EPCON HOMESTEAD, LLC v. TOWN OF CHAPEL HILL

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

EPCON HOMESTEAD, LLC, )

)

Plaintiff, )

v. )

)

TOWN OF CHAPEL HILL, ) 1:20CV245

)

Defendant. )

)

MEMORANDUM OPINION AND ORDER

This matter is before the Court on Defendant Town of Chapel Hill’s Motion to

Dismiss [Doc. #9], pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of

Civil Procedure. For the reasons below, the motion is granted.

I.

When considering a motion to dismiss under Federal Rule of Civil Procedure

12(b)(6), the Court must accept the factual allegations in the Amended Complaint

as true and draw all reasonable inferences in the favor of Plaintiff Epcon

Homestead, LLC (“Epcon”). See U.S. ex rel. Oberg v. Pa. Higher Educ. Assistance

Agency, 745 F.3d 131, 136 (4th Cir. 2014). The instant action arises following

an $803,250.00 payment Epcon made under the terms of the Inclusionary Zoning

Ordinance (“IZO” or “Ordinance”) Defendant Town of Chapel Hill (the “Town”)

adopted in June 2010. (Am. Compl. ¶¶ 11-12 [Doc. # 4]; Ex. A, Am. Compl.

(“IZO”).) The IZO was adopted as Section 3.10 of the Town’s Land Use

Management Ordinance (“LUMO”) “in order to meet the [T]own’s goal of

preserving and promoting a culturally and economically diverse population in [its]

community.” (IZO at 3.10.) Under the terms of the IZO, which applied to

development projects involving at least five single-family lots, property owners

were required to “set aside a certain number of ‘affordable housing units,’” which

could only be “offered for sale to low-income households at below-market prices.”

(Am. Compl. ¶¶ 14-15 (internal citations omitted).) In the alternative, an owner

could provide a payment-in-lieu of selling the units at below-market values

according to an amount per unit established by the Town, which would be

“reserved . . . for affordable housing purposes.” (Id. ¶¶ 17-18; IZO at

3.10.2(d)(4).)

In October 2014, Epcon’s predecessors in interest1 submitted a revised

Special Use Permit (“SUP”), (Ex. E, Am. Compl.), for the Courtyards at Homestead,

a planned development consisting of 63 dwelling units and a clubhouse/pool on

18.2 acres. (Am. Compl. ¶ 40; Staff Report, Ex. D, Am. Compl., at 12 (“Staff

Report”).) In the 2014 SUP, pursuant to the IZO, the Town required 15% of the

proposed dwelling units to be provided as affordable, which equated to 9.45 of the

63 units. (Am. Compl. ¶ 45.) After discussions between Epcon’s affiliates and the

Town, Epcon’s affiliates opted instead for the payments-in-lieu at a rate of

$85,000.00 per unit, bringing the total amount to $803,250.00, stating that “the

1 Epcon disclaims ownership of the property in question at the time of the 2014 SUP

submission but refers to the applicant of the SUP as “[Epcon’s] affiliates and their

agents” or “predecessors in interest.” (Am. Compl. ¶¶ 7, 40, 65.)

substantial payment-in lieu would provide much greater opportunity [than setting

aside units] for equal or greater units to be built or rehabbed in a more centrally

located part of the Town where shopping, public transportation and job[s] [sic] are

nearby.” (Id. ¶ 46; Staff Report at 14.) The payment-in-lieu was “a condition of

the development with periodic payments” due prior to every seventh certificate of

occupancy Epcon sought. (Am. Compl. ¶ 52; SUP ¶ 20.) The SUP also provided

the stipulation that construction should begin by October 27, 2016 and be

completed by October 27, 2019. (Id. ¶ 1.)

Following approval of the SUP, Epcon acquired the real property comprising

the project beginning in 2015 and moved forward with developing and selling the

63 units. (Am. Compl. ¶¶ 7, 67.) The property did not have to be rezoned for the

project, given that the existing zoning district already allowed for the residential

density Courtyards at Homestead required. (Id. ¶ 41.) Epcon made its first

payment of $85,000.00 on July 5, 2017 and made further payments of the same

amount on September 28, 2017, November 15, 2017, January 31, 2018, April

10, 2018, April 24, 2018, June 22, 2018, September 26, 2018, and October 25,

2018. (Id. ¶¶ 69-77.) A final payment of $38,250.00 was made on March 20,

2019 with the final certificate of occupancy. (Id. ¶ 78.)

After Epcon fulfilled its obligations under the IZO and sold all 63 units in the

Courtyards at Homestead, it filed its original Complaint on October 24, 2019 in the

Superior Court of Orange County, requesting a return of the $803,250.00 under

North Carolina and common law, as well as payment of attorneys’ fees. (Compl.,

Ex. 1, Pet. for Removal [Doc. #1-1].) The Town moved to dismiss Epcon’s

Complaint, (Def.’s Mot. to Dismiss, Ex. 2, Pet. for Removal [Doc. #1-2]), and

Epcon filed an Amended Complaint adding several state and federal claims,

including violations of Substantive Due Process and the Takings Clause pursuant to

the Fifth and Fourteenth Amendments of the U.S. Constitution and their

counterparts in the North Carolina Constitution. (Am. Compl. ¶¶ 93-98, 110-13.)

The Town then removed to this Court, (Pet. for Removal [Doc. #1]), and moved to

dismiss the Amended Complaint.

In its Motion, the Town contends that Epcon’s state and federal claims are

barred by the applicable statute of limitations.2 (Mot. to Dismiss at 1.) For Epcon’s

§ 1983 claims, the Town argues in its accompanying brief in support that the

limitations period began running upon the issuance of the October 2014 SUP and

thus expired in October 2017, prior to Epcon initiating this lawsuit. (Br. in Supp. of

Def.’s Mot. to Dismiss at 11-13 [Doc. #10].) In the alternative, the Town argues

that Epcon failed to exhaust its administrative remedies, depriving this Court of

subject-matter jurisdiction pursuant to Rule 12(b)(1) and failed to state a claim that

its Constitutional rights were violated pursuant to Rule 12(b)(6). (Mot. to Dismiss

at 1-2.) Epcon responds that its state and federal claims were timely given that

the statute of limitations were subject to the continuing wrong doctrine and did not

2 The Town moved to dismiss on a number of grounds in addition to the expiration

of the statute of limitations. However, because the Motion is granted on the basis

of the statute of limitations, the Court did not reach the merits of the other

challenges.

begin accruing until it paid the payments-in-lieu beginning in July 2017. Epcon

premised this argument in part on the notion that it is only seeking to challenge

and recover the payments-in-lieu plus interest rather than to invalidate the IZO.

(Pl.’s Br. in Opp. to Def.’s Mot. to Dismiss at 18-19 [Doc. #17] (“Pl.’s Br. in

Opp.”). But see, e.g., Am. Compl. ¶ 23 (“The Town did not have the legal

authority to adopt the [IZO] at the time it was enacted, nor has it acquired the

legal authority to enact or enforce such an ordinance since that time.”); Pl.’s Br. in

Opp. at 3 (“The Town enacted the Ordinance knowing that it was not authorized

to do so.”); Pl.’s Br. in Opp. at 10 (“Here, the Ordinance is beyond the Town’s

zoning authority for the same reason.”).) The Town replies that the continuing

wrong doctrine neither applies to Epcon’s claims nor extends the statute of

limitations and, as it previously stated, the limitations period began accruing with

the SUP rather than the payments-in-lieu. (Reply Br. in Supp. of Def.’s Mot. to

Dismiss at 7-9 [Doc. #19].)

II.

“The purpose of a Rule 12(b)(6) motion is to test the sufficiency of the

complaint; importantly, a Rule 12(b)(6) motion does not resolve contests

surrounding the facts, the merits of a claim, or the applicability of defenses.”

Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999) (internal

citations omitted). Despite this general rule, dismissal on the grounds that the

claim is time-barred may be raised “under ‘the relatively rare circumstances where

facts sufficient to rule on an affirmative defense are alleged in the complaint.’”

Tucker v. Specialized Loan Servicing, LLC, 83 F. Supp. 3d 635, 648 (D. Md.

2015) (quoting Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007)); see

also Adams v. Crystal City Marriott Hotel, No. 02-CV-10258, 2004 WL 744489,

at *2 (S.D.N.Y. Apr. 6, 2004) (citing Bano v. Union Carbide Corp., 361 F.3d 696,

701 (2d Cir. 2004)) (“Rule 12(b)(6) provides the most appropriate legal basis for a

motion to dismiss on statute of limitations grounds, because expiration of the

statute of limitations presents an affirmative defense.”). Accordingly, at the Rule

12(b)(6) stage, “all facts necessary to the affirmative defense [must] ‘clearly

appear[] on the face of the complaint.’” Goodman, 494 F.3d at 464 (quoting

Richmond, Fredericksburg & Potomac R.R. v. Forst, 4 F.3d 244, 250 (4th Cir.

1993). Thus, if the facts on the face of the complaint do show the claim is time-

barred, “the plaintiff fails to state a claim.” Tucker, 83 F. Supp. 3d at 648 (citing

Jones v. Back, 549 U.S. 199, 214-15 (2007)).

III.

Epcon brings its federal claims under 42 U.S.C. § 1983,3 which allows for

relief for the “deprivation of any rights, privileges, or immunities secured by the

Constitution and laws.” Section 1983 does not contain a statute of limitations, so

“courts borrow the statute of limitations from the most analogous state-law cause

3 While Epcon brought a separate claim of a violation under 42 U.S.C. § 1983 (Count

Six), its other federal causes of action alleging violations of the Fifth and Fourteenth

Amendments to the United States Constitution (Counts Two and Three) are also

analyzed pursuant to § 1983. See, e.g., Scott v. Greenville Cnty., 716 F.2d 1409,

1413 (4th Cir. 1983) (examining alleged invasions of plaintiff’s Fifth and Fourteenth

Amendment rights under 42 U.S.C. § 1983).

of action.” Owens v. Baltimore City State’s Att’ys Office, 767 F.3d 379, 388 (4th

Cir. 2014); see also McDonough v. Smith, 139 S. Ct. 2149, 2155 (2019). In

North Carolina, the “analogous state limitations period is the three-years limitations

period . . . relating to personal injury actions.” Nat’l Advert. Co. v. City of Raleigh,

947 F.2d 1158, 1161-62 (4th Cir. 1991); see N.C. Gen. Stat. § 1-52(5).

However, “[a]lthough courts look to state law for the length of the limitations

period, the time at which a § 1983 accrues ‘is a question of federal law.’”

McDonough, 139 S. Ct. at 2155 (quoting Wallace v. Kato, 549 U.S. 384, 388

(2007)); see also Nat’l Advert. Co., 947 F.2d at 1162 (quoting Cox v. Stanton,

529 F.2d 47, 50 (4th Cir. 1975)) (“While the statutory limitations period for §

1983 actions is borrowed from state law, ‘[t]he time of accrual of a civil rights

action is a question of federal law.’”).

Under federal law, a § 1983 claim accrues “when a plaintiff knows or has

reason to know of the injury that is the basis of the action.” Clary v. Strickland,

No. 1:13-CV-514, 2014 WL 12495284, at *1 (M.D.N.C. Mar. 18, 2014) (citing

Nat’l Advert. Co., 947 F.2d at 1161-62); see also Halle Dev., Inc. v. Anne Arundel

Cnty., 121 F. App’x 504, 507 (4th Cir. 2005) (unpublished). At this time, “the

plaintiff has ‘a complete and present cause of action’” and “could have ‘file[d] suit

and obtain[ed] relief.’” Tommy Davis Constr., Inc. v. Cape Fear Pub. Util. Auth.,

807 F.3d 62, 67 (4th Cir. 2015). For an alleged takings claim violation, this is also

the point at which the purportedly offending “ordinance interfere[s] in a clear,

concrete fashion with the property’s primary use” and “reduce[s]” “the present

value” of the property, even if the ordinance has not yet been “enforced against [a

party].” Nat’l Advert. Co, 947 F.2d at 1163.

Here, Epcon knew or had reason to know of the IZO’s mandates, including

the payment-in-lieu alternative, certainly by the time the SUP was issued in

October 2014, when it—or its affiliates—agreed to abide by the Ordinance’s terms.

Though Epcon had not paid the fees and could have opted not to continue the

project, it had a complete cause of action at that time because it knew it had been

injured by the payment-in-lieu mandate in the amount of $803,250.00. Further,

there was no question that the IZO would apply to the Courtyards at Homestead

development even before the SUP was issued. A due diligence search prior to the

parcels’ initial purchase, acquisition, or even a project proposal would have

revealed that “practically all new residential developments in the Town’s

jurisdiction,” (Am. Compl. ¶ 14), especially in an area already zoned for high

residential density, would be encumbered or similarly impaired by the requirements

of the IZO. The Court does not need to reach a conclusion about the exact date of

accrual: whether the limitations period began accruing when the SUP was issued in

2014, when Epcon acquired the real property beginning in 2015, or at an earlier

date not articulated on the face of the Amended Complaint, the three-year statute

of limitations expired prior to Epcon bringing its claims in October 2019.

Epcon maintains, seemingly as an alternative to federal claim accrual, that

the “continuing wrong” doctrine applies and the limitations period did not begin

accruing until the first payment-in-lieu was made. While federal law governs

accrual of a § 1983 claim, state law—here, North Carolina law—governs principles

of tolling including the continuing wrong doctrine. See WFC Mgmt. Corp. v. New

Hanover Cnty. Airport Auth., 2017 WL 151594, at *4 (E.D.N.C. Jan. 13, 2017)

(internal citations omitted) (“In North Carolina, courts will toll the statute of

limitations in § 1983 cases when a plaintiff is suffering from a continuing violation

of their underlying constitutional right giving rise to the action.”) For statute of

limitations purposes, “[a] continuing wrong violation is occasioned by continual

unlawful acts, not continual ill effects from an original violation.” Williams v. Blue

Cross Blue Shield of N.C., 357 N.C. 170, 179 (2003) (quoting Ward v. Caulk, 650

F.2d 1144, 1147 (9th Cir. 1981)); see also Nat’l Advert. Co., 947 F.2d at 1166-

68; Ocean Acres Ltd. P’ship v. Dare Cnty. Bd. of Health, 808 F.2d 103, 106 (4th

Cir. 1983).

Epcon’s argument regarding the continuing wrong doctrine fails in part

because the “fees” Epcon maintains control accrual are factually distinct from

those in the authorities it cites. Both Tommy Davis Constr. Inc., 807 F.3d at 64-

65, and Quality Built Homes Inc. v. Town of Carthage, 371 N.C. 60, 61-62

(2018), involve water and sewer impact fees that were exacted pursuant to local

ordinances. In Tommy Davis Constr. Inc., the public utility did not even provide

the plaintiff with the water and sewer services which the fees purportedly covered.

807 F.3d at 64-65. In Amward Homes, Inc. v. Town of Cary, 206 N.C. App. 38,

41-46 (2010), aff’d, ordered not precedential, 365 N.C. 305 (2011), the

defendant required each plaintiff-builder of a subdivision to pay a school impact fee

based upon the number of bedrooms in the unit in question to receive a permit,

with the permit application and fee payment occurring together, id. at 57. The fee

was not originally written into the ordinance at issue but was allowed later as an

exemption in an amendment, and the ordinance itself was repealed in part not long

after. Id. at 45-47. Here, the IZO provided that a developer could choose to either

sell a prescribed number of units at below-market values or provide payments-in-

lieu of a roughly equivalent value. In the SUP, Epcon—or its affiliates—opted to

make ten payments-in-lieu, totaling $803,250.00, which the Town approved.

Epcon made those incremental payments towards the agreed-upon total according

to the timeline in the SUP in order to receive certificates of occupancy for its

completed homes. These were not separate and distinct fees required by an

ordinance; rather, these were partial payments towards a predetermined total that

operated as an alternative option under the terms of the IZO. The payments were

exactly what the continuing wrong doctrine is not: the “continual ill effects from

an original violation” laid out in the SUP. Ward, 650 F.2d at 1147; see also Nat’l

Advert. Co., 947 F.2d at 1168 (“This is not an instance of a statute’s repeated

enforcement against different individuals or even the same parties, but of a statute

applied once to a discrete set of individuals with a foreseeable, ascertainable

impact.”)

Accordingly, the continuing wrong doctrine does not apply and the statute

of limitations on Epcon’s § 1983 claims has expired.

IV.

Having dismissed Epcon’s federal claims under 42 U.S.C. § 1983 and

recognizing that the remaining claims operate under state law principles, the Court

declines to exercise jurisdiction over them. 28 U.S.C. § 1367(c)(3); see also

Shanaghan v. Cahill, 58 F.3d 106, 109 (4th Cir. 1995) (finding that “federal courts

generally have discretion to retain or dismiss state law claims when the federal

basis for an action drops away”). The state law claims are dismissed without

prejudice to afford Epcon an opportunity to refile its claims in state court within

thirty days. 28 U.S.C. § 1367(d); Artis v. District of Columbia, 138 S. Ct. 594,

199 L. Ed. 2d 473 (2018).

V.

For the reasons stated in this Memorandum, IT IS HEREBY ORDERED that the

Motion to Dismiss [Doc. #9] by Defendant Town of Chapel Hill is GRANTED IN

PART as to the federal claims and DENIED IN PART AS MOOT as to the state

claims. IT IS FURTHER ORDERED that the allegations of violations of federal law

in Counts Two and Three, as well as the entirety of Count Six alleging violations of

42 U.S.C. § 1983 are DISMISSED WITH PREJUDICE and Counts One, Four, and

Seven, and the remaining allegations in Counts Two and Three alleging violations

of state law are DISMISSED WITHOUT PREJUDICE.

This the 26th day of May, 2021.

/s/ N. Carlton Tilley, Jr.

Senior United States District Judge