IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA 15-341
Filed: 5 April 2016
Duplin County, No. 13 CVS 848
UNITED STATES COLD STORAGE, INC., Plaintiff,
v.
TOWN OF WARSAW, a North Carolina Municipal Corporation, Defendant.
Appeal by Plaintiff from order entered 24 October 2014 by Judge W. Douglas
Parsons in Duplin County Superior Court. Heard in the Court of Appeals 24
September 2015.
The Brough Law Firm, PLLC, by Robert E. Hornik, Jr., for Plaintiff-Appellant.
Thompson & Thompson, P.C., by E.C. Thompson, III, for Defendant-Appellee.
DILLON, Judge.
United States Cold Storage (“USCS”) appeals from a declaratory judgment
allowing the Town of Warsaw to terminate sanitary sewer services to its facility,
which is located outside the corporate limits of the Town of Warsaw. For the following
reasons, we affirm.
I. Background
USCS owns a facility in Duplin County outside the corporate limits of the Town
of Warsaw. USCS filed a complaint seeking a declaratory judgment alleging the
following facts:
UNITED STATES COLD STORAGE V. WARSAW
Opinion of the Court
USCS operates cold storage and refrigeration facilities in a number of states.
In 1995, USCS entered into an agreement with Duplin County to purchase a tract of
land from the County on which to construct a large refrigerated warehouse facility.
The agreement required Duplin County to pay for the extension of public water and
sewer lines to the location where the facility would be built. The Town of Warsaw
provided water and sewer services to the part of the county where the facility was to
be located.
The 1995 agreement between USCS and Duplin County also contained a “no
annexation provision” whereby Duplin County agreed to obtain a commitment from
the Town of Warsaw not to seek annexation of the USCS facility for at least eight
years. Specifically, the annexation provision stated as follows:
[Duplin County] shall have obtained, at no cost to [USCS],
an agreement with the City of Warsaw, North Carolina,
that it will not, for a period of at least eight years following
Closing, annex the Premises to the City of Warsaw.
[Duplin County] shall, in connection with such Agreement,
provide to [USCS] a certification or opinion from the
solicitor of the City of Warsaw that the individual or
individuals executing such agreement have the authority
to do so.
In 1997, the USCS facility was completed, and the Town of Warsaw began
providing public sanitary sewer service to the USCS facility in Duplin County. USCS
pays the Town of Warsaw for this service.
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Opinion of the Court
In 2012, the General Assembly enacted annexation reform legislation which
limits a municipality’s ability to annex an area without the consent of the owners of
the affected property.
In 2013, the attorney for the Town of Warsaw sent a letter to USCS requesting
that USCS “voluntarily annex to the Town of Warsaw.” The letter also stated that
the Town of Warsaw was under no obligation to continue providing sewerage service
to the USCS facility since the facility was located outside of its corporate limits.
USCS responded, notifying the Town of Warsaw that it did not desire to seek
voluntary annexation of its facility into the Town’s corporate limits. (Agreeing to
voluntary annexation would require USCS to incur approximately $88,000.00 in
annual expenses in the form of property taxes paid to the Town.) The Town of
Warsaw then responded, notifying USCS that it planned to cease providing sewerage
service to the facility if USCS did not seek voluntary annexation.
In 2014, USCS commenced this declaratory judgment action. The trial court
granted USCS’s motion for a preliminary injunction, which restrained the Town of
Warsaw from discontinuing sewerage service to the USCS facility.
In October 2014, following a hearing on the matter, the trial court entered an
order dissolving the preliminary injunction, declaring that the Town of Warsaw was
under no obligation to continue sewerage service to the USCS facility. Two days later,
however, the trial court entered a temporary stay of this order pending appeal,
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UNITED STATES COLD STORAGE V. WARSAW
Opinion of the Court
thereby allowing USCS to continue receiving sewerage service at its facility from the
Town of Warsaw until further court order. USCS has timely appealed the trial court’s
order declaring that the Town of Warsaw has no obligation to continue providing
sewerage service to the USCS facility.
II. Standard of Review
This matter involves an action for declaratory relief, specifically seeking a
court order which declares the rights of the parties concerning the provision of
sewerage service by the Town to the USCS facility. Because this case is purely a
question of law and a judgment will “settle and [] afford relief from uncertainty,” we
agree with the parties that a motion for declaratory judgment was properly heard in
the trial court. See N.C. Gen. Stat. § 1-264 (2013). In the context of a declaratory
judgment action, we review the trial court’s findings of fact to determine whether
they are supported by competent evidence, and we review the trial court’s conclusions
of law de novo. Calhoun v. WHA Med. Clinic, PLLC, 178 N.C. App. 585, 596-97, 632
S.E.2d 563, 571 (2006).
III. Holding
We hold that the trial court correctly declared the rights of the parties.
Specifically, we hold that the Town of Warsaw has the legal right to discontinue
sewerage service to the USCS facility, provided that the Town is not unfairly
discriminating between USCS and other non-residents similarly situated who
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Opinion of the Court
currently receive sewerage service. Further, we hold that the Town of Warsaw has
the legal right to condition continued service to USCS’s facility on the voluntary
annexation of the facility into the Town’s corporate limits, again provided that the
Town is not unfairly discriminating between USCS and other non-residents similarly
situated who currently receive sewerage service.
There may be some sympathy in USCS’s contention that the Town is cutting
off service to coerce USCS to seek voluntary annexation and that the effect of the trial
court’s order is that USCS will incur great expense, either in the form of the payment
of annual property taxes to the Town or in the form of costs incurred to arrange for
an alternate source of sewerage service to its facility. However, the town contends
that it has been deprived of its ability to collect property taxes from a property owner
who is enjoying Town services and that property taxes are a major source of the
Town’s total revenue. Wherever the sympathies may lie, however, we reach our
holding by following the direction of our Supreme Court declared in Fulghum v.
Selma, a factually similar case from the middle of the last century. In Fulghum, a
property owner sued a municipality to enjoin the municipality from cutting off his
water service, contending that the municipality had enacted an ordinance to coerce
him to sell to the municipality certain water pipes he had built to supply water to
non-residents. Fulghum v. Selma, 238 N.C. 100, 76 S.E.2d 368 (1953). The Court
admitted that “there may be more than a modicum of truth in the assertion [regarding
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Opinion of the Court
the municipality’s] coercive purpose [in enacting the ordinance.]” Id. However, the
Court recognized the function of the courts: “Be that as it may, we must remember
that hard cases are the quicksands of the law1 and confine ourselves to our appointed
task of declaring the legal rights of the parties.” Id. at 103, 76 S.E.2d at 370
(emphasis added).
IV. Analysis
Our General Assembly has authorized towns to own and operate water and
sewer systems serving customers both within and outside their corporate limits. N.C.
Gen. Stat. § 160A-312 (2014). And our Supreme Court has held that a town which
chooses to provide such service to its inhabitants has a duty, generally, “to its
inhabitants to serve without discrimination.” Dale v. Morganton, 270 N.C. 567, 571,
155 S.E.2d 136, 141 (1967) (emphasis added). See also In re Annexation Ordinance,
255 N.C. 633, 646, 122 S.E.2d 690, 700 (1961) (holding that when a town supplies
water to its inhabitants, it “owes the duty of equal service to consumers within its
corporate limits” (emphasis added)).
1 This metaphor has been used on a number of occasions by our Supreme Court. An early use
by that Court was in an opinion penned by Richmond Mumford Pearson, who would, in 1868, become
the first Chief Justice in our State ever elected by the people. Specifically, in his first year on the
Supreme Court, Justice Pearson reversed a decision he had made earlier that year while serving as a
superior court judge, stating, with great humility: “After the argument in this Court, and by the
assistance of the great learning and long experience of the Chief Justice and my brother [Frederick]
Nash, I have satisfied myself that I was wrong. ‘Hard cases are the quick-sands of the law[;]’ in other
words, a judge sometimes looks so much at the apparent hardship of the case as to overlook the law.”
Lea v. Johnson, 31 N.C. 15, 18-19 (1848).
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Opinion of the Court
Our General Assembly has provided, however, that “in no case shall a [town]
be held liable for damages to those outside the corporate limits for failure to furnish
[water or sewer services].” N.C. Gen. Stat. § 160A-312(a) (emphasis added). In
Fulghum, our Supreme Court held that a town has no obligation to furnish such
services to non-residents. Fulghum, 238 N.C. at 104, 76 S.E.2d at 371 (“A
municipality which operates its own water works is under no duty in the first instance
to furnish water to persons outside its limits.”).
When a town, however, seeks to provide water or sewer service to non-
residents, our General Assembly has determined that said town may provide such
services to non-residents “within reasonable limitations.” N.C. Gen. Stat. § 160A-
312(a). Our Supreme Court has described the nature of a town’s authority in this
respect as follows: “When a municipality exercises this discretionary power, it does
not assume the obligations of a public service corporation toward nonresident
consumers[,]” but rather, the town “retains the authority to specify the terms upon
which nonresidents may obtain its water [or sewer service].” Fulghum, 238 N.C. at
104-05, 76 S.E.2d 371 (emphasis added).
Our Supreme Court has recognized that a town may obligate itself to non-
residents by contract to provide services, stating:
“The relationship existing between the [town and the non-
resident who receives services] is contractual[.] The [town]
has no legal right to compel residents living outside its
corporate limits to avail themselves of the services[.] On
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Opinion of the Court
the other hand, in the absence of a contract providing
otherwise, such residents are not in position to compel the
[town] to make such services available to them.”
Atlantic Const. Co. v. City of Raleigh, 230 N.C. 365, 369, 53 S.E.2d 165, 168 (1949).
The Supreme Court, though, has further stated that if there is nothing in the contract
or inherent in the surrounding circumstances to indicate that the contractual
obligation was to run in perpetuity or for some ascertainable period, “the contract is
terminable at will by either party on reasonable notice to the other.” Fulgham, at
104, 76 S.E.2d at 370.
In the present case, the evidence does not disclose that the Town of Warsaw
has any contractual obligation to supply services to the USCS facility in perpetuity
or for some ascertainable period beyond the initial eight (8) years. Further, there is
no indication that any principles of estoppel compel the Town of Warsaw to continue
providing such service. Rather, USCS constructed its facility in the 1990s with full
knowledge that its facility could be subject to annexation by the Town after eight
years. As such, the Town of Warsaw “retains the authority to specify the terms” by
which USCS and others similarly situated may continue to receive sewer services.
USCS relies on our Supreme Court’s opinion in Dale v. City of Morganton to
argue that a municipality cannot deny service because of some controversy with the
consumer “which is not related to the service sought.” Dale, 270 N.C. at 572, 155
S.E.2d at 141. However, this principle is not applicable in the present case, since
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UNITED STATES COLD STORAGE V. WARSAW
Opinion of the Court
USCS is not an “inhabitant,” see id. at 571, 155 S.E.2d at 141, and, unlike in Dale,
the Town of Warsaw has no continuing duty (contractual or otherwise) to furnish
services to USCS. Indeed, our Supreme Court has recognized a municipality’s right
to discriminate between its inhabitants and those customers outside its corporate
limits by raising rates only on those existing customers outside the corporate limits.
See Fulghum, supra.
While a municipality may discriminate between inhabitants as a class and
non-inhabitants as a class in the provision of services, a municipality may not
unlawfully discriminate among non-inhabitants in setting conditions for the
provision of such services to said non-inhabitats. Here, though, the record
demonstrates that the Town of Warsaw has not discriminated between USCS and its
other commercial customers outside the Town’s corporate limits. Rather, the record
reflects that the Town made voluntary annexation a condition on all of them to
continue receiving service.2
V. Conclusion
The Town has no right to compel USCS to annex into its corporate limits under
the current statutory scheme. However, USCS’s right to oppose annexation does not
2 USCS makes an argument that it has a vested property right in continued service and that,
therefore, the Town of Warsaw’s actions are in violation of USCS’s due process rights. However, for
the reasons stated in this opinion, there could have been no reasonable expectation on the part of
USCS to have the right to sewerage service from the Town in perpetuity. Accordingly, we reject this
argument.
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UNITED STATES COLD STORAGE V. WARSAW
Opinion of the Court
create a right of USCS to continue receiving sewerage service from the Town in
perpetuity. The Town has no contractual obligation to do so, nor does the Town have
the obligation of a public service corporation to provide such service to USCS. Id.
AFFIRMED.
Judge STROUD concurs.
Judge HUNTER, JR., dissenting by separate opinion.
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No. COA 15-341 – UNITED STATES COLD STORAGE V. WARSAW
HUNTER, JR., Robert N., Judge, dissenting.
I agree with the majority that “hard cases are the quicksands of the law.”
Fulghum v. Selma, 238 N.C. 100, 103, 76 S.E.2d 268, 370 (1953). I dissent because
I am not convinced it is proper for the Town of Warsaw to discontinue sewage services
to USCS under the shadow of “voluntary” annexation.
North Carolina differentiates between the authority of a city operating a public
utility within city limits and outside city limits. See N.C. Gen. Stat. § 160A-312
(2013). Generally, towns have no duty to furnish water and sewer services to persons
outside the town limits. Fulghum, 238 N.C. at 104–105, 76 S.E.2d at 371. A town
may, within its discretion, extend water and sewer services outside the city limits.
Id. at 104–105, 76 S.E.2d at 371. However, this differentiation applies to the initial
decision to extend a public utility outside city limits, not its operation once it is
already in place.
“A public utility, whether publicly or privately owned, may not unreasonably
discriminate in the distribution of its services or the establishment of rates.” Wall v.
City of Durham, 41 N.C. App. 649, 659, 255 S.E.2d 739, 745 (1979) (emphasis added).
Reasonable classifications may be based upon cost of service, quantity received, time
of use, etc. Id. If a city chooses to extend services outside city limits, it is reasonable
to charge a different rate from that charged within the city limits. Fulghum, 238
N.C. at 104–105, 76 S.E.2d at 371. Our Courts have distinguished the
UNITED STATES COLD STORAGE V. WARSAW
HUNTER, JR., Robert N., Judge., dissenting opinion.
aforementioned reasonable classifications from unreasonable classifications,
including singling out a person due to an unrelated controversy.
Therefore, I disagree with the majority’s reading of Fulghum. The majority
quotes Fulghum as stating that the town “retains the authority to specify the terms
upon which nonresidents may obtain its water [or sewer service]. Id. at 104, 76
S.E.2d at 371 (emphasis in majority). However, a fuller reading paints a different
picture: “[The town] retains the authority to specify the terms upon which
nonresidents may obtain its water. In exerting this authority, it may fix a different
rate from that charged within the corporate limits.” Id. at 104, 76 S.E.2d at 371
(emphasis added). Additionally, any terms must be reasonable.
“It is well settled that a privately owned supplier of electric power, or other
public service, may not lawfully refuse its service because of a controversy with the
applicant concerning a matter which is not related to the service sought.” Dale v. City
of Morganton, 270 N.C. 567, 572, 155 S.E.2d 136, 141 (1967) (emphasis added). Our
Supreme Court adopted this principle after noting it was accepted in other
jurisdictions. E.g., Ten Broek v. Miller, 240 Mich. 667, 216 N.W. 385 (1927), Miller v.
Roswell Gas & E. Co, 22 N.M 594, 166 P. 1177 (1917), Seaton Mountain Electric Light
v. Idaho Springs, 49 Colo. 122, 111 P. 834 (1910), Hicks v. City of Monroe Utilities
Commission, 237 La. 848, 112 So.2d 635 (1959); see also 55 A.L.R. 771.
2
UNITED STATES COLD STORAGE V. WARSAW
HUNTER, JR., Robert N., Judge., dissenting opinion.
In Dale v. City of Morganton the Court followed this principle and expanded it
by applying it to a city.3 In Dale, a house within the city limits became unfit for
habitation and the city prohibited its occupancy. In response, the city refused to
provide electricity to the house. Our Supreme Court said:
Whatever may be the right of the city of Morganton, in the
exercise of its governmental power, to forbid the occupancy
of the plaintiff’s house as a human habitation, that is a
matter collateral to the duty of the city to supply electric
power for use in this structure. A city may not deprive an
inhabitant, otherwise entitled thereto, of light, water or
other utility service as a means of compelling obedience to
its police regulations, however valid and otherwise
enforceable those regulations may be.
Dale, 270 N.C. 567, 572–573, 155 S.E.2d 136, 142 (1967). Thus, a provider of a public
utility, whether privately or publicly owned may not discontinue its services solely on
the basis of a collateral dispute. Additionally, the purpose given for termination of
services may not be pretextual in nature. In contrast, service may be discontinued
for non-payment or another non-discriminatory purpose related to the provision of
the utility. See Big Bear of North Carolina, Inc. v. City of High Point, 294 N.C. 262,
268, 240 S.E.2d 422, 425 (1978).
The majority contends Dale is not applicable because USCS is not an
“inhabitant.” However, the majority misreads Dale as explicitly distinguishing
3 I disagree with the Town of Warsaw’s reading of Dale because the Court took a principle
previously only applied to private utilities and expanded it to include municipally owned utilities. This
requires an expansive reading of the principle instead of a narrow one as advocated by the town.
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UNITED STATES COLD STORAGE V. WARSAW
HUNTER, JR., Robert N., Judge., dissenting opinion.
between persons inside and persons outside municipal limits. The Court uses the
term “inhabitant” because the facts of that case involve a person living within city
limits. The term “inhabitant” was merely used to refer to the plaintiff, not to exclude
any non-inhabitants from the general principle.
In Dale, the Court required the city to address the issue at hand by following
the procedural requirements required in the housing code to declare a house unfit for
habitation. Dale, 270 N.C. at 576, 155 S.E.2d at 144. The Court reasoned
“substantial compliance with these procedures is a condition precedent to the
authority of the city to forbid the use of a dwelling house for human habitation.” Id.
Therefore, the city had to follow the requirements in place to address the housing
code violation instead of attempting to address the issue collaterally.
Here, the Town of Warsaw did not have a duty to extend sewer services to
USCS. However, the Town of Warsaw elected to extend a public utility to an area
outside the city. As a result of that decision, the town cannot unreasonably
discriminate or discontinue services for a reason unrelated to the provision of the
utility itself.
The principle that a discontinuance of service cannot be related to a collateral
matter is a generally recognized principle that applies to all providers of public
utilities without distinguishing between whether they are private, public, or inside
or outside of the city limits. Thus, while the Town may discontinue sewer service for
4
UNITED STATES COLD STORAGE V. WARSAW
HUNTER, JR., Robert N., Judge., dissenting opinion.
non-payment or other reasons related to the provision of sewer service, the town may
not cut off service for a collateral dispute. The collateral annexation dispute is the
only reason provided by the Town of Warsaw for discontinuing USCS’s sanitary sewer
services. I find no evidence in the record suggesting a proper purpose related to the
provision of the utility for discontinuing the service.
As explained in Dale, another procedure exists to address the town’s objective.
While I understand annexation of the area including USCS would provide much
needed tax revenue for the Town of Warsaw, the North Carolina General Statutes
provide the proper procedures for annexation. The town must comply with these
procedural requirements in order to annex the area including USCS. The town
cannot condition the provision of a public utility on voluntary annexation. It is
improper to attempt to address this collateral issue by discontinuing a public utility
to USCS.
Finally, conditioning the continued provision of utilities on “voluntary
annexation” contravenes the purpose behind the legislature’s annexation legislation
in 2011. “[I]t is essential for citizens to have an effective voice in annexations
initiated by municipalities.” N.C. Gen. Stat. § 160A-58.50(6) (2015). The majority
sets a dangerous precedent. The continued provision of water, sewer, and electric
services should not be used to induce USCS or any other person to seek annexation
or face termination of those vital utilities.
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UNITED STATES COLD STORAGE V. WARSAW
HUNTER, JR., Robert N., Judge., dissenting opinion.
USCS also contends the Town of Warsaw violated its substantive due process
rights. The North Carolina Supreme Court has long recognized:
[I]f a case can be decided on either of two grounds, one
involving a constitutional question, the other question of
lesser moment, the latter alone will be determined. It is
not the habit of the court to decide questions of a
constitutional nature unless absolutely necessary to a
decision of the case.
State v. Lueders, 214 N.C. 558, 560-561, 200 S.E. 22, 23 (1938). Our appellate courts
exercise judicial restraint in such cases. See Martin v. Thornburg, 320 N.C. 533, 548,
359 S.E.2d 472, 481 (1987).
However, since the majority addresses USCS’s constitutional claim, I will
address this issue. I am persuaded by USCS’s argument that they have a protected
property right in the continued provision of sanitary sewer service and that the Town
of Warsaw arbitrarily or capriciously deprived them of that property right. See
Browning-Ferris v. Wake County, 905 F.Supp. 312, 317–318 (E.D.N.C. 1995).
“The inquiry as to whether a party has acquired a vested property right under
the common law of North Carolina centers on the party’s reliance on a permit, the
exercise of good faith, and the incurring of substantial expenditures prior to the
revocation of a permit or the amendment to an ordinance. Id. at 318 (citing Simpson
v. City of Charlotte, 115 N.C. App. 51, 443 S.E.2d 772 (1994)). USCS meets all of
those requirements and therefore had a vested property right in the continued sewer
service.
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UNITED STATES COLD STORAGE V. WARSAW
HUNTER, JR., Robert N., Judge., dissenting opinion.
The next inquiry is whether that property right was deprived without due
process of law. “The touchstone of due process is the protection of the individual
against arbitrary action of government.” County of Sacramento v. Lewis, 523 U.S.
833, 845, 118 S.Ct. 1708 (1998) (quoting Wolff v. McDonnell, 418 U.S. 539, 558, 94
S.Ct. 2963, 2976 (1974)). In other words, the purpose behind substantive due process
is to prevent government abuse of power by “employing it as an instrument of
oppression.” Id. at 846, 94 S.Ct. at 1716. Here, the government is wielding its power
to achieve its objective, violating the very purpose of due process protections. The
government is forcing USCS to submit to “voluntary” annexation or lose access to
vital utilities. Such arbitrary and capricious government action is in violation of
constitutionally protected due process rights. I would reverse the court below.
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