New Water and Sewer Allocation Ordinance Does Not Constitute an Unconstitutional Taking 

Wednesday, February 1, 2023

Written by: Guy Jeffress

The recent case of PEM Entities LLC v. County of Franklin (2023 WL 105711), out of the United States Court of Appeals (the “Court”), reminds us that the imposition of new rules or restrictions by a local government, although onerous in their application, do not always constitute a diminution of a vested right or an unconstitutional taking. 

The cited case involved the development of a multi-phase, single-family residential community (the “Subdivision”) in Franklin County, North Carolina (the “County”). In 2005 the County approved a single-page “Preliminary Subdivision Plan” for the development (the “Plan”). Notes on the Plan indicated the development would be “served by Franklin County water and sewer to be installed by the developer.” In 2012 the appellant, PEM Entities LLC (“PEM”), acquired 150 acres of undeveloped land located within the Subdivision and subject to the Plan. In 2019 the County adopted a water and sewer allocation ordinance (the “Ordinance”) that established an application process for new water and sewer connections and capped water allotments for new developments. The new restrictions imposed by the Ordinance were not well received by the Subdivision developers, including PEM, who argued they were exempt from the restrictions due to the County’s approval of the Plan in 2005. In the same year, the County passed the Ordinance, PEM, and the other Subdivision developers entered into a settlement agreement with the County (the “Settlement”) in an attempt to resolve disputes involving road and water services. The terms and conditions of the Settlement included the following provision: “except as set forth in this [a]greement,” “[a]ny vested rights accorded to the [p]roperty under the [Plan] shall not be modified or supplemented by any subsequent action including ordinance, rule and/or regulation of [c]ounty.” 

In 2021, PEM sued the county in federal district court, alleging, in part, that the Ordinance effected an unconstitutional taking of PEM’s vested property right to receive water and sewer services under the Plan. The district court dismissed PEM’s complaint reasoning that neither the Plan nor the Settlement “create[s] a property interest for [PEM] in an unlimited right to water and sewer service,” and PEM “failed to demonstrate a concrete particularized injury for Article III standing” on its takings and due process claims. On appeal the Court, reviewing both U.S. Supreme Court concerning takings and due process claims, as well as North Carolina state law regarding vested rights based upon government approvals, found that neither the Plan nor the Settlement created a vested property right, and without a constitutionally protected property interest the “takings and associated due process claims fail as a matter of law.” 

In Virginia, in response to numerous cases concerning the vested rights of property owners, the legislature enacted Code Section 15.2-2307. 15.2-2307(B) sets forth various types of governmental acts which are deemed to be significant affirmative governmental acts allowing development of a specific project. The fifth such act in the list reads as follows: “(v) the governing body or its designated agent has approved a preliminary subdivision plat, site plan or plan of development for the landowner’s property and the applicant diligently pursues approval of the final plat or plan within a reasonable period of time under the circumstances.” Applying the quoted portion of the Virginia statute to the facts of the PEM case would most likely end in the same result, i.e., the preliminary plan was approved, however, according to the cited opinion PEM did not diligently pursue approval of a final plan. In fact, PEM acknowledged on the record that it never requested that Franklin County approve a final plan of subdivision. Additionally, in light of Virginia law, the extent to which the Plan vested PEM with future rights to unlimited water and sewer services is also questionable. 

Land use, zoning, and questions concerning vested property rights are often wrapped up in a complex web of state and local ordinances, prior case law, political change, constitutional rights, and local planning, permitting, and zoning processes. If you are facing land use, zoning, or approval issues with your project, contact the attorneys at Vanderpool, Frostick and Nishanian, P.C. for assistance. 

Call one of the attorneys at Vanderpool, Frostick & Nishanian, P.C., or email and let us see if we can assist you.

This blog post is not intended to provide legal advice or substitute for the advice of legal counsel with respect to specific facts and situations. See disclaimer