$5M Win For Milberg-Backed Developers in Capacity Fee Case

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February 23, 2024

by Brian Eckert

The North Carolina Court of Appeals has ruled that fees charged to True Homes LLC, D.R. Horton Inc., and other homebuilders were illegally collected and awarded the companies more than $5.2 million in refunds.

Milberg’s James DeMay, representing the developers, said, “Our clients are very pleased by the decision, and it was the result that we expected.”

Case Background: NC Capacity Fees and Developers

In 1988, the City of Greensboro, North Carolina began charging capacity use fees—fees designed to help the municipality recover costs associated with expanding the City’s water and sewer system to accommodate new residential development—under a city ordinance.

These fees were paid by the companies building the houses, including True Homes and D.R. Horton, which during the period relevant to this case were charged $1,970 for a typical single-family home.

The North Carolina Supreme Court ruled in 2016’s Quality Built Homes Inc. v. Town of Carthage that towns have no authority to charge developers upfront fees for water and sewer services. The Court determined in this case that it is illegal for municipalities to charge developers water fees prior to having connected water pipes. The Court subsequently ruled that the statute of limitations to recover these illegally collected fees is three years. Milberg attorneys have since litigated lawsuits across the state regarding the issue.

On 24 August 2022, the trial court entered its judgment, ordering Greensboro to refund $5,252,309.06, plus pre- and post-judgment interest. Greensboro timely appealed.

In 2019, True Homes and D.R. Horton filed a class action lawsuit against Greensboro. They claimed that the City improperly collected its capacity use fees and sought a refund of fees paid since March 2016. The class’s capacity use fees paid during the period totaled just over $5.2 million.

The trial court ruled that Greensboro must return the entire amount to the builders. Greensboro requested review from the state appeals court in August 2022, arguing that the fees it charged were “contemporaneous” with the builders using the water services, as precedent requires, rather than “prospective,” because they were charged after the developers used “jumpers,” or temporary pipes that bypass the meter box and connect the water and sewer systems to a property under construction.

Thus, the case came down to whether Greensboro’s capacity use fees were “contemporaneous” or “prospective.”

The Court’s Order

A three-judge Court of Appeals panel ruled for the plaintiffs in an order filed on February 6, 2024, finding that Greensboro illegally charged around $3.3 million in fees prior to the North Carolina Public Water and Sewer System Development Fee Act took effect in October 2017.

The Court also found that Greensboro charged nearly $2 million in additional illegal fees between October 2017 and July 2018—after the Act took effect—on the grounds that the City hadn’t yet passed an ordinance that complied with the legislation.

“Though Greensboro may have been acting in Developers’ interests with developer-friendly policies that allowed developers to use the system on a temporary basis during construction, it is clear that Developers were denied official use of the system until after paying the fees,” according to the panel.

True Homes and D.R. Horton were represented by Jim DeMay, Scott C. Harris, Daniel K. Bryson, and J. Hunter Bryson of Milberg.

Mr. DeMay told Law360, “As the Court of Appeals recognized in the opinion, the issue of whether cities possessed the lawful authority to charge water and sewer impact fees had already been addressed, several times, by the appellate courts in previous cases, and there was no reason why the result in this case should have been any different. We are pleased that the City of Greensboro has to account for its unlawful conduct and that our clients will receive relief for the fees that the City improperly charged them without authority.”

Milberg’s Impact Fees Practice

Impact fees, also known as development fees, mitigation fees, recreation fees, mobility fees, system development fees, and service availability charges, have been used in the United States since the mid-1900s and are now widespread, particularly in high-growth areas.

Cities, counties, and towns in some states, including North Carolina, are not allowed to levy impact fees without permission from the state legislature. Governments that charge impact fees that are not allowable under state law can face lawsuits. They may be forced to pay back any fees they collected for new development, as well as interest associated with those fees and plaintiff attorneys’ fees.

Milberg’s Impact Fee Group represents clients in matters involving unauthorized or unfair impact fee charges. Our attorneys have held leadership roles in class action lawsuits that have recovered tens of millions of dollars for builders and developers illegally charged impact fees, including cases involving the Town of Holly Springs, the Town of Clayton, the City of Charlotte, the Town of Apex, Union County, Brunswick County, Lincoln County, the City of Asheville, the Town of Fuquay-Varina, the City of Kannapolis, and many others.

Milberg’s roots in North Carolina are wide and deep. Our Raleigh office has over 15 attorneys and is led by founding partner Dan Bryson, who has practiced law in North Carolina for more than three decades and is recognized as one of the top litigators in the state—and the nation.

To learn more about the firm’s Impact Fee lawsuits, please visit our State & Local Government Practice page.