In the coming months, the North Carolina Supreme Court will decide whether a class-action lawsuit can move forward against Raleigh over water and sewer impact fees.
Key issues for the court to resolve include whether NC General Statute 160D-106 applies only to the person who initially paid an improper fee and whether those who allege they paid the fee can be certified as a class.
The court heard oral arguments Oct. 28 in the dispute between the City of Raleigh and developers who challenged the water and sewer impact fees charged between 2016 and 2018.
The developers, including Wardson Construction and Homequest Builders, originally sued the city in 2019 after being denied refunds for the fees. They sought class-action status, potentially representing up to 735 plaintiffs, and a $16 million award.
During oral arguments, Robin Tatum, former Raleigh city attorney and a partner at Fox Rothschild, represented the city. She argued the case does not meet the criteria for a class action.
“We know at least one person is going to get paid twice, and probably a lot more,” Tatum said. “That is just not a class action.”
Tatum emphasized that refunds should go only to those who actually suffered financial harm and the city’s intention for the money.
“The City of Raleigh has no desire to keep money it is not entitled to,” she stated. “However, under the class action statutes and [N.C.G.S § 160-D] 106, that does not mean you give it to whoever shows up and has carried some money to the city. You want to get it to all the people who have been improperly injured.”
Finally, Tatum argued that this is a public policy question, not one for the judiciary to decide.
“There should not be a decision that this basic language made this gigantic change to class action law, without anybody really knowing that they did it,” she said. “I think any change to this should be a legislative one.”
The key point of contention focused on the statutory language in N.C.G.S. 160D-106, which requires local governments to reimburse “the person who made the payment” when the government illegally charges a fee.
Tatum argued that the law should prioritize the party who ultimately bore the financial burden, using an analogy: The situation is like a co-worker ordering and delivering Uber Eats for lunch. The colleague pays for the meal, but someone else reimburses them, making the colleague just a vehicle for the payment.
Chief Justice Paul Newby pushed back on this analogy, questioning the different impact depending on whether the payment is viewed from the perspective of the restaurants or of the colleague.
“Let’s say it was pointed out by you or one of your colleagues that the person was actually charged too much; they were charged an illegal amount for what had been given,” Newby said. “Could you go to the restaurant and get the refund? Only the person who paid too much could go get the refund, correct?”
Representing the developers, Jim DeMay of Milberg argued that the statute’s plain language and legislative intent support a class action refund to the original payors.
“The legislature wants these fees to be refunded,” he said. “They don’t want the city to keep them, and a class action here furthers that intent.”
DeMay added that the statute provides a clear mechanism for refunding the fees.
“[The statute] ensures that the cities pay back illegal fees by providing a certain, identifiable refund recipient,” DeMay argued. “[The city’s] own expert says the fee is passed on each time the home is sold. So are you going to look at the second purchaser, third purchaser, fourth purchaser?”
“Here we have a known class of specific parties, the parties that are identified by the General Assembly in 160D-106 who paid the fees, have a common interest in having the fees refunded under the statute, and the trial court was manifestly correct in certifying the class in this case,” he concluded.
Justice Richard Dietz repeatedly focused on the statutory wording, asking Tatum why the ordinary meaning of “person who made the payment” should not govern. He reiterated the makeup of the court, saying there were several textualists, or those who focus on the plain meaning of words when legally interpreting cases.
“In [160-D] subsection 106, when it says that the refund of the fee goes to the person who made the payment, why wouldn’t we just take the ordinary meaning of that term, even if you passed the cost down the line to someone else?” Dietz said. “The person who actually is the one who shows up and says ‘here’s the money’ is the one who made the payment, and then these other people had it passed along to them.”
Justice Trey Allen questioned what the city would do if class certification were denied but the plaintiffs still prevailed.
“Suppose that we agree with you that there shouldn’t be class certification here, but the plaintiff prevails on the merits,” he said. “What steps then would you take with a judgment that these fees were unlawful? What steps would you then take to see that those fees were refunded to the proper individuals?”
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