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Camden County v. Northeastern Community Development Corp.

United States District Court, E.D. North Carolina, Northern Division

May 17, 2017



          JAMES C. DEVER III Chief United States District Judge.

         On March 19, 2015, Camden County, East Carolina Behavioral Health, and Pasquotank County (collectively, "plaintiffs") filed an action for declaratory judgment and to quiet title against the United States Department of Agriculture ("USDA"), the United States Internal Revenue Service ("IRS"), the Northeastern Community Development Corporation ("NCDC"), and Southern Bank & Trust Company ("Southern") in Camden County Superior Court [D.E. l-l].[1] On April 16, 2015, the IRS and USDA removed the case to this court [D.E. 1]. On June 4, 2015, the IRS answered [D.E. 8]. On June 5, 2015, the USDA answered, moved to dismiss, and asserted four counterclaims: for a declaration that the government's exercise of its possibility of reverter was an unconstitutional taking, for quiet title to the property at issue, for breach of contract, and for inverse condemnation [D.E. 9]. On June 16, 2015, the court granted Charles Thomas Steele, Jr.'s ("Steele") motion to intervene as a defendant/intervenor and denied as moot the USDA's motion to dismiss, which it premised on plaintiffs' failure to join Steele as a necessary party [D.E. 14]. On June 19, 2015, plaintiffs answered the USDA's counterclaims [D.E. 15]. On July 10, 2015, Steele answered plaintiffs' complaint and raised the same four counterclaims as the USDA [D.E. 18]. On July 29, 2015, plaintiffs responded to Steele's affirmative defenses and answered his counterclaims [D.E. 26].

         On September 20, 2016, Steele and the USDA (collectively, "defendants") moved for summary judgment [D.E. 39] and filed a supporting memorandum [D.E. 41], a statement of material facts [D.E. 42], and supporting exhibits [D.E. 43]. On October 10, 2016, plaintiffs responded in opposition [D.E. 44]. On October 21, 2016, defendants replied [D.E. 45]. As explained below, the court denies defendants' motion for summary judgment.


         In 2001 and 2002, the Camden County Board of Commissioners and Pasquotank County Board of Commissioners decided to facilitate the construction of a child care facility. Riggs Dep. [D.E. 43-1] 10-12; Griffin Dep. [D.E. 43-2] 10-11. Between November 29, 2001, and January 9, 2002, the Albemarle Hospital, the Albemarle Mental Health Center, Albemarle Regional Health Services, Camden County, and Pasquotank County (collectively, the "Sellers") negotiated and signed a land contract with NCDC, under which NCDC would pay $18, 977.00 for "a fee simple determinable interest" in 1.66 acres of undeveloped land in Camden County, North Carolina ("the Property"). [D.E. 18-3] 3. NCDC's fee simple determinable was subject to a possibility of reverter "in the event [NCDC] fail[ed] to use the Property for a child care facility for at least twenty-five (25) years following the closing date." Id. On June 27, 2002, a deed transferring ownership from the Sellers to NCDC, including the possibility of reverter, was recorded in Book 159, Page 388 in the Camden County Register of Deeds. [D.E. 1-1] 8-18. The deed required that construction of the child care facility "be expeditiously completed." Id. at 14. The Sellers knew that NCDC required financing to construct a child care facility on the Property. Griffin Dep. at 17 .

         On December 17, 2002, the USDA loaned NCDC $600, 000 in exchange for a Deed of Trust on the Property, recorded in Book 166, Page 420 in the Camden County Register of Deeds. [D.E. 43-3]. Thurman E. Bumette was named as the initial trustee of the Deed of Trust. [D.E. 43-3] 5. Steele later replaced Bumette as the trustee. [D.E. 42] ¶ 19. The USDA's closing attorney erroneously told the USDA that the Deed of Trust would be in a first lien position against the Property, and the USDA relied on its lawyer's erroneous representation. [D.E. 43-3] 2. Had the USDA asked Camden County to subordinate its possibility of reverter to the USDA's Deed of Trust, Camden County would have done so. Riggs Dep. at 29-30; see Griffin Dep. at 35 (stating that Pasquotank County could have subordinated its possibility of reverter to the USDA's interest had it been asked).

         Using the loan funds, NCDC built a child care facility on the Property. See Riggs Dep. at 23; Griffin Dep. at 22, 47. In August 2013, NCDC stopped operating a child care facility on the Property. [D.E. 42] ¶ 22; [D.E. 43-1] 19. After NCDC stopped operating the child care facility on the Property, the Sellers asserted that they owned the Property because of the deed's reversion clause. See Riggs Dep. at 26-27.


         In considering defendants' motion for summary judgment, the court views the evidence in the light most favorable to plaintiffs and applies well-established principles under Rule 56 of the Federal Rules of Civil Procedure. See, eg,, Fed. R. Civ. P. 56; Scott v. Harris. 550 U.S. 372, 378 (2007); Celotex Corp. v. Catrett. 477 U.S. 317, 325-26 (1986); Anderson v. Liberty Lobby. Inc.. 477 U.S. 242, 247-55 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp.. 475 U.S. 574, 585-87 (1986). Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see Anderson. 477 U.S. at 247-48. The party seeking summary judgment must initially come forward and demonstrate an absence of a genuine issue of material fact or the absence of evidence supporting the nonmoving party's case. Celotex Corp.. 477 U.S. at 325. Once the moving party meets its burden, the nonmoving party then must affirmatively demonstrate that there exists a genuine issue of material fact for trial. See Matsushita. 475 U.S. at 586-87.

         "[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson. 477 U.S. at 249. Conjectural arguments will not suffice. See Id. at 249-52; Beale v. Hardv. 769 F.2d 213, 214 (4th Cir. 1985) ("The nonmoving party... cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another."). Similarly, it is insufficient to show a "mere... scintilla of evidence in support of the [nonmoving party's] position...; there must be evidence on which the [factfinder] could reasonably find for the [nonmoving party]." Anderson. 477 U.S. at 252.

         Defendants' counterclaims require this court to apply North Carolina law. In resolving any disputed issue of state law, the court must determine how the Supreme Court of North Carolina would rule. See Twin City Fire Tns. Co. v. Ben Arnold-Sunbelt Beverage Co.. 433 F.3d 365, 369 (4th Cir. 2005). If the Supreme Court of North Carolina "has spoken neither directly nor indirectly on the particular issue before, " this court must "predict how [it] would rule if presented with the issue." Id. (quotations omitted). In making that prediction, the court "may consider lower court opinions[, ]... treatises, and the practices of other states." Id. (quotation omitted).[2] When predicting an outcome under state law, a federal court "should not create or expand [a] [s]tate's public policy." Time Warner Entm't-Advance/Newhouse P'ship v. Carteret-Craven Elec. Membership Corp.. 506 F.3d 304, 314 (4th Cir. 2007) (first alteration in original) (quotation omitted); see Wade v. Danek Med.. Inc.. 182 F.3d 281, 286 (4th Cir. 1999).


         Defendants seek summary judgment on five claims: (1) plaintiffs' request for a declaration that they own the Property, unencumbered by the USDA's lien; (2) plaintiffs' action for quiet title; (3) defendants' request for a declaration that the transfer of the Property to plaintiffs via the possibility of the reverter amounted to an unconstitutional taking; ...

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