BRUNSWICK COUNTY — D.R. Horton, a publicly-traded company that calls itself “America’s Largest Homebuilder,” filed a class-action federal lawsuit against Brunswick County earlier this month.
Asking for in excess of $5 million, D.R. Horton claims the county collected illegal water and wastewater fees as a prerequisite to providing utility service at its numerous residential projects.
The allegedly illegal fees cut into the company’s profits, creating greater expenses, according to the suit.
Referred to as impact, capacity, capital recovery or system development fees, litigation surrounding the fees among builders and municipalities has increased over the last two years. In fact, D.R. Horton’s suit — filed March 5 in the United States District Court — is at least the third filed in the Cape Fear region regarding allegedly illegal impact fees.
A North Carolina Supreme Court case found impact fees charged to fund future service costs to be unlawful in 2016. Then in 2017, the General Assembly passed House Bill 436. The bill legalized and clarified the fees – now dubbed “system development fees” — under certain conditions. Utility providers can’t assess the fees arbitrarily. The fees must be based on a professional analysis, used to recoup capital improvement costs to service new development.
Last fiscal year, Brunswick County charged $1,150 in water and $4,000 for wastewater connection for a three-bedroom unit in “capital recovery fees.” During that time, the county issued 1,307 residential permits — with new construction valued at $459.1 million — according to its most recent permit report. With five months left in the current fiscal year, the county has already issued 1,475 residential permits as of January.
Ann Hardy, Brunswick County’s manager, said the county was served about two weeks ago. She said the county intends to defend its stance that the fees were charged lawfully.
“We have not yet filed a response,” Hardy wrote in an email Thursday. “We will defend the county’s position that the county’s utility system development fees were appropriately charged and collected.”
D.R. Horton’s class action claims Brunswick County charged these fees with “deliberate indifference” to the company’s constitutional rights. Under the Fourteenth Amendment, the government is prohibited from depriving property rights without due process.
This alleged constitutional violation, among other reasons, is cited as grounds for the suit D.R. Horton filed the case in United States District Court rather than Brunswick County Superior Court.
The suit argues Brunswick County was aware, or should have been aware, that its actions violated both federal and state law. Municipalities were warned in 1982, the suit states, when the North Carolina Supreme Court cautioned local governments that they may lack the power to charge for future services.
Brunswick County illegally collected in excess of $5 million between June of 2015 and June 2018, the suit alleges.
D.R. Horton has filed a similar federal lawsuit against the City of Charlotte and its water utility, Charlotte Water (formerly known as the Charlotte-Mecklenburg Utility Department). Filed on January 11 in the Western District of United States District Court of North Carolina, the class-action suit also includes a half-dozen other home builders as co-plaintiffs. In that suit, the companies claim the same amount — at least $5 million plus 6 percent interest — is owed.
In mid-March, Charlotte’s attorney filed a motion to dismiss the case, but it is still currently pending.
Third case in Cape Fear region
When the law changed two years ago, it did not retroactively authorize utility providers to charge the illegal fees.
With a three year statute of limitation, some builders that believe they were assessed illegally between September 2015 and June 2018 are pursuing legal action to get their money back.
Mecklenburg-based J.A.C.K. Development, LLC, and Wilmington-based Coastal Cypress Building Company, founded by Steve Swain, filed a class action suit against Cape Fear Public Utility Authority (CFPUA) in August 2018. The suit claims CFPUA’s baseless collection of fees — charged with no concrete plan — “shocks the conscience.” (D.R. Horton’s suit also uses this same legal jargon.)
That same month, the Town of Leland entered into a tolling agreement with Bill Clark Homes Wilmington. The agreement preserves Bill Clark Homes’ right to enter a lawsuit, of which it has not yet filed. It precludes Leland from claiming statutes of limitations in a future suit, and claims the company overpaid utility impact fees for several years. Then, in September 2018, Wilmington-based Plantation Building Corp. filed a class action suit against the town, alleging the same thing.
Both Leland and CFPUA denied the builders’ claims. According to the lead attorney for plaintiffs that filed cases against Leland and CFPUA, the firm Whitfield, Bryson & Mason LLP has filed several similar suits across the state.
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