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Thursday, September 15, 2016, 3:26 PM

No Good Deed Goes Unpunished


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.


  

Thursday, August 25, 2016, 4:34 PM

A Distinction without a Difference

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. 

Wednesday, August 17, 2016, 11:19 AM

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

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 Valleythe 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."


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.


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

Thursday, August 11, 2016, 4:16 PM

Sometimes, Finding Justice is Subtle


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. 

 

Thursday, July 28, 2016, 4:38 PM

No Doubting Thomases Allowed!

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 facie case 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. 


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