In a ruling that makes it significantly harder for citizens to challenge the legality of fees they pay to local governments, the N.C. Court of Appeals on March 2 ruled that there is no right to pay a fee (as opposed to a tax) under protest and then challenge its legality.
Alice Corbett Stafford and William Stafford, Jr. operated the White Lake Motel and Campground in Bladen County from 1992 to 1997. The county assessed the Stafford landfill use fees totaling $11,615 during the period, which the Staffords did not pay because they thought the fees were unconstitutional. In September 1998, the county sued the couple and placed a lien on the property.
In December 1999, the Staffords paid the fees plus interest under protest per N.C. general statue. § 105-381. The county voluntarily dismissed its lawsuit with prejudice. The Staffords sent a letter requesting the return of the fees they considered to be illegal. The county, not surprisingly, denied their request. The Staffords went to court to recover what they had paid under protest.
Superior Court Judge D. Jack Hooks, Jr. threw out the Staffords’ lawsuits as barred by the legal doctrine of res judicata. The Staffords appealed.
In a 1998 case, the Court of Appeals laid out what is necessary to successful assert the doctrine of res judicata. These factors are “a final judgment on the merits in an earlier suit, an identity of the causes of action in both the earlier and the later suit, and an identity of the parties or their privies in the two suits.”
A majority of the appeals court panel found that these requirements were met in this case and that summary judgment was appropriate.
“When the Staffords filed their answer and asserted their defense of the unconstitutionality of the ordinance, the issues of their claims and the County’s claims became joined,” Judge John Tyson wrote for the court.
“The Staffords, instead of litigating and proving their defense of the ordinance’s unconstitutionality, chose to pay the full amount of the fees plus interest to the County, while noting on the check that they were paying in protest pursuant to N.C. Gen. Stat. § 105- 381. By failing to litigate their unconstitutionality defense in the former action and paying the disputed amounts, the Staffords satisfied the County’s claims and required the County to dismiss their action with prejudice. The Staffords’ unconstitutionality defense and the County’s claims were adjudicated on the merits, and the Staffords are barred from now bringing this defense as an affirmative claim against the County.”
North Carolina courts have long recognized a voluntarily dismissed with prejudice as a form of final judgment in a lawsuit.
The Court of Appeals also was not persuaded that the act of paying under protest eliminated the res judicata prohibition the lawsuit.
“Here, the Staffords were charged landfill use fees not a tax. N.C. Gen. Stat. § 105-381 applies only to taxes imposed, not fees… The Staffords concede that the fees are not taxes. Since the Staffords were charged fees rather than a tax, no right to seek a refund or to protest the fees them arises pursuant to this statute.”
Judge Robert Hudson disagreed with the majority’s legal reasoning. “None of the cases cited involve a case where the defendant in a civil case was barred by res judicata even though (1) he had no opportunity to be heard on his defense in an earlier case because (2) the plaintiff took a voluntary dismissal with prejudice, resulting in an adjudication on the merits against —rather than in favor of — the plaintiff,” he noted. He did, however, concur in the result as he believed the fee to be constitutional.
The case is Stafford v. County of Bladen, (03-405).
Michael Lowrey is associate editor of Carolina Journal.