City of Asheville v. State

369 N.C. 80

794 S.E.2d 759

CITY OF ASHEVILLE, a municipal corporation

v.STATE of North Carolina and The Metropolitan Sewerage District of Buncombe County

No. 391PA15

Supreme Court of North Carolina.

Filed December 21, 2016

Ellis & Winters LLP, Raleigh, by Matthew W. Sawchak, Paul M. Cox, and Emily E. Erixson ; Campbell Shatley, PLLC, Asheville, by Robert F. Orr ; Long, Parker, Warren, Anderson & Payne, P.A., Asheville, by Robert B. Long, Jr. ; and City of Asheville City Attorney's Office, by Robin T. Currin, for plaintiff-appellant.

Roy Cooper, Attorney General, by I. Faison Hicks, Special Deputy Attorney General, for defendant-appellee State of North Carolina.

Cauley Pridgen, P.A., by James P. Cauley, III,Wilson, and Gabriel Du Sablon, Raleigh, for City of Wilson, amicus curiae.

Allegra Collins Law, by Allegra Collins, and Alexandra Davis, for International Municipal Lawyers Association, amicus curiae.

Kimberly S. Hibbard, General Counsel, and Gregory F. Schwitzgebel III, Associate General Counsel, for North Carolina League of Municipalities, amicus curiae.

ERVIN, Justice.

In 2013, the General Assembly enacted legislation that effectively required the City of Asheville to involuntarily transfer the assets that it uses to operate a public water system to a newly created metropolitan water and sewerage district. See Act of May 2, 2013, ch. 50, 2013 N.C. Sess. Laws 118, amended by Act of July 22, 2013, ch. 388, secs. 4-5, 2013 N.C. Sess. Laws 1605, 1618. Following the enactment of this legislation, the City sought a declaratory judgment and injunctive relief in Superior Court, Wake County. The trial court concluded that this involuntary transfer violated various provisions of the North Carolina Constitution, declared the relevant statutory provisions to be void and unenforceable, and permanently enjoined the State from enforcing the legislation. On appeal, the Court of Appeals reversed the trial court's order, in part, and directed the trial court to enter summary judgment in favor of the State. City of Asheville v. State , ––– N.C. App. ––––, ––––, 777 S.E.2d 92, 102 (2015). In view of our determination that the legislation in question constitutes a prohibited "[l]ocal ... act ... [r]elating to health[ and] sanitation" in violation of Article II, Section 24(1)(a) of the North Carolina Constitution, we reverse the Court of Appeals’ decision. N.C. Const. art. II, § 24 (1)(a).

The City is a municipal corporation that is authorized, among other things, to own and acquire property. N.C.G.S. §§ 160A-1(2), -11 (2015). Pursuant to N.C.G.S. §§ 160A-311(2) and 160A-312, along with Chapter 399 of the 1933 Public-Local Laws, Chapter 140 of the 2005 Session Laws, and Chapter 139 of the 2005 Session Laws (the last three of which are referred to collectively as "the Sullivan Acts" and individually as "Sullivan I," "Sullivan II," and "Sullivan III," respectively, see City of Asheville v. State , 192 N.C.App. 1, 4–5, 665 S.E.2d 103, 109 (2008) ( Asheville I ), appeal dismissed & disc. rev. denied , 363 N.C. 123, 672 S.E.2d 685 (2009) ), the City owns and operates a system for the supply, treatment, and distribution of water and for the operation of sanitary disposal systems serving individuals and entities both within and outside of its corporate limits.¹ See N.C.G.S. §§ 160A-311(2), -312 (2015); Act of Apr. 28, 1933 (Sullivan I), ch. 399, 1933 N.C. Pub.-Local Laws 376 (captioned "An Act to Regulate Charges Made by the City of Asheville for Water Consumed in Buncombe County Water Districts"); Act of June 29, 2005 (Sullivan III), ch. 139, 2005 N.C. Sess. Laws 243 (captioned "An Act Regarding the Operation of Public Enterprises by the City of Asheville"); Act of June 29, 2005 (Sullivan II), ch. 140, 2005 N.C. Sess. Laws 244 (captioned "An Act Regarding Water Rates in Buncombe County"). As of 29 August 2013, the City provided water service to approximately 124,000 customers, approximately 48,000 of whom received service outside the City's municipal limits. The City's water system has been built and maintained over the course of the past century using a combination of taxes, service fees, connection charges, bonded indebtedness, federal and state grants, contributions from Buncombe County, and donations from property owners and developers.²

Customers in Buncombe County served by the City's water system receive sewer service from the Metropolitan Sewerage District of Buncombe County,³ a political subdivision that is authorized, among other things, to own, operate, and maintain a system for the treatment and disposal of sewerage in its assigned service area. See N.C.G.S. §§ 162A-65(8), -69 (2015). The Metropolitan Sewerage District has never provided water service to any customer.

In May 2013, House Bill 488, which is entitled "An Act to Promote the Provision of Regional Water and Sewer Services by Transferring Ownership and Operation of Certain Public Water and Sewer Systems to a Metropolitan Water and Sewerage District," became law. Ch. 50, 2013 N.C. Sess. Laws 118. According to Section 2 of the legislation, two or more political subdivisions are authorized to voluntarily establish a new type of entity, to be known as a "metropolitan water and sewerage district," which is "authorized and empowered" to "exercise any power of a Metropolitan Water District under G.S. 162A-36, except subdivision (9) of that section"; to "exercise any power of a Metropolitan Sewer District under G.S. 162A-69, except subdivision (9) of that section"; and "[t]o do all acts and things necessary or convenient to carry out the powers granted by" the newly created Article 5A. Id. , sec. 2, at 119-24. Pursuant to Section 1(a) of the legislation, "[a]ll assets, real and personal, tangible and intangible, and all outstanding debts of any public water system" meeting certain statutorily specified criteria "are by operation of law transferred to the metropolitan sewerage district operating in the county where the public water system is located" regardless of whether the municipality in question consents to the required transfer.⁴ Id. , sec. 1(a), at 118-19. Finally, Section 5.5 of the legislation provides that no metropolitan sewerage district can be created in any county which currently lacks such an entity without the consent of all the affected political subdivisions in the proposed district, id. , sec. 5.5, at 125, a provision that has the effect of preventing any involuntary transfers of the type required by Section 1 in the future.

On 14 May 2013, the City filed a complaint and a motion seeking temporary, preliminary, and permanent injunctive relief in which the City alleged that the involuntary transfer provisions of the legislation, which were specifically designed to apply to the City and to no other municipality in North Carolina, constituted an invalid local act "[r]elating to health, sanitation, and the abatement of nuisances" prohibited by Article II, Section 24(1)(a) of the North Carolina Constitution and "[r]elating to non-navigable streams" prohibited by Article II, Section 24(1)(e) of the North Carolina Constitution ; violated the City's due process and equal protection rights as guaranteed by Article I, Section 19 of the North Carolina Constitution ; worked an unlawful taking of the City's property in violation of Article I, Sections 19 and 35 of the North Carolina Constitution ; impaired the City's contracts with the holders of the bonds that had been issued to finance the construction of the City's water system in violation of Article I, Section 10 of the United States Constitution; impaired the City's obligations to its bondholders under N.C.G.S. § 159-93 ; and, in the alternative, took the City's property without just compensation in violation of Article I, Sections 19 and 35 of the North Carolina Constitution. Based upon these claims, the City sought a declaration that Section 1 of the legislation is unconstitutional; asked that the enforcement of Section 1 of the legislation be temporarily restrained and preliminarily and permanently enjoined; and requested that, in the alternative, the City be awarded monetary damages sufficient to indemnify the City from any loss that might result from the enactment of the legislation. On 14 May 2013, Judge Donald W. Stephens entered a temporary restraining order precluding the implementation or enforcement of Section 1 of the legislation.⁵

On 23 August 2013, the Governor signed Chapter 388 of the 2013 Session Laws, which had been enacted by the General Assembly on 22 July 2013 and which amended Section 1 of the Act in two ways. Ch. 388, secs. 4-5, 2013 N.C. Sess. Laws at 1618. More specifically, the newly enacted legislation repealed Section 1(a)(2) of Chapter 50 of the 2013 Session Laws so as to effectively eliminate one of the original criteria necessary to trigger an involuntary transfer of a covered municipality's water system, id. , sec. 4, at 1618 (stating that "Section 1(a)(2) of S.L. 2013-50 is repealed"), and added a new exemption from the existing involuntary transfer requirement, id. , sec. 5, at 1618 (amending "S.L. 2013-50 ... by adding a new section" 1.(g)). As a result, the trial court entered a consent order providing, among other things, that the parties would be allowed to amend their pleadings to reflect these modifications to the legislation.

On 2 October 2013, the City filed an amended complaint in which it asserted the same substantive claims that had been raised in its initial pleading.⁶ On 7 November 2013, the State filed a responsive pleading in which it alleged, among other things, that the City lacked the capacity and standing to bring its claims against the State and denied the material allegations of the City's complaint. On 27 February 2014, the State and the City filed motions seeking summary judgment in their favor. On 9 June 2014, the trial court entered an order finding that there were no genuine issues of material fact and determining that the legislation (1) "was...