Can You Hear Me Now? Impact Fees are Not Allowed by Law

            From the town that threw a zoning hissy fit when a farmer sold vegetables by the roadside and that had a conniption fit when a new but retro-design chrome diner was, well, too chrome-y, comes yet another one in a prolonged there-they-go-again parade.  Even though courts have clearly told every other local government that the State of North Carolina doesn’t allow it to impose impact fees in the form of adequate public facilities ordinances (APFOs), the Town of Cary insists that those laws and those cases only apply to others.

             An August 3^rd Court of Appeals decision will cost Cary’s citizens over a million dollars (not including its own attorneys’ fees from two outside law firms) unless it’s overturned by the N.C. Supreme Court. This is not the first time Cary’s citizens have had to fund litigation when its council acted contrary to state law.

             The facts and legal claims in Amward Homes, et. al v. Town of Cary (COA09-923) are circuitous and cumbersome, but I’ll distill them to their basics.

             Side Bar: At the trial or summary judgment stage of a large case, attorneys and their staffs usually bring in several boxes and notebooks of affidavits and exhibits and depositions.  On appeal, those documents are reduced to the essentials which, along with legal briefs, are transmitted to the Court of Appeals.  The paper trail can still be several inches thick.  So when a newspaper gives the same case 3 column inches, there’s a good chance something has been left out.  Even with the 1,991 words in this post, there are several nuances that time and space will not allow me to explain.  For some of those nuances, you’ll have to read the full 44 page opinion. End Side Bar.

 The Facts

             The Town of Cary imposed an Adequate Public School Facilities Ordinance (APSFO) that did not require developers at the approval stage to pay fees for public schools.  Nonetheless, the Town of Cary planning staff and the Town of Cary mayor and council members, knowing that they could arm wrestle developers into offering – and their builders into paying – huge fees, threatened non-approval if the payments were not offered as zoning conditions.

             Developers have for years called this type of tactic “extortion.”  Actually, it’s not extortion in the strictest sense.  But the point remains.

            Each developer or builder was required to pay different levels of fees, with no discernible rationale for the disparate treatments. As the years went by, the Town amended the ordinance on occasions, once allowing some developers to be exempted from the fee payments, but not exempting the developers of the Cameron Pond subdivision, even after the ordinance was repealed.  The Cameron Pond builders comprise most of the plaintiffs in the action.

The Legal Claims

            The plaintiffs in this case claimed 1) that the APSFO was ultra vires, meaning the town did not have the legal authority to enact it; 2) that the APSFO violated their rights to equal protection and substantive due process guaranteed by the U.S. and N.C. Constitutions; and 3) that the fees they had paid must be returned and their attorney’s fees paid.

            Cary raised several defenses, including 1) the Court’s lack of jurisdiction over the subject matter; 2) that plaintiffs filed their claims too late; 3) plaintiffs are estopped from challenging an ordinance under which they had reaped advantage (e.g. project approval); and 4) all those other cases and laws just didn’t apply to Cary because, one would guess, Cary is special.

Legal Analysis and Case Commentary

            Side Bar: “Legal analysis” is the dry, academic discussion of the case’s facts and legal claims interpreted against principles of law that have evolved since the signing of the Magna Carta in 1215. “Case commentary” is the more colorful analysis that looks at the parties, the judge’s persona, the political context, the structure of the opinion itself, and that asks “what were they thinking??”

            Case Commentary

            Judge Hunter’s opinion subjected Cary to a full body slam.  Even when he had a reasonable opportunity to give Cary the benefit of the doubt over facts or to interpret case law and legal principles favorable to Cary on ,its defenses, he chose to craft an opinion that gave the private sector a clear victory on all counts, writing with a confidence and in a declarative voice that contained little wish or wash beyond occasional acknowledgements that there were contrary legal arguments to be made.

            When judges sift through the vast materials that comprise an appeal, they have to choose which needle in the big haystack is sharpest. Judge Hunter chose to dedicate an entire page of his 41 page opinion (there were 3 more pages in a dissent) to an affidavit in which the managing partner of the Cameron Pond development described in great detail how the planning staff and mayor told him, essentially, you have to pay to play even though the APSFO ordinance didn’t require such payments.  Such strong arm tactics were an integral part of the way Cary did business, using the APSFO as its justification.

            Judge Hunter, it seems, was offended by this abuse of entrusted power.

            Second Side Bar: There are fifteen judges on the Court of Appeals with fifteen different personalities.  Cases are randomly assigned to three-judge panels. It is often the random assignment that determines how a case comes out. In other words, luck of the draw can determine a legal outcome. In this case, the opinion was written by Judge Robert N. (“Bob”) Hunter, Jr. from Greensboro, a Republican who has a long career working primarily in the private sector.  But there is another Bob Hunter on the court.  Judge Robert C. Hunter from Marion, a Democrat, spent many years in government employment and in the legislature and rubbing shoulders with local and state agencies.  There’s a decent chance he would have been more patient with town officials and forgiving of Cary’s APSFO, in spite of recent and clear trial and appellate court decisions to the contrary.  End Second Side Bar.

           In Cary’s defense, however, it should be noted that the APSFO was adopted before the 2006 Durham case and 2009 Union County case.  Prior to those cases most North Carolina local governments generally acknowledged that General Stature Chapter 160A did not grant powers to impose impact fees, but the appellate courts had not yet spoken.  Additionally, Cary’s bipolar political culture has experienced wild pro-growth/anti-growth mood swings in the past two decades, with Mayor Glenn Lang (mayor when the fee was required) representing the anti-developer sentiment more than anyone. 

            Legal Analysis

             Why was the Ordinance Ultra Vires?

             In late 2009 the Court of Appeals decided the case Union Land Owners Ass’n v. County of Union where Union County had imposed a similar school impact ordinance.  The Court held that Union County “may not use the APFO to obtain indirectly the payment of what amounts to an impact fee given that the defendant lacks the authority to impose impact fees directly.” The Union case built upon yet another similar case out of Durham County in 2006.  To boil the issue to its essence, the state has never given local governments blanket authority to impose impact fees.

             Cary argued with some degree of disingenuousness that Union County’s ordinance actually required payment of a fee, whereas Cary’s (original) ordinance didn’t mention fees at all.  Rather, its staff and elected officials merely used the “non fee ordinance” as its legal basis to strong arm fee payments in every single case, and the developer’s “voluntary” offer of fee payments was an act of civic charity and freewill. 

             After reading the opinion I conclude that Judge Hunter was not amused. Whether the fee is required by written ordinance versus the power bestowed upon elected officials to mandate it through other means is an artificial and meaningless distinction.

             It is noteworthy that this case cannot be read as disallowing local governments from considering the adequacy of facilities to accommodate proposed growth.  That still remains an open question and is likely allowable.  However, this case can be read as disallowing a shifting of the responsibility of school construction and maintenance to the development community through impact fees.

             When was the Deadline to File the Claim?

             Regarding Cary’s claim that the developers and builders filed their case too late, the Court determined that there was no statute of limitations that clearly applied, and therefore the time period was ten years beyond the last act in the series of offenses (payment of fees).  The Court reasoned that if this were a zoning ordinance that required town council approval there would have been some merit to this defense.  However, the APSFO was a subdivision ordinance that required town council approval, and that was different.

             Although I personally am not impressed with the Court’s distinction, I also am not impressed with the fact that our courts for years have confused zoning text amendments with zoning map amendments, each adopted by a “zoning ordinance” yet each being completely different than the other.  And the same two month statute of limitations intended for map amendments has erroneously been applied to text amendments with gusto.  So it goes.

             Violating Constitutional Rights

             Nothing illustrates the plaintiffs’ complete victory more than the fact that they prevailed on their substantive due process claims and received attorney’s fees.  In short, substantive due process claims in the zoning context are extremely difficult to prove.

             Substantive due process is a somewhat vague standard that requires a government to use its powers to enact laws with at least a plausible degree of reasonableness and requiring at least an arguable connection between the law and the desired result, generally giving the government the benefit of the doubt.  The Court held that the fee payment “requirement” was completely contrary to law and therefore had no relation to a valid state objective. What is usually a higher bar for other plaintiffs seems to have been lowered for these plaintiffs. But if you need consistency in your life, don’t practice law.

             The Court also found that the plaintiffs were required to pay higher fees than several other citizens, and that when the APSFO was repealed the plaintiffs were singled out and required to continue paying the fees. When there is no rational basis for disparate treatment between citizens, this is called “unequal treatment.”

             When somebody’s constitutional rights are violated “under color of law,” 42 United States Code §1988 allows attorney’s fees to the prevailing plaintiff.  In this case, all $368,000 worth.

             Can the Case Be Appealed?

             Yes.  Because there was a dissenting opinion, the loser (Cary) has an automatic right of appeal to the North Carolina Supreme Court.  However, the dissent was on technical grounds related to the right of appeal.  If appeal is taken, I’ll explain the subtleties of appeal and reduction of issues at that time.

             What is the “Take Away” Point?

             For “bottom line” understanding, don’t try imposing impact fees unless your town or county has specific authorization from the General Assembly.  Even the best lawyers can’t help you then, and Cary hired some outstanding lawyers who did an outstanding job.  You can consider the adequacy of roads and water/sewer infrastructure and schools to serve a development during the approval process, short of requiring impact fees. 

 In the Meantime . . . ?

        My firm regularly represents both the private sector and local governments. Those of us in this area of practice don’t for a minute think that Cary’s huge portion of humble pie will prevent it from continuing to be Cary.  After all, name another town in North Carolina that would find it to be a zoning ordinance violation when a man with his business logo painted on the side of his pickup parks in his own driveway in a residential district when he comes home each day.  Even most HOAs are more reasonable than that.

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