North Carolina Supreme Court Establishes Capacity Use Fees as Monetary Exactions Subject to Unconstitutional Conditions Doctrine in Anderson Creek v. County of Harnett

1. Introduction

The case of Anderson Creek Partners, L.P.; Anderson Creek Inn, LLC; Anderson Creek Developers, LLC; Fairway Point, LLC; Stone Cross, LLC d/b/a Stone Cross Estates, LLC; Ralph Huff Holdings, LLC; Woodshire Partners, LLC; Crestview Development, LLC; Oakmont Development Partners, LLC; Wellco Contractors, Inc.; North South Properties, LLC; W.S. Wellons Corporation; Rolling Springs Water Company, Inc.; and Stafford Land Company, Inc. versus County of Harnett Provisionally Filed Development Group, LLC (referred to hereafter as Anderson Creek v. County of Harnett), adjudicated by the Supreme Court of North Carolina on August 19, 2022, addresses significant constitutional questions within the realm of land-use regulation and municipal authority.

The plaintiffs, a consortium of residential property developers, challenged an ordinance enacted by Harnett County that mandated the payment of one-time water and sewer "capacity use" fees as a precondition for obtaining county concurrence in permit applications. This legal battle ultimately centered on whether such fees constitute monetary exactions subject to constitutional scrutiny under the "unconstitutional conditions" doctrine, as articulated in landmark U.S. Supreme Court cases such as Nollan v. California Coastal Commission, DOLAN v. CITY OF TIGARD, and Koontz v. St. Johns River Water Management District.

2. Summary of the Judgment

The Supreme Court of North Carolina, in a unanimous decision authored by Justice Ervin, reversed the prior rulings of the Court of Appeals, which had upheld the county's ordinance. The highest court held that the "capacity use" fees imposed by Harnett County are indeed monetary exactions subject to constitutional scrutiny under the "unconstitutional conditions" doctrine. Consequently, the case was remanded to the Superior Court of Harnett County for further proceedings consistent with this opinion.

3. Analysis

Precedents Cited

The judgment extensively references foundational Supreme Court cases and prior North Carolina jurisprudence to establish the legal framework for assessing the constitutionality of land-use exactions:

Nollan v. California Coastal Commission, 483 U.S. 825 (1987) – Introduced the "essential nexus" and "rough proportionality" test for evaluating land-use exactions.
DOLAN v. CITY OF TIGARD, 512 U.S. 374 (1994) – Expanded upon Nollan by clarifying the criteria for "rough proportionality."
Koontz v. St. Johns River Water Management District, 570 U.S. 595 (2013) – Extended the unconstitutional conditions doctrine to include monetary exactions, thereby encompassing fees that are mandatory preconditions for permit approval.
BATCH v. TOWN OF CHAPEL HILL, 275 N.C.App. 423 (2020) – A precedent within North Carolina where monetary exactions, in the form of impact fees, were deemed not subject to the unconstitutional conditions doctrine when imposed generally without individualized determination.

The court also considered state-level cases such as Lanvale Properties, LLC v. County of Cabarrus and Quality Built Homes, Inc. v. Town of Carthage, which dealt with the imposition of impact fees and their alignment with constitutional protections.

Legal Reasoning

The court's analysis hinged on several key determinations:

Classification of Fees: The court differentiated between "user fees" and "impact fees." "User fees" are contemporaneous charges for services rendered, whereas "impact fees" are assessments to offset the capital costs of expanding infrastructure to accommodate new developments. The court affirmed that the disputed "capacity use" fees are "impact fees."
Monetary Exactions: Recognizing that "capacity use" fees function as monetary exactions, the court applied the constitutional standards from Nollan, Dolan, and Koontz to assess their validity. The fees were deemed subject to the "essential nexus" and "rough proportionality" tests.
Unconstitutional Conditions Doctrine: The court held that conditioning permit approval on the payment of "capacity use" fees creates a coercive situation where the government leverages its permitting power to extract financial contributions from developers, thereby impinging upon constitutional protections against takings without just compensation.
Impact of Legislation: While acknowledging the passage of the Public Water and Sewer Development Fee Act, the court determined that this statutory change does not render existing constitutional claims moot, as constitutional rights are self-executing and not susceptible to impairment by new legislation.

Impact

This judgment has profound implications for future land-use practices in North Carolina and potentially beyond. By establishing that capacity use fees are monetary exactions subject to constitutional scrutiny, municipalities must ensure that such fees fulfill the "essential nexus" and "rough proportionality" requirements. Failure to do so could render these fees unconstitutional takings under the Fifth Amendment. This ruling prompts local governments to meticulously align fee structures with the actual impact of developments and to provide transparent, equitable assessments to avoid coercive exactions.

Furthermore, the decision serves as a clarion call for developers and municipalities to engage in more nuanced negotiations and assessments when determining fees associated with infrastructure expansion, fostering a balance between promoting development and safeguarding property rights.

4. Complex Concepts Simplified

Unconstitutional Conditions Doctrine

This legal principle prohibits the government from conditioning the receipt of a governmental benefit (such as a permit) on the waiver of a constitutional right, unless the condition satisfies specific tests ensuring fairness and proportionality.

Monetary Exactions

These are financial demands imposed by the government on property owners in connection with land-use permits. They are typically intended to offset the public costs associated with new developments.

Essential Nexus and Rough Proportionality

These are the criteria established by the Supreme Court to evaluate the validity of land-use exactions. "Essential nexus" requires a direct connection between the fee imposed and the impact of the development, while "rough proportionality" ensures that the fee is commensurate with the actual public costs incurred.

5. Conclusion

The North Carolina Supreme Court's decision in Anderson Creek v. County of Harnett marks a pivotal moment in the application of constitutional principles to land-use regulation. By affirming that capacity use fees constitute monetary exactions subject to the unconstitutional conditions doctrine, the court underscores the necessity for municipalities to rigorously justify such fees within the framework of "essential nexus" and "rough proportionality." This ensures that property owners are not unduly burdened by governmental demands that lack a direct and proportional connection to their developments.

As a result, local governments must adopt more precise and transparent methods for calculating and imposing impact fees, fostering an equitable environment that respects property rights while addressing the infrastructural demands of growth and development. This judgment sets a clear precedent, guiding future cases and policies to align with constitutional safeguards against coercive governmental conditions.