Zander v. Orange Cnty.

• Docket Number: COA22-691
• Decision Date: 05 July 2023
• Parties: ELIZABETH ZANDER and EVAN GALLOWAY, for themselves and all other persons similarly situated, Plaintiffs, v. ORANGE COUNTY, NC, and the TOWN OF CHAPEL HILL, Defendants.
• Court: North Carolina Court of Appeals

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ELIZABETH ZANDER and EVAN GALLOWAY, for themselves and all other persons similarly situated, Plaintiffs,
v.
ORANGE COUNTY, NC, and the TOWN OF CHAPEL HILL, Defendants.

No. COA22-691

Court of Appeals of North Carolina

July 5, 2023

Heard in the Court of Appeals 24 January 2023.

Appeal by Plaintiffs from an Order entered 17 June 2022 by Judge Allen Baddour in Orange County Superior Court. No. 17 CVS 166

Brooks, Pierce, McLendon, Humphrey &Leonard, L.L.P., by William A. Robertson, Robert J. King, III, Daniel F. E. Smith, and Matthew B. Tynan, for Plaintiffs-Appellants.

Womble Bond Dickinson (US) LLP, by Sonny S. Haynes and James R. Morgan, Jr., for Defendants-Appellees.

RIGGS, JUDGE

Plaintiffs Elizabeth Zander and Evan Galloway appeal from a summary judgment order dismissing their class action complaint brought against Defendants

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Orange County (the "County") and the Town of Chapel Hill^[1] on behalf of persons: (1) who were assessed allegedly ultra vires school impact fees by the County (the "Feepayer Class"); or (2) who are allegedly entitled to a refund of some school impact fees due to a 2016 change in the fee schedule (the "Refund Class"). On appeal, Plaintiffs contend that the evidence conclusively establishes that both classes are entitled to relief and that there are no genuine issues of material fact for resolution at trial. After careful review, we agree that the County unlawfully included some costs not authorized by statute in calculating the impact fees and hold that the Feepayer Class is entitled to recoup the portion of the school impact fees that were assessed to cover those improper costs. However, because the evidence does not establish the amount of impact fees attributable to these impermissible costs, we remand the matter for further proceedings to determine the damages owed to the Feepayer Class. As to the Refund Class, we hold that the trial court properly granted summary judgment for the County because the forecast of evidence demonstrates that no refunds are owed under the applicable ordinance.

I. FACTUAL AND PROCEDURAL HISTORY

A. The Enabling Act

In 1987, the General Assembly enacted a statute authorizing the County to

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assess impact fees "to help defray the costs to the County of constructing certain capital improvements" necessitated by new residential development. 1987 N.C. Sess. Laws 617, ch. 460, § 17(b)(1) (hereinafter the "Enabling Act"). The Enabling Act defined "capital improvements" as follows:

For purposes of this subsection, the term capital improvements includes the acquisition of land for open space and greenways, capital improvements to public streets schools, bridges, sidewalks, bikeways, on and off street surface water drainage ditches, pipes, culverts, other drainage facilities, water and sewer facilities and public recreation facilities.

Id. § (b)(2).

The Enabling Act also established minimum procedures that the County must follow as it "endeavor[s] to approach the objective of having every development contribute" to a fund for capital improvements in a reasonable and fair manner. Id. § (c). Specifically, the County is required, "among other steps and actions," to:

(1) Estimate the total cost of improvements by category (e.g., streets, sidewalks, drainage ways, etc.) that will be needed to provide in a reasonable manner for the public health, safety and welfare of persons residing within the County during a reasonable planning period not to exceed 20 years. The Board of County Commissioners may divide the County into two or more districts and estimate the costs of needed improvements within each district. These estimates shall be periodically reviewed and updated and the planning period used may be changed from time to time.

(2) Establish a percentage of the total costs of each category of improvement that, in keeping with the objective set forth above, should fairly be borne by those paying the

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impact fee.

(3) Establish a formula that fairly and objectively apportions the total costs that are to be borne by those paying impact fees among various types of developments....

Id. The Enabling Act was later amended in 1993 to define the word "costs" as including loan obligations, lease payments, and installment sale contracts connected with capital improvements. 1993 N.C. Sess. Laws 313, ch. 642, § 4(a).

B. Impact Fee Studies and Ordinances

In 2003, the County enacted an ordinance designed to ensure adequate school capacity at specified service levels in the face of new development. ORANGE COUNTY, __ N.C. __, CODE OF ORDINANCES §§ 15-88, 88.2 (2003). The County began creating Schools Adequate Facilities Ordinance Technical Advisory Committee reports ("SAPFOTAC reports") to aid the process. The SAPFOTAC reports were limited, however, insofar as they only estimated the need for entirely new schools by type without considering expansion of existing school facilities or the capacity needs of schools individually.

The County also sought assistance in calculating future capital improvement costs and impact fees from consultants TischlerBise. In 2007, TischlerBise completed school impact fee reports (the "2007 Studies") for each school district operated by the County: (1) the Orange County School District ("OCSD"); and (2) the Chapel Hill-Carrboro School District ("CHCSD"). The 2007 Studies employed the "incremental expansion method" of estimating future capital improvement needs and attributable

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impact fee assessments by: (1) establishing the capital cost per student at the County's desired level of service;^[2] and (2) assessing that cost against different types of residential development based on their anticipated student generation, i.e., the anticipated number of students added to the school system by each new residence type built.

First, TischlerBise identified the level of service by reference to the County's ordinances, which mandated the following levels of service by school type: 105% for elementary schools; 107% for middle schools; and 110% for high schools. From there, and based on current student enrollment data, TischlerBise calculated the capital improvements-such as acreage, building square footage, and number of portable classrooms-attributable to each individual student at the levels of service mandated by the County's ordinances. TischlerBise then estimated the current cost of each of these capital improvements per unit, i.e., by acre, square foot, etc. Taking these numbers together, and after accounting for revenue credits attributable to nonimpact fee funding sources, TischlerBise arrived at a net total capital improvement cost per individual student, separated by elementary, middle, or high school. Finally, TischlerBise calculated the maximum allowable impact fee for each residence type by

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multiplying the net capital improvement cost per student by the number of elementary, middle, and high school students generated from each new type of house built. TischlerBise relied on the estimated student generation data for the 2006-2007 school year in arriving at the maximum allowable impact fees.

Stated differently, TischlerBise estimated future capital improvement needs by calculating how much it would cost in capital improvements to maintain adequate school capacity levels on a per-new-student basis: as each new residence was built, an impact fee would be assessed to cover the capital improvement cost of adding the students generated by the residence to the school system without negatively impacting capacity. TischlerBise then provided maximum allowable impact fees by development type based on these calculations.

TischlerBise included the following costs as "capital improvements" in drafting the 2007 Studies: (1) construction; (2) land acquisition; (3) portable/temporary classrooms; (4) support facilities; (5) buses; and (6) TischlerBise's consulting fee. For the five-year period beginning in 2008, TischlerBise estimated that the OCSD's "school local capital costs average approximately $6 million per year, or $30.4 million over five years," and the CHCSD's "school local capital costs average approximately $11.3 million per year, or $56.7 million over five years." The Reports advised the County that, based on these five-year estimates, assessing the maximum impact fees calculated by TischlerBise "would cover approximately 85 percent of [OCSD's] projected related capital improvement costs," and "approximately 84 percent of

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[CHCSD's] projected related capital improvement costs." TischlerBise also calculated anticipated student enrollment and housing development increases for the ten-year period beginning in 2007, relying on historical development data from the past 10 years.^[3]

Following receipt of the 2007 Studies, the County enacted impact fees at 32% of the maximum calculated by TischlerBise beginning in 2009; that percentage then increased to 40% in 2010, 50% in 2011, and 60% in 2012. The County never assessed impact fees at 100% of the maximum calculated by TischlerBise under the incremental expansion method.

In 2014, TischlerBise provided the County with a new student generation rate study. Then, in 2016, TischlerBise completed an updated set of impact fee studies (the "2016 Studies") that accounted for new dwelling types and student generation data. The 2016 Studies anticipated $19MM in future capital costs over the next five years for the OCSD and $23.28MM for the CHCSD, while again estimating the anticipated student enrollment and housing development increases for the next 10 years.

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The County adopted new impact fee schedules following the release of the 2016 Studies to account for the new housing types captured therein. It also amended the impact fee ordinance to provide as follows:

If the Schedule of Public School Impact Fees . . . is reduced due to an updated school impact fee study that results in changes

...