Vested Rights

North Carolina Court of Appeals Addresses Zoning and the Reaches of Common Law Vested Rights

In land use planning, the vested right is one of the developer’s most effective tools. How effective? Well, it freezes your rights. You get certainty. You get predictability. And, essentially, it can only be undone at your own will. Pretty good, right?

The North Carolina Court of Appeals recently addressed the issue of common law vested rights, which are distinct from those of the statutory ilk but no less coveted. In MLC Automotive v. Town of Southern Pines, the Court faced federal court abstention — Burford abestention, if you must know — and the trial court’s holding that developers were entitled to the right based on, essentially, estoppel grounds to conclude that vested rights are a little more hairy than most think. So, the Court sets things straight. In the process, we have one fewer outlet from which to buy a Suzuki.

Let’s listen to the story.

Facts
Sometime in 2000, business group MLC Automotive LLC — developer and operator of automobile dealerships — fixed its interest on a 21 acre tract of land in the Town of Southern Pines, North Carolina. That’s golf country. At the time MLC manifested its interest, the property was zoned General Business (GB), within which the Town’s zoning code allowed”Motor Vehicle and Boat Sales or Rental or Sales and Service” without a special or conditional use permit.

In June 2001, the Town’s Code Enforcement Officer sent a letter to Pinehurst resident Jim Murray explaining that a car dealership can be located in the Town of Southern Pines’ GB zoning district so long as all zoning requirements are met. In November 2001, the same Enforcement Officer acknowledged in writing to a fellow named Danny Howell that the 21-acre tract is located in the Town’s GB zoning district and, again, automobile sales were a permitted use in that zoning district.

With the Enforcement Officer’s assurances in hand, MLC and Leith of Fayetteville, Inc. purchased the 21 acres for $1.55 million in January 2002. Between 2001 and 2005, MLC/Leith spent an additional $500,000 “in preparations to develop the property.” Then, in January 2005, MLC/Leith entered into a letter of intent with Suzuki Motors. The terms of the letter? That MLC/Leith would construct an auto sales, service and parts facility while Suzuki Motors would issue MLC/Leith a dealership agreement lasting one year.

MLC/Leith hired an engineering firm to perform site design services. In January 2005, the engineering firm met with the Town’s planning director. In that meeting, the planning director allegedly explained that MLC/Leith needed a “zoning/building permit” under the Town’s zoning code, which is a “unitary proceudre” subject to a checklist of items, as well as an architectural compliance certificate, which is actually a precursor to the “zoning/building permit” procedure. The planning director, however, denied saying anything about architecture.

In any event, in March 2005, MLC/Leith filed their architectural compliance permit application and appeared before the Town Council. The Town Council disapproved of the design and directed MLC/Leith to revise their plans.

MLC/Leith presented the revised design to the Town Council on June 8, 2005, expecting a favorable vote at the next Town Council meeting. On June 15, 2005, however, the Town Council voted to delay a decision until their next meeting.

At the “next meeting,” MLC/Leith “decided not to have the Town Council vote on the plans.” Apparently MLC/Leith chose to “take additional time to facilitate community discussions and attend a meeting with neighbors who were strongly opposed to the proposed plans.” And at the next meeting? Well, MLC/Leith asked, again, that the Town Council not vote on the project. See, a non-vote in these types of matters is much better than a “no” vote; something was telling MLC/Leith that it was unlikely to win Council approval for its design just yet, causing MLC/Leith to delay a vote on its own project. Are you hearing the same public outcry that I’m hearing?

Besides wasted time and money, there’s another downside to delay. In late July 2005, while MLC/Leith planned to assuage the masses’ opposition, a local real estate lawyer submitted two zoning amendment petitions supported by citizen signatures. The first petition sought to reduce the “allowable impervious surfaces for development.” You know, parking space. Like you’d find in a car dealership. The second petition sought to rezone the 21-acre tract from the GB zoning district (within which car dealerships were allowed) to Office Services (which, you guessed it, does not allow car dealerships). The Town Council noticed these stealth zoning amendments for public hearing. Yes, I realize that’s a kind of oxymoron.

Then MLC/Leith lawyered up. And in August 2005, the Town Council rceeived a letter from counsel advising that MLC/Leith would file suit if the architectural plans are not approved. In the meantime, also in August 2005, the Town’s Planning Board recommended approval of the stealth zoning amendments. The Town Council, though, had yet to vote on the amendments.

Here’s where it starts to get messy. Remember the required “zoning/building permit,” approval for which is part of a “unitary procedure” subject to a checklist of items? In September, MLC/Leith requested that the Town issue a zoning permit and revisit the building permit at another time, essentially splitting the “unitary procedure” into separate tracks. According to the Court, MLC/Leith “believed [it] could not satisfy the checklist requirements for applying for the zoning/building permit, so [it] sought to make a distinction between a zoning permit and the zoning/building permit recognized by the Town.” Can you see that someone with MLC/Leith, perhaps the lawyer, was starting to focus on the issue of vested rights? Maybe the stealth zoning amendments were not so stealth after all, and MLC/Leith feels the storm blowing in.

On September 13, 2005, the Town Council approved the architectural plans and postponed until its October 11 meeting any condieration of the proposed zoning amendments. Then, on October 11 at 4:30 p.m., in advance of the Town Council meeting in which the zoning amendments would be considered, MLC/Leith’s engineer “went to the Town’s public works department and attempted to submit an application for a water and sewer permit, a driveway permit, an encroachment agreement and various plans [including a previously-denied erosion control plan].” In other words, MLC/Leith is trying to do anything at this point — anything! — it can to put itself in position to claim a vested right in the GB zoning of the property it owns.

On October 11, 2005, that same evening, the music died. The Town Council voted unanimously to rezone the property to within the OS zoning district. With that, MLC/Leith lost out on the ability to build and operate a car dealership.

Federal Lawsuit
MLC/Leith brought suit in federal court alleging common law vested rights, due process violations, tortious interference with the Suzuki agreement, and so on. The federal court abstained from exercising jurisdiction over the state law claims, however, and stayed the action pending resolution of “the land use and zoning issues in state court.” The Fourth Circuit affirmed, by the way, but that’s not why we’re here. Okay, that’s not why we’re here today.

State Lawsuit
We’re here today to discuss the state lawsuit, more specifically the appeal. The trial court granted summary judgment for MLC/Leith that it possessed a common law vested right to develop an auto park “notwithstanding the rezoning of the property,” and the trial court granted summary judgment for the Town on the contractual interference/economic advantage claims. The Town appealed the vested right issue.

According to MLC/Leith, it maintained avested right because it “made substantial expenditures based on [the] existing zoning.” The Court disagreed, and applied the Supreme Court’s holding from Robins v. Town of Hillsborough, 361 N.C. 193 (2007) to conclude that “a property owner does not acquire a vested right to develop land contrary to the provisions of a subsequently enacted zoning ordinance simply based on the purchase of the land in reliance on existing zoning.” In doing so, the Court also clarifies that the holding in In re Campsites Unlimited, 287 N.C. 493 (1975) remains in force but only applies as follows with respect to a vested right: “[When a property owner makes expenditures in the absence of zoning or under the authority of a building permit….” Here, of course, the Town has zoning and MLC/Leith did not possess a building permit.

So, the Court turned to the next option for MLC/Leith: the holding in Browning-Ferris Indus. v. Guilford County Board of Adjustment, 126 N.C. App. 168 (1997) that “permits other than a building permit may, when combined with substantial expenditures in reliance on the permit, give rise to a common law vested right.” First off, however, MLC/Leith was unable to secure any permits. Secondly, even assuming it had, MLC/Leith incurred the qualifying substantial expenditures — remember the $500,000? — waaaaay before it even applied for the permits.

Are there any options left to MLC/Leith? Well, we have those letters from the Code Enforcement Officers, penned in 2001. The ones that told MLC/Leith that the 21-acre tract is located in the Town’s GB zoning district and automobile sales were a permitted use in that zoning district. Stay with me. Are those old letters enough to constitute “permits” on which MLC/Leith relied when making substantial expenditures, such that MLC/Leith possessed a vested right in the GB zoning?

Nope. Turns out those letters aren’t enough. According to the Court, this case is not “meaningful[ly]” distinguishable from Browning-Ferris insofar as the 2001 letters “merely confirmed that a particular use was a permitted use in the applicable zone, but also stressed that the project would have to meet other requirements set out in the zoning ordinance.” In relying on Browning-Ferris, the Court also pointed out that it “need not specifically address what types of government approval, short of a permit, are sufficient for the common law vested right analysis.”

Lastly, the Court considered MLC/Leith’s plea that Huntington Props., LLC v. Currituck County, 153 N.C. App. 218 (2002) applied rather than Browning-Ferris. Huntington Props., you can probably tell, fell in favor of a vested right. The Court flirted with copping to an inconsistency between the two decisions (in which case Browning-Ferris, the earlier decision, would apply). But, ultimately, the Court found a way to distinguish Huntington Props., as well: “Consistent with prior vested rights precedent, we read this language as requiring approval of the specific project and not just a reiteration of the UDO [which is all the 2001 letters really gave].”

Mike Thelen is a lawyer in Womble Carlyle’s Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

Categories: Vested Rights

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