U.S. Appeals Court rules for Franklin County in dispute with developer

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  • A unanimous U.S. Appeals Court decision favored Franklin County in its dispute with a developer over water and sewer services.
  • The developer had challenged a 2019 county ordinance capping local water and sewer allotments.

The 4th U.S. Circuit Court of Appeals has affirmed a lower court’s ruling favoring Franklin County in a dispute with a developer. The unanimous decision Thursday rejected developer PEM Entities’ lawsuit.

“A real estate development company asserts a North Carolina county violated the Federal Constitution and state law by imposing new rules for getting water and sewage services,” wrote Judge Toby Heytens. “The district court dismissed the complaint, concluding the company lacked standing to bring its takings and due process claims, its equal protection claim was too insubstantial to raise a federal question, and the court should not exercise jurisdiction over the state law claims once the federal claims were dismissed. Although the complaint’s defects go to the merits, not jurisdiction, we agree with the district court’s bottom line.”

Fellow 4th Circuit Judge Stephanie Thacker joined Heytens’ opinion, along with U.S. District Judge Lydia Griggsby of Maryland.

The dispute involves a “multi-phase, single-family residential community” with a preliminary subdivision plan approved by the Franklin County planning board in 2005. That preliminary plan indicated Franklin County would provide the community’s water and sewer service.

PEM Entities bought 150 acres of undeveloped land within the area covered by the plan in 2012.

“In 2019, the county adopted a water and sewer allocation ordinance that established an application process for new water and sewer connections and capped water allotments for new developments,” Heytens wrote. “The ordinance proved unpopular with various developers, including PEM. The developers asserted they were exempt from the 2019 ordinance because the county’s approval of the 2005 preliminary subdivision plan created a vested property right in water and sewer services that could not be undone by the later-enacted ordinance.”

A settlement between the county and developers that same year permitted applications for water and sewer service for up to 50 lots a year, starting in 2020.

PEM sued in 2021. Its complaint “asserted the 2019 law effects an unconstitutional taking of PEM’s vested property right to receive water and sewer services under the preliminary subdivision plan.” The suit also claimed federal due process and equal protection violations, along with violations of state law.

The trial court rejected the developer’s claims. Heytens and colleagues took “a somewhat different route” to reach the same decision.

The Appeals Court ruled that PEM Entities had legal standing to raise its complaint. But the case fell apart on its merits.

“Both PEM’s takings and due process claims depend on having a constitutionally protected ‘property’ interest,” Heytens wrote. “And we agree with the district court that neither the 2005 preliminary subdivision plan nor the 2019 settlement agreement creates the sort of property interest PEM asserts.”

“PEM does not assert it ever obtained a building or construction permit for the proposed subdivision. Nor could it. A different Franklin County ordinance — which is unchallenged here — requires developers like PEM to receive final plan approval before any permit may issue. And PEM acknowledges it has ‘never’ even ‘requested that [the county] approve for recording a final plan of subdivision for any’ of the land PEM owns.”

Appellate judges also rejected PEM’s equal protection claim on different grounds than the trial judge. The three-judge panel supported the trial court’s decision not to address state law issues.

“PEM seeks preferential treatment to bypass a regulatory ordinance enacted years after it acquired title to undeveloped land,” Heytens wrote. “But PEM had no constitutionally protected property right in the unlimited provision of water and sewer services unencumbered by future regulation, nor has it identified any basis for concluding it was subject to unconstitutional disparate treatment.”