Schroeder v. City of Wilmington

• Decision Date: 05 April 2022
• Docket Number: COA21-192
• Citation: 872 S.E.2d 58
• Parties: David SCHROEDER and Peggy Schroeder, Plaintiffs, v. CITY OF WILMINGTON and City of Wilmington Board of Adjustment, Defendants.
• Court: North Carolina Court of Appeals

872 S.E.2d 58

David SCHROEDER and Peggy Schroeder, Plaintiffs,

v.CITY OF WILMINGTON and City of Wilmington Board of Adjustment, Defendants.

No. COA21-192

Court of Appeals of North Carolina.

Filed April 5, 2022

Nelson Mullins Riley & Scarborough, LLP, by John E. Branch, III, Raleigh, and Andrew D. Brown, Raleigh, and Institute for Justice, by Ari Bargil and Adam Griffin, for Plaintiffs-Appellees/Cross-Appellants.

Poyner Spruill LLP, by N. Cosmo Zinkow and Robert E. Hagemann, Charlotte, and Deputy City Attorney Meredith T. Everhart, for Defendant-Appellant/Cross-Appellee City of Wilmington.

INMAN, Judge.

¶ 1 The North Carolina Constitution establishes the State as sovereign, and local governments may exercise only those powers that our General Assembly "deem[s] advisable" through legislative enactment. N.C. Const. art. VII, § 1. When a legal question arises regarding the scope of a local government's authority, it is the judiciary's duty to interpret the enabling law and apply it in accordance with the General Assembly's intent. Occaneechi Band of Saponi Nation v. N.C. Comm'n of Indian Affairs , 145 N.C. App. 649, 653, 551 S.E.2d 535, 538 (2001). And when a local government enacts an ordinance asserting powers that exceed those granted by the General Assembly, we are compelled to invalidate the unauthorized action. King v. Town of Chapel Hill , 367 N.C. 400, 411, 758 S.E.2d 364, 373 (2014).

¶ 2 David and Peggy Schroeder ("Plaintiffs") dispute the authority of the City of Wilmington ("Wilmington") to enact a zoning ordinance restricting short-term rentals through a registration and lottery process. Plaintiffs presented several state law and constitutional law rationales to the trial court. The trial court dismissed Plaintiffs’ constitutional challenges but agreed that the zoning ordinance was entirely invalid based on a statute and its amended recodification precluding local governments from "requir[ing] any owner or manager of rental property ... to register rental property with the local government." N.C. Gen. Stat. § 160A-424(c) (2017), recodified as amended at N.C. Gen. Stat. § 160D-1207(c) (2021).

¶ 3 The trial court stayed its judgment, and both parties appeal. Wilmington challenges the judgment and Plaintiffs challenge the dismissal of their constitutional claims and the entry of a stay.¹

¶ 4 After careful review, we affirm the trial court's judgment that the registration and lottery provisions of Wilmington's ordinance are invalid under Section 160D-1207(c) of our General Statutes. But we reverse the portion of the judgment striking provisions of the Wilmington ordinance that are not prohibited by statute and are severable from the invalid provisions. Because our holding renders moot Plaintiffs’ constitutional challenges to the ordinance, we do not reach Plaintiffs’ cross-appeal.

I. FACTUAL AND PROCEDURAL HISTORY

¶ 5 The record below and our General Statutes disclose the following:

A. The General Assembly Restricts Permitting, Permission, and Registration Requirements for Residential Rentals

¶ 6 In 2011, the General Assembly enacted a statute prohibiting cities from penalizing or restraining the rental of residential real property absent "reasonable cause." 2011 N.C. Sess. Laws 1034, 1034, ch. 281. That statute, Section 160A-424(c),² prohibited cities from "requir[ing] any owner or manager of rental property to obtain any permit or permission from the city to lease or rent." N.C. Gen. Stat. § 160A-424(c) (2011). The statute provided an exception allowing cities to "levy a fee for residential rental property registration under subsection (c)" if the rental units in question had a sufficient number of local ordinance violations or were hotspots for criminality. Id. § 160A-424(d) (emphasis added). Subsection (d) further allowed cities "that charge[d] registration fees for all residential rental properties as of June 1, 2011" to continue to do so according to a specific fee schedule. Id.

¶ 7 As the land development statutes were codified at the time Section 160A-424(c) was originally enacted, municipal land development regulatory powers were found in Article 19, "Planning and Regulation of Development," of Chapter 160A, "Cities and Towns." County land development regulatory powers were located in Article 18, "Planning and Regulation of Development," in Chapter 153A, "Counties." Thus, the statutes authorizing local governments to regulate land uses were codified in two separate chapters, depending on the body politic. Section 160A-424(c), as a statute governing municipalities, was located in Part 5, "Building Inspection," of Article 19 in Chapter 160A. Organizationally, this placed Section 160A-424(c) apart from our municipal zoning laws, which were located in Part 3, "Zoning," of Article 19 in Chapter 160A.

¶ 8 In 2017, the General Assembly added language to Section 160A-424(c) to bar cities from "requir[ing] any owner or manager of rental property to obtain any permit or permission ... to lease or rent ... or to register rental property with the city. " N.C. Gen. Stat. § 160A-424(c) (2017) (emphasis added). The statute continued the exceptions for properties that repeatedly violated building codes or were sites of substantial criminal activity. Id. The amended statute repealed the subsection that allowed the uniform rental registration programs predating June 2011 to continue, ending the authorization of those programs. Id. § 160A-424(d).

B. Wilmington Regulates Short-Term Rentals Through Registration

¶ 9 Against this statutory backdrop, Wilmington sought to protect its neighborhoods and housing market from the impact of widespread short-term rentals. Wilmington's City Council identified concerns including "undue commercialization and disruption to the primary and overarching purpose of a neighborhood being first and foremost a residential community, where people actually live," and the possibility that "inordinate reductions in the supply of housing available for standard rentals for the citizens of Wilmington could have a destabilizing effect on housing affordability." These concerns led Wilmington to enact a zoning ordinance (the "Ordinance") in January 2019 regulating short-term rentals within city limits in an effort to balance their negative effects against the benefits of a "properly regulated" short-term rental market—including "assisting property owners to keep properties in good repair, which, in turn, stabilizes home ownership, maintains property values, and strengthens the economy of the City."

¶ 10 The Ordinance restricted short-term rentals to specific zoning districts, required at least 400 feet of separation between short-term rentals, and capped the total percentage of short-term rentals at two percent of residential parcels within Wilmington's 1945 Corporate Limits and two percent of residential parcels outside the same. To implement the separation and cap requirements, the Ordinance required short-term rental operators to register their properties. Initial registrations were to be doled out in conformity with the separation and cap requirements by lottery. Registrations would terminate if not renewed annually, upon transfer of the subject property, or for violations of law, and registrations filed after the initial lottery would be received and processed on a first-come, first-served basis. Existing short-term rental operators who failed to obtain a registration by lottery were required to cease short-term rentals by the end of a one-year amortization period. Other sections of the Ordinance imposed health, safety, and similar requirements, such as requiring short-term rental operators to conspicuously post the dates for garbage collection and the non-emergency telephone number for the Wilmington Police Department.

C. Plaintiffs’ Challenge

¶ 11 Plaintiffs own a townhome in the Lions Gate community of Wilmington, which they used as a short-term rental without any reported problems prior to the enactment of the Ordinance. After the Ordinance was passed, Plaintiffs registered their property but lost in the initial lottery, as another property within 400 feet of their townhouse drew a lower lottery number. Plaintiffs appealed to the Wilmington Board of Adjustment, which upheld Wilmington's denial of registration.

¶ 12 With no other administrative avenues available to them, Plaintiffs filed a declaratory judgment action in October 2019 to challenge the validity of the Ordinance, alleging it violated Section 160A-424(c) ’s prohibition against ordinances "that would require any owner or manager of rental property to obtain any permit or permission from the city to lease or rent residential real property or to register rental property with the city."³

D. The General Assembly Reorganizes and Recodifies Local Land Use Regulatory Statutes

¶ 13 In July 2019, shortly before Plaintiffs filed suit, the General Assembly amended and recodified statutes concerning local government regulation of short-term rentals, including Section 160A-424(c). On 1 July 2019, the General Assembly enacted Session Law 2019-73 to explicitly place vacation rentals under the ambit of Section 160A-424. 2019 N.C. Sess. Laws 300, 300, ch. 73, § 1. Ten days later, the General Assembly amended and recodified Section 160A-424 as part of a session law captioned, "An Act to Clarify, Consolidate, and Reorganize the Land-Use Regulatory Laws of the State." 2019 N.C. Sess. Laws 424, 424, ch. 111 (hereinafter "the Act"). Part II of the Act—which contains the recodification of Section 160A-424—is titled "Provisions to Reorganize, Consolidate, Modernize, and Clarify Statutes Regarding Local Planning and Development Regulation." Id. , at 439, 758 S.E.2d 364, ch. 111.

¶ 14 Part II of the Act at issue in this case provides:

... The intent of the General Assembly by enactment of Part II of this act is to collect and organize existing statutes regarding local planning and development into a single Chapter of the General Statutes and to consolidate the statutes

...