Supreme Court Construes Local Law To Allow “Availability” Fees To Be Charged Against Developed Property And Undeveloped Property

Michael C. Thelen | Womble Bond Dickinson

Infrastructure fees are a common battleground between landowners/developers and local governments. The Supreme Court decided a case this week that counts as a “win” for the local governments, reversing a Court of Appeals decision. That is, the Supreme Court determined that the unambiguous language of a State law granted to the local government broader powers than the Court of Appeals otherwise thought. Let’s dig in.

The Facts

The Town of Oak Island constructed a sewer system at a cost of $140M. In 2006, the North Carolina General Assembly enacted a local act – which is a State law that relates to one or more local governments – designed to assist the Town in reducing its outstanding debt for the sewer system. The law authorized the Town “to impose annual fees for the availability of sewer service within” its sewer treatment district.

The Town’s sewer lines run in front of both developed and undeveloped parcels in the district, but the system had the capacity to serve all parcels in the district. Beginning in 2009, owners of developed parcels began paying fees as an additional charge on their monthly sewer bills. Owners of undeveloped parcels began paying fees in 2010, with charges appearing on their real property tax bills.

The Trial Court

In 2015, certain owners of undeveloped property filed suit against the Town challenging the authority to assess the sewer service availability fees against undeveloped properties. In 2018, the trial court granted summary judgment to the Town, which the property owners appealed.

The Appeal

On appeal, the North Carolina Court of Appeals was divided. In a published decision, the majority concluded: “[A]lthough the Session Laws do not define the term “availability” for purposes of imposing the sewer service availability fees, it is clear that the enabling Session Laws do not, as a matter of law, apply to Plaintiffs’ undeveloped property.” The majority determined that the language of the State law was unambiguous, requiring the Court “to give effect to the plain meaning of the statute” and leading the Court to a dictionary definition of “availability” that read: “the quality or state of being available” and “”present or ready for immediate use”. The Court determined that the “complex, costly additional requirements—many of them conditional— that the owner of an undeveloped lot must fulfill in order to benefit from Oak Island’s sewer services foreclose any conclusion that such services are ‘present or ready for immediate use’ by those owners”, such that undeveloped lots did not have the “availability of sewer service” as compared to developed lots; therefore, “annual fees for availability” were not chargeable to the undeveloped lots under State law.

The dissent agrees that the statute is unambiguous and cites to the same dictionary provisions as does the majority, however, the dissent spends more time than does the majority on the Session Law, itself, and reaches a different conclusion as to what “availability” means.

Originally adopted in 2004 (S.L. 2004-96) as applied only to the Town of Holden Beach, the local act was amended in 2006 to apply both to the Town and the Town of Holden Beach. The actual law, as amended, provides: (1) “A municipality may create a fee-supported sewer treatment district for all properties that are or can be served by the sewage collection and treatment plant serving properties within the Town”, (2) “The Town may impose annual fees for the availability of sewer service within the district”, and (3) “Said fees shall be imposed on owners of each dwelling unit or parcel of property that could or does benefit from the availability of sewage treatment”. The dissent focuses on the language of the Session Law, that “fees shall be imposed on owners of each dwelling unit or parcel of property that could or does benefit from the availability of sewage treatment“. That is, to the dissent, the statute clearly authorizes the charging of fees to developed property (does benefit) and undeveloped property (could benefit). More to the point, however, the dissent is concerned that the majority’s analysis “would require terms be added to the Session Law, while rendering the terms ‘can be served [,]’ ‘within the district[,]’ and ‘parcel of property that could . . . benefit’ superfluous”, which the dissent notes neglects the judicial duty “not to delete words used or to insert words not used” when construing laws.

The Supreme Court’s Decision

On March 3, 2019, the Supreme Court reversed the Court of Appeals “for the reasons stated in the dissenting opinion”. That is, the Supreme Court agreed with the dissent’s analysis and conclusion regarding the meaning of “availability” and the ability of the Town, pursuant to the local law, to charge sewer system fees to owners of developed and undeveloped properties, alike.

Lessons From [The Side Of] The Bench

Alexandra Ortiz Hadley | Butler Snow

Some of the most frequent questions I’ve received since finishing my federal district court clerkship involve how certain judges feel about specific parties or issues. In a political climate that often portrays the federal judiciary as a battleground for partisan politics rather than a bastion of neutrality, these questions are understandable. And in a world where legal disputes are more often litigated on paper before a judge rather than in person before a jury, it is understandable for clients and attorneys alike to question whether and to what extent they face institutional biases that might affect the outcome of their case.

It may sound unrealistic, but spending a year behind the chambers curtain taught me that those questions matter a lot less than one might think. Judges, of course, are humans capable of harboring internal biases just like the rest of us. But particularly at the federal district court level, judges make decisions under the constraint of legal precedent, and mindful of appellate review if they get it wrong. District judges often manage a heavy caseload covering a wide variety of subject matters. In my experience, these realities incentivize judges to “get it right” in the most efficient way possible.

For legal practitioners, this means that advocating clearly and succinctly why the law and facts are on your client’s side is still the best weapon in the legal arsenal. This is particularly true when one considers that the judge’s clerk—oftentimes a recent law school graduate—will more likely than not be the first person to evaluate your case. Just as important are following the federal and local rules and litigating your case with courtesy and respect for the Court and opposing counsel. Failure to follow the rules can be fatal to one’s case regardless of the legal merits. Failure to show respect to the court and counsel could make a close call go the other way. These are simple and obvious principles to litigate by, but it is surprising and disappointing how often attorneys seem to forget them.

Keeping this perspective can be difficult for clients, too—especially those for whom litigation is unfamiliar and involuntary. It can be tempting to take on a righteous or uncooperative approach, but such tactics are just as likely to lead to poor results. If you’re looking for neutrality and a clean slate with the court, looking inward first is a good place to start.

Sometimes a Reminder is in Order. . .

Christopher G. Hill | Construction Law Musings

Recently, I was talking with my friend Matt Hundley about a recent case he had in the Charlottesville, VA Circuit Court.  It was a relatively straightforward (or so he and I would have thought) breach of contract matter involving a fixed price contract between his (and an associate of his Laura Hooe) client James River Stucco and the Montecello Overlook Owners’ Association.  I believe that you will see the reason for the title of the post once you hear the facts and read the opinion.

In James River Stucco, Inc. v. Monticello Overlook Owners’ Ass’n, the Court considered Janes River Stucco’s Motion for Summary Judgment countering two arguments made by the Association.  The first Association argument was that the word “employ” in the contract meant that James River Stucco was required to use its own forces (as opposed to subcontractors) to perform the work.  The second argument was that James River overcharged for the work.  This second argument was made without any allegation of fraud or that the work was not 100% performed.

Needless to say, the Court rejected both arguments.  The Court rejected the first argument stating:

In its plain meaning, “employ” means to hire, use, utilize, or make arrangements for. A plain reading of the contractual provisions cited–“shall employ” and references to “employees”–and relied on by Defendant does not require that the persons performing the labor, arranged by Plaintiff, be actual employees of the company or on the company’s payroll. It did not matter how the plaintiff accomplished the work so long as it was done correctly. The purpose of those provisions was to allocate to Plaintiff responsibility for supplying a sufficient workforce to get the work done, not to impose HR duties or require the company to use only “in house” workers. So I find that use of contracted work does not constitute a breach of the contract or these contractual provisions.

The Court reminds us, and the defendant, that employ in these types of construction contracts does not require use of ones own forces, but simply to use enough resources to get the job done as required by the contract.  The Court also went on to say that because of the fixed price nature of the contract, the Association would have paid the same amount regardless of the method of completion used by James River Stucco so the Defendant could not show any damages from the alleged breach of contract through the use of subcontracted work.

The Court rejected the second out of hand stating that the Defendant had not plead any facts that could lead the Court to conclude that the work was not performed as billed.  The Court pointed out that any alleged poor performance or other issues were more properly defenses to James River’s case in chief and not properly part of a Counterclaim.

In sum, this case is an example of how some of the things that we construction attorneys would think are so obvious are not always as clear as we may think.  We all could use a reminder on occasion.

Obscure But Important Surety and Guarantee Rules

Joe Virene | Gray Reed & McGraw

Texas surety law contains obscure procedural rules that can have outsized consequences. Chapter 43 of the Civil Practice and Remedies Code is an important example.

Applicability

This chapter applies to everything that is a “surety” as defined by the statute. The statute’s definition includes “an endorser, a guarantor, and a drawer of a draft that has been accepted; and …every other form of suretyship…” This means sureties on payment and performance bonds and even personal guarantees.

Notice and Discharge

A surety on a contract may send a written notice requiring the obligee to bring a suit on the contract. If the obligee fails to do so within the “first term of court” or fails to do so within the “second term of court if good cause is shown for delay” then the surety is discharged of liability. “Term of court’ is antiquated. However, that has since been construed to mean a “reasonable time.”

The Priority of the Execution

If a judgment is entered against a principal and a surety, then Chapter 43 requires the sheriff to first levy the principal’s property until the judgment is satisfied. If the principal does not have enough property in the county to satisfy the judgment, then the surety’s property may be levied.

Subrogation

The surety may also subrogate to the judgment creditor’s rights to extent the surety makes or is complelled to make payment(s) to satisfy the judgment.

Waiver

These rights may be waived by agreement. For this reason, these rights are often, directly or indirectly, waived.

A Few More 2020 Bills “Crossing Over” in the General Assembly

Christopher G. Hill | Construction Law Musings

Last week I posted about a few bills that should be noted by the construction community here in Virginia.  Now that the “crossover” (passed Senate bills headed to House and vice versa), here are a couple of other bills that the AGC of Virginia has highlighted that were not included in the post and updates last week.  I will just highlight two here but for a more complete list, check out this crossover update from the AGC of Virginia.

SB208 Mechanics’ liens; right to withhold payment. Specifies that the use of funds paid to a general contractor or subcontractor and used by such contractor or subcontractor before paying all amounts due for labor performed or material furnished gives rise to a civil cause of action for a party who is owed such funds. The bill further specifies that such cause of action does not affect a contractor’s or subcontractor’s right to withhold payment for failure to properly perform labor or furnish materials and that any contractual provision that allows a party to withhold funds due on one contract for alleged claims or damages due on another contract is void as against public policy.

HB1300 Virginia Public Procurement Act; statute of limitations on performance bonds; statute of limitations on construction contracts and architectural and engineering contracts. Provides that an action against the surety on a performance bond shall be brought within five years after the completion of the contract. The bill further provides that the statute of limitations on construction contracts and architectural and engineering contracts is 15 years after completion of the contract.

Both of these bills have passed their respective chambers and are being considered in the other chamber of the General Assembly.  The first deals with offset by general contractors and the other should be good news for all who deal in public construction because it at least would give some certainty and mitigate so called “Hensel Phelps” problem.

As always, I recommend that you read the entire bill yourself and consult a Virginia construction attorney with any questions about how this will affect your construction business.