Class Certification Concerning Development Fees

The North Carolina Supreme Court has upheld a decision by the North Carolina Superior Court that allows a class action lawsuit to proceed concerning capital facilities fees imposed by the City of Raleigh.

Background

In 2013, Raleigh adopted an ordinance related to water and sewer extension policies that imposed fees for connecting with the city’s water and sewer systems. These Capital Facilities Fees (CFFs) were apparently reserved for future expansion or future water and sewer systems or services. Developers, builders, and other entities alike were required to pay CFFs any time they submitted a water or sewer connection application to the city.

In 2016, this Court held that municipalities lack the statutory authority under the Public Enterprise Statutes to charge for the future furnishing of water and sewer services. However, the court also held that municipalities may assess such impact fees by obtaining separate enabling legislation from the General Assembly.

In 2017, the General Assembly enacted the Public Water and Sewer System Development Fee Act, authorizing local governments to adopt water and sewer impact fees subject to certain conditions and limitations. The act also included a “bridge provision,” providing that any “system development fee adopted by a local government under any lawful authority other than this article and in effect on October 1, 2017, shall be conformed to the requirements of this Article not later than July 1, 2018. In response, Raleigh subsequently amended its CFF ordinance on September 5, 2017 and June 5, 2018.

In 2019, the General Assembly enacted a “refund statute,” which provides:

“If a local government is found to have illegally imposed a tax, fee, or monetary contribution for development or a development approval not specifically authorized by law, the local government shall return the tax, fee, or monetary contribution plus interest of six percent (6%) per annum to the person who made the payment or as directed by a court if the person making the payment is no longer in existence.”

The statute expressly states that such refunds will be made available to “the person who made the payment.”

Plaintiffs Wardson Construction, Inc. and HomeQuest Builders, Inc. paid a combined total of nearly $20,000 in CFFs in connection with different properties between 2016 and 2018. Contending the payment of the CFFs was illegal, they sued to recover those fees, and to represent a class of developers, builders and contractors who similarly paid CFFs to Raleigh. They allege that the party that paid the fees is entitled to a state-mandated refund.

Raleigh sought to dismiss the case, but that request was denied. On July 8, 2024, the class certification was granted. The class includes 735 payors of CFFs and more than 3,900 payments.

On October 15, 2024, Raleigh appealed the certification order. to the North Carolina Supreme Court which affirmed the order certifying the class.

Bryson Attorneys

Bryson attorneys Jim DeMay, Scott Harris, Martha Geer and Hunter Byrson are leading this case along with co-counsel from Fox Rothschild and Carolyn A Bachl.

Further References

Supreme Court of North Carolina Decision