True Homes v. City of Greensboro

898 S.E.2d 52

TRUE HOMES, LLC and D.R. Horton, Inc., on behalf of themselves and all others similarly situated, Plaintiffs,

v.CITY OF GREENSBORO, Defendant.

No. COA23-48

Court of Appeals of North Carolina.

Filed February 6, 2024

Appeal by defendant from order entered 24 August 2022 by Judge Richard L. Doughton in Guilford County Superior Court. Heard in the Court of Appeals 18 October 2023. Guilford County, No. 19 CVS 3879

Scarbrough, Scarbrough & Trilling, PLLC, by John F. Scarbrough, Concord; Milberg Coleman Bryson Phillips Grossman, PLLC, by Lucy Inman, Raleigh, Wake County, James R. DeMay, Concord, Daniel K. Bryson, and John Hunter Bryson, Raleigh; and Shipman & Wright, LLP, Wilmington, by William G. Wright and Gary K. Shipman, for plaintiffs-appellees.

Mullins Duncan Harrell & Russell PLLC, by Alan W. Duncan, Stephen M. Russell, Jr., and Tyler D. Nullmeyer, for defendant-appellant.

DILLON, Chief Judge.

In this case, we consider whether the City of Greensboro’s charging of capacity use fees exceeded its municipal authority under N.C. Gen. Stat. § 160A-314(a), prior to its 2017 amendment. We also consider whether Greensboro’s fees were authorized by subsequent 2017 legislation.

I. Background

In 1988, Greensboro began charging capacity use fees under a city ordinance.¹ Greensboro’s ordinance stated these capacity use fees were designed to help Greensboro recover the costs associated with expanding the city’s water and sewer system to accommodate new development without increasing the costs for existing system users. During the time period relevant to this case, the typical single-family house was charged $1,970 in capacity use fees, which were paid by the companies building the houses.

On 4 March 2019, residential real estate development and home building companies True Homes, LLC, and D.R. Horton ("Developers") brought suit against Greensboro,² alleging the City illegally collected its capacity use fees and seeking a refund of fees collected since 4 March 2016. See Quality Built Homes Inc. v. Town of Carthage, 371 N.C. 60, 74, 813 S.E.2d 218, 228-29 (2018) (Quality Built Homes II) (restricting the statute of limitations to three years prior to the lawsuit’s commencement). The trial court subsequently granted Developers’ motion for class certification under Rule 23 of our Rules of Civil Procedure, defining the class as all natural persons, corporations, or other entities who paid water and sewer capacity use fees to Greensboro since 4 March 2016. The class’s capacity use fees paid during that period totaled $5,252,309.06.

The parties filed cross-motions for summary judgment. Greensboro also moved to strike portions of Developers’ affidavits.

On 15 July 2022, the trial court granted summary judgment for Developers and denied Greensboro’s motion to strike. The following month, on 24 August 2022, the trial court entered its judgment, ordering Greensboro to refund $5,252,309.06, plus pre- and post-judgment interest. Greensboro timely appealed.

II. Analysis

Greensboro makes several arguments regarding the legality of its capacity use fees. Greensboro also argues that the trial court should have granted its motion to strike portions of Developers’ affidavits. We address each argument in turn.

A. Fees Collected Prior to 2017 Legislation

Greensboro first argues that the trial court erred in granting Developers’ motion for summary judgment and simultaneously denying Greensboro’s motion for summary judgment, concerning the fees collected prior to the 2017 legislation.

We review a summary judgment order de novo. Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007).

"Since 1982 [our Supreme Court] has cautioned that municipalities may lack the power to charge for prospective services absent the essential ‘to be’ language." Quality Built Homes Inc. v. Town of Carthage, 369 N.C. 15, 20-21, 789 S.E.2d 454, 458 (2016) (Quality Built Homes I) (citing Town of Spring Hope v. Bissette, 305 N.C. 248, 251, 287 S.E.2d 851, 853 (1982) (dictum)).³ Because the pre-2017 statute lacked the "to be" language and only authorized municipalities to "establish and revise … rates, fees, charges, and penalties for the use of or the services furnished by any public enterprise[,]" N.C. Gen. Stat. § 160A-314(a) (2016) (emphasis added), our Supreme Court concluded the statute only permitted municipalities to charge for contemporaneous services. Quality Built Homes I, 369 N.C. at 22, 789 S.E.2d at 459.

It is well established that municipalities, absent a local enabling act granted by the General Assembly, were not permitted to charge for prospective services under the previous versions of N.C. Gen. Stat. § 160A-314(a)—doing so would be ultra vires. See id at 16, 789 S.E.2d at 455 ("As creations of the legislature, municipalities have only those powers delegated to them by the General Assembly.").

[1] Thus, the present case turns on whether Greensboro’s capacity use fees were "prospective" or "contemporaneous."

Greensboro argues their capacity use fees were contemporaneous because water and sewer service was available here when Developers used "jumpers"—temporary pipes that bypass the meter box (before meter installation by Greensboro) and connect the water and sewer system to an under-construction property—to access water during construction before the capacity use fees were due. We disagree.

Past decisions have developed binding jurisprudence establishing when fees are considered prospective and, thus, illegal.⁴ In the seminal case, Quality Built Hames I, fees were due "[u]pon approval of a subdivision of real property" and had to be paid to receive "final plat approval." Id. at 16, 789 S.E.2d at 455-56. If the property was already subdivided, the municipality would refuse to issue building permits until the fees were paid. Id. at 17, 789 S.E.2d at 456. The stated purpose for the fees was "to cover the costs of expanding the water and sewer systems." Id. at 16, 789 S.E.2d at 456 (cleaned up). Our Supreme Court concluded that the Town had exceeded its delegated authority by adopting ordinances establishing the fees. Id at 22, 789 S.E.2d at 459.

In a subsequent case, Kidd Construction Group, LLC v. Greenville Utilities Commission, the defendant had established impact fees which were due "as a precondition to development approval, to the issuance of building permits, and to receiving service." 271 N.C. App. 392, 395, 845 S.E.2d 797, 799 (2020). The defendant had been chartered by our General Assembly with the authority to establish fees for "services rendered." Id. at 398, 845 S.E.2d at 801. The stated purpose of the impact fees was to "recover a proportional share of the cost of capital facilities constructed to provide service capacity for new development or new customers connecting to the water/sewer system." Id. at 395, 845 S.E.2d at 798-99. Our Court concluded that the impact fees were for future services and, therefore, not authorized under the legislative charter setting for the defendant’s power’s.

More recently, in Daedalus, LLC v. City of Charlotte, our Court considered fees established by the City of Charlotte which were due "at the time property owners appl[ied] for new water and sewer service." 282 N.C. App. 452, 454, 872 S.E.2d 105, 108 (2022). Fee payment was a "mandatory precondition of connecting to [the developer’s] existing water and sewer infrastructure." Id. at 455, 872 S.E.2d at 108. Unlike the other cases, the municipality in this case did not have a stated purpose for the fees. Id. at 454, 872 S.E.2d at 108. Our Court held the fees were not authorized, as they "were charged for future discretionary spending and not for contemporaneous use of the system or for services furnished." Id. at 462, 872 S.E.2d at 113.

In this case, when viewed in the light most favorable to Greensboro, the evidence shows that capacity use fees were collected after the following events: plan or development approval; plat approval; installation of water mains and laterals; issuance of building permits; substantial construction progress; issuance of individual trade permits, including plumbing permits; commencement of water and sewer services through jumper connections to the system; and multiple plumbing inspections. Towards the end of the construction process (and after the aforementioned events), Developers would request that Greensboro install the meter, at which time the capacity use fees were due, the meter was set, and volumetric billing service began. Afterwards, the final plumbing and building inspections occurred, and then a certificate of occupancy was issued.

Despite Greensboro’s contentions, we hold its capacity use fees were similar in all material aspects to those other municipalities’ fees, which were held to be ultra vires and illegal.

Though the fees at issue here were collected later in the construction process than in previous cases, Greensboro’s fees were still collected before official water and sewer service was available to the properties. The fees were due at the time of meter installation, and official water and sewer service could not begin until the meter was installed and volumetric billing began. Though Greensboro may have been acting in Developers’ interests with developer-friendly policies that allowed developers to use the system on a temporary basis during construction, it is clear that Developers were denied official use of the system until after paying the fees. Further, Greensboro’s stated purpose for its capacity use fees is strikingly similar to the stated purposes in the other cases, as they were all used to recover costs associated with expanding the systems for new development.

Thus, for the foregoing reasons, we affirm the trial court’s granting of summary judgment for Developers and denial of summary judgment for Greensboro regarding the capacity use fees charged prior to the 2017 legislation.

B. Fees After 2017 Legislation

In response to Quality Built Homes I, the General Assembly amended N.C. Gen....