BRUNSWICK COUNTY — Leland has formally denied allegations it charged builders illegal impact fees in its response to a lawsuit, brought against the town in September.
According to the town’s first legal filing answering Plantation Building Corp.’s complaint, Leland states all impact fees it charged in recent years have been legal.
Catch up on the backstory: Builder files class action suit against Leland, alleges town charged illegal utility fees
Leland argues court opinions that lead to a 2016 North Carolina Supreme Court ruling in favor of a builder, used as the base of the plaintiff’s case, are not a persuasive or controlling authority to resolve the matter.
The case was initiated on Sept. 7, 2018, by Plantation Building Corp., a prominent Wilmington-based development company. Filed as a class action lawsuit, no additional builders have joined in, according to available court filings reviewed by Port City Daily Thursday.
After Leland’s 30-day extension was granted on Oct. 17, the town offered its first legal response to Plantation Building Corp.’s complaints on Dec. 3.
So, what are impact fees?
The case alleges Leland charged Plantation Building Corp. and other developers and contractors illegal water and sewer impact fees as a prerequisite to development.
“Impact fees,” also referred to as “capacity fees” and more recently, “system development fees,” refer to charges that do not relate to regular utility use. These fees are typically charged to parties who want to connect to a municipalities’ existing utility system before building new commercial or residential development.
According to state law and legal precedent, the fees are now legal as long as they are calculated via a professional analysis and represent the actual projected cost required to meet the new customer’s needs; in other words, they cannot be an arbitrary amount or based on an unfounded estimate of future costs.
In 2016, the North Carolina Supreme Court ruled in favor of a builder in a similar matter. The case, Quality Built Homes, Inc. vs. Town of Carthage, concluded existing state statutes empowered Carthage to charge for “contemporaneous” utility service, but not to collect fees for “future spending.”
The impact fees Carthage collected were found to be illegal. And the court ruled the town’s ordinances used to collect them were invalid, exceeding Carthage’s legal authority.
Later, on Oct. 2017, the North Carolina General Assembly further clarified and legalized “system development fees.” House Bill 436 allows municipalities to recoup capital improvement costs — that include some future utility plans — to service new development through system development fees.
The law does not, however, retroactively authorize municipalities to charge these fees collected prior to Oct. 1, 2017. The North Carolina Supreme Court recently left the door open for future similar suits, ruling in May 2018 that the builder had a three-year statute of limitations to bring forth their complaints.
Plantation vs. Leland
Plantation Building Corp.’s suit cites 19 properties it built in Brunswick Forest that Leland collected impact fees for within a three year period from the suits filing; Sept. 2014 through Sept. 2017. Leland admitted to collecting such fees within this period on all but two of the properties, but denies the fees were charged illegally.
This isn’t the first time Leland has gotten into a legal spat with developers; In Oct. 2015, four LLCs, all connected by the same Fayetteville-based property management company, brought a lawsuit against the town in regards to its newly implemented FlexCode zoning.
That suit claimed Leland’s Town Council did not give the Ocean Gate Plaza owners proper and adequate notice in their effort to involuntarily re-zone the property. The case was settled one month after it was filed.
In its response to the impact fees suit, Leland admits to “formerly” charging impact fees. However, the town denies the fees were used to fund future utility costs.
“Leland did not, and does not, charge impact fees for future expansion,” the filing states.
On Jan. 19, 2017, Leland acknowledged the Supreme Court’s ruling and new law, two months after it passed. It created new fees, called “capacity fees,” to “recover the outflow of utility capital costs.”
“Once the town became aware of the ruling [Quality Built Homes vs. Town of Carthage], the town immediately ceased assessment and collection of impact fees,” Leland’s Jan. 2017 resolution, used as an exhibit in the lawsuit, states.
The lawsuit alleges the town did not come into compliance with the new state law until at least June 1, 2018. State law granted local governments until July 1, 2018, to conform to new legal requirements associated with system development fees.
In the town’s December legal filing, it argues the builder’s claims are barred by a statute of limitations. Also, the town argues Plantation Building Corp. unreasonably delayed in filing its action.
Leland denies the builder’s assertion that the 2016 Supreme Court case concludes municipalities may not charge for future expansion of utility systems or services — a conclusion the Aug. 2016 opinion explicitly makes.
Still, the town rejects the opinion’s authority in the matter.
“Defendant expressly denies that [Quality Built Homes vs. Town of Carthage] is persuasive or controlling authority for the resolution of this case,” Leland’s filing states.
Impact fees have added millions to Leland’s utility fund in recent years. But by the town’s 2016-2017 audit, specific line items that account for “impact fees,” “capacity fees,” or “system development fees,” were gone. Specific reference to such fees is absent from the town’s most recent audit, released last month.
Leland isn’t the only utility operator defending itself against builders. In August, a similar suit was introduced against Cape Fear Public Utility Authority (CFPUA), filed by the same Raleigh law firm, Whitfield, Bryson, and Mason, LLP. The law firm is also involved in nine similar cases against towns that allegedly charged illegal fees.
Mecklenburg-based J.A.C.K. Development, LLC, and Wilmington-based Coastal Cypress Building Company, founded by Steve Swain, are suing CFPUA for charging allegedly illegal impact fees. The suit alleges CFPUA’s collection of fees “shocks the conscience” and were charged arbitrarily.
CFPUA denies it broke the law in charging the fees. It filed a motion in Nov. 2018 to throw out the case entirely. Leland also argued its case should be tossed. In one of its final affirmative defenses, the town claims Plantation Building Corp. lacks standing to maintain the case and that all claims should be dismissed.
Send tips and comments to Johanna Ferebee at firstname.lastname@example.org