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Wells v. City of Wilmington

Court of Appeals of North Carolina

June 16, 2015

GLENN WELLS; et al., Plaintiffs,
v.
CITY OF WILMINGTON, North Carolina; et al., Defendants,
v.
SOTHERLY HOTELS, INC., et al., Intervenors.

Heard in the Court of Appeals April 22, 2015.

Page 356

New Hanover County, No. 05 CVS 4015.

Everett Gaskins Hancock LLP, by E.D. Gaskins, Jr., and Jason N. Tuttle, for Plaintiff Wells.

Marshall, Williams & Gorham, LLP, by Matthew B. Davis, for Intervenors.

Parker Poe Adams & Bernstein LLP, by Anthony Fox and Charles C. Meeker, for Defendant City of Wilmington.

STEPHENS, Judge. Judges STEELMAN and MCCULLOUGH concur.

OPINION

Page 357

Appeal by Plaintiff Glenn Wells and Intervenors from order entered 10 June 2014 by Judge Paul L. Jones in New Hanover County Superior Court.

STEPHENS, Judge.

Plaintiff Glenn Wells (" Wells" ), a Wilmington resident and taxpayer, and Intervenors Sotherly Hotels, Inc., and Capitol Hotel Associates, L.P., L.L.P.,[2] (collectively, " Appellants" ) argue that the trial court erred in denying their Motion in the Cause to hold the City of Wilmington (" Wilmington" ) in contempt for allegedly violating the 2006 Consent Judgment Wilmington entered into with Wells prohibiting the use of public funds to subsidize a privately owned hotel as part of Wilmington's broader plan to build a convention center complex in downtown Wilmington. Appellants contend that the trial court erred in its conclusion that the land for the hotel site was beyond the scope of the Consent Judgment. Appellants also argue that the trial court erred in concluding that Wilmington's plan to sell the hotel site to a private developer does not subsidize or underwrite the hotel; that Wilmington properly used its authority under section 158-7.1(d) of our General Statutes in setting the hotel site's fair market value; and that Wilmington's proposed Garage Parking License Agreement does not violate the Consent Judgment. After careful consideration, we affirm the trial court's order.

I. Facts and Procedural History

For more than 15 years, Wilmington has been working to build a downtown convention center complex including a convention center, parking deck, and hotel. In 2005, citing North Carolina's Local Development statute, N.C. Gen. Stat. § 158-7.1, Wilmington passed a resolution to authorize the purchase of a 7.8-acre tract of land for $3,803,500.00 to serve as the site for this complex. The hotel was to occupy 33,000 square feet of this tract, and the cost of the land for the hotel's pro rata share of the larger tract's acquisition cost was $311,539.00.

On 13 October 2005, Wells and three local hotel operators filed suit in New Hanover County Superior Court seeking a declaratory judgment against Wilmington, New Hanover County, and the New Hanover County Tourism

Page 358

Development Authority. Wells and the hotel operators asserted that Wilmington's planned use of occupancy tax proceeds was improper and amounted to an unconstitutional conveyance of public funds as gifts and benefits to the private developer that Wilmington had entered into an agreement with to develop, construct, and operate the convention center, parking deck, and hotel. This lawsuit was resolved by a Consent Judgment Resolving All Claims (" Consent Judgment" ) entered on 8 August 2006 by New Hanover County Superior Court Judge Paul L. Jones. The Consent Judgment provided in pertinent part that:

Any plans by [Wilmington] to construct a public convention center with adjacent parking facilities (" the Convention Center" ) in conjunction with an adjoining privately owned hotel (" the Hotel" ) (collectively " Convention Center Project" ) within the area now designated as " Downtown Wilmington" . . . shall conform to the following requirements:
. . .
(b) All Convention Center facilities and parking shall be available to all users on the same terms, conditions and prices pursuant to policies, procedures and price schedules established and monitored by the City of Wilmington.
(c) No public funds of any nature shall be used to acquire, build, equip, operate or otherwise underwrite or subsidize the Hotel or its operations (including shared facilities) except as permitted in paragraph (d) below. . . .

Since 2006, Wilmington has issued four Requests for Qualifications (" RFQ" ) in an effort to secure a developer to build and operate the hotel. Each of these RFQs provided that any potential developer must pay fair market value for the hotel site and either expressly stated that Wilmington would not contribute any funding to the hotel's construction or subsidize the hotel in any way, or else included the Consent Judgment as an attachment. In 2007, Wilmington obtained a Summary Appraisal Report from Ingram & Company, Inc., which concluded that the fair market value of the hotel site as of 12 October 2007 was $475,000.00, equivalent to roughly $17.54 per square foot. By November 2010, Wilmington had completed construction of the convention center and adjacent parking garage but had been unable to reach an agreement with any private developer to construct and operate the hotel.

On 7 February 2012, in conjunction with its fourth RFQ, Wilmington's City Council passed a Resolution Authorizing the Execution of a Memorandum of Understanding with Harmony Hospitality, Inc. (" Harmony" ), which provided for " the eventual sale of City-owned real property adjacent to the Downtown Convention Center for the construction of a privately funded hotel." On 4 February 2014, after two years of negotiating with Harmony, Wilmington's City Council passed a Resolution Approving the Sale of Land Pursuant to the Terms of a Purchase and Development Agreement (" the Resolution" ). That agreement provided that Wilmington would convey the hotel site to Harmony for a purchase price of $578,820.00, which the Resolution found

pursuant to North Carolina General Statutes Section 158-7.1(d), . . . reflects the value of the Property in consideration of the probable average hourly wage to be paid, the fair market value of the interest and the covenants, conditions and restrictions imposed on the Property, the prospective tax revenues from the Hotel to be constructed on the Property, prospective sales tax revenues to be generated in and around the City, as well as any other prospective tax revenues and income coming to the City over the next ten (10) years as a result of the conveyance[.]

The Resolution concluded that " [t]he fair market value of the Property when subject to the covenants, conditions and restrictions of the City is $578,820.00" and that " [t]he conveyance complies with NCGS Section 158-7.1 and the Consent Judgment." On 5 February 2014, Wilmington entered into a Purchase and Development Agreement with Harmony, which provided that the hotel would be eight stories in height and have 186 guest room suites and 6,000 square feet of conference and banquet spaces, as well as a full-service restaurant and lounge. As an attachment to that agreement, the parties also negotiated a

Page 359

Garage Parking License Agreement, under which Wilmington agreed to reserve 250 parking spaces on the first three floors of the parking deck that adjoins the Convention Center for Harmony's use for an initial 30-year term, with options to renew for two additional 10-year terms, for ...


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