Quality Built Homes Inc. v. Town of Carthage

IN THE SUPREME COURT OF NORTH CAROLINA

No. 315PA15

Filed 19 August 2016
QUALITY BUILT HOMES INCORPORATED and STAFFORD LAND COMPANY,
INC.
v.

TOWN OF CARTHAGE

On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous,

unpublished decision of the Court of Appeals, ___ N.C. App. ___, 776 S.E.2d 897

(2015), affirming an order allowing summary judgment entered on 17 October 2014

by Judge James M. Webb in Superior Court, Moore County. On 5 November 2015,

the Supreme Court allowed defendant’s conditional petition for discretionary review

as to additional issues. Heard in the Supreme Court on 17 May 2016 in session in

the Old Burke County Courthouse in the City of Morganton pursuant to N.C.G.S.

§ 7A-10(a).

Ferguson, Hayes, Hawkins & DeMay, PLLC, by James R. DeMay; and
Scarbrough & Scarbrough, PLLC, by James E. Scarbrough, for plaintiff-
appellants/appellees.

Cranfill Sumner & Hartzog LLP, by Susan K. Burkhart, for defendant-
appellant/appellee.

Law Office of John T. Benjamin, Jr., P.A., by John T. Benjamin, Jr. and
William E. Hubbard, for Leading Builders of America, amicus curiae.

Robinson, Bradshaw & Hinson, P.A., by Edward F. Hennessey; and J. Michael
Carpenter, General Counsel, for North Carolina Home Builders Association,
Inc., amicus curiae.
 QUALITY BUILT HOMES V. TOWN OF CARTHAGE

Opinion of the Court

Ellis & Winters LLP, by Matthew W. Sawchak and Paul M. Cox; and F. Paul
Calamita for North Carolina Water Quality Association, amicus curiae.

NEWBY, Justice.

In this case we consider whether the Town of Carthage exceeded its municipal

authority under the Public Enterprise Statutes, N.C.G.S. §§ 160A-311 to -338 (2015),

by adopting certain water and sewer “impact fee” ordinances. Upon approval of a

subdivision of real property, the ordinances trigger immediate charges for future

water and sewer system expansion, regardless of whether the landowner ever

connects to the system or whether Carthage ever expands the system. As creations

of the legislature, municipalities have only those powers delegated to them by the

General Assembly. When Carthage adopted the ordinances at issue here, it exercised

power that it had not been granted. The impact fee ordinances are therefore invalid

and, accordingly, we reverse the decision of the Court of Appeals.

In 2003, following a period of rapid population growth, Carthage adopted two

similar impact fee ordinances: one pertaining to its water system, and the other

pertaining to its sewer system. In their current form, the ordinances state that the

impact fees “shall be used to cover the costs of expanding the [water and sewer]

system[s].” Carthage, N.C., Code §§ 51.076(F) (water), 51.096(H) (sewer) (2015).

These costs include “water treatment plant expansion, elevated storage expansion,

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and transmission mains” for the water system, id. § 51.076(F), and “gravity mains,

force mains, and lift stations” for the sewer system, id. § 51.096(H).

Under both ordinances, a landowner who seeks to subdivide property and

receives “final plat approval,” id. §§ 51.076(C)(1), 51.096(B), must pay water and

sewer impact fees “based on water meter size according to the town’s fee schedule,”

id. §§ 51.076(B), 51.096(A), in amounts ranging from $1,000 to $30,000 per

connection. Carthage, N.C., Fee and Rate Schedule 4 (July 1, 2016). “If a [property]

has received its final plat, then the entire [water and sewer] impact fee[s] shall be

paid at the earliest or next occurrence of . . . [the] (a) Tap fee; or (b) Development

permit.” Id. §§ 51.076(C)(2), 51.096(C); see also Fee and Rate Schedule 4

(“Water/Sewer Impact Fees are due upon final plat approval for new subdivisions

(major or minor) or upon application for building permit, whichever occurs first.”).

Tap fees cover Carthage’s costs “to ‘tap’ or access” the “water and/or sewer line that

exists in front of the property,” whereas “impact fees offset . . . costs to expand the

system to accommodate development.”

Impact fees are assessed “in addition to the regular water and sewer tap fees,”

and the monthly service charges to water and sewer customers. If a property owner

does not pay the impact fees, Carthage “will refuse” to issue building permits. Certain

exceptions exist “for temporary or emergency service,” id. § 51.076(A)(2)(b), and any

service solely for “fire protection,” id. §§ 51.076(E), 51.096(G), but in all instances,

impact fees are assessed regardless of the property owner’s actual use of the systems

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Opinion of the Court

or whether Carthage actually expands the systems. In 2014 Carthage’s Town

Manager reported that the Town had “neglected to make needed improvements to its

water and sewer systems for many years.”

Plaintiffs are North Carolina corporations engaged in residential

homebuilding. At the time of filing their action, plaintiffs had paid Carthage a total

of $123,000 in water and sewer impact fees.

On 28 October 2013, plaintiffs filed their complaint seeking, inter alia, a

declaratory judgment and monetary damages.1 Plaintiffs allege that “Carthage has

acted outside the scope of its legal authority” by “charging” the impact fees “without

a specific delegation of authority from the General Assembly” and that, accordingly,

plaintiffs are entitled to a return of all impact fees paid, plus interest and attorneys’

fees.

Carthage timely answered the complaint, contending that “the water and

sewer fees imposed by Defendant were authorized by North Carolina’s Public

Enterprise Statute” and asserting various affirmative defenses, including, inter alia,

the statute of limitations and estoppel. All parties moved for summary judgment.

On 17 October 2014, the trial court entered an order granting summary judgment for

Carthage. Plaintiffs appealed the summary judgment order to the Court of Appeals.

Not at issue here, on 23 June 2014, plaintiffs amended their complaint to, inter alia,
1

add equal protection and due process claims.

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Opinion of the Court

The Court of Appeals affirmed the trial court’s grant of summary judgment in

favor of Carthage. Quality Built Homes Inc. v. Town of Carthage, ___ N.C. App. ___,

776 S.E.2d 897, 2015 WL 4620404 (2015) (unpublished). Applying “broad

construction” interpretation principles under N.C.G.S. § 160A-4, the Court of Appeals

concluded that Carthage acted within its delegated municipal authority to impose

and collect the impact fees under the Public Enterprise Statutes, Quality Built

Homes, 2015 WL 4620404, at *4-5 (citing, inter alia, N.C.G.S. § 160A-4 (2013);

Homebuilders Ass’n of Charlotte v. City of Charlotte, 336 N.C. 37, 43-44, 442 S.E.2d

45, 50 (1994); and Town of Spring Hope v. Bissette, 305 N.C. 248, 252, 287 S.E.2d 851,

854 (1982)), which enable municipalities to “establish and revise . . . schedules of

rents, rates, fees, charges, and penalties for the use of or the services furnished by

any public enterprise,” N.C.G.S. § 160A-314(a).2

We allowed both plaintiffs’ petition and defendant’s conditional petition for

discretionary review. We review matters of statutory interpretation de novo, In re

Ernst & Young, LLP, 363 N.C. 612, 616, 684 S.E.2d 151, 154 (2009) (citations

omitted), as well as orders granting summary judgment, viewing the allegations as

true and “the presented evidence in a light most favorable to the nonmoving party,”

Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001) (citation omitted).

2 Because of its resolution of the matter, the Court of Appeals did not reach the statute
of limitations or estoppel issues. Quality Built Homes, 2015 WL 4620404 at *5. Moreover,
the court overruled plaintiffs’ argument that they are entitled to recover attorneys’ fees and
costs. Id. at *6.

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Opinion of the Court

From the very formation of our State government, municipalities, in their

various forms, have been considered “creatures of the legislative will, and are subject

to its control.” Lutterloh v. City of Fayetteville, 149 N.C. 65, 69, 62 S.E. 758, 760

(1908); see King v. Chapel Hill, 367 N.C. 400, 405, 758 S.E.2d 364, 369 (2014); Bd. of

Trs. of Youngsville Twp. v. Webb, 155 N.C. 379, 384-85, 71 S.E. 520, 522 (1911).

Fundamental to our system is the legislature’s ability to confer upon municipalities

certain authority needed to effectuate the purposes of government. N.C. Const. art.

VII, § 1 (“The General Assembly shall provide for the organization and government

. . . of counties, cities and towns, and . . . may give such powers and duties to . . .

[them] as it may deem advisable.”); White v. Comm’rs of Chowan Cty., 90 N.C. 437,

438 (1884) (“[Municipalities] contribute largely to the life-principle of American

liberty, and are . . . invested with appropriate corporate functions . . . [which] may be

enlarged, abridged or modified at the will of the legislature . . . .”); see also 1 William

Blackstone, Commentaries *470 (“[Municipalities] are erected for the good

government of a town or particular district . . . .”)

The General Assembly delegates express power to municipalities by adopting

an enabling statute, which includes “implied powers . . . essential to the exercise of

those which are expressly conferred.” O’Neal v. Wake County, 196 N.C. 184, 187, 145

S.E. 28, 29 (1928); see Lanvale Props., LLC v. County of Cabarrus, 366 N.C. 142, 150,

731 S.E.2d 800, 807 (2012); Town of Saluda v. County of Polk, 207 N.C. 180, 186, 176

S.E. 298, 301-02 (1934). “All acts beyond the scope of the powers granted to a

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municipality are [invalid].” City of Asheville v. Herbert, 190 N.C. 732, 735, 130 S.E.

861, 863 (1925) (citations omitted).

When determining the extent of legislative power conferred upon a

municipality, the plain language of the enabling statute governs. Smith Chapel

Baptist Church v. City of Durham, 350 N.C. 805, 811, 517 S.E.2d 874, 878 (1999)

(citation omitted). If the “language of [the enabling] statute is clear and

unambiguous, there is no room for judicial construction, and the courts must give it

its plain and definite meaning.” Id. at 811, 517 S.E.2d at 878 (quoting Lemons v. Old

Hickory Council, BSA, 322 N.C. 271, 276, 367 S.E.2d 655, 658 (1988)). “[A] statute

clear on its face must be enforced as written.” Bowers v. City of High Point, 339 N.C.

413, 419-20, 451 S.E.2d 284, 289 (1994) (citation omitted).

If the enabling statute is ambiguous, the “legislation ‘shall be broadly

construed . . . to include any additional and supplementary powers that are

reasonably necessary or expedient to carry them into execution and effect.’ ” King,

367 N.C. at 405, 758 S.E.2d at 369 (citation omitted) (quoting N.C.G.S. § 160A-4).

The “broad construction” mandate of section 160A-4 is “a rule of statutory

construction rather than a general directive,” Lanvale Props., 366 N.C. at 154, 731

S.E.2d at 809, and, as such, is inoperative when the enabling statute is clear and

unambiguous on its face, see id. at 154-55, 731 S.E.2d at 809-10 (citations omitted).

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Opinion of the Court

Carthage asserts that under the Public Enterprise Statutes it has broad

authority to “collect monies” for the “operation, maintenance and expansion” of its

water and sewer systems, and that such authority extends to the collection of impact

fees. Carthage claims that “impact fees” fall squarely within its “authority to charge

‘fees’ or ‘charges’ ” under N.C.G.S. § 160A-314. We disagree. While the enabling

statutes allow Carthage to charge for the contemporaneous use of its water and sewer

systems, the plain language of the Public Enterprise Statutes clearly fails to empower

the Town to impose impact fees for future services.

The enabling statutes at issue here provide, in pertinent part, that “[a] city

may establish and revise . . . rents, rates, fees, charges, and penalties for the use of

or the services furnished by any public enterprise,” N.C.G.S. § 160A-314(a), that “[a]

city shall have authority to acquire, construct, establish, enlarge, improve, maintain,

own, operate, and contract for the operation of any or all of the public enterprises . . .

to furnish services,” id. § 160A-312(a), and that “a city shall have full authority to

finance the cost of any public enterprise by levying taxes, borrowing money, and

appropriating any other revenues therefor,” id. § 160A-313.

These enabling statutes clearly and unambiguously empower Carthage to

charge for the contemporaneous use of water and sewer services—not to collect fees

for future discretionary spending. See Smith Chapel, 350 N.C. at 811, 517 S.E.2d at

878 (finding that the “plain language” of N.C.G.S. § 160A-314 is “clear and

unambiguous”). A municipality’s ability to “establish and revise” its various “fees” is

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limited to “the use of” or “the services furnished by” the enterprise, which provisions

are operative in the present tense. See Dunn v. Pac. Emp’rs Ins. Co., 332 N.C. 129,

134, 418 S.E.2d 645, 648 (1992) (“Ordinary rules of grammar apply when ascertaining

the meaning of a statute . . . .” (citations omitted)).

Though the enabling statutes allow municipalities to charge for “services

furnished,” unlike similar county water and sewer district enabling statutes, the

language at issue here fails to authorize Carthage to charge for services “to be

furnished.” See McNeill v. Harnett County, 327 N.C. 552, 570, 398 S.E.2d 475, 485

(1990) (holding that the latter part of the enabling phrase “services furnished or to be

furnished,” N.C.G.S. § 162A-88 (1987) (emphasis added) (governing county water and

sewer districts), plainly allowed the charge for prospective services, which are “not

limited to the financing of maintenance and improvements of existing customers”).3

Since 1982 this Court has cautioned that municipalities may lack the power to charge

for prospective services absent the essential “to be” language. Bissette, 305 N.C. at

251, 287 S.E.2d at 853 (dictum) (“[W]e agree that under [N.C.G.S. § 160A-314(a)] a

municipality may not charge for services ‘to be furnished.’ ”). We simply cannot read

3 Enabling statutes pertaining to other entities employ the same “to be furnished”
prospective language, which section 160A-314(a) does not. E.g., N.C.G.S. § 162A-9 (2015)
(enabling water and sewer authorities to “establish and revise a schedule of rates . . . for the
services furnished or to be furnished”); id. § 162A-14(3) (enabling certain “governing bod[ies]”
to “fix . . . charges . . . for the services furnished or to be furnished by any water system or
sewer system of the authority”); id. § 162A-49 (2015) (same for district boards of metropolitan
water districts). Accord id. §§ 162A-53(3), -72, -73(3), -85.13(a), -85.19(a)(3) (2015).

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language into a statute where it does not exist. N.C. Dep’t of Corr. v. N.C. Med. Bd.,

363 N.C. 189, 201, 675 S.E.2d 641, 649 (2009) (We “presum[e] that the legislature

carefully chose each word used.” (citation omitted)); Carlyle v. State Highway

Comm’n, 193 N.C. 36, 47, 136 S.E. 612, 619 (1927) (“If the courts attempt to read into

the law words of their own . . . , then this would amount to erecting a legislative

despotism of five men . . . .”).

The language of the impact fee ordinances plainly points to future services,

thus requiring Carthage to invoke prospective charging power. Both ordinances

contemplate “expanding” the systems, including “plant” and “storage expansion,” and

the water impact fee is assessed on property that is “to be served” by the water system.

The fees are not assessed at the time of actual use, but are payable in full at the time

of “final [subdivision] plat approval”—a time when water, sewer, or other

infrastructure might not have been built and only a recorded plat exists. Moreover,

Carthage charges the impact fees in addition to tap fees, which are assessed when a

property owner actually connects to the system. Indeed, plaintiffs were required to

pay some impact fees before improving or establishing a need for services on their

property. Cf. Bissette, 305 N.C. at 251-52, 287 S.E.2d at 853 (concluding that an

increased rate on all customers to fund a new treatment plant “did not reflect any

services yet to be furnished, but merely the same service which had previously been

furnished”).

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Opinion of the Court

Municipalities routinely seek and obtain enabling legislation from the General

Assembly to assess impact fees. E.g., Act of June 28, 1988, ch. 996, sec. 1, 1987 N.C.

Sess. Law (Reg. Sess. 1988) 178, 178 (enabling Rolesville to “provide by ordinance for

a system of impact fees”); Act of June 23, 1987, ch. 460, sec. 13, 1987 N.C. Sess. Laws

609, 613 (same for Pittsboro); Act of July 8, 1986, ch. 936, sec. 1, 1985 N.C. Sess. Laws

(Reg. Sess. 1986) 221, 221 (same for Chapel Hill); see also Mills v. Bd. of Comm’rs of

Iredell Cty., 175 N.C. 215, 218, 95 S.E. 481, 482 (1918) (noting that county demands

for additional authority, such as “raising of proper funds . . . for improvements in

some fixed place or in restricted territory . . . can only be conferred by legislative

enactment” (citations omitted)). Yet it appears that Carthage has elected not to

pursue such legislation.

Furthermore, Carthage has the authority to charge tap fees and to establish

water and sewer rates to fund necessary improvements and maintain services to its

inhabitants, which is sufficient to address its expansion needs. See Bissette, 305 N.C.

at 251-52, 287 S.E.2d at 853 (concluding that the town validly increased rates on all

customers to pay for “a necessary improvement to the already existing sewer system

without which the Town could not continue to provide sewer service”).

While the Public Enterprise Statutes at issue here enable Carthage to charge

for the contemporaneous use of its water and sewer systems, the statutes clearly and

unambiguously fail to give Carthage the essential prospective charging power

necessary to assess impact fees. Because the legislature alone controls the extension

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Opinion of the Court

of municipal authority, the impact fee ordinances on their face exceed the powers

delegated to the Town by the General Assembly, thus overstepping Carthage’s

rightful authority. See Smith Chapel, 350 N.C. at 812, 517 S.E.2d at 879 (holding

that “the [town’s] ordinance on its face exceeds the express limitation of the plain and

unambiguous reading of” the applicable Public Enterprise Statutes).

The ordinances are therefore invalid and, accordingly, we reverse the decision

of the Court of Appeals, which affirmed the trial court’s grant of summary judgment

for the Town of Carthage. We conclude that discretionary review was improvidently

allowed as to the remaining issues on appeal and remand this case to the Court of

Appeals for consideration of the unresolved issues.

REVERSED AND REMANDED; DISCRETIONARY REVIEW

IMPROVIDENTLY ALLOWED IN PART.

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