NC Appeals Court rules Orange County might have to refund some school impact fees

N.C. Appeals Court Judges Michael Stading, left, Fred Gore, and Allison Riggs hear arguments in Zander v. Orange County. (Image from N.C. Court of Appeals YouTube page)

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  • A split 2-1 N.C. Court of Appeals ruled Wednesday that Orange County might have to refund some school impact fees. A trial judge will have to determine whether fees charged for school buses and consultants' costs will lead to refunds.
  • The dissenting judge would have issued a ruling even more favorable to plaintiffs challenging the fees. He cited evidence that some fees might have been illegal. He also questioned whether the county adjusted fees in 2016 based only on a new impact fee study.

The N.C. Court of Appeals ruled Wednesday that Orange County might have to refund some challenged school impact fees. The decision offers a potential partial victory to plaintiffs who challenged the fees.

The decision in Zander v. Orange County prompted a 2-1 split on the appellate panel. The dissenting judge would have issued a ruling even more favorable to plaintiffs challenging the county’s actions.

Plaintiffs Elizabeth Zander and Evan Galloway had sued the county and town in 2017 on behalf of two groups. A “feepayer class” included people who paid impact fees not authorized by state law, known in legal terms as “ultra vires” fees. A “refund class” featured those whom the plaintiffs argued should get refunds based on a 2016 change in the local fee schedule. A trial judge ruled against the plaintiffs in 2022.

“After careful review, we agree that the County unlawfully included some costs not authorized by statute in calculating the impact fees and hold that the Feepayer Class is entitled to recoup the portion of the school impact fees that were assessed to cover those improper costs,” wrote Judge Allison Riggs in the majority opinion. “However, because the evidence does not establish the amount of impact fees attributable to these impermissible costs, we remand the matter for further proceedings to determine the damages owed to the Feepayer Class.”

“As to the Refund Class, we hold that the trial court properly granted summary judgment for the County because the forecast of evidence demonstrates that no refunds are owed under the applicable ordinance,” Riggs added.

Riggs and Judge Fred Gore agreed that the county could not charge impact fees to recover costs for new school buses or for the consultant who compiled impact fee studies. “[T]hey are not themselves ‘capital improvements’ as the word is ordinarily understood,” Riggs wrote. “A bus and a consultant’s report simply are not ‘acqui[sitions] [of] or improve[ments] [to] a fixed asset.’”

“The County’s arguments to the contrary are unpersuasive,” she added.

Yet it’s unclear whether the Appeals Court decision will lead to actual refunds. “Though we hold that the County could not include buses and … consultant fees in calculating school impact fees, this does not fully resolve Plaintiffs’ claims on behalf of the Feepayer Class,” Riggs explained. “As noted in its brief, the County never set its impact fees at 100% of the maximum amounts calculated, … electing instead to impose fees ranging between 32% and 60% of that maximum amount at various times. The County thus may have calculated and assessed impact fees that did not incorporate or cover anticipated bus and consultant costs. …”

The case will head back to a trial court to address potential refunds.

“The statute at issue is designed to make plaintiffs whole for illegal fees only; nothing in the statute suggests it is intended to punish local governments while granting a windfall to plaintiffs,” Riggs wrote.

Dissenting Judge Michael Stading would have reversed the trial judge’s entire order favoring Orange County. Claims from both the “feepayer” and “refund” classes would have moved forward in a trial court.

“Substantial evidence shows that when Orange County calculated the taxes at issue, it neglected to follow the protocol outlined and mandated by the General Assembly in the Session Law,” Stading wrote. “While I agree with the majority that impact fees should not have been expended on buses and consultant studies, I am nevertheless precluded from reaching consideration of impermissible costs because a jury should resolve the lawfulness of the impact fees as a preliminary matter.”

“Similarly, there is a genuine issue of material fact to be resolved with respect to the contradictory evidence of underlying reasons for a reduction in impact fees,” he added.

The dissenting judge noted evidence that consultants calculating the fees did not use a planning period required by law. “Since there is a genuine dispute of material fact as to whether the County used a planning period, the impact fees may have been ultra vires,” he wrote.

Stading also cited evidence that bolstered the “refund” class’s arguments. If impact fees were altered for reasons other than an updated impact fee study, the legal case should have moved forward. “The County’s own … witness cited concerns of ‘timing’ and ‘the nature of the General Assembly,’” the judge wrote. “Thus, there is a genuine issue of material fact as to whether the County complied with the refund provision required by its Ordinance as amended in 2016.”

Barring further appeals, the case will head back to Orange County Superior Court.