conditions on the variance provided the conditions are reasonably related to the condition or circumstance that gave rise to the need for the variance. Indeed, local zoning ordinances will often direct the deciding quasi-judicial board to impose conditions on variances. If a variance applicant accepts and acts on the variance imposed with conditions, the conditions are binding and cannot be challenged; that is, the applicant is "estopped". If an amendment to variance conditions is sought, the amendment effort must proceed through the entire variance procedure; in essence, a new variance is being sought.

Variances (and conditions) apply to and run with the property. Therefore, the transfer of ownership or occupancy has no impact on the application of a variance or its conditions.

Lastly, and in some ways most commonly asked in cocktail parties, a variance is not allowed for a use. N.C.G.S. 160A-381(b1). That is, if a use is not permitted in a zoning district, State law expressly prohibits a variance to permit that use. In that case, the applicant needs either a new use or an amendment to the zoning laws.

Lastly, lastly, in 2013, the North Carolina General Assembly amended State law to allow for variances in other "ordinance[s] that regulate[] land use or development", as well. S.L. 2013-126 (sec. 1); N.C.G.S. 160A-388(d). However, before we get excited, the local ordinances must expressly provide for variances in those other "non-zoning' laws that "regulate[] land use or development" (think, for example, subdivision laws); unlike variances from zoning laws, which are allowed under State law regardless of local ordinance provision.

Mike Thelen practices in Womble Carlyle's Real Estate Practice Group out of the Firm's Raleigh office. He regularly represents a wide variety of clients, from local governments to businesses, in land use and real estate development litigations and transactions in state and federal venues throughout North Carolina.

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N.C. Court of Appeals Affirms Local Government Board's Recusal of One of Its Own Members In Quasi-Judicial Proceeding

2016-10-11T11:12:00.004-04:00

A quasi-judicial land use proceeding requires an impartial decisionmaker, like any courtroom proceeding. State law does its best to spell out what constitutes an "impermissible violation[] of due process":

A member of any board exercising quasi-judicial functions pursuant to this Article shall not participate in or vote on any quasi-judicial matter in a manner that would violate affected persons' constitutional rights to an impartial decision maker. Impermissible violations of due process include, but are not limited to, a member having a fixed opinion prior to hearing the matter that is not susceptible to change, undisclosed ex parte communications, a close familial, business, or other associational relationship with an affected person, or a financial interest in the outcome of the matter. If an objection is raised to a member's participation and that member does not recuse himself or herself, the remaining members shall by majority vote rule on the objection.

N.C.G.S. 160A-388.

It is not common to see an effort to recuse, or disqualify, a member of a board sitting in a quasi-judicial proceeding. It is even less common to see a boardmember recuse himself or herself. And it is even less common to see an effort to recuse, an objection from the boardmember to the effort to recuse, and a vote by the board to recuse that objecting boardmember.

This happened recently in the City of Statesville, North Carolina, over a City Council's quasi-judicial approval of a site plan for a highway-side travel plaza. In Campbell v. City of Statesville, No. COA16-101 (October 4, 2016), the North Carolina Court of Appeals affirms the trial court's agreement that the City Council correctly disqualified one of its own members -- over his objection -- from his participation in the City Council's consideration of an appeal of the City's approval of the travel plaza site plan.

The North Carolina Court of Appeals determined that the trial court looked, correctly, at the recusal issue de novo (that is, "anew"), and the Court affirmed the trial court's decision. Here are the circumstances under which the trial court affirmed the City's decision to recuse the quasi-judicial boardmember, which seem to be "OK" with the North Carolina Court of Appeals:

The evidence here shows Councilman Schlesinger had both a fixed opinion not subject to change and a financial interest in the outcome of this proceeding. Councilman Schlesinger has participated in prior litigation opposing the truck stop as a sort of “named Plaintiff”, and he purchased an Internet domain (“Nosvltruckstop.com) devoted to opposing the truck stop and promulgated a message on this website in opposition to this development. This website even went so far as to say, “we are firmly against any action which may lead to the approval of a truckstop at the intersection of Old Mocksville Road and Highway 64.” He also testified in a prior hearing that he believed the value of his home would decline if the truck stop were developed on this site. Therefore, and to keep safe the Constitutional Due Process rights of these Applicants, this Court has no choice but to hold that the Statesville City Council rightfully recused Councilman Schlesinger and committed no error of law. This court further holds that, in addition to the implications of the listed reasons for recusal in § 160A- 388(e)(2), to permit Councilman Schlesinger to have heard and voted on this matter would have been akin to allowing a Judge who had previously expressed vocal, public opposition to a particular party to litigation – and participated in that litigation extensively – to later sit in judgment of that party in the same or any closely related litigation. Insofar as the N.C. Code of Judicial Conduct would prohibit similar behavior, and insofar as common sense would demonstrate that allowing Councilman Schlesinger to participate would have given a clear and distinct impression of impropriety, the City Council's vote to recuse him was valid and not erroneous.

"Recusal" is an important tool to maintain the integrity of legal proceedings -- it's as much about perception of fairness as it is about actual fairness -- but it is not a tool to be used lightly. When factually and legally justified, however, it is an important tool to consider.

"The bad news is that you've been DQ'd. The good news? Well, you've been DQ'd."

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Less Is More?: New North Carolina Law Clarifies When Building Permits Are NOT Required

2016-10-06T11:24:00.002-04:00

A new law took effect in North Carolina on October 1, 2016, and it affects the need for building permits. Session Law 2016-113, entitled An Act to Provide Further Relief to the Agricultural Community, clarifies in Section 13 that a building permit is not required for certain work costing less than $15,000 provided that the work is performed in accordance with the current edition of the North Carolina State Building Code.

The new law - which amends N.C.G.S. 143-138, N.C.G.S. 160A-417 and N.C.G.S. 153A-357 - provides that no permit is required to conduct any construction, installation, repair, replacement, or alteration activities costing $15,000 or less in residential and farm structures if the work is performed in accordance with the current edition of the North Carolina State Building Code and involves:

Replacements of windows; doors; exterior siding; or pickets, railings, stair treads, and decking of porches and exterior decks.
Plumbing replacements that do not change size or capacity.
Replacement of roofing.

The law also provides that no permit "from any State agency" is required for:

Replacement of water heaters in one- or two-family dwellings, if (1) the energy use or thermal input does not exceed that of the water heater being replaced and there is no change in fuel, energy source, location, capacity, or routing or sizing of venting and piping, and (2) the work is performed by a person licensed by the State Board of Examiners of Plumbing, Heating, and Fire Sprinkler Contractors.
Repair or replacement of dishwashers, disposals, electrical devices, or lighting fixtures in residential or commercial structures, if (1) the repair or replacement does not require addition or relocation of additional electrical wiring, and (2) the work is performed by a person licensed by the State Board of Examiners of Electrical Contractors.

This new law also provides that no permit is required, either under the State Building Code or any local variant, for routine maintenance of fuel dispensing pumps and other dispensing devices.

You may either ask for permission, or for forgiveness.

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Let's Talk North Carolina Leases: The Leased Premises Is Primary

2016-09-27T14:49:00.000-04:00

We talked in our last piece about the parties to a lease, and the nuances of that requirement. Today, as promised in our last post, we discuss the "leased premises".

A lease is a contract. It is a contract in which the lessor (think, landlord or tenant/sublandlord) grants to another person or entity, called the lessee (think, tenant/sublandlord or subtenant), the right to possess and use a definite portion of land and/or a structure for a definite term in consideration of rental payments, all of which is specified in the lease contract.

A valid lease of real property in North Carolina -- that land, that building on that land, the space in that building on that land -- that exceeds three (3) years in duration from the making must be in writing and signed by the party to be charged in the enforcement of the lease (which can be either lessor or lessee, depending). This applies to a lease for exactly three years, as well as a lease for a period of less than three (3) years if it can endure for more than three (3) years. Also, a lease of more than three (3) years in duration must be recorded in order to be effective against purchasers of the property.

Ok, so, generally speaking, a lease in North Carolina should be in writing and should probably be recorded. But what should the lease say? Well, there is more discretion between the lessor and lessee in a commercial lease context (see, e.g., Gardner v. Ebenezer, LLC, 190 N.C. App. 432 (2008)) than in a residential context (see, e.g., N.C.G.S. 42-38, et seq.), in terms of what can and cannot be contracted to. But, any lease in North Carolina must contain the following: (a) the name of the lessor and the name of the lessee, (b) a description of the leased premises, (c) a designation of the term of the lease, and (d) a statement of the rent. Today, in the second part of this series, we're going to address (b) the description of the leased premises.

As is human nature, "who gets what?" is one of the more important questions in any transaction; leases are no exception. The lessee has an exclusive right to enter and to have possession of the described premises (sometimes referred to as the "demised premises"), and the lessee has this right against the landlord as well as against third parties. Note that: any unauthorized entry by the landlord upon the demised premises is as much a trespass to the lessee as it is when the unauthorized entry is by some third party. Accordingly, the description of the leased premises -- the "who gets what?" -- is critical.

To avoid any confusion (and, of course, to render the lease valid), a lease instrument must identify, and identify correctly and carefully, the leased premises. A description of the leased premises specifies the boundaries and extent of possession to which the lessee is entitled. The method of description of the property may be the same as that used in other conveyances, such as deeds, or some other description provided it is sufficient to avoid latent or patent ambiguities. In other words, as complete a legal description as is possible will minimize confusion or future issues.

This is easier said than done, especially where there are multiple spaces in a single building or multiple buildings on a single parcel, or multiple In this vein, lessors and lessees should be advised of this legal principle when considering how much or how little to define by the leased premises:

"It is a settled principle of the law of property that a conveyance of land, in the absence of anything in the deed indicating a contrary intention, carries with it everything properly appurtenant to, that is, essential or reasonably necessary to the full beneficial use and enjoyment of the property conveyed, and this principle is equally applicable to a lease of premise. In leases, as in deeds, 'appurtenance’ has a technical signification, and is employed for the purpose of including any easements or servitudes used or enjoyed with the demised premises. When the term is thus used, in order to constitute an appurtenance, there must exist a propriety of relation between the principal or dominant subject and the accessory or adjunct, which is to be ascertained by considering whether they so agree in nature and quality as to be capable of union without incongruity. Moreover as in the case of conveyances, whatever easements and privileges legally appertain to the demised premises and are reasonably necessary to its enjoyment ordinarily pass by a lease of the premises without any additional words. Parol evidence is admissible to show the meaning of the term appurtenances'."

Rickman Mfg. Co. v. Gable, 246 N.C. 1 (1957).

The takeaway is this: when working with and litigating leases: be clear about what is to be conveyed, perhaps even about what is NOT to be conveyed, and everyone will be better off.

"Lot 42, which is all of northern China on the other side of this wall. Also, the basement."

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N.C. Court of Appeals: Absent Notice to the Federal Government, Foreclosure for Unpaid Local Taxes Won't Extinguish Federal Tax Lien

2016-09-27T13:28:00.000-04:00

North Carolina is a "pure race" state, for real estate title purposes. That is, “first to record an interest in land holds an interest superior to all other purchases for value, regardless of actual or constructive notice as to other, unrecorded conveyances.” Rowe v. Walker, 114 N.C. App. 36, 441 S.E. 2d 156 (1994). As any race, the first to the finish line -- or, in this case, the proper register of deeds -- wins.

That's generally true. Generally speaking, that's true. Well, the North Carolina Court of Appeals issued a decision the other day in Henkel v. Triangle Homes, Inc., COA15-1123 (September 20, 2016), in which the Court notes: "Winning the race to the courthouse does not upset the rules of lien priority established by state and federal law, including federal preemption when those laws conflict." That is, though you might cross the finish line first, you can't win the race unless you pay by the rules. In this case, deed to real property obtained at a foreclosure sale without notice to the United States does not extinguish a pre-existing federal tax lien on the property.

The Court of Appeals gives a very effective, straightforward analysis, which we repeat here:

Generally, foreclosure of a senior lien extinguishes all junior liens. Dixieland Realty Co. v. Wysor, 272 N.C. 172, 175, 158 S.E.2d 7, 10 (1967) (“Ordinarily, all encumbrances and liens which the mortgagor or trustor imposed on the property subsequent to the execution and recording of the senior mortgage or deed of trust will be extinguished by sale under foreclosure of the senior instrument.”) (citing St. Louis Union Trust Co. v. Foster, 211 N.C. 331, 190 S.E. 522 (1937)). To ensure a valid foreclosure sale, a senior lien holder must follow certain procedures. N.C. Gen. Stat. § 1-339.1 et seq. governs the procedures for judicial foreclosure sales, however, where property is subject to a federal tax lien, federal law imposes additional procedures. The general rule making federal tax liens inferior to local tax liens applies only when the United States is provided prior notice of a foreclosure sale arising from a local tax liability. 26 U.S.C. § 7425(a) (2012) provides that a senior lien holder foreclosing on property subject to a federal tax lien must provide the United States with notice prior to the foreclosure sale. If the United States has not been provided notice of a judicial foreclosure proceeding, any federal tax lien on the foreclosed property remains undisturbed.... Therefore, a foreclosure proceeding and sale will not disturb or extinguish a previously recorded federal tax lien unless the United States is properly notified and made a party to the proceeding.

***
The undisputed facts further establish that the United States was not made a party to the judicial foreclosure proceedings that followed the Default Judgment. Therefore, the federal tax liens survived the judicial foreclosure sale and Defendant took the Parcel subject to these liens.

Of course, the flip side of the facts in this case is that with proper notice to the federal government, purchase at a foreclosure sale conducted pursuant to unpaid local taxes will extinguish the federal tax lien. If you paid attention to the facts of the case, the purchase price at the local foreclosure sale was $6,673.73 (a $2,575.16 in local tax lien) while the purchase price at the federal tax lien foreclosure sale was $172,000.00 ($888,765.42 and $877,490.42 in federal tax liens). It can be safely assumed that federal tax liens will almost always be larger than local tax liens -- oftentimes, significantly larger, as in this case. So, with notice, you can extinguish some hefty liens for a small amount.

It pays to give notice.

"Did I extinguish the federal tax lien?"
"No, Ms. Ruiz; you didn't."

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw here.

No Good Deed Goes Unpunished

2016-09-15T15:26:00.000-04:00

Introduction

Discovering the origin of the aphorism that “No Good Deed Goes Unpunished” is difficult, but understanding its meaning is instantaneous. When doing a good act, do not expect a reward. In fact, the “reward” may be a punishment.

In the case of Sanchez v. Cobblestone Homeowners Ass’n of Clayton, Inc. 2016WL4598554 (September 6, 2016), the defendant Cobblestone HOA (HOA) informed plaintiff that her property was not included in the HOA declaration. Accordingly, she was not required to pay association fees and she was not entitled to use of the amenities owned by the HOA, such as a pool and tennis courts. The HOA offered to incorporate plaintiff’s property into the declaration so she could continue to pay dues and have access to the HOA amenities.

The plaintiff declined the HOA’s offer and requested a refund of the dues she had paid for the last 12 years. A divided North Carolina Court of Appeals affirmed the District Court’s judgment that plaintiff was entitled to a refund. No Good Deed Goes Unpunished.

Sanchez v. Cobblestone Homeowners Ass’n

The Facts

In 2002, plaintiff purchased her home and was informed that her home was subject to the HOA declaration. Plaintiff believed that she was required to pay dues to the HOA. In 2014, the HOA informed plaintiff that, because of an earlier mistake, her home was not subject to the declaration. The HOA informed plaintiff that if she wanted to enjoy the HOA amenities of a pool and tennis courts, she needed to sign a supplemental declaration.

Plaintiff stopped paying dues, declined to execute a supplemental declaration and requested reimbursement of the dues she had paid from 2002-2014. The HOA refused to reimburse plaintiff. Plaintiff sued the HOA in small claims court and prevailed. The HOA appealed to District Court.

After conducting a bench trial, the District Court entered a judgment in favor of the plaintiff. The District Court found that (1) plaintiff was informed and believed when she purchased her property that her property was subject to the HOA covenants, (2) the HOA rules required plaintiff to pay dues and she paid the dues; (3) plaintiff “rarely, if ever,” used the main amenities offered by the HOA, and (4) plaintiff was not aware of nor “had any reasonable way of knowing” that she had no legal obligation to pay dues. Accordingly, the District Court concluded that no contract existed between plaintiff and the HOA, the HOA had been unjustly enriched and plaintiff was entitled to the reimbursement she sought. The HOA appealed the District Court’s Judgment to the North Carolina Court of Appeals.

The North Carolina Court of Appeals

1. The Majority’s Opinion

Writing for the North Carolina Court of Appeals, Chief Judge McGee noted that the HOA was not contesting the facts found by the District Court. Instead, the HOA limited its appeal to its arguments that (1) the facts found by the District Court proved that there was a contract implied in fact between Ms. Sanchez and the HOA and (2) plaintiff was estopped. The HOA relied upon two prior North Carolina Court of Appeals cases where the Court of Appeals had found a contract implied in fact between a property association and a lot owner.

The Court of Appeals agreed with the HOA that when a contract implied in fact exists, applying the equitable remedy of unjust enrichment is improper, but the Court of Appeals concluded that the facts found by the District Court did not establish a contract implied in fact.

“A contract implied in fact…arises where the intention of the parties is not expressed, but an agreement, in fact creating the obligation is implied or presumed from their acts.” p.3 (quoting Lake Toxaway v. RYF, 226 N. C. App. at 488). Unlike Lake Toxaway or Miles v. Carolina Forest, 167 N.C. App. 28, both of which involved maintaining access roads to lots, the District Court did not find that plaintiff had benefited directly by the association maintaining recreational amenities. Further, the Court of Appeals noted that the HOA had stated there was no contract in its communications to the plaintiff and plaintiff immediately stopped paying fees when she learned she did not have an obligation to pay them. Therefore, the District Court’s findings fell short of showing a contract implied in fact and the majority of the North Carolina Court of Appeals affirmed the District Court.

As for the HOA’s contention that plaintiff was estopped to seek reimbursement, the Court of Appeals noted that equitable estoppel requires acceptance of the benefits. Here, the District Court found that plaintiff, rarely, if ever used the recreational amenities. Accordingly, the Court of Appeals concluded that the District Court did not err by entering judgment in plaintiff’s favor.

2. The Minority’s Opinion

Judge Dillon dissented. Judge Dillon concluded that the District Court’s findings showed that a contract implied in fact existed and the HOA was not unjustly enriched.

Judge Dillon reasoned that whether plaintiff had used the HOA amenities was irrelevant. By paying dues, plaintiff gained access to these amenities. Even if plaintiff lacked actual notice that her property was not subject to the HOA declaration, she had record notice that her property was not subject to the HOA declaration. Under the law, plaintiff was charged with record notice.

Judge Dillon noted that the North Carolina Supreme Court’s description of unjust enrichment was that unjust enrichment applied when one party had performed and the other party had not performed an unenforceable contract. Here, the plaintiff had performed by paying dues and the HOA had performed by providing access to its recreational amenities. Therefore, the HOA was not unjustly enriched. Accordingly, Judge Dillon believed the District Court’s decision should be reversed.

Comments

1. From the HOA’s perspective, this case illustrates that “No Good Deed Goes Unpunished.” According to the District Court, “[p]laintiff was not aware of nor had any reasonable way of knowing that there was no legal obligation to pay periodic fees.” p. 3. If the HOA had not notified the plaintiff that her property was not subject to the HOA declaration, she would have continued to pay dues. Of course, this observation does not suggest that the wise or ethical course for the HOA was to remain silent. In other words, there may have been harsher outcomes to the HOA had it remained silent when it learned plaintiff’s property was not subject to the HOA declaration.

2. The case highlights the uncertainties and difficulties that a court encounters when asked to “make a contract.” Generally, courts do not make contracts – contracting parties make contacts and courts enforce them. A difficult aspect of this case is that all of the District Court’s findings suggest that plaintiff would not have formed a contract with the HOA voluntarily because the benefits, from her perspective, were small. This is a different situation than when lot owners must use roads maintained by an association to access their property.

3. The dissent fairly raises the point – but was the HOA unjustly enriched? The District Court did not find facts that the HOA knew when receiving dues from the plaintiff that plaintiff had no duty to pay dues or that the HOA had not performed. An important question is the basis for the District Court’s finding that plaintiff did not have “any reasonable way of knowing that there was no legal obligation to pay periodic dues.” Lawyers would assume that the record title of plaintiff’s property would have shown that her property was not subject to the HOA’s declaration. But, as noted by the majority of the Court of Appeals, the HOA did not challenge this finding.

A Distinction without a Difference

2016-08-25T16:34:00.000-04:00

Introduction

On April 8, 2016, we posted a blog regarding the case of Quality Built Homes, Inc. v. Town of Carthage, ___N.C. App. ___, 766 S.E. 2d 897 (2015)(unpublished). In this case, the Court of Appeals had held that the Town of Carthage (Town) possessed authority to charge “impact fees” for water and sewer services.

In our April blog post (see here) we noted that the North Carolina Supreme Court had accepted Quality Homes case for review. In our view, Quality Homes was different from prior zoning and subdivision cases where the North Carolina Supreme Court had affirmed the North Carolina Court of Appeals’ decisions finding that local governments did not possess authority to impose school impact fees. We noted that the case involved the business of water service, an activity very different from regulatory activities and suggested that this distinction should make a difference. We were wrong.

On August 16, 2016, the North Carolina Supreme Court reversed the North Carolina Court of Appeals’ decision and held that the Town did not possess authority to charge impact fees for water and sewer services. Quality Homes v. Town Carthage, 2016WL 4410716 (August 19, 2016).

Quality Homes v. Town of Carthage

Facts

When a landowner sought and obtained final approval of a subdivision plat in the town, the landowner was required to pay water and sewer impact fees. If the landowner failed to pay these fees, the Town refused to issue building permits. These fees were due regardless whether this landowner ever connected to the Town’s utility systems.

The plaintiffs were companies engaged in residential homebuilding and had paid $123,000 in water and sewer impact fees to the Town. These homebuilders contended that the General Assembly had not authorized the Town to charge water and sewer impact fees. These homebuilders sought a refund, interest, reimbursement of attorney fees and costs, monetary damages, and asserted equal protection and due process claims against the Town.

The Town contended that the General Assembly had authorized it to charge water and sewer impact fees through the public enterprise statutes. These statutes authorized the Town to establish water and sewer systems in the Town’s discretion and to charge fees for these systems.

The Superior Court entered summary judgment in favor of the Town and the Court of Appeals affirmed the Superior Court. The North Carolina Supreme Court, in its discretion, accepted the case for review.

The North Carolina Supreme Court’s Decision

The North Carolina Supreme Court reasoned that “[f]rom the very formation of our State government, municipalities, in their various forms, have been considered ‘creatures of the legislative will, and are subject to its control.” p. 2. The General Assembly granted powers to municipalities by adopting statutes and these statutes included “implied powers essential to the exercise” of express powers granted. p. 3. The plain language of a statute determined the extent of legislative power conferred upon a municipality, and when the statute was clear and unambiguous, no room for judicial construction existed. But when the statute is ambiguous, it was construed broadly.

After reading the public enterprise statutes, the North Carolina Supreme Court found that these statutes empowered the Town to charge fees only “for the contemporaneous use of its water and sewer systems.” p. 3. Because the statute had not expressly authorized the Town to charge fees for future use of these systems, the North Carolina Supreme Court concluded that the Town lacked “the power to charge for prospective services.” p. 4. Accordingly, the Town’s impact fee ordinances were unauthorized by the General Assembly and invalid.

The North Carolina Supreme Court bolstered its conclusion by noting that (1) the statutes enabling counties to establish and operate public enterprises included language “to be furnished” but this language was absent in the statutes enabling municipalities to establish and operate public enterprises and (2) the Town could have sought local legislation to authorize charging impact fees.

Finally, the Court reasoned that the General Assembly had granted the Town authority “to charge tap fees and to establish water and sewer rates to fund necessary improvements…to its inhabitants, which [was] sufficient to address its expansion needs.” p. 4.

The North Carolina Supreme Court reversed the Court of Appeals and held that the Town’s impact fee ordinances were “invalid” and remanded the case to the Court of Appeals “for consideration of the unresolved issues.” p. 5.

Comments

1. Based upon the North Carolina Supreme Court’s reasoning in Quality Built, the fundamental distinction between municipal governmental/regulatory activities and proprietary activities is irrelevant to the question as to whether a statute authorizes charging impact fees. In fact, the North Carolina Supreme Court never mentioned the distinction in its decision.

2. Unlike zoning statutes, the public enterprise statutes authorized municipalities to establish “rents, rates, fees, charges and penalties for the use of or the services furnished by any public enterprise.” p. 3. (emphasis added). Although the public enterprise statutes lacked an express limitation on charging impact fees, their broadness was insufficient to authorize impact fees.

Quality Built follows recent North Carolina Supreme Court decisions that address fees typically paid by the homebuilding industry for the impact of development on scarce public resources. In these cases, the North Carolina Supreme Court has not found a general or local statute authorizing such impact fees.

3. The North Carolina Supreme Court relied upon Town of Spring Hope v. Bissette, 305 N.C. 248 (1982). In Bissette, the North Carolina Supreme Court stated that a municipality’s “rate-making function is a proprietary function rather than a governmental one, limited only by statute or contractual agreement.” p. 250

The plaintiff in Bissette was an individual consumer of sewer services who had complained that the rate charged by the Town of Spring Hope included charges associated with construction of a new sewer treatment facility that was not serving him at the time he paid these fees. The Supreme Court, in a divided decision, rejected the consumer’s claim because he was receiving sewer services.

The difference between Bissette and Quality Built is that the homebuilders were not receiving utility services when the fees were due. In other words, General Assembly intended, when it selected the words “the use of or the services furnished”, to unambiguously authorize municipalities to charge only existing utility customers the costs for new utility system facilities and expansions and not charge non-customer landowners who benefit from the presence or availability of these services. In short, the North Carolina Supreme Court must have concluded that “the use of or the services furnished” was unambiguous and meant only physical connection to utility systems.

4. The North Carolina Supreme Court stated that the Town’s impact fee ordinances “on their face exceed the powers delegated to the Town by the General Assembly.” p. 4. (emphasis added). This is puzzling. The public enterprise statutes do not contain an express prohibition against charging impact fees. Four other members of the North Carolina Judiciary - a Superior Court Judge and three judges at the North Carolina Court of Appeals - found that the Town had authority to charge impact fees.

The North Carolina Supreme Court remanded the case for consideration of “unresolved issues.” The Court identified some outstanding issues as being the Town’s defenses of statute of limitations and estoppel. Other issues identified by the North Carolina Supreme Court were the homebuilders’ requests that the Town pay their attorney fees and legal costs, pay a refund of the impact fees plus interest and pay monetary damages for violation of equal protection and due process.

Ninth Circuit Weighs In: Nevada "Superpriority" Law for HOA Liens Violates Due Process

2016-08-17T11:19:00.003-04:00

In October 2014, we blogged HERE about cases from Nevada and D.C. giving priority of so-called HOA "superliens" over first position mortgages.

In a 2-1 decision, the United States Court of Appeals for the Ninth Circuit overruled the 2014 decision from the Nevada Supreme Court about which we previously blogged. In Bourne Valley Court Trust v. Wells Fargo Bank, N.A., (August 12, 2016), the federal appellate court holds that the non-judicial foreclosure of a Nevada HOA superlien cannot constitutionally extinguish a mortgage lender's security interest.

In 2014, the Nevada Supreme Court held that, as a matter of lien priority, the foreclosure of a superlien for HOA assessments can extinguish a first mortgage. However, the Nevada Supreme Court did not address whether the provisions of Nevada state law governing notice to purported junior lienholders, including mortgagees, were constitutional.

In Bourne Valley, the home in question had a mortgage loan for $174,000 from Plaza Home Mortgage. The beneficial interest in the noted and deed was subsequently assigned to Wells Fargo, N.A. in 2011. After the homeowner fell behind on her HOA payments, the HOA recorded a notice of delinquent assessment lien for $1,298.57 in August 2011. In October 2011, the HOA recorded a notice of default and election to sell the home. Then, on April 9, 2012, the HOA recorded a notice of trustee/foreclosure sale against the property. The Horse Pointe Avenue Trust then paid $4,145 for the home at a foreclosure sale, before conveying its interest in the property to the Bourne Valley Court Trust, which then filed an action to quiet title and extinguish any other junior liens.

In Bourne Valley, the Ninth Circuit panel notes that Nevada state law requires a purported junior lienholder to "opt in" before receiving notice of an HOA foreclosure sale, which the Court calls a “peculiar scheme” for providing mortgage lenders with information about when an HOA intended to foreclose on a property. “Even though such foreclosure forever extinguished the mortgage lenders’ property rights, the [Nevada] statute contained “opt in” provisions requiring that notice be given only when it had already been requested,” the Court noted. “Thus, despite that only the homeowners’ association knew when and to what extent a homeowner had defaulted on her dues, the burden was on the mortgage lender to ask the homeowners’ association to please keep it in the loop regarding the homeowners’ association’s foreclosure plans,” the Court continued. “How the mortgage lender, which likely had no relationship with the homeowners’ association, should have known to ask is anybody’s guess.”

Therefore, the Court concludes, Nevada's laws violate the Due Process Clause of the U.S. Constitution. From the Court's decision:

Nevada Revised Statutes section 116.3116 et seq. strips a mortgage lender of its first deed of trust when a homeowners’ association forecloses on the property based on delinquent HOA dues. Before it was amended, it did so without regard for whether the first deed of trust was recorded before the HOA dues became delinquent, and critically, without requiring actual notice to the lender that the homeowners’ association intends to foreclose.

We hold that the Statute’s “opt-in” notice scheme, which required a homeowners’ association to alert a mortgage lender that it intended to foreclose only if the lender had affirmatively requested notice, facially violated the lender’s constitutional due process rights under the Fourteenth Amendment to the Federal Constitution. We therefore vacate the district court’s judgment and remand for proceedings consistent with this opinion.

The Court gets specific:

But that the foreclosure sale itself is a private action is irrelevant to Wells Fargo’s due process argument. Rather than complaining about the foreclosure specifically, Wells Fargo contends—and we agree—that the enactment of the statute unconstitutionally degraded its interest in the property. Absent operation of the statute, Wells Fargo would have had a fully secured interest in the property. A foreclosure by a homeowners’ association would not have extinguished Wells Fargo’s interest. But with the statute in place, Wells Fargo’s interest was not secured. Instead, if a homeowners’ association foreclosed on a lien for unpaid dues, Wells Fargo would forfeit all of its rights in the property.

For now, the Bourne Valley opinion is binding on all Nevada federal courts. It will also serve as strong persuasive authority (at the very least) in actions pending in Nevada state court, as well as throughout the U.S. in states with similar paradigms.

"HOA liens, the elderly, and those with military service may now board."

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw here.

Sometimes, Finding Justice is Subtle

2016-08-11T16:16:00.002-04:00

Introduction

Justice delayed is Justice denied is a favorite aphorism. Most times, the aphorism criticizes the deliberative process of our judicial system. But, in fact, the aphorism is broader - the mere passage of time - regardless of its cause, results in a denial of justice for many reasons. Parties rely upon prior actions and reorder their future behavior, memories fade, witnesses become unavailable and evidence is lost.

In the recent case of Acts Ret.-Life Cmtys., Inc. v. Town of Columbus, 2016WL4087669(August 2, 2016), the North Carolina Court of Appeals grappled with a delay arising from a property owner filing a case in 2011 involving an alleged injustice first perpetrated by the Town of Columbus (“Town”) in 2002. As the Court of Appeals noted, finding justice in these situations involves discerning the distinction between on-going violations and continuing effects of an initial violation and this distinction is “subtle.” p. 3.

Acts Ret-Life Cmtys., Inc. v. Town of Columbus

1. Facts

In 2002, the Town reclassified two water meters serving a retirement facility owned by Acts Retirement-Life Communities, Inc. (“Acts”) from commercial to residential. Thereafter, the Town sent monthly water and sewer bills to Acts calculated at the rates charged to residential customers.

In 2011, Acts filed a complaint alleging that the 2002 reclassification was arbitrary, capricious, unreasonable and unreasonably discriminatory in violation of statutory law. Acts asserted that the reclassification violated (1) the Town’s Charter, (2) the equal protection guarantee of the North Carolina Constitution, (3) the North Carolina Constitution as a discriminatory tax, and (4) equal protection and was a taking of property without due process. Additionally, Acts claimed that the extra money paid to the Town as a residential customer unjustly enriched the Town. Acts sought declaratory judgment relief and a permanent injunction requiring the Town to treat Acts’ facility as a single commercial user for water and sewer charges.

After conducting a bench trial, the Superior Court concluded that each monthly billing was an additional wrongful act taken by the Town and the statute of limitations did not bar Acts’ claims. The Superior Court found that the 2002 reclassification was unreasonably discriminatory, arbitrary, capricious and unreasonable. Specifically, the Superior Court found that the reclassification was in direct violation of the Town’s stated goal of fairness and state statutory law. Consequently, the Superior Court ruled that the reclassification was void ab initio. The Superior Court entered a judgment in favor of Acts in the amount $947,813.27, the total amount of overpayments. The Town appealed.

2. The North Carolina Court of Appeals

The North Carolina Court of Appeals reversed the Superior Court’s decision, holding that the statute of limitations barred Acts’ claims.

The Court of Appeals reasoned that the parties had not disputed that the applicable statute of limitations was 3 years and Acts had filed its claims more than 3 years from the date the Town reclassified Acts’ meters. Therefore, unless an exception applied, the statute of limitations barred Acts’ claims.

Acts contended that the exception of a continuing wrong or violation applied. Acts asserted that each time the Town transmitted a monthly invoice for water and sewer charges calculated at the rate charged residential customers, the Town had engaged in a separate wrong. Therefore, the statute of limitations began again each time the Town sent a monthly invoice. Because Acts filed its claims within 3 years of the last invoice transmitted by the Town, its claims were not barred.

To determine whether each monthly bill for water and sewer services was a continuing wrong or violation, the Court of Appeals considered “the policies of the statute of limitations and the nature of the wrongful conduct and the harm alleged. ” p. 3. The “actual wrongdoing” alleged by Acts was the Town’s decision to reclassify Acts’ meters from commercial to residential in 2002. p. 4.

The Court of Appeals, explained that there was not a continuing violation, occasioned by continual unlawful acts, but only continual ill effects from an original violation. Because continual ill effects from an original violation were insufficient to satisfy the continuing wrong or violation doctrine, Acts’ claims were time barred.

Comments

1. Justice delayed is Justice denied. The longer a wrong continues the harder it is to discern justice. In a postmodern world, parties adjust their behavior to economic changes rapidly. While Acts may not have passed its increased water and sewer charges to its residents, Acts continues to operate its facility for eight and one-half years. If Acts had prevailed and had passed these increased costs to its residents, is Acts intending to grant a refund to the residents or their estates?

Similarly, the Town orders its behavior assuming that the charges are lawful. If Acts had timely challenged the rate schedule, the Town could have established an entirely new schedule.

2. The core of Acts’ claims is that the Town violated a statute authorizing the Town to fix a schedule of utility rates. The statute authorizes the Town to vary rates according to classes of service. The Court of Appeals’ opinion concludes that the single unlawful act occurred when the Town reclassified Acts’ meters in 2002. The facts in the opinion are unclear whether the Town adopted a different schedule from time to time from 2002 to 2011, even if the schedule did not change the 2002 classification.

3. Acts is a good example of the subtlety and complexity of law. While justice involves a “middle ground” frequently, some legal questions require stark “yes/no” answers. In the area of statutes of limitations, the answer is stark because the purpose of statutes of limitations is certainty.

4. In a world of negative interest rates and slow growth, all entities and enterprises are seeking ways to minimize expenses. It seems likely that companies seeking refunds will increase.

No Doubting Thomases Allowed!

2016-07-28T16:38:00.002-04:00

Introduction

Expert appraisers have testified that the proposed development will not adversely affect values of properties adjacent to this new development. Nevertheless, the testimony does not seem right to you. You remember the Great Financial Crisis – what do appraisers really know? Based upon your common sense understanding of real estate values and the way real estate markets really work, you suspect that the development will adversely affect adjacent property values. Can you be a Doubting Thomas and conclude that this admissible evidence simply does not persuade you?

This is one of the questions addressed by the North Carolina Court of Appeals in the case of Dellinger v. Lincoln County, 2106WL3894687(July 19, 2016). As explained by the Court of Appeals, no Doubting Thomases are allowed in quasi-judicial land use proceedings.

Dellinger v. Lincoln County

1. Facts

The Dellingers leased land to Strata Solar (SS) for installation and operation of a solar energy farm (New Development). The New Development is allowed as a conditional use and SS applied for a conditional use permit in July 2013.

The County conducted two sets of quasi-judicial hearings in connection with SS’s application – one set before the planning board in September and November and another set in December before the Board of Commissioners (Board). In December 2013, the Board denied SS’s application finding that the application did not satisfy two standards: (1) the New Development will not substantially injure the value of adjoining properties and (2) the New Development will be in harmony with the area. The Dellingers appealed the denial of the application to Superior Court.

Because the Dellingers did not participate in the quasi-judicial proceeding, the Superior Court limited the Dellingers appeal to two questions: (1) was the Board’s decision supported by the record and (2) was the decision arbitrary and capricious. Both questions required a review of the whole record.

The Superior Court determined that the record lacked substantial evidence to support the Board’s determination that the New Development will not be in harmony with the area. The Board did not make sufficient findings for the Superior Court to review whether the Board’s determination as the standard relating to substantial injury to the value of adjoining properties was supported competent, material and substantial evidence in the record. Therefore, the Superior Court remanded this issue to the Board for it to make sufficient findings.

On Remand, the Board denied the application again, finding that SS had met its “burden of production” but “the evidence unpersuasive.” p. 6. In short, the Board doubted the credibility of SS’s appraisal evidence as to no substantial injury to the value of adjoining properties and denied the application for that reason.

The Dellingers sought review by the Superior Court of this new determination. The Superior Court affirmed the denial of the application, finding that SS had not submitted substantial, competent evidence to support a conclusion that the New Development would not substantially injure the value of adjoining property. p. 6-7. The Dellingers appealed to the North Carolina Court of Appeals.

2. North Carolina Court of Appeals

In order to produce a prima facie case, an applicant must produce competent, material and substantial evidence tending to establish compliance with the requirement of the local ordinance.

The Court of Appeals reviewed the evidence presented by SS regarding no substantial injury to adjacent property values. SS had produced opinion testimony given by two expert real estate appraisers that the New Development would not injure adjoining property values. Both appraisers had undertaken market studies that were the basis of their opinions. Accordingly, the Court of Appeals found that SS had produced a prima facie case satisfying the standard of no substantial injury to adjoining property.

The Court of Appeals noted that the North Carolina Supreme Court had stated that (1) a prima facie case entitles an applicant to issuance of the requested permit and (2) a denial of a permit should be based upon findings “which are supported by competent, material and substantial evidence appearing in the record.” p.5 (quoting Humble Oil, 274 NC. 458, 471 (1974). Here, the Board’s denial of the permit rested upon a finding that the Board doubted the credibility of a prima facie case – not competent, material and substantial evidence in the record which is contrary to the evidence in SS’s prima facie case. Therefore, the Court of Appeals reversed the Superior Court’s decision.

The Court of Appeals remanded the case to the Board “for additional quasi-judicial proceedings, utilizing the proper legal procedures and standards,” which held the applicant and adjacent property owners “to their respective burdens of proof.” p. 9.

Comments

1. Written Findings are Important. This case began three (3) years ago, when SS filed its application for a conditional use permit. Now, having held multiple quasi-judicial hearings, two trips to the Superior Court and one trip to the Court of Appeals, the matter requires “further quasi-judicial proceedings.” Why?

Under law, the Board makes findings and the Judicial Branch review findings for errors of law. The Court of Appeals noted that there were 24 witnesses presenting evidence during the two nights of the hearing before the Board. In other words, the record contained a lot of evidence.

Was the defect a mistakenly written finding? For instance, did the Board rely on admissible evidence in the record produced by opponents to the New Development to deny the permit?

Or, was the evidence produced by the opponents either not admissible or less persuasive than SS’s evidence? In that case, the original finding was factually correct and legally ineffective. Only the Board can say.

2. Note the Distinction. The Court of Appeals expressly observed that a “reviewing court should not replace the [Board’s] judgment as between two reasonably conflicting views… [and a reviewing court] may not substitute its judgment for that of the [Board].” p. 4. In Dellinger, the Court of Appeals declines to substitute its opinion for the Board. Instead, the Court of Appeals concludes that doubting the credibility of competent, material and substantial evidence in a prima faciecase is insufficient grounds for denying a land use permit. Why?

Being a Doubting Thomas without an evidentiary basis suggests a lack of impartiality and all parties at a quasi-judicial proceeding are entitled to an impartial decision-maker that bases it decision upon only upon evidence in the record.

3. The Seamless Web of the Law. Dellinger does not involve interpreting a land use law. Nevertheless, the Court of Appeals sets out, as the first authority in the Analysis portion of its opinion, a quotation from the North Carolina Supreme Court regarding the controlling canon of interpretation for land use regulations. Why?

The controlling canon is that all ambiguities in land use regulations are construed in favor of the free use of land. It is possible that an applicant for a land use permit entitled to an impartial decision-maker and one which decides evidentiary ties in favor of the free use of land. As Justice Oliver Wendell Holmes wrote, the law is a seamless web – one relevant area of law informs another.

In any event, Doubting Thomases are not allowed in quasi-judicial land use proceedings.

The Long and Short of Interpreting Land Use Regulations

2016-07-14T15:25:00.002-04:00

Introduction

State law in North Carolina authorized modern local zoning regulations in the 1920s. And perhaps, there is no more basic zoning term than “single family detached dwelling.” In a world of ever-increasing complexity of uses and transitory land planning theories, we hope that a term as omnipresent and basic as single family detached dwelling possesses a clear and certain universal meaning. Unfortunately, after almost one-hundred (100) years of law our hope has yet to be realized.

In the case of Long v. Currituck County,___N.C. App.___, 2016WL3394346 (June 21, 2016), we discover the meaning of “single family detached dwelling”, at least in Currituck County under the County’s Unified Development Ordinance (County UDO) as it existed when the parties disagreed. By reading Long, two things are apparent. First, the meaning of single family detached dwelling, in certain fact patterns, is not simple and apparent; and second, understanding the meaning and application of even the most rudimentary zoning term requires significant effort and analysis.

Long v. Currituck County

Facts

Ms. Letendre owned an ocean-front lot on the Outer Banks in Currituck County. The lot was encumbered with two sets of land use regulations. The development on the lot had to comply with the state Coastal Area Management Act (CAMA) and the County UDO. Under CAMA, the larger the structure that was located on the lot, the wider the required setback from the ocean became. The County UDO allowed “a single-family detached dwelling” on the lot.

Ms. Letendre proposed constructing three buildings on the lot, all of which were individually 5000 square feet in size. All three buildings contained sleeping and sanitary facilities. The main building, facing the ocean, contained the common cooking facilities for all three buildings. The two other buildings were “wings” of the main building and were connected to the main building by conditioned hallways (collectively the “Project”).

Focusing upon the functionality of the three buildings as a single dwelling unit, the Planning Director determined the Project was a single-family dwelling unit. The Longs (next door neighbors) appealed the Planning Director’s interpretation to the County Board of Adjustment. The Board of Adjustment affirmed the Planning Director’s interpretation. The Longs appealed the Board of Adjustment’s decision to the Superior Court. The Superior Court affirmed the Board of Adjustment’s decision.

The Longs appealed the Superior Court’s decision to the North Carolina Court of Appeals. The Court of Appeals unanimously reversed the Superior Court, concluding that “[t]he project does not fit with the plain language of the definition of Single Family Dwelling and thus is not appropriate in the SF District.” Long, p. 6. The Court of Appeals remanded the case for further proceedings consistent with its opinion.

The Court of Appeals’ Analysis

The County UDO defined the term ‘Dwelling, Single-Family Detached’ and the Court of Appeals focused upon this definition. The Court of Appeals found that the definition had “five elements” and the Project was required to satisfy each element of the definition. According to the Court of Appeals, three (3) of the elements addressed the physical structure of the proposed dwelling and two (2) of the elements addressed the use and function of the proposed dwelling.

The County’s interpretation of the term emphasized the use and function of the proposed dwelling as a single family detached dwelling, but overlooked the physical structure requirements of the definition. The Project included three buildings and the definitional elements of (1) a residential building (2) not physically attached to any other principalstructure meant that the Project was not a single family detached dwelling under the County UDO. Accordingly, the Project was not permitted in the SF Zoning District of the County UDO.

The Court of Appeals bolstered its conclusion by surveying various definitions of other types of dwellings in the County UDO. The Court of Appeals noted that the other definitions contained primarily functional elements; whereas, the definition of single family detached dwelling was the only definition that included “a residential building.” Therefore, this language could not be superfluous and must be a necessary element of the definition.

Likewise, the Court of Appeals noted that accessory structures may be attached to a principal structure, but the wings did not satisfy the definition of accessory structures because the definition for accessory structure required these structures to be subordinate in use and square footage.

Finally, the Court of Appeals considered the County’s argument that the Longs’ interpretation could create absurd consequences. The Court of Appeals concluded that the Planning Director’s interpretation could lead to “a more absurd result” because an unlimited number of large structures could be built on a single lot so long as only one structure contained a common kitchen. Long, p. 5. As the Court of Appeals noted, the SF District was established to “accommodate very low density residential development in a manner that preserves sensitive natural resources, protects wildlife habitat, recognizing the inherent limitations on development due to lack of infrastructure and seeking to minimize damage from flooding and catastrophic weather events.” Id.

Comments

1. The parties’ positions in Long were well argued and the Court of Appeals meticulously examined the County’s UDO and the parties’ position. The literal language of local land use law controls most interpretation questions. The practical point is that ordinances require continuous study, review and refinement.

2. Long illustrates the complexity of development today. It seems probable that the property owner developed this unusual configuration of buildings to minimize the impact of the CAMA regulations and to maximize utilization and value of her ocean-front lot in an area with significant summer rental of “cottages.” The viability of a creative design turns on close reading of defined terms.

3. Long demonstrates that assumptions and methodology may subtlety alter meanings. The Court of Appeals divided parts of a single integrated extended definition into separate elements for analytical purposes. However, the definition itself does not set out these parts as separate elements. If the definition had not been divided into separate elements, did the property owner have a better argument? For example, was an ambiguity in the extended definition cured by the framework used by the Court? After all, all ambiguities are construed in favor of the free use of land.

John Cooke, Mike Thelen to Speak on Vested Rights at NCAMA Summer Conference

2016-07-08T14:36:00.000-04:00

ASHEVILLE, N.C.—Womble Carlyle Land Use & Zoning attorneys John Cooke and Mike Thelen will be among the speakers at the 2016 North Carolina Association of Municipal Attorneys Summer Conference. The event takes place Aug. 5^th-6^th in Asheville.

Cooke and Thelen will speak on “Vested Rights” at the NCAMA Summer Conference.

An affiliate organization of the N.C. League of Municipalities, the North Carolina Association of Municipal Attorneys was founded to encourage a greater degree of cooperation among municipal attorneys; offer opportunities to discuss and exchange information; and offer opportunities to keep informed in the field of municipal law. Active members include full- and part-time municipal attorneys and others who have demonstrated a past or present interest in the practice of municipal law.

John Cooke has more than 30 years of experience in land use/zoning law and real estate litigation. Based in the Raleigh-Durham region, Cooke practices throughout North Carolina. He represents all types of business clients – developers, end users and land owners – when they attempt to use their land or maximize its value through securing entitlements, forming public-private agreements or handling litigation.

Mike Thelen focuses his practice on land use, local government law and real estate development litigation, having handled rezoning, quasi-judicial proceedings before local governments, negotiation and drafting of development agreements, site plans, land use planning, eminent domain, construction and lien disputes, commercial landlord-tenant disputes, commercial foreclosure and loan litigation, partnership dissolution, business torts, and civil fraud matters.

John Cooke to Speak at N.C. Association of DSS Attorneys 2016 Annual Summer Conference

2016-07-06T15:20:00.002-04:00

WRIGHTSVILLE BEACH, N.C.—Womble Carlyle attorney John Cooke will be a presenter at the North Carolina Association of DSS Attorneys 2016 Annual Summer Conference. The conference takes place July 7th-9th in Wrightsville Beach.

Cooke will discuss “Representing the Local Government Decision Maker in Quasi-Judicial Proceedings.”

In addition, Womble Carlyle is sponsoring an Officers Reception at the event. The firm is a Platinum Sponsor of the North Carolina Association of DSS Attorneys 2016 Annual Summer Conference.

John Cooke has more than 30 years of experience in land use/zoning law and real estate litigation. Based in the Raleigh-Durham region, Cooke practices throughout North Carolina. He represents all types of business clients – developers, end users and land owners – when they attempt to use their land or maximize its value through securing entitlements, forming public-private agreements or handling litigation.

Classic Private Property Rights and Public Coffers

2016-07-01T13:28:00.001-04:00

Introduction

In April 2014, we posted a blog discussing the North Carolina Supreme Court’s opinion in Beroth Oil v. NCDOT, 367 N.C. 33, 757 S.E. 2d 466 (2014). (See here) In that post, we compared high frequency stock market trading and the Transportation Corridor Act (the “Act”). We suggested that the Act and high frequency stock market trading serve the same purpose—manipulating market prices to the advantage of traders and the North Carolina Department of Transportation (NCDOT).

The Act allowed NCDOT to cast the dark shadow of condemnation blight over targeted properties by recording a map in the land records and indexing the map under the names of all property owners whose property was included in the possible future road corridor (“Recordation Right”). Thereby, all prospective purchasers were on record notice that the property was targeted for possible future forced acquisition.

The recorded map chilled market value—only those who speculated on monetary recoveries in future condemnation lawsuits were prospective purchasers of the targeted property.

In that earlier post, we noted that two Justices in Beroth Oil dissented and concurred in part with the majority’s opinion. These Justices were ready to conclude that when a recorded corridor map had interfered with property owners’ rights, an inverse condemnation had occurred.

Today, our post discusses Kirby v. NCDOT, 2016WL3221090 (June 10, 2016), a unanimous opinion of the North Carolina Supreme Court written by Justice Newby, the justice who wrote the dissenting and concurring opinion in Beroth Oil.

Kirby v. NCDOT

In addition to the Recordation Right, the Act imposes a duty on local governments forbidding them to issue development approvals for property shown within the corridor of a recorded map (“Permit Duty”). The duration of Permit Duty could be three (3) years after application for a permit and potentially an indefinite period.

The legal effect of the Permit Duty is the focus in Kirby v. NCDOT, 2016WL3221090 (June 10, 2016).

Facts and Trial Court Ruling

In Kirby v. NCDOT, the plaintiffs (property owners) filed numerous claims against NCDOT arising from NCDOT’s recordation of corridor maps for Western or Eastern Loops of the Northern Beltway, a planned loop around Winston-Salem, North Carolina. One of the claims was a claim of inverse condemnation. NCDOT sought summary judgment on the inverse condemnation claim and the trial court granted summary judgment in favor of NCDOT and dismissed the plaintiffs’ inverse condemnation claim without prejudice as being unripe.

The North Carolina Court of Appeals

The North Carolina Court of Appeals reversed the trial court. The Court of Appeals surveyed the law of inverse condemnation, noting that under the power of eminent domain, the sovereign determined the extent of the taking and its duration.

According to the Court of Appeals, both police powers – the power to regulate property to prevent detriment to the general welfare - and eminent domain powers – the power to take property because of its need for public use - reside in the sovereign.

The Court of Appeals noted that the title of the enabling legislation for the Act stated that it was “to control the cost of acquiring rights-of-way,” and that the public detriment the Act avoided—increased acquisition costs—arose only when NCDOT actually committed to constructing the road and sought to acquire the property shown on the corridor map.

The Court of Appeals observed that, a “mere plotting or planning in anticipation of a public improvement is not a taking”. Kirby769 S.E. 2d 218, 234, quoting Browning v. N.C. State Highway Comm’n, 263 N.C.130, 135(1964). However, the Permit Duty barred local governments from approving development on the land identified by a corridor map. Therefore, the legal effect of recording a corridor map pursuant to the Act was different than a mere plotting or planning in anticipation of a public improvement.

Accordingly, the Court of Appeals concluded that NCDOT exercised its power of eminent domain when it filed the transportation corridor maps. The Court of Appeals reversed the trial court and remanded the case to the trial court to consider evidence as to the extent of damages suffered by each property owner as a result of the respective takings and the amount of compensation due to each property owner.

The North Carolina Supreme Court

The North Carolina Supreme Court affirmed the unanimous decision of the Court of Appeals written by Chief Judge McGee and wrote its own opinion. The North Carolina Supreme Court concluded:

By recording the corridor maps at issue here, which restricted plaintiffs' rights to improve, develop, and subdivide their property for an indefinite period of time, NCDOT effectuated a taking of fundamental property rights. Kirbyp. 6.

The North Carolina Supreme Court cited three authors of classic private property rights—William Blackstone, John Locke and James Madison. The Supreme Court emphasized that the fundamental right to property and the jealously guarding against governmental taking of property has existed “from the very beginnings of our republic.” Kirbyp. 4.

The North Carolina Supreme Court recognized that fundamental private property rights are subject to reasonable regulations and that “[t]he safety of the people is the supreme law.” Id. However, “[t]he language of the Act plainly points to future condemnation” and “[t]he…Act’s indefinite restraint on fundamental property rights is squarely outside the scope of the police power.” Kirby, p. 5.

The North Carolina Supreme Court directed that the valuation of the property owner’s loss was to be determined by calculating the value of the land before the map was recorded and the value of the land afterwards, taking into account any and all pertinent factors.

Comments

1. In Kirby, NCDOT contended that the Act was a regulatory statute and not an eminent domain law. As reflected by decision of 10 appellate court judges and justices (3 North Carolina Court Judges and 7 North Carolina Supreme Court Justices), NCDOT’s position is wholly unpersuasive in 2015-2016.

It is easy to stop at this “dead loser argument” conclusion and move to the next case. But stopping at this conclusion goes only skin deep. Going deeper provides a more nuanced and meaningful understanding:

a. In 1987, the General Assembly plainly said it was adopting a law to control public costs for acquiring rights-of-way for the state highway system. It was an honest declaration of legislative intent and made the courts’ job to discern the purpose of the Act quite simple.

Now, to insulate policy decisions from meaningful judicial review, the General Assembly would likely state its intent as something like “Uniform State-Wide Planning for State Highways”. Today, people have talking points.

b. If NCDOT’s arguments in 2015-2016 are so feckless, then why did it take 29 years to declare that the effect of recording a map pursuant to the Act triggered a taking?

Respectfully, I suggest that the law and world is different now. With nearly three decades of development of the law of individual private property rights, and the law of various species of takings, the Act was ripe for challenge.

c. NCDOT’s argument that the Act’s interference with property rights was only for three (3) years after a property owner applies for a development permit is mistaken. Similar to building a road, private development requires substantial sums of money expended on planning and permitting and there are multiple interrelated permits and approvals issued consecutively. The world moves quickly and a three-year delay on issuance of a threshold development permit kills most good development ideas.

2. It would be wise to note that the North Carolina Supreme Court used the word “fundamental” six (6) times in its six (6) page opinion and cited three great political and legal thinkers. The discipline of political economy is an important study for lawyers in the 21^st century who practice land use law—because political economic philosophy lies behind court decisions—like the operating program running in the background of your computer.

3. Not only has law changed, but technology and real estate development practices have changed too. Today, NCDOT could simply post its corridor maps on the internet and let the marketplace work. In short, one wonders why the Act is necessary in the 21^st century.

Let's Talk North Carolina Leases: The Name of the Game Is the Correct Name

2016-06-29T16:21:00.002-04:00

A lease is a contract. It is a contract in which the lessor (think, landlord or tenant/sublandlord) grants to another person or entity, called the lessee (think, tenant/sublandlord or subtenant), the right to possess and use a definite portion of land and/or a structure for a definite term in consideration of rental payments, all of which is specified in the lease contract.

A valid lease of real property in North Carolina -- that land, that building on that land, the space in that building on that land -- that exceeds three (3) years in duration from the making must be in writing and signed by the party to be charged in the enforcement of the lease (which can be either lessor or lessee, depending). This applies to a lease for exactly three years, as well as a lease for a period of less than three (3) years if it can endure for more than three (3) years. Also, a lease of more than three (3) years in duration must be recorded in order to be effective against purchasers of the property.

Ok, so, generally speaking, a lease in North Carolina should be in writing and should probably be recorded. But what should the lease say? Well, there is more discretion between the lessor and lessee in a commercial lease context (see, e.g., Gardner v. Ebenezer, LLC, 190 N.C. App. 432 (2008)) than in a residential context (see, e.g., N.C.G.S. 42-38, et seq.), in terms of what can and cannot be contracted to. But, any lease in North Carolina must contain the following: (a) the name of the lessor and the name of the lessee, (b) a description of the leased premises, (c) a designation of the term of the lease, and (d) a statement of the rent. Today, in the first part of this series, we're going to address (a) the name of the lessor and the name of the lessee.

A lease instrument must identify, and identify correctly and carefully, both the lessor and the lessee. The lease needn't necessarily be signed by both parties, but it must identify both parties by name. Problems can arise when one entity is named (or misnamed) in the lease, and another entity brings suit to enforce the lease. In American Oil Co., Inc. v. AAN Real Estate, LLC, 232 N.C. App. 524 (2014), the lessee named in the lease was American Oil Group but the action on the lease was initiated by American Oil Company, Inc. Because the name of the lessee and the name of the plaintiff in the lawsuit on the lease were different, and the plaintiff did not allege any facts in the complaint linking plaintiff American Oil Company, Inc. to lessee American Oil Group, the Court of Appeals held that the plaintiff lacked standing to bring the lawsuit on the lease, to enforce the lease, and affirmed the trial court's dismissal of the lawsuit.

On the other hand, though correct names are critical to a valid lease in North Carolina, courts will pierce a corporate veil where necessary in the enforcement context. In East Market St. Square, Inc. v. Tycorp Pizza, IV, Inc., 175 N.C. App. 628 (2006), a commercial landlord sued commercial tenant and commercial tenant's sole shareholder claiming breach of lease. The trial court awarded damages to the landlord and pierced the commercial tenant's corporate veil, resulting in liability of the sole shareholder. The Court of Appeals affirmed, holding that the corporation was the alter ego and mere instrumentality of the shareholder and that the sole shareholder used the corporate veil to damage the commercial landlord. A personal guaranty could have saved the need to pierce the veil as to the tenant, here, which is no small judicial task, but personal guaranties aren't always available.

The takeaway is this: name the lessor and the lessee, name each correctly, and apply that same diligence in any enforcement action. Yes, courts will pierce a corporate veil in some instances, such as where the lease names a "puppet" and enforcement requires jurisdiction over the puppeteer, but do not count on piercing; instead, pursue the notion of mutual guaranties.

Next time, we'll talk about premises descriptions. Aren't you pumped?

I said corporate veil. CORPORATE VEIL!

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw here and on Instagram at NCLandUseLaw here.

Drilling to the Essence of a Land Use Proceeding

2016-06-16T15:29:00.004-04:00

Introduction

What type of land use proceeding is this? Finding the correct answer to this question is critical to knowing your client’s rights and avoiding legal error. Like different sports, there are distinct types of land use proceedings - legislative, quasi-judicial or administrative/ministerial. Like a sport, the type of proceeding dictates the rules of the proceeding, such as the standards for decision-making, the rules of procedure and other substantive rules.

Similar to comparing basketball to baseball, the differences in “the rules of the game” in different land use proceedings are substantial. For example, in a legislative proceeding, any person can speak at a public hearing, no speaker is sworn, there is no cross-examination of speakers, the decision-maker enjoys broad legislative discretion, makes only one finding and the decision is reversed by a court only when the record of the rezoning proceeding reveals no plausible basis for the decision. On the other hand, in quasi-judicial or administrative/ministerial proceedings, every aspect of these proceedings differ with the rules of the game applicable to legislative decisions.

Likewise, the rules of the game between administrative/ministerial verses quasi-judicial proceedings are nearly polar opposite. In a quasi-judicial proceeding every person (the applicant and other property owners) who suffer special damages are entitled to due process rights, including fair trial protections. In administrative/ministerial proceedings, a public hearing is not required.

In some circumstances, the answer is simple. A traditional rezoning proceeding or ordinance text change is a legislative decision. Most times, the difficulties arise when a proceeding is not legislative. The recent case of Butterworth v. City of Asheville, 2016WL2865128 (May 17, 2016) illustrates that finding the correct answer requires drilling to the essence of the proceeding.

Butterworth v. City of Asheville

Facts

The procedural process in Butterworth is ordinary. A developer files an application for approval of a proposed major residential subdivision. Neighbors oppose approval of the subdivision. Initially, the City’s planning staff reviews the developer’s application and thereafter the application is reviewed by a committee of City staff known as the City’s Technical Review Committee (TRC). The TRC recommends approval of the application to the City’s Planning and Zoning Commission (Commission); the Commission makes the final decision regarding approval of a major subdivision and approves the application.

A portion of the developer’s application requests a modification of the City’s general design standards relating to the width of the streets within the proposed subdivision. The developer desires building streets narrower than required by general City standards.

The City’s law authorizes the Commission to allow a modification of general design standards when there is topographical or other unusual physical characteristics that would cause strict compliance with the general standards to be an unusual and unnecessary hardship on the proposed subdivision.

As part of its general review of the application, the TRC determined that the modification requested by the developer satisfied this standard. The TRC recommended that the Commission approve the modification requested by the developer. While considering the TRC recommendation at its public meeting, the Commission allowed public comment from concerned citizens but did not conduct a public hearing where witnesses are sworn, parties are allowed to offer evidence, cross-examine witnesses and offer rebuttal evidence. The Commission approved the modification requested by the developer.

The neighbors opposing approval of the major subdivision filed a petition for certiorari in Superior Court. The City and the developer filed motions to dismiss the petition and the Superior Court dismissed the petition.

Ruling and Analysis

The North Carolina Court of Appeals unanimously reversed the Superior Court decision and remanded the case to the Commission for further proceedings.

The Court of Appeals acknowledged that the City’s law expressly states that the Commission’s decision whether to approve a preliminary plat “shall be ministerial in nature.” Nevertheless, the Court of Appeals drilled down to the portion of the developer’s application requesting approval of a major subdivision and focused exclusively on the grounds and standards stated in the City’s law allowing modifications.

The Court of Appeals reasoned that an administrative land use decision requires only “the mere application of specific, neutral, and objective criteria ….” Butterworth, p. 6. Approval of the modification in Butterworth would have been administrative had the grounds and standards stated in the City’s law possessed these qualities.

However, the grounds and standards stated in the City’s law authorizing approval modifications failed to satisfy these qualities. Because City law required the Commission to exercise some discretion in applying generally stated standards when considering the developer’s request for a modification, the Commission’s decision was quasi-judicial. Accordingly, the Court directed the Commission “to conduct further proceedings which provide the Neighbors with the level of due process required for quasi-judicial proceedings before that Commission.” Butterworth p. 7.

Comments

1. Because the level of due process rights possessed by parties is determined by the type of land use proceeding, courts are not be bound by custom, practice or labels of local law. Instead, courts will drill down to the essential quality of each land use decision.

2. Butterworth illustrates the complexity of applying the distinction between administrative and quasi-judicial decisions practically. It appears that the vast majority of the application complied with “specific, neutral and objective criteria.” Instead of viewing the process as a whole, the Court of Appeals determined that the correct approach is to search for any aspect of a decision that is not administrative in nature. Is the Court of Appeal’s remand satisfied by a proceeding that only concerns the modification, or does the Commission rehear the entire application? Should the developer withdraw its request for a modification, is the prior approval final and no further proceeding is required?

3. Butterworthreveals that the specific wording of local law describing the grounds and standards for approval of a land use request is critically important. As the Court of Appeals states, “[t]his is not to say that every decision to allow a modification in a subdivision proposal is quasi-judicial in nature. Butterworth, p. 5 (emphasis by the Court). Perhaps one factor recognized by the Court of Appeals in Butterworth is that the criteria stated in City law for approving a modification was similar to the criteria stated in state law for granting variances, a classic quasi-judicial decision.

Supreme Court Rules Landowners Can Challenge Jurisdictional Determinations

2016-06-06T17:23:00.001-04:00

Our partner, Jimmy Kirkland, prepared the below summary of an important United States Supreme Court decision and Mike and I wanted to share it with the readers of our blog.

John Cooke

__________________________________________________________

Supreme Court Rules Landowners Can Challenge Jurisdictional Determinations

June 3, 2016

On May 31, 2016, in a unanimous ruling, the U.S. Supreme Court held in USACE v. Hawkes Co. that approved jurisdictional determinations (“JD”) are final actions which can be reviewed by the courts. Under the Clean Water Act a permit is required to discharge pollutants into waters of the United States. Due to the complexity of the statute and implementing regulations and guidance documents it is often very difficult to determine if a particular piece of property contains wasters of the United States. Prior to Hawkes, if a landowner disagreed with a JD they faced potentially significant enforcement action, both civil and criminal, for discharging without a permit or they were required to spend hundreds of thousands of dollars and years to obtain a wetland permit from the Army Corps of Engineers before they could appeal the Corp’s determination that the property was a “water of the United States.”

Hawkes involved three companies in the business of mining peat in Minnesota. In 2010 the Hawkes companies applied for a Section 404 permit to conduct mining operations on a 530-acre tract near their existing operations. The U.S. Army Corps of Engineers (“Corps”) advised that the permitting process would be very expensive and take years to complete. The Corps also advised that if Hawkes wanted to proceed with their application they needed to submit various assessments which would cost an estimated $100,000. In 2012 the Corps issued an approved JD stating the property contained “water of the United States” due to a “significant nexus” to the Red River located 120 miles away. Hawkes sought judicial review but the District Court dismissed holding the JD was not “final agency action.” In 2015, the Eighth Circuit Court of Appeals reversed. In July 2014 the Fifth Circuit Court of Appeals decided that the Corps JDs are not final agency actions subject to judicial review since they did not determine legal rights or consequences.

The Corps’ argued to the Supreme Court that the JD was not “final agency action” and that even if it were there are adequate alternatives for challenging in court. The Corps contended that if Hawkes disagrees with the Corps’ JD, Hawkes can either discharge fill material without a permit, risking EPA enforcement action and can argue that no permit was required during the enforcement process or apply for a permit and then seek judicial review if dissatisfied with the permit. The Supreme Court ruled that neither alternative is adequate. Regarding the enforcement risks, the Court ruled that respondents need not assume such risks while waiting for EPA to “drop the hammer” in order to have their day in count. The Court also rejected the apply for a permit and then appeal by stating “the permitting process adds nothing the JD.”

To constitute “final agency Action, two conditions must be satisfied: First the action must mark the consummation of the agency’s decision making process. The Corps’ agreed this condition was satisfied since an approved JD will remain valid for a period of five years. The second requirement is the action must be one by which rights or obligations have been determined, or from which legal consequences will follow. The Court held the second condition is also met since the approved JD gives rise to “direct and appreciable legal consequences.” The Court noted under an agreement with the EPA, that a “negative” JD stating that a property does not contain jurisdictional waters will generally bind the Corps and the EPA for five years. The Court stated that it follows that affirmative JDs have legal consequences as well.

This is a very important decision for project developers and landowners. Many projects have not gone forward due to the time and costs associated with obtaining a Section 404 permit from the Corps. The Hawkes decision will now provide opportunities for addressing disputes with the Corps regarding Section 404 permitting issues.

Jimmy Kirkland

(404) 879-2460

jkirkland@wcsr.com

271 17th Street SW, Suite 2400

Atlanta, GA 30363

The Problem of Wearing Two Caps Simultaneously Part II

2016-06-03T16:54:00.003-04:00

Our theme is that nobody looks good wearing two caps simultaneously. In Part I, we discussed the breach of lease claim asserted by the Town of Beech Mountain (Town) as landlord against Genesis Wildlife Sanctuary (GWS) in the recent case of Town of Beech Mountain v. Genesis Wildlife Sanctuary, 2016WL2646664 (May 10, 2016). The Town did not prevail on its breach of lease claim.

In Part II, we discuss GWS’s claim of violation of its substantive due process against the Town. The core of GWS’s substantive due process claim arises from the Town wearing two caps simultaneously – being GWS’s landlord and land use regulator.

Town of Beech Mountain v. Genesis Wildlife Sanctuary

A. Facts

In 1999, the Town formed a 30-year lease with GWS for a total rent payment of $1.00. The lease limited GWS’s use of the property to operation of a wildlife public education that permitted the housing of wildlife. The Town granted GWS a right to extend the lease for another 30-year term with the same limitation and rent. The leased property was adjacent to Buckeye Lake (Lake), the Town’s drinking water supply.

GWS built several structures and housed animals for 10 years without disturbance. After consulting state environmental officials, the Town adopted an ordinance to protect water quality and one of the provisions of the ordinance prohibited the caging or housing of animals within 200 feet of the Lake (“Animal Housing Ban”). The Town intended this prohibition to bar GWS from housing animals.

In August 2010, the Town received a notice from state environmental officials indicating that these officials believed GWS’s operations violated the Animal Housing Ban and the Town may be in violation of state regulations. The next month the Town began enforcing the Animal Housing Ban against GWS. The Town’s enforcement extended to baring housing animals housed in cages within structures. GWS took remedial actions by removing all animals and cages from the leased premises, moved its operations to another location and struggled to find uses of the leased premises.

In March 2012, the Town began enforcing its rights as GWS’s landlord. The Town claimed that GWS was using the leased property for purposes that violated the law and was failing to make all arrangements for repairs necessary to keep the leased premises in good repair. The Town brought a claim of breach of lease against GWS and secured a summary ejection judgment. At that point, the Town had terminated the lease and regained full possession of the property.

GWS appealed the ejectment judgment to District Court, filed nine (9) counterclaims against the Town and transferred the case to Superior Court. One of these new claims asserted that the Town had violated GWS’s substantive due process rights.

B. Admitted Evidence

The Superior Court admitted evidence showing that (1) the Town’s governing board intended the width of the Animal Housing Ban to be sufficient to bar GWS from housing wildlife; (2) the Town did not inform GWS of its consideration or adoption of the Animal Housing Ban; (3) the Town had no objective scientific evidence to support the width of the Animal Housing Ban; (4) the Town had spilled several hundred thousand gallons of sewage from its lift station into the Lake in several incidents dating from 2004 to 2010; (5) the Town had received notices of violations from state environmental officials regarding these sewage spills, and (6) The Town “falsely represented” to GWS that the State required removal of animals and cages from the leased premises, “including animals and cages entirely indoors.” Beech Mountain p. 2.

C. The Superior Court’s Ruling and Judgment

The Superior Court granted summary judgment in favor of GWS on the Town’s breach of lease claim, overturning the summary ejectment judgment. The jury returned a verdict, finding that the Town had violated GWS’s substantive due process rights and that the Town had damaged GWS in the amount of $211,142.10.

The Court of Appeals’ Analysis of GWS’s Substantive Due Process Claim

A. The Majority’s Analysis

The majority of the Court of Appeals upheld the Superior Court’s substantive Due Process rulings and the verdict of $211,142.10.

The majority reasoned that (1) substantive due process bars certain arbitrary, wrongful government actions regardless of the fairness of the procedures used by the government, (2) GWS’s substantive due process claim was an “as-applied claim” and challenged how a statute was applied in a particular context, and (3) the facts surrounding the citizen’s particular circumstances were relevant to an as-applied claim. Therefore, Superior Court did not err when it admitted evidence relevant to the Town’s actions and motives.

The majority found no North Carolina precedent relevant to GWS’s substantive due process claim and adopted three (3) factors from a federal 4^th Circuit decision to consider when evaluating the claim. These factors are: (A) the zoning decision was tainted with fundamental procedural irregularity, (B) the action targeted a single party, and (C) the action deviates from or is inconsistent with regular practice. The majority concluded that “it is clear” government actors cannot single out a particular individual or entity for disparate treatment based on illegitimate, political or personal motives. Beech Mountain p. 9.

The majority of the Court of Appeals concluded that GWS presented sufficient evidence to create genuine issues as to whether the Town’s motives were to prevent GWS from using the property for the purposes set forth in their 30-year Lease. Therefore, the majority affirmed the judgment against the Town.

B. The Minority Analysis

The minority observed that a core function of a municipal government is to enact ordinances for protection of the public water supply and the Town’s ordinance, including the Animal Housing Ban, was facially constitutional. Although the Animal Housing Ban only affected GWS, there was no evidence that the Town “has irrationally applied the Ordinance to Genesis’ operation and the mere fact that the Town had GWS in mind in drafting the Ordinance does not give rise to an as applied challenge.” Beech Mountain, p. 17-18 (emphasis by Judge Dillon). The minority noted that GWS may have breach of contract claims against the Town, such as a breach of lease claim or inverse condemnation claim, but the Animal Housing Ban was not applied irrationally to GWS. Therefore, Judge Dillon concluded that GWS’s claim of violation of its substantive due process claim failed.

Comments

A. The essence of the problem in Beech Mountainis a government wearing two caps simultaneously. Both the majority and minority find something wrongful in the Town’s actions when it used police powers to achieve termination of GWS’ lease.

B. Assuming that the Town’s motive when adopting the Animal Housing Ban was only to improve and protect the Lake, the Town possessed broad legislative and administrative discretionary powers to protect the Lake without threatening GWS’s quiet enjoyment. Among other actions, the Town could have employed best management practices or installed devices on its property that captured animal waste, the Town could have offered a substitute location for GWS or worked with GWS to move cages indoors, adopt management protocols or otherwise manage the potential threat to the Lake.

The Town’s actions have been determined to be wrongful and this determination has consequences. The Animal Housing Ban is practically unenforceable (it applies only to GWS) and GWS has restored to the position it enjoyed before the dispute. People acting in good faith should be able operate a wildlife education center and protect the Lake too.

The Problem of Wearing Two Caps Simultaneously – Part I

2016-05-20T13:45:00.000-04:00

A favorite teaching tactic in legal ethic courses is putting on and taking off different caps to illustrate the different roles lawyers play in various relationships. This “on again/off again” routine demonstrates that the ethical rules are different depending upon which cap the attorney is wearing.

Occasionally, a teacher wears two different caps stacked on top of each other. The teacher’s point is that lawyers look bad and make serious mistakes when they wear two caps simultaneously. This principle can apply to governments too.

In the recent case of Town of Beech Mountain v. Genesis Wildlife Sanctuary, 2016WL2646664 (May 10, 2016), the North Carolina Court of Appeals encountered a local government wearing two caps simultaneously. By wearing two different caps stacked on top of each other, the Town of Beech Mountain’s (Town) actions looked bad - it lost the breach of lease claim it asserted against Genesis Wildlife Sanctuary (GWS) and lost GWS’s claim for violation of GWS’s substantive due process rights.

In Part I, we review the breach of lease claim and in a future Part 2, we will review the substantial due process claim.

Town of Beech Mountain v. Genesis Wildlife Sanctuary

1. The Facts

In 1999, the Town formed a 30-year lease with GWS, leasing less than an acre of land adjacent to Buckeye Lake (the “Lease”). Buckeye Lake (the “Lake”) was the Town’s source of drinking water. The use of the land leased to GWS was expressly restricted:

To the construction, operation and maintenance of an education center that educates the general public as to how people and wildlife may peacefully co-exist. It is understood and agreed to by the parties that the Lessee may from time to time house wildlife upon the premises…. Further, the Lessee shall not use or knowingly permit any part of the Leased Premises to be used for any purpose which violates any law.

GWS used the leased premises for the restricted uses and constructed several structures on the leased land for these uses.

In 2008, the Town’s policy concerning use of the Lake evolved and the Town decided to use the Lake for recreational purposes, in addition to it serving as the Town’s drinking water supply. Because water supply lakes are subject to state water regulations, the Town received encouragement from state officials to adopt a municipal ordinance to protect the Lake’s water quality.

In early 2009, the Town adopted a Lake protection ordinance that provided:

No animals can be caged or housed within 200 feet of the Buckeye Lake, or within 2000 feet of any stream that drains into Buckeye Lake.

At trial, evidence showed that the Town’s governing board understood and expected the new ordinance to eliminate GWS’s ability to house animals on the leased land.

For the next three years, the Town and GWS communicated regarding GWS’s compliance with the ordinance and in March 2012, the Town sent notice of breach of the Lease to GWS, filed a summary ejection action in April 2012 and obtained a judgment of ejectment in May 2012.

GWS appealed the judgment of ejection to Superior Court and filed a number of counterclaims, including a claim that the Town had violated GWS substantive due process rights.

The Superior Court entered summary judgment in favor of GWS on the Town’s breach of lease claim. The jury heard evidence regarding GWS’s claim that the Town had violated GWS’s substantive due process rights and returned a damage verdict in favor of GWS of $211,142.10.

The Town appealed both the rulings to the North Carolina Court of Appeals. A majority of the Court of Appeals affirmed the Superior Court’s judgment in favor of GWS on the Town’s breach of lease claim, found no error in the substantive due process trial and upheld the damage verdict.

2. The Court of Appeals' Analysis of the Town's Claim of Breach of Lease

The majority of the Court of Appeals noted that lease forfeitures are not favored, use restrictions in leases are construed against landlords and use restrictions must be explicit and unambiguous. Applying these principles, the majority concluded that the restriction prevented GWS “from using the leased property for an illegal purpose.” Beech Mountain p. 5 (emphasis by the Court). “[T]he purpose of constructing, operating and maintaining a wildlife refuge and educational center “…does not violate any law.” Id. Accordingly, GWS did not breach the Lease.

Judge Dillon dissented from the majority’s analysis and holding. Giving the restriction a plain reading, Judge Dillon concluded that the restriction allowed the Town “to declare a default where a tenant purposefully persistsin violating zoning, setback, building or other ordinances in the use of the landlord’s property. Beech Mountain, p. 18 (Emphasis by Judge Dillon). Accordingly, Judge Dillon would reverse summary judgment in favor of GWS.

Commentary

1. Zoning laws and use restrictions in leases are both restrictions on the use of land. The underlying rule of construction applicable to all land use restrictions is strict construction of the restriction in favor of the free use of land.

2. In Beech Mountain, the Court of Appeals encountered an unusual situation where a local government wears two caps simultaneously. Originally, acting in a proprietary role, the Town leased land and restricted use of the leased land to an educational center permitting animals to be housed. Thereafter, acting in a legislative role, the Town prohibited caging or housing of animals in a general area that included the land leased by GWS. When a government wears two different and inconsistent caps simultaneously, problems arise:

· When the Lease was made, the Town’s zoning laws became part of the Lease. While a government possesses legislative discretion to change law, it cannot take away a vested contractual right. Recently, the North Carolina Supreme Court applied this rule in the case of teachers. See here.

· On the other hand, when municipality affirmatively promised, acting in a proprietary role, a tenant a right to use property inconsistent with the municipality’s existing zoning laws, the tenant cannot compel the municipality to perform its contractual duty. See, Lewis v. City of Washington, 63 N.C. App. 552(1983), affirmed in part, reverse in part, 309 N.C. 818 (1983).

3. The Lease did not contain an express covenant of quiet enjoyment. Nevertheless, North Carolina law implies a covenant of quiet enjoyment in every lease. Through this covenant, the landlord promises his tenant that the tenant will enjoy quiet and peaceful use of leased land free from disturbance by a landlord.

Although GWS did not sue the Town for breach of the Lease, it would seem problematic for a government-landlord to adopt and enforce new laws that interfere with its tenant's use of leased land without violating the implied covenant of quiet enjoyment.

4. Zoning laws regulating zoning, setback, building or other ordinances adopted after a use has been established on land do not typically render the use illegal. Instead, existing uses are typically treated as a lawful nonconformity.

Searching for the Heart of the Doctrine of Vested Rights Part II

2016-05-05T12:25:00.002-04:00

On July 7, 2015, we posted “Searching for the Heart of the Doctrine of Vested Rights.”(See here) In that post, we compared a Court of Appeals’ decision in a public school teachers’ vested rights case with a decision of the North Carolina Supreme Court in a land use vested rights case. We asked - “What might be the organizing principle of the doctrine of vested rights?” and concluded that fairness was the heart of the Doctrine of Vested Rights.

On April 15, 2016, a unanimous North Carolina Supreme Court affirmed and modified the Court of Appeals’ decision in the teachers’ vested rights case. We continue our search for the heart of the Doctrine of Vested Rights by comparing and contrasting the teachers’ case with land use cases.

Essential Ingredients

Unfairness can be an abstraction or a personal feeling, but the law demands more than philosophy or passion. The essential ingredients in every vested rights case is (1) a right (2) protected by the federal or state constitutions.

Searching for these essential ingredients triggered an important dialogue among Appellate Division judges and justices in the teachers’ case. The question was: When does a statute itself create a contract between the State of North Carolina and public employees – a constitutionally protected property right? The North Carolina Supreme Court concluded that unless the repealed statute contained promissory language like “contract” or “agreement”, no contract was created. Because the repealed teachers’ statute lacked such language, the statute itself could not supply the essential ingredients for vested rights.

But, as Justice Edmunds wrote for the Court “[the] analysis does not end here.” If teachers made contracts in reliance upon the repealed law, then a protected property right exists which the new law cannot take away easily. (Limited instances exist where a protected right can be taken – the heart of the Doctrine of Vested Rights is fairness and fairness requires balancing interests).

Comparing Cases

Land use vested rights cases possess some similarities to the teachers’ case. In both species of cases, the intended consequences of a repealed law caused private citizens to take important steps permitted by it. For teachers, they stayed in North Carolina, did a good job and gained tenure-like status through a contract. In land use cases, property owners plan and design uses and buildings permitted by the repealed law.

Nevertheless, important differences exist. In land use cases, a protected property interest is always present – the property owner’s land—and a statute containing promissory language never exists. Consequently, the principal focus in these cases is the extent of steps and activities taken by a property owner in order to enjoy the benefits of the repealed law. In other words, is retroactive application of the new law to activities already in progress unfair in a constitutional sense?

The Wobble of Land Use Vested Rights

Legal scholars attempt to organize existing land use vested rights decisions into categories, perhaps with the hope of predicting outcomes in new cases. Ironically, studying past cases confirm that the future is uncertain.

Nevertheless, early vested rights cases can be instructive as to the sources of uncertainty. In one early case, the property owner was developing his property and the development did not require a building permit. Thereafter, the local government adopted its first zoning ordinance and stopped the property owner from completing the development and using his property. The Court held that the property owner possessed a vested right to complete the development and use his property despite the new law.

Today, a tall stack of pancaking regulations applies to any significant proposed development. Within the stack, you are likely to find a variety of pancakes administered by multiple governments at all levels of government – local, state and federal. The property owner cannot enjoy his property for his intended, use until all permits and approvals required by the entire stack have been secured. The question now is, how many and what variety of pancaking regulations must the property owner have satisfied to possess a vested right to complete his plan of development and enjoy his property?

Unfortunately, the answer is not simple or predictable. Every development is different. Every local jurisdiction is different and regulations overlap differently.

The point is not to empathize with property owners and developers. The complexity of the development process means only the smartest and most diligent folks succeed—competition is limited and the risks and rewards are substantial.

Instead, the point is that discerning unfairness in a constitutional sense in land use cases is complex and evolving. As long as the stack grows taller, land use vested rights will continue to wobble.

According to the Right and Good of Ancient Law

2016-04-22T11:14:00.000-04:00

Introduction

“You don’t know what you don’t know” is a popular catchphrase. So, do you know what a “betterment” is and how the law of betterments operates?

Land use law has ancient roots. Sometimes, a case requires an appellate court to write a 21^st century opinion explaining and summarizing ancient legal concepts and law. These opinions provide an important service to the practicing bar because they remind lawyers of legal principles which they may have heard, but do not fully appreciate. Unless you know these ancient roots, you don’t know what you don’t know.

A Primer on the Law of Betterments

In the case of Harris v. Gilchrist, ___N.C. App. ___, ___ S.E. 2d. __ 2016WL787933 (March 1, 2016), the North Carolina Court of Appeals applies the law of betterments to two classes of defendants. In Harris,the defendants had been non-owner occupants, but later became tenants in common with the plaintiffs. The Court of Appeals’ opinion discusses the law of betterments and explains the reasons for this law applying differently to these two classes of defendants. As such, Harris is a modern primer on the law of betterments.

Facts

The defendants were non-owner occupants who believed they owned land, built a house on the land, resided in the house and paid property taxes and insurance. When the true owner died and the deed by which the defendants claimed ownership of the land was declared void, the defendants became tenants in common with the plaintiffs.

Several of the tenants in common filed a petition for partition of the property by sale. After the property was sold, the trial court entered an order allowing a betterment allowance for the house and reimbursement of taxes and insurance in favor of the defendants. The trial court denied the plaintiffs’ request that they recover three (3) years of rent from the defendants. The plaintiffs appealed the trial court’s order to the North Carolina Court of Appeals.

Decision

In a clearly written opinion by Judge Dillon, the Court of Appeals affirms in part and reverses in part the trial court’s order. The Court of Appeals explains the law of betterments as it applies to two classes of defendants—non-owner occupiers and tenants in common.

· A betterment is a permanent improvement affixed to land owned by others.

o Under the equitable doctrine of ex aequo et bono (“according to the right and good”), a tenant in common who made a “betterment” to real property owned by other tenants in common was entitled to an allowance.

o By statute adopted in 1871, the General Assembly extended “the right and good” of equity to non-owner occupants holding land under color of title that the non-owner occupant believed to be good title. Under the statute, a betterment is exclusively a defensive right arising in a proceeding where the true owner of the land invokes the court’s powers to secure possession of the land. A betterment allowance is intended to compensate a person who has mistakenly made permanent improvements, in good faith, to the land the occupier did not own.

· Under the statute, the amount of the allowance equals the lesser of either (1) the costs of the betterment or (2) the incremental increase in value of the land caused by the betterment. The incremental increase in value is the differencein the value of the land with the permanent improvement minus the value of the land without the permanent improvement (land value with permanent improvement – land value without the permanent improvement = incremental increase in value).

· Balancing the scales of justice requires consideration of the rent which would have been due to the true owner:

o A tenant in common who occupied the land is not liable for rent so long as the tenant has not prevented the other tenants from accessing the land.

o A non-owner occupant possesses no land rights and owes three (3) years of the fair market rent accruing before the true owner filed a legal action seeking possession of the land. Rent accruing more than three (3) years after the filing of the owner’s action is only an offset to a betterment allowance.

· Balancing the scales of justice requires consideration of contributions made by the person who made the betterment:

o A tenant in common is entitled to reimbursement for paying taxes and insurance assessed against property owned by tenants in common.

o A non-owner occupier is not entitled to reimbursement for paying taxes and insurance assessed against another person’s property.

Comments

1. With modern surveying exactitude, it is rare in the 21^st century for a person to build an improvement on another person’s property because of a defective survey. But, people do mistakenly assume that they own property. In those situations, betterments may be their only relief for investing hundreds of thousands of dollars on another person’s land.

2. Harris illustrates broader and more important lessons:

a. First, the law is deep and wide. Law, the body of legal rules, principles, and doctrines, has developed to administer justice “according to the right and good.” While the legal system is imperfect, most times injustices arise from the imperfections of people operating in the system – not the system itself.

b. Second, when you encounter a case which seems unfair, then, most likely, you have not thought deeply enough about the facts or researched diligently enough to find the exact law which fits the unique facts of the case. As Harris illustrates legal rules, principles, and doctrines are nuanced and a single factual difference may completely alter the outcome of a case.

Bottom line: When you don’t know what you don’t know, you cannot blame the legal system.