tag: North Carolina Land Use Litigator: December 2010

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Friday, December 31, 2010, 11:27 AM

Durham County's Proposed 751 South Development Continues to Find Obstacles

The development of 751 South in Durham County -- with, according to proponents, its 167 acres of flaxen straw near the Chatham County line to be spun into the gold that is 1,300 houses, townhomes, apartments and condos plus as much as 600,000 square feet of office and retail space -- has hit yet another snag. Last time, we discussed Durham County issues. This time, the City is in on the action. You can view a more detailed history of the project in our earlier blog posting, linked here.

The Durham City Council voted unanimously last week to delay its decision as to the extension of water and sewer services to the 167 acres until a City report is completed on the financial impact of the development. This is a departure from the developer's expectation that the City would address water and sewer extension at its January 3, 2011 meeting.

Wait. It gets worse for the developers of 751 South, who are already facing opposition at the County level.

In what may be a taste of the mounting public sentiment, members of the City Council took this relatively minor "water and sewer" opportunity to chastise the developers and note that the City should not even begin to sniff extension issues until the pending lawsuit against Durham County is decided. Let's hear from Councilwoman Diane Catotti: "We all know it's a very sensitive case and it just feels like bad form. It just looks like if we proceed, that we're disregarding the public process, and I really feel like citizens deserve their day in court. Let them have their day in court and then we proceed after that."

It's been reported that the members' comments in this regard -- not all of whom expressed this sentiment, by the way -- echo the perspective of the project opponents.

Once more, the lesson is to tread wisely when developing amidst controversy or even buzzing disdain. Seems the developers could have, and should have, given the Durham City Council the opportunity to effect the politically expedient approach: wait and see. Instead, the court case pends, the opposition has a new (or at least a more public) voice, and the City Council's first taste is a bad one.

We'll continue to follow.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Thursday, December 30, 2010, 3:16 PM

North Carolina Court of Appeals Clarifies Timing Within Which to Enjoin Foreclosure Sales: N.C.G.S. 45-21.34

In this foreclosure-frenzied environment, as we've alluded in prior posts, lender-friendly moments are few and far between. A recent Court of Appeals decision, in Goad v. Chase Home Finance, LLC, scores one for the little guys. Let's review.

Way back in 2005, when money was free and the Phillies weren't so scary, Borrower Goad executed a deed of trust in favor of Lender JP Morgan Chase to secure a loan. The encumbered property was located in Sunset Beach, North Carolina. Ever been there? Well, it's beautiful. Enjoy your trip back in time over the Sunset Beach Bridge. Really.

Anyway, in 2008 the Lender initiated a foreclosure proceeding in accordance with the deed of trust. On a scheduled date of the foreclosure sale -- August 27, 2009 -- Borrower received a $450,000 offer to purchase the property, which Borrower immediately transmitted to Lender. Lender postponed the foreclosure sale until September 8, 2009, notice of which Borrower received on September 5. That isn't much time. Well, sure as the sunrise, Lender held the sale on September 8, at which Lender bid $423,932.55. Yep, that's some $26,000 below the price Lender's other buyer was positioned to pay.

On September 18, 2009, Borrower filed an application to enjoin the foreclosure sale pursuant to N.C.G.S. 45-21.34. So far, so good. The trial court heard Borrower's application on September 28, 2009 -- we're 20 days past the sale date, by the way -- but declined to enjoin, reasoning that "[the] hearing was not timely scheduled as required by the provisions of [N.C.G.S. 45-21.34, 45-21.35]."

On appeal, the issue became: what satisfies the statutory requirement that an application be made "prior to the time that the rights of the parties ... become fixed"? Borrower believed the application need only be filed prior to the sale rights becoming "fixed," while Lender contended that the application must be (i) filed, (ii) heard, and (iii) decided. The Court ultimately agrees with the Lender, decrying Borrower's "literal language" approach to N.C.G.S. 45-21.34 as "elongating what is clearly intended to be an expeditious process, thereby casting doubt on otherwise vested rights." In doing so, the Panel offers us some holiday statutory interpretation.

"Fixed": The rights of the parties to a foreclosure sale become "fixed" for purposes of N.C.G.S. 45-21.34 "upon either the expiration of the period for filing an upset bid, the provision of injunctive relief precluding the consummation of the foreclosure sale, or the occurrence of some similar event."

"Apply": Citing "well-established North Carolina law" that a court cannot restrain the doing of that which has already been consummated, the Court concludes that "apply" for purposes of N.C.G.S. 45-21.34 means that the application must be decided, and not just made, before the rights are "fixed."

Does this threaten a race to the courthouse or otherwise incentivize stall tactics? That may be. But, according to the Court, it's akin to a policy choice insofar as finality is critical in land dealings.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Wednesday, December 22, 2010, 3:16 PM

Private Development and Public Regulation In North Carolina: Economic Incentives Make Sense

Development will often involve a little bit of land use law, a little bit of litigation, and a little bit of economic incentive.

In fact, we've blogged before here, here and here about the land use aspects of development projects benefitting from economic incentives.

With the new look of the General Assembly -- our state legislature, for the uninitiated -- some folks worry about the fate of these important compenents in efforts to keep North Carolina in the competitive avant garde. On that score, Burley Mitchell and Press Millen from our Firm's Raleigh office published today this clear and entirely common sense editorial giving wonderful strokes to the issue.

We recommend listening to these tempered voices.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina

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Tuesday, December 21, 2010, 4:38 PM

North Carolina Court of Appeals Rules On Importance of Administrative Remedies and the Limits of Rule 11 Sanctions


Just this week, the Court of Appeals celebrated the holiday season with a tribute to the administrative process and by carefully outlining the oft-overused weapon of Rule 11 sanctions. All this, a victory for a local government, and a partridge in a pear tree.

The case -- Barris v. Town of Long Beach -- boasts a pretty Byzantine procedural history, which we'll attempt to spell out in a linear fashion. Our academic history may have included math and logic courses. And disappointing athletics.

Facts
--The Barris family owns a piece of property in Oak Island, North Carolina.

--The Barris property abuts the property at issue, which is located on the western edge of West Yacht Drive and at the dead end of Oak Island Drive. In the photo accompanying this blog, the property at issue is, in the most artful sense, the barren patch of sand.

--The Barris family owns a non-exclusive easement over the barren patch of sand for purposes of ingress, egress, and regress. Yes, the Barrises posses all the -esses.

--The Town of Oak Island has tried in the past to to "improve" this barren patch. As a result, in 2002, the Barrises filed suit.

--In 2003, the Superior Court granted partial summary judgment in the Barrises favor "affirm[ing the Barris'] easement rights and ordered the Town to remove the park-like area" in the barren patch. We'll call this "the first order."

--The Town gave timely notice of appeal, which the Court of Appeals dismissed a year later with prejudice. As a result, the Town "removed the park."

--In early 2005, the Town applied to the North Carolina Department of Natural Resources (DENR) for a Coastal Area Management Act (CAMA) permit to build within the non-exclusive easement. The application included a site plan, which we'll call the "first site plan."

--Alongside the Barris' objection, which referenced the 2003 first order from the Superior Court, DENR denied the Town's CAMA permit application. The Town filed a motion to modify the first order, as well as an appeal of the DENR decision. The Superior Court denied the Town's motion.

--In late 2005, after a jury trial on a lone question, the Burrises were awarded $36,501.00 as compensation for the Town's "wrongful obstruction and interference with [the Burris'] right of access." The Superior Court also taxed the Town with costs and attorneys fees.

--The Town appealed the verdict and filed a petition for writ of certiorari. The petition and the appeal were both dismissed, the latter with prejudice and including an award of fees, costs, and imposing Rule 11 sanctions.

--In 2008, the Town again applied with DENR for a CAMA permit, an application that included a "second site plan." The Burrises objected, contending the first site plan and second site plan were identical. The Superior Court agreed, granting the Burrises motion to enforce the prior Court orders, to award fees and costs, and to impose monetary sanctions.

--The Town again appealed.

Holding
You'd think that after all the courthouse beatings, the poor Town would only get it again. Not so.

In a victory for the principal of the exhaustion of remedies, the Court of Appeals first noted that the Superior Court erred by exercising jurisdiction over "a permit issue properly governed by administrative law." In other words, the Superior Court had no business enforcing prior orders as to the second site plan when the administrative process exists precisely because those agencies (in this case, DENR) "posses the expertise in determining whether or not the issues presented by the Town's second site plan were identical to [the first site plan] the trial court previously had examined." The Court vacated the trial court's application of "res judicata, collateral estoppel, judicial estoppel, and law of the case doctrine," concluding that the second site plan "should have been examined first by DENR."

The Court also vacated the award of Rule 11 sanctions against the Town. First, the Court took issue with the fact that the trial court considered a site plan to be an "other paper of a party" as that Rule provides: "Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record ...." N.C.G.S. 1A-1, Rule 11(a). Perhaps an abuse of process claim would have fared better? Probably not. Following on the Court's analysis as to the expertise inherent in the administrative process, the Court also determined that "justiciable issues" existed as to whether the first site plan and the second site plan were "materially different." If DENR makes such a ruling, should the Barrises revisit this type of claim? We'll see.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Energy Tycoon and Michigan Town Embroiled In Land Use Litigation

Fairly or not, some in Seattle still blame, at least in part, billionaire Aubrey McClendon for helping to move their NBA Supersonics to Oklahoma City, Mr. McClendon's hometown and the locale of his Chesapeake Energy Corporation. Well, the angry in Seattle may have kindred spirit with a vocal group in the small municipality of Saugatuck Township, Michigan.

The story goes a little something like this. Some ten years ago, Mr. McClendon -- the CEO of Chesapeake Energy, which he co-founded in 1989 with a $50,000 initial investment -- was tipping the whitecaps of Lake Michigan on his jet ski when he spotted what he described as one of the most beautiful pieces of land he'd ever seen: 400 acres of undeveloped eden in Saugatuck Township, Michigan. For those familiar with the southeastern shores of Lake Michigan, with its duned majesty, water-framed sunsets, and decidedly provincial feel, you'll know that Mr. McClendon is as accurate in his impression as he is effective in his business post. Chesapeake Energy has documented 20 consecutive years of production growth and, in 2005, Forbes magazine named Mr. McClendon one of its top performing executives.

That moment of unadulterated awe caused Mr. McClendon to envision development on the scale of luxury homes and condominiums, a hotel (or an "inn," depending on which side you favor), a marina, and a nine-hole golf course. With that in mind, Mr. McClendon bought a half-interest in those 400 acres in 2004; in 2006, he was about to finalize his purchase of the entire property when the five-member Saugatuck Township Board voted unanimously to rezone, lowering the density of permissible development. According to the Board, the rezoning was properly conducted and entirely consistent with a land-use plan adopted the year before.

Despite the rezoning, Mr. McClendon bought his full interest in the property for $39.5 million, which is less than I would have guessed. It seems Mr. McClendon did so with the impression that he could work with the town fathers to find a mutually agreeable land use result, thereby avoiding litigation.

Enter the almost inevitable opposition. A non-profit group calling itself the Saugatuck Dunes Alliance has voiced concern that the proposed development would mar the decliate ecology of a sand dune system as well as harm local business interests. With that kind of organization, Mr. McClendon and the Town could not reach an amicable medium.

In March of this year, Mr. McClendon filed a federal lawsuit seeking to overturn the 2006 rezoning of the property. According to news outlets, the lawsuit claims the Town illegality singled out his property.

In May, residents voted by a razor-thin margin to raise taxes to pay for legal bills, which have been reported to exceed $250,000. That's a significant amount for any entity, especially considering the Town's annual budget hovers close to $700,000. In any event, and adding to the histrionics of the whole matter, the ballot initiative is currently subject to legal challenge.

See? Land use is the universal language. We'll watch this high-profile matter with interest.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Thursday, December 16, 2010, 10:03 AM

City of Raleigh Postpones Plans to Address Feasibility of Food Trucks

We've written in this space before about the growing popularity of food trucks, their presence in urban centers throughout the Triangle region (Raleigh, Durham, Chapel Hill) of North Carolina, and the land use and business issues arising therefrom. Still hungry, we're back for seconds.

As of early December, it's reported by some news outlets as follows with regard to food truck operability:

Raleigh: Those selling food from trucks must have a business license and health permits. An ordinance prohibits the operation of food trucks within city limits, but owners can apply for event permits. Those cost about $60 and are valid for four weeks in a single spot.

Chapel Hill: Merchants who sell food from trucks must be properly licensed. The town restricts selling food in a public right-of-way. Applications for food trucks are considered on a case-by-case basis.

Durham: Durham allows food trucks on city streets and on Duke University's campus.

Now, reports indicate that Raleigh's Law and Public Safety Committee will not address the issue of food truck regulation until, at the earliest, late January 2011. Apparently the Downtown Raleigh Alliance -- the official nonprofit organization designated to manage and promote downtown Raleigh as a regional center of commerce, tourism, and livability -- has yet to complete important research on economic, legal and practical feasibility, research which will almost certainly include zoning, permitting, and business license issues. This, of course, will only postpone the Raleigh City Council's handling of the topic.

We'll keep on the issue like white on lavender-scented Basmati rice. From Durham's Indian Food On Wheels.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Wednesday, December 15, 2010, 3:56 PM

North Carolina Building Code Council Addresses Building Code Efficiency Standards

We've blogged before here about the North Carolina Building Code Council's intentions with regard to efficiency standards contained within the North Carolina Building Code, which is updated every three years. The current code is based on the 2006 International Energy Conservation Code, with some state revision.

Way back in September, when Urban Meyer was still Florida's head coach, the Council voted by a margin of 8-6 to delay updating the current North Carolina Building Code until, at the earliest, 2015. This irked some "green-minded" members of the public and the body politic.

Sure enough, the winds have changed (and Urban Meyer is out). The North Carolina Building Council voted Tuesday to order the increase in residential energy efficiency and to consider changes to building standards that could cut building costs by 15% within two years. Commercial buildings would be required to meet a 30% improvement in energy efficiency. According to reports, the new standards would call for more efficient windows and insulation, for example.

This 15% residential/30% commercial increase in energy efficiency represents a compromise on the 30% across-the-board efficiency increase originally proposed by the conservation-minded. While these standards have yet to take effect -- they are still subject to review and the North Carolina General Assembly could still step in -- this is an interesting development for local governments and developers. We'll continue to watch with interest.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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North Carolina Local Governments Scramble to Decide Whether Development Approvals Should Be Tolled/Extended Through December 2011

As we've blogged earlier, in light of recent uncertain economic conditions the North Carolina General Assembly passed "The Permit Extension Act of 2009." The 2009 Act--S.L. 2009-406, a safety valve for developers and local governments, alike--provided that the running and the expiration of any time limit for taking action on a development permit would be suspended for the period January 1, 2008 through December 31, 2010. Under North Carolina laws, the window within which to act on these development approvals is oftentimes quite limited.

To be clear, the 2009 Act defines “development approval” to include sketch plans, preliminary plats, subdivision plats, site-specific and phased-development plans, development permits, development agreements, erosion and sedimentation control plans, CAMA permits, water and wastewater permits, nondischarge permits, water quality certifications, and air quality permits, and building permits.

And also as we've previously blogged, local governments remain busy deciding whether they should "opt out" of an otherwise automatic extension of the 2009 Act through December 31, 2011, enacted this past summer as S.L. 2010-177. Local governments have until--when else?--December 31 of this year to make a final decision.

Well, we've already seen some tumult. For example, newly-elected Chatham County Board of Commissioners voted earlier this week to reverse the previous Board's decision to "opt out" of the extension proposed by S.L. 2010-177. In other words, developers holding fast-expiring "development approvals" issued by Chatham County may well rest a little easier under this late-game re-decision. Other municipalities in the Triangle, including Cary and Morrisville, are taking up this week the decision to "opt out" of S.L. 2010-177.

The lesson from Chatham County's u-turn is that these decisions aren't final until, well, they are final. As a result, developers holding approvals (or seeking, insofar as tolling will certainly affect future approvals from a predictability standpoint) need pay attention to what municipalities and counties are doing in this regard.

We'll continue to keep you updated through the end of the calendar year.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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What the Cluck?: Sanderson Farms May Be Rethinking Processing Plant Location In Light of Zoning Issues

We've blogged before about the controversy in Nash County swirling about the rezoning of property for the location of a Sanderson Farms chicken processing plant. Recently, the City of Wilson, a Nash County neighbor to the south, sued the County over the zoning of the 150 acres at issue.

According to business outlets, CEO Joe Sanderson, Jr. indicated this week that delays in the zoning process, accounted for in our earlier blog entry, may push the Company's decision as to where it will build its "deboning" plant until later in 2011. According to Mr. Sanderson, assuming continued zoning delays in light of the City's lawsuit, "2011 grain crop's condition and future corn prices" will inform the Company's decision whether and when to build Nash County.

We will continue to monitor.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Monday, December 13, 2010, 11:46 AM

Smell This, Please: Fourth Circuit Addresses Ripeness and Pleading In Zoning Context


A recently-unpublished federal appeals court decision signals both a victory for developer claims against inventive local governments as well as a loss for proponents of more lax pleading standards.

Appellant Acorn Land, LLC ("Acorn") purchased a tract of land in Baltimore County, Marlyand. The land -- situated among an interstate, an academic research park, and a number of single-family homes -- was "burdened" by a water/sewer classification making residential development difficult. Acorn petitioned Baltimore County to amend the classification, which would facilitate residential development. A number of County agencies, including the County's Planning Board, recommended approval of the water/sewer amendment. The County, however, took no action as to Acorn's request.

Frustrated, Acorn filed a petition in the Circuit Court for a writ of mandamus to compel the County to approve the water/sewer amendment. The Circuit Court issued the writ, concluding that the County's inaction was "arbitrary and capricious" and reasoning that "Acorn met Baltimore County's established objective criteria for water/sewer reclassification." The County appealed; in the interim -- and this is critical -- the County rezoned Acorn's land to a lower density such that the writ of mandamus could not have any effect. In street slang, as the Fourth Circuit observed, the rezoning allowed the County to "sidestep the circuit court's order [issuing the writ]."

Acorn filed a declaratory judgment suit in Circuit Court alleging, inter alia, that the rezoning amounted to (1) a violation of substantive due process rights and (2) an unlawful taking without just compensation. The County removed the action. The federal district court dismissed Acorn's state and federal constituional claims for a failure to exhaust applicable state remedies.

In Acorn Land, LLC v. Baltimore County, Maryland, the Fourth Circuit reviewed dismissal of the federal takings and substantive due process claims for lack of ripeness as well as the sufficiency of the claims as plead. We'll discuss in turn.

Ripeness
A regulatory takings claim is ripe where: (1) the government entity charged with implementing the regulations in question has issued a “final decision regarding the application of the regulations to the property at issue,” and (2) the plaintiff has sought and been denied just compensation through available and adequate state procedures for seeking just compensation. Williamson County Reg’l Planning Comm’ n v. Hamilton Bank of Johnson City, 473 U.S. 172, 186, 195 (1985).

Focusing on the second, "final decision" prong, the Court noted at the outset that such a requirement "does not require landowners to exhaust administrative remedies" where the entity or agency to which the landowner would appeal "is empowered only to review, not participate in, the lower agency's decisionmaking." The Court concluded, in other words, that ripeness cannot depend upon proceeding any further in the administrative context where the sought-after remedy -- here, a return to the intial zoning -- cannot be afforded in the administrative context.

The Court also pointed out that administrative remedies need not be pursued where "it is clear that the [local government] has dug in its heels."

Adequacy of Pleading
As to properly pleading a regulatory takings claim, the Court found that Acorn alleged (1) it had had a reasonable investment-backed expectation to residentially develop the property, (2) the County's decision to rezone the property had an adverse economic effect by prohibiting residential development, and (3) the County's actions constituted an "illegitimate and inequitable attempt to prevent Acorn from developing its property." Thus, having found the federal takings claim ripe, the Court also found the claim properly and adequately plead.

The substantive due process claim, though ripe, fared less well with regard to Acorn's manner of pleading. The Court began its dicussion by stating ex cathedra that, to survive dimissal, a litigant must plead: “(1) that [it] had property or a property interest; (2) that the state deprived [it] of this property or property interest; and (3) that the state’s action falls so far beyond the outer limits of legitimate governmental action that no process could cure the deficiency.” Sylvia Dev. Corp. v. Calvert County, 48 F.3d 810, 827 (4th Cir.1995). Applying the articulated standard, the Court found that Acorn’s complaint fails under the third Sylvia prong because the complaint did not plausibly plead that no state-court process could cure Acorn’s injury.

To follow along, this means Acorn's due process claim is ripe for federal adjudication from an administrative exhaustion standpoint, but nonetheless dismissable because Acorn did not "plausibly plead that no state-court process could cure Acorn's injury." A critical soundbite: "Indeed, the '[Due Process] Clause is violated only where the state courts can do nothing to rectify the injury that the state has already arbitrarily inflicted.'" Love v. Pepersack, 47 F.3d 120, 123 (4th Cir. 1995).

Let's discuss. Is the Court's analysis as to Acorn's substantive due process claims more akin to a brand of abstention than to a legitimate discussion of pleading standards? And, lest we forget, wasn't it the County that removed the action to the now-abstaining federal court, an action which Acorn intially filed with the very state court in which the Fourth Circuit chides Acorn for, in essence, not proceeding?

Well, this is good food for thought. The lesson: when proceeding in constitutional territory, especially with regard to land use cases, be certain to pay close attention to jurisdictional and prudential issues.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Wednesday, December 8, 2010, 10:18 AM

Free Expression: Town "Drops" Prohibition on Sagging Pants and Internet Sweepstakes Soldier On

It's been a busy month in North Carolina for proponents of free expression.

Just the other week, as we've blogged before here and here, a state court issued an Order striking down as unconstitutional a portion of a state law prohibiting certain internet sweepstakes games. Specifically, the state court applied the "strict scrutiny" standard to take issue with the breadth of a notable restriction on "[a]ny other video game not dependent on skill or dexterity that is played while revealing a prize as the result of an entry into a sweepstakes."

Then, last night, the Town fathers of East Laurinburg opted to "drop" -- that's the newspaper's language, not mine -- a proposed ban on sagging pants in the Town's close limits. You can view our previous post on this issue here. Essentially, and perhaps with an eye on other First Amendment dustups, the Town of East Laurinburg abandoned the dress code after estimating significant costs to craft an ordinance that "would stand up in court." And, having already received a warning shot from the North Carolina ACLU, a legal challenge was about a foregone conclusion.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Tuesday, December 7, 2010, 2:49 PM

Pending Expedited Appeal, State Requests Stay of Court Order Regarding Internet Sweepstakes

We've been following the unfolding saga of internet sweepstakes in North Carolina. You can view previous posts here and here for a proper background.

Where are we now? Well, the State is seeking an expedited appeal of a Superior Court ruling that the vagueness of N.C.G.S. Section 14-306.4(i) renders that provision unconstitutional. In the meantime, until the Court can hear and decide the State's appeal, the State will seek a stay of the Order. The basis for a stay? We haven't seen the paper, but it's been reported that the State's Attorney General's office contends that, absent a stay, people who operate what lawmakers have deemed illegal gambling will be able to evade prosecution.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Friday, December 3, 2010, 5:31 PM

751 South Stipulation Moves Protest Petition Issue Away from Durham County Board of Adjustment and Into State Courts

Have you heard about Durham's 751 south? Well, we've blogged briefly about it in the past.

In a nutshell, 751 South is a controversial mixed-use project by which a Raleigh developer -- Southern Durham Development Corp. (SDDC) -- plans to develop 167 acres of land near the Chatham County line, off of N.C. State Road 751, into 1,300 houses, townhomes, apartments and condos plus as much as 600,000 square feet of office and retail space.

The planning began years ago but the rubber hit the road in 2008. Then, SDDC petitioned Durham County to rezone the 167 acres to accomodate the planned development. Enter: the opposition. According to news outlets, a group of nearby residents as well as environmental, political and community groups have joined the growing list of challengers. In fact, it's been reported that the Chatham County Board of Commissioners, the county where most of nearby and point of concern Jordan Lake is located, has even urged Durham County's leaders to deny development.

In the past year, neighboring residents have on two separate occasions filed protest petitions in opposition to the rezoning, the effect of which requires a 4/5 vote (as opposed to the ordinary 3/5 vote) for approval. This added voting threshhold has been viewed as "a make-or-break issue for the rezoning request, as two commissioners [of the five] ... are considered likely to vote against [the rezoning petition]." However, an administrative ruling this past summer by the County's Planning Director threw out the protest petitions on the grounds that SDDC's grant of a 3.3 acre easement along N.C. State Road 751 to the N.C. Department of Transportation (NCDOT) separated enough of the protesting landowners from the proposed development. Indeed, strict procedural rules govern the protest process, and this move was quite savvy.

In response, protestors sought an appeal of the Planning Director's August 9 decision before the County's Board of Adjustment, contending, inter alia, that SDDC did not actually convey any property interest by the easement such as would dilute the landowners and that the Planning Director applied a new state statute, as opposed to the proper old statute statute, in adjudging the distance standards applicable for ascertaining "neighboring landowners." (NCDOT, it should be noted, attempted to walk away from the granted easement once it learned acceptance could affect the zoning outcome as to the 751 South development; lawyers for SDDC, however, effectively argued NCDOT cannot abandon road rights-of-way).

Based on an agreement reached the other week between the developer and the protesting parties, the Superior Court -- rather than the Durham County Board of Adjustment -- will decide the propriety of the proetst petition. According to the stipulation, the parties concur that "the appropriate vanue for consideration is actually through Superior Court." The move takes the case away from the laypeople constituting the County Board of Adjustment, and, in effect, places the rezoning decision in the hands of the State Court insofar as all five County Commissioners have staked themselves on the 751 South rezoning petition (3-2 in favor of rezoning).

We will continue to follow.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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State Appeals Court Decision On Sweepstakes and Attorney General Issues Guidance to Law Enforcement

We've blogged before about internet sweepstakes at some length here.

According to the news outlet The News and Observer, published among the oaks of Raleigh, the State will seek an expedited appeal of Judge Craig's ruling as to the unconstitutionality of N.C.G.S. 14-306.4(i).

In addition, State Attorney General Roy Cooper has issued a written advisory to law enforcement officials regarding N.C.G.S. 14-306.4 in the wake of the recent court rulings.

We'll keep an eye on the resulting fallout and pending appeal.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Food Trucks Order Up Zoning, Licensing, and Other Regulatory Issues In North Carolina

Why did the chicken cross the road? To get to the other side. Where Korean beef tacos are all the rage.

Yes, yes, food trucks are taking the culinary world by storm. Some would even say these mobile kitchens are taking the hipster culinary world by storm. What, you already know about food trucks? Ok, all the hipsters have now moved onto something else.

From the New York Times to the Food Network to the Wall Street Journal, food trucks are getting some press they deserve and some press they do not. Heck, even free-market newspaper, devotee of Ecuadorian elections and purveyor of puntastic headlines The Economist devoted a half-page of its annual preview to the topic. See "Trucking Delicious," The World In 2011. These cheaper and sometimes more creative alternatives to brick and mortar restaurants are making their presence known.

Here in the Triangle of North Carolina, however, that presence may not be all too welcome for some. It seems the lunchtime hotspots are running into some regulatory and commercial obstacles care of state and local governments as well as competing establishments. In Raleigh, for example, city ordinances restrict food truck operation and parking to commercially zoned land. In addition, a permit is required for location though these little licenses are only available twenty (20) days at a clip. And downtown? Raleigh's downtown overlay zoning districts, which encompasses the popular Fayetteville Street (businesses) and Glenwood South (bars and nightlife) areas, do not permit food trucks to locate at all. In other words, the climate isn't very accommodating. What's more, the non-driveable version of restaurants -- you know, with tables -- take issue with the cheaper and perhaps more speedy options.

But, in the melodic words of the Grateful Dead, there may be "help on the way." Raleigh's City Council has appointed a committee to study the issue -- after all, these trucks thrive alongside traditional establishments in comparable spots like Portland, Oregon and Austin, Texas (yep, even good neighbor Durham!). Councilwoman Mary-Ann Baldwin, who heads that committee, has indicated that change is likely in the Capital City provided existing businesses are given a fair shake.

We'll monitor this food truck issue, with its zoning and business license implications, as it develops. Until then, can I get you another arepa?

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Thursday, December 2, 2010, 3:02 PM

Federal Court Kicks Out Developer's Tortious Interference Lawsuit Against Zoning Official


When one's zoning review does not afford a satisfactory result -- neither the board of adjustment nor the courts will award the proper approvals -- what's left to do? Well, that's an excellent question. One developer in Florida took the road less traveled and sued the zoning administrator. In federal court. For tortious interference with a contractual relationship.

Cue ominous music.

Isaac Walton Investors LLC enjoyed a contractual relationship with developer Forum Architects LLC for the development of a project in Yankeetown, Florida. Yes, Yankeetown. And for the record, I'm a Met fan. Anyway, the developer and the investor submitted six project applications to the Town zoning officer, at the time a Mr. Stanley Moore. It seems Mr. Moore sent a letter to the Town after review stating that the submitted applications were "approved," but Mr. Moor did not sign the certificates of zoning compliance nor did he append his letter with any documentation verifying the alleged "approval." Mr. Moore resigned in the midst of this review (though it does not appear because of this review) and was replaced in his zoning official capacity by Rebecca Jetton, the appellee. Ms. Jetton rebooted the review process and, in so doing, denied five of the six development applications. Investor Isaac challenged the denials before the Town's board of adjustment, which upheld Ms. Jetton's determination. Investor Isaac then sought review in the Florida courts -- the circuit court and, subsequently, the court of appeals -- but remained unsucessful. Ms. Jetton's decision carried the day.

Pretty pedestrian so far, right? Well, here's where it gets interesting. Developer Forum filed a federal lawsuit against Ms. Jetton, individually, alleging that she -- as zoning administrator having denied five of the six zoning compliance applications -- tortiously interfered with developer Forum's contractual relationship with investor Isaac. At the trial stage, the Northern District of Florida granted summary judgment in zoning official Jetton's favor on the notion that she "was jusitifed in reviewing the zoning applications and approving or denying such applications on the basis of her findings."

Developer Forum appealed to the 11th Circuit, arguing that Ms. Jetton's "re-review" of the zoning applications (recall that Mr. Moore had already reviewed and, allegedly, approved the applications) was motivated by "an anti-development political climate" and "qualifies as an intentional and unjustified interference with Forum Architects' relationship with Isaac."

In an unpublished opinion, the federal appellate court affirmed the grant of summary judgment in favor of the zoning official. The appellate court noted that "Moore's monthly report states that Isaac review is still 'in progress, subject to change and a final fee has not been sent [by Isaac or Forum]'" and "it is undisputed that Moore did not sign or date the certificate of zoning compliance." In other words, the appellate court pinned its analysis on the erroneous term "re-review" and stopped short of considering motive.

You can view the decision here.

In any event, this should warm the hearts of zoning officials everywhere. Ok, but it's at least a feather in the cap.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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Wednesday, December 1, 2010, 6:18 PM

Mortgage Lenders Foreclosing Loans Afforded Solace In California Courts

Foreclosures and lending issues abound in the press, courtrooms, neighborhood gossip, and, for the considerably less fortunate, bank accounts.

In California, lenders recently secured a significant appellate victory in Perlas v. GMAC Mortgage, LLC.

Let's start with the facts. Appellants Mercedes Perlas and Len Villacorta applied for a $417,000.00 loan from GMAC, a mortgage lender. At the closing of the Loan, a Loan Application was tendered, which Appellants apparently neither reviewed nor prepared. The Application stated a "total income" well in excess of (1) what Appellants actually earned and (2) what Appellants originally stated to GMAC in inducing the loan. The material change in this information was not disclosed to Appellants nor were Appellants requested to confirm the accuracy, including the inflated "total income" information, of the Loan Application. According to Appellants, they signed the preprinted (by GMAC) Loan Application and other documents "without an opportunity to read or review them." Well, that might be the first mistake.

GMAC approved Appellants as being, and this is important to the borrower world, "qualified" for the loan. Sure enough, Appellants could not make the payments called for in the Loan Documents. Doubly sure enough, the Trustee "recorded a notice of default and election to sell under the deed of trust." The property was then sold in foreclosure.

On the second day of Christmas, a lawsuit was filed. Appellant filed a bevvy of claims against GMAC (and other defendants), the point of our discussion being claims for fraudulent misrepresentation and fraudulent concealment against lender GMAC. Essentially, Appellants argued that GMAC "knew or should have known, at the time the documents were prepared and tendered by GMAC to appellants for the Loan and Credit Line, that it was not possible for appellants to make the payments called for in the Loan and Credit Line based upon the income information actually provided to GMAC." And, therefore, "[b]y preparing and tendering the documents to appellants, the Lender Defendants represented to appellants that appellants could, in fact, make the payments called for in the loans and failed to disclose to appellants that they could not possibly afford the payments called for in the loans."

The trial court sustained demurrers to the fraud claims against GMAC, and Appellants, well, they appealed.

California's appellate court affirmed that Appellant's fraud claims failed to state a cause of action against lender GMAC, holding: "Appellants appear to conflate loan qualification and loan affordability. In effect, appellants argue that they were entitled to rely upon GMAC‟s determination that they qualified for the loans in order to decide if they could afford the loans. Appellants cite no authority for this proposition, and it ignores the nature of the lender-borrower relationship.... [A]bsent special circumstances ... a loan transaction is at arm's length and there is no fiduciary relationship between the borrower and lender. A commercial lender pursues its own economic interests in lending money. A lender is under no duty to determine the borrower's ability to repay the loan.... The lender's efforts to determine the creditworthiness and ability to repay by a borrower are for the lender‟s protection, not the borrower's."

Safe harbor for lenders in California's common law. According to some outlets, however, legislation has been introduced in the United States Congress that would have required “mortgage originators” to “make reasonable efforts to secure a home mortgage loan that is appropriately advantageous to the borrower ….” (S.2452) and provided that “no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan ….” (H.R.3915).

Neither piece from 2007 became law, but lenders can probably see where the wind may be blowing.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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