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Monday, October 17, 2016, 12:01 PM

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

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. 
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.
  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)?  

Thursday, October 13, 2016, 10:45 AM

A Primer on Zoning Variances in North Carolina

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.

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

Tuesday, October 11, 2016, 11:12 AM

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

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 (“ 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."

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.

Thursday, October 6, 2016, 11:24 AM

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

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.

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.

Tuesday, September 27, 2016, 2:49 PM

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

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."

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.
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