- The North Carolina Supreme Court has vacated the class action in a lawsuit challenging Apex's recreation fee for new residential developments.
- The unanimous decision Friday requires a trial judge to conduct a new analysis of whether Empire Contractors' lawsuit can apply to other developers.
- A concurring opinion from Justice Phil Berger Jr. labeled the town's recreation fee arrangement "constitutionally suspect."
The North Carolina Supreme Court has vacated a lower court’s order for a class-action lawsuit against Apex’s recreation fee charged to local developers.
A trial judge must reconsider whether plaintiff Empire Contractors can proceed with any of its claims under a class action, according to Friday’s Supreme Court opinion.
“For many years, the Town of Apex charged ‘recreation fees’ to developers constructing new subdivisions in the rapidly growing town,” Justice Richard Dietz wrote for the unanimous court. “These fees were a substitute for developers dedicating a portion of the subdivision for use as a public park or other recreation area. By law, the town was required to use the recreation fees to create or improve its own public recreation areas near the developments that paid for them.”
Empire Contractors filed suit “seeking a declaration that the town’s recreation fees are illegal and must be refunded,” Dietz explained. A trial judge certified a class of developers that would be covered by Empire’s claims.
“The town then appealed, arguing that the common issues for the putative class did not predominate over the many individualized issues,” Dietz wrote. “The town also argued that a class action was not the superior method of adjudicating these legal claims.”
“[W]e agree with the town that, in the class certified by the trial court, individualized issues predominate over the common issues of law and fact,” the majority opinion added. “In particular, the class includes several claims for declaratory relief that involve fact-intensive issues such as the fair market value of real property or the cost that a particular development imposes on the town. Resolving these fact issues would cause the case to ‘degenerate into a series of mini-trials’ for each class member that would vastly overshadow the common legal issues.”
With the trial court’s order now vacated, a judge must conduct a new class certification analysis.
“In that analysis, the court should consider whether fracturing this declaratory judgment action — with some claims being pursued in a class action and others left to individual actions — creates potential claim-splitting concerns or is otherwise no longer the superior means of adjudicating the remaining claims,” Dietz wrote.
Justice Phil Berger Jr. supported the decision but wrote a concurring opinion “to highlight the constitutionally suspect nature of the town’s collection and management of the recreation fees at issue.”
“Although not argued, Empire’s allegations that the recreation fees have been commingled with general town revenue and have not been used to develop recreation spaces near the subdivisions raise threats to this State’s constitutional protections for economic liberty,” Berger wrote.
“Indeed, the very ‘mission’ of the law, ‘far from being able to oppress the people, or to plunder their property, even for a philanthropic end, … is to protect the people, and to secure to them the possession of their property,’” he added. “The town’s recreation fee scheme seems to be at odds with this principle.”
“If Empire’s allegations are true, then the town has collected fees from developers under the premise that the money will be used for recreation purposes,” Berger wrote. “The town chose to do this through the fees instead of tax collection. After all, politicians revel in limiting political accountability while delivering with other people’s money.”
“But even if extracting fees to build pickleball courts may be reasonably necessary, hoarding the money is not,” he added. “The town appears to have leveraged a narrow statutory provision as a means for general revenue collection. Such a scheme cannot be a permissible interference with economic liberty, and this is, in reality, legal plunder under the guise of philanthropy. But here, the emperor truly has no pickleball courts.”
Plaintiff Empire Contractors filed suit in March 2023, challenging Apex’s requirement of a $64,000 payment in lieu of dedicating land for recreation in its 20-lot, 3.5-acre development. A trial judge issued an April 2024 ruling permitting a class action in the case.
“I think everybody’s interests are aligned here,” argued Jim DeMay, Empire’s lawyer, before the high court in September. “The interest is the town’s not spending these fees, and they’re not using it for our particular benefit. So everybody is joined at that.”
A state law allowing Apex to charge the fee requires the money to be used for parks and recreation projects in or near the affected subdivision.
“We deposed everybody with the town that knows anything about this issue,” DeMay said. “Every one of them said for each class member, the town has no idea how the fees were spent.”
“Under the town’s own spending rules, their own accounting principles, not a dollar of these fees have been spent on any project,” he added.
Apex’s lawyer responded that state law sets no deadline for the town to spend the fees.
“What they’re saying is you illegally charged us this fee, and we’re entitled to it back, and all of the class members are as well,” said Dan Hartzog. “The statute … doesn’t give us a time frame on which those fees must be spent.”
“Inherently, in parks and recreation planning, it takes some time to plan, purchase, develop a park,” Hartzog continued. “For the plaintiffs to come in here and say, ‘They have violated the statute and never had the authority to charge us in the first place,’ is a premature determination at this point because the money could be spent on a neighborhood park right near their subdivision.”
The trial judge committed multiple “errors of law” that should prompt the state Supreme Court to throw out the case’s class-action status, Hartzog argued.
Apex argued in a February brief that a state law permitted the town to charge the fee.
“To prove that a recreation fee-in-lieu paid as a condition of subdivision approval was unlawful, Plaintiff must show that the fee-in-lieu was beyond the scope of the enabling statute, which includes ‘implied powers … essential to the exercise of those which are expressly conferred,’” Apex’s lawyers wrote.
“It is undisputed that the enabling statute allows Apex to adopt a regulation that ‘… provide[s] for payment of funds to be used to acquire or develop recreation areas serving residents of the development or subdivision or more than one subdivision or development within the immediate area,’” Apex’s brief continued. “The statute contains only one express restriction on the use of the funds by cities: that they ‘shall be used only for the acquisition or development of recreation, park, or open space sites.’”
“Apex has additional authority by local act that allows the Town to ‘us[e] a formula based upon a charge per dwelling unit of the development or subdivision without reference to property tax value,’ so long as the ‘the collection, maintenance, and use of such funds are otherwise consistent with G.S. 160A-372’ and the fee-in-lieu does not ‘exceed the fair market value of the land area that would have otherwise been required to be dedicated,’” Apex’s lawyers wrote.
Beyond the specifics of Empire Contractors’ lawsuit, Apex argues that Superior Court Judge Gale Adams was wrong to conclude that this case could cover other developers.
“The impact of each development will differ based upon many factors, including the number and type of dwelling units, the resources already available in the area of Town where the development is located, or whether the development increases the population of an existing area of Town or extends its boundaries,” Apex’s lawyers wrote. “In another example, the amenities built into the development by the developer may have the potential to mitigate its impact. Analysis of the impact of the development will also require fact-specific discovery and proof for each putative class member. This inquiry is ad hoc and fact- intensive. It is not susceptible to common proof, and the trial court erred in finding that it was a common issue of law or fact shared among the class.”
“There is a common nucleus of operative facts among all class members that underlie each of these issues,” Adams wrote in the order granting the lawsuit class-action status. “Plaintiff’s claim is typical of all other class members as it relates to the general theories of liability set forth in the common issues. The Court concludes that a ‘class’ exists in this action and that common issues of law and fact predominate over any individual issues.”