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Brunswick Prepares To Settle With Builders For $15.25M

By Johanna F. Still, posted Apr 6, 2022
Brunswick County is preparing to refund nearly 1,000 class members in a class-action lawsuit relating to allegedly illegal impact fees. (Photo courtesy of Nick Ares)

Brunswick County is preparing to settle with nearly 1,000 parties in a class-action lawsuit, which involves paying out $15.25 million into a common settlement fund to be shared among builders, attorneys and a settlement administrator.

The case surrounds the county’s previous practice of charging developers impact fees, which are required before new units of construction are permitted to connect to the public utility system.

National and local developers stand to gain what is essentially a refund under the current settlement framework, with checks set to be delivered by the end of May, should the court give its final approval of the plan. 

In the aftermath of the precedent-setting 2016 Quality Built Homes v. Town of Carthage Supreme Court decision, which ruled the municipality had exceeded its statutory authority in charging impact fees, a team of attorneys filed a cascade of lawsuits across the state. As a whole, the suits that followed alleged utilities had no statutory basis for charging the arbitrary fees – referred to by many names, including capacity fees, development fees, capital reserve fees, capital recovery fees, etc. The impact fees in question are distinct from tap-on fees, which cover the physical cost of connecting to a system. 

Impact charges represent a “buy-in fee” to cover prior investments utilities made in their systems, according to Hunter Bryson, an associate at Milberg Coleman Bryson Phillips Grossman PLLC, who represented the class members in the suit against Brunswick County and other area municipalities. “You had to pay to play: This is what it costs to buy into our system,” Bryson said of the charges.

Following the Carthage decision, the N.C. General Assembly passed House Bill 436 in 2017, which provided utilities with a legal framework for charging system development fees, so long as a professional analysis was conducted to substantiate the charges. Before this law, the utilities entangled in the litigation hadn’t properly accounted for the use or purpose of their impact fees, the various lawsuits allege.  

The Carthage ruling instituted a three-year statute of limitations on the window for the town’s liability for the fees; Brunswick County’s case covers the period from March 5, 2016, through June 30, 2018. In 2018, the county was charging $1,150 in water and $4,000 in sewer capacity recovery fees per unit. 

As part of the settlement, the county will not admit to any wrongdoing and continues to deny the parties' allegations, but settled to avoid continued litigation, according to the agreement.  
 

Path to settlement 

D.R. Horton filed the first class action impact fee case against Brunswick County in March 2019 in the U.S. District Court for the Eastern District of N.C., which True Homes LLC later joined. Plantation Building of Wilmington filed a class-action complaint the following month in state court. In January 2020, the parties consented to drop the federal suit and consolidate the claims in state court in one suit.  

Following an extensive discovery period, which involved depositions of past and present county officials, the court sided with the class in October 2021. Brunswick County filed an intent to appeal the decision in November 2021, and in December, the parties reached an impasse in a mediation.  

By the next month, the parties had struck a deal: Brunswick County commissioners approved the $15.25-million settlement in a Jan. 18 closed session. The court issued preliminary approval of the parties’ joint plan Feb. 14, and final approval is anticipated on May 13, according to a county spokesperson. Once the framework is officially approved, the county will formally drop its plans to appeal. 

Brunswick County spokesperson Meagan Kascsak said this ruling’s outcome won’t have long-term operational or financial impacts on the county. The funds will come from the county’s enterprise fund reserves, which are primarily financed through utility services. 

The county had anticipated an unfavorable summary judgment, and previously budgeted for a $14.7-million liability, Kascsak said. “The payment will have a minimal impact in the current year on the enterprise fund reserves,” she said. 

In 2018, the county’s consultant hired to assess and properly account for the fees “found that the fees the county had been charging were already in line or less than what the study found the county could charge,” Kascsak said.

“We utilized a plan to allow developers to pay for county facility use and system impact,” Brunswick County Chairman Randy Thompson said in a statement. “Once we realized we needed legislative approval, we requested and gained approval of same,” he said, referring to the 2018 analysis.  
 

What the settlement entails 

Pending final court approval, the settlement covers a three-year timeframe including 957 parties that built more than 3,100 units. Plus 6% annual interest, the total liability from the allegedly improperly charged capital recovery fees is $14.96 million, according to data included in the settlement agreement.  

Liabilities owed, including interest, to some of the most prolific builders over the lawsuit’s time period roughly include, according to data in the agreement: D. R. Horton ($2.11 million); Bill Clark Homes ($1.45 million); Wade Jurney Homes ($742,700); True Homes ($672,100); Logan Homes ($464,400); Cottage Building Co. LLC ($402,700); WJH LLC ($397,400); H&H Construction ($366,300); Beazer Homes ($338,400); Kent Homes ($328,500); Hagood Homes ($280,900); Riptide Builders ($247,500); Pyramid Homes ($218,300); Parker & Canaday Custom Homes ($215,900) and more. 

William Wright, a partner at Wilmington-based Shipman & Wright, said he expects the class to receive a net recovery of roughly 85% of the liabilities owed, once administrative and attorneys fees are paid out. Attorneys' fees are capped at 33.3% of the total $15.25-million fund, per the agreement, which could amount to as much as $5 million. 

Like Bryson, Wright has represented builders in a multitude of impact fee cases across the state. Asked why so many municipalities wound up on the losing end of these suits, Wright said, “There were a variety of reasons, but I think there's a good chance that there was some, ‘Well, this town's doing it, it must be OK, we're going to do it.’”

D.R. Horton, one of the named parties in the class, did not respond to requests for comment. Class representatives D.R. Horton, Plantation Building of Wilmington and True Homes will each receive $10,000 as an incentive reward for serving as class representatives. 

Plantation Building of Wilmington, also sued Leland, Southport, Oak Island and Carolina Beach over the same fees. In the Brunswick County suit, Plantation is only eligible for about $6,400, before administrative fees are awarded. (That’s because most of the company’s activity during the time period was occurring within the town of Leland, according to founder Dave Spetrino.) 

Spetrino said his interest in the issue was piqued by the premise of utilities placing a financial burden on builders, which were then transferred to new homebuyers when the funds should have been sourced from elsewhere. “It's better for us to tax these faceless newcomers coming to our community and make it your problem than it is for us to do our job,” he said, supposing the position of public officials. “I think that was the egregious part.”

Spetrino said with the settlement funds he has received thus far and will receive in the future, he intends to donate the money to affordable housing organizations that cater to the specific municipality. “It's a housing issue,” he said. “The money needs to stay in the community it came from.” 

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