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Red Square Properties, LLC v. Town of Waynesville

United States District Court, W.D. North Carolina, Asheville Division

May 22, 2019

RED SQUARE PROPERTIES, LLC, a North Carolina Limited Liability Company, Plaintiff,
TOWN OF WAYNESVILLE, NORTH CAROLINA, a North Carolina municipality, and ELIZABETH TEAGUE in her official capacity, Defendants.[1]



         This matter is before the Court on Defendants' Motion to Dismiss (Doc. 24), which has been referred to the undersigned pursuant to 28 U.S.C. § 636(b)(1)(B). Having carefully considered the arguments, the record, and applicable authority, the undersigned respectfully recommends that the Motion be granted.

         I. Procedural Background

         Plaintiff initiated this action on July 26, 2018, see (Doc. 1), asserting claims against the Town of Waynesville, North Carolina (“Town”) and the Town's Development Services Director, Elizabeth Teague (“Teague”), both in her individual and official capacities.

         The Town and Teague, in her official capacity, filed their Answer (Doc. 17) on August 30, 2018.

         Plaintiff subsequently dismissed its claims against Teague in her individual capacity (Doc. 21).

         On September 24, 2018, the parties filed a certification of initial attorneys' conference and discovery plan (Doc. 22). A Pretrial Order and Case Management Plan (Doc. 23) was entered the next day.

         On October 12, 2018, Defendants filed the instant Motion to Dismiss (Doc. 24) and a supporting Memorandum of Law (Doc. 25). Plaintiff later filed a Memorandum in Opposition (Doc. 27), to which Defendants replied (Doc. 28).

         II. Factual Background

         The material facts as alleged in Plaintiff's Complaint are as follows:

This case involves two houses - one located at 73 Hunters Crossing Ridge (“73 Hunters Crossing”) and one located at 75 Hunters Crossing Ridge (“75 Hunters Crossing”). Compl. (Doc. 1) ¶ 8 (collectively “Houses”). Both Houses were built in 1995 and are located in a subdivision formerly known as Hunters Crossing Ridge. Id. ¶ 9. At all relevant times, the Houses have been outside the legal corporate limits of the Town but within one mile of the Town's limits and therefore in an area over which the Town exercises extraterritorial jurisdiction. Compl. (Doc. 1) ¶ 10. The Town enforces its zoning ordinances and its building and construction codes in this area. Id. ¶ 11.

         In 2005, 73 Hunters Crossing was owned by Elaine Kuhl (“Kuhl”) and 75 Hunters Crossing was owned by Jeff Coghill and his wife (the “Coghills”). Id. ¶ 12. Neither Kuhl nor the Coghills had any connection with Plaintiff. Id.

         In 2005, a Town water line that served an unrelated house up the mountain from the Houses experienced a major leak involving “several hundred thousand gallons.” Id. ¶ 13. The water damaged the foundations of the Houses. Id. The water line was shut down and will never be used again. Id.

         The water leak also caused movement in the slope where the Houses are located, though “upon information and belief” once the leak stopped, the slope returned to a stable condition. Id. ¶ 14.

         Following the damage from the water leak, Kuhl and the Coghills vacated the Houses. Id. ¶ 15. Additionally, after receiving “pessimistic engineering evaluations, ” and perhaps in order to have existing mortgage debt on the properties forgiven, the owners sought to have the Houses condemned by the Town. Id.

         The owners' request was accommodated and, on September 27, 2006, the Town's Code Enforcement Official at the time, Jason R. Rogers (“Rogers”), held hearings regarding the condition of the Houses. Id. ¶ 16. Neither the Coghills nor Kuhl opposed the hearings and, according to the Town's records, no one attended the hearings, which both lasted ten minutes. Id.

         In letters dated November 7, 2006, Rogers advised Kuhl and the Coghills that he was condemning the Houses. Id.

         The Town sent a notice that the structures were unsafe and ordered Kuhl and the Coghills to demolish them on or before January 16, 2007. Id. ¶ 17.

         These condemnation orders, however, were not recorded in the Office of the Register of Deeds for Haywood County. Id. ¶ 18. In addition, no notices of the orders, or any notices about the status of the properties, were posted at the Houses. Id. ¶ 19.

         Subsequently, the Town took no further action and Kuhl and the Coghills took no action to demolish the Houses. Id. ¶ 20.

         In 2007, Plaintiff purchased other homes directly across the street from 73 Hunters Crossing and 75 Hunters Crossing and used those other homes as short-term rentals. Id. ¶ 22.

         In 2008, Plaintiff grew concerned about 73 Hunters Crossing and 75 Hunters Crossing because they were being vandalized and trespassers were parking in the driveway and entering the structures at night, which created concerns for Plaintiff's guests. Id. ¶ 23. Plaintiff requested that the Town take action to resolve the existing nuisance that was caused by the abandoned Houses, but the Town did not respond or act. Id. ¶¶ 24-25.

         Attempts by Plaintiff to contact Kuhl and the Coghills and the lenders that held deeds of trust on the Houses were similarly unsuccessful. Id. ¶¶ 26-27.

         Plaintiff then decided to address the issue itself by taking control of the Houses, and therefore requested that the Haywood County Tax Department (“Tax Department”) foreclose on the Houses for unpaid real property taxes. Id. ¶¶ 28-29. The Tax Department agreed after Plaintiff gave assurances that the Tax Department's attorney's fees involved in the foreclosure would be covered by the bid. Id. ¶ 30.

         A tax foreclosure sale occurred, and Plaintiff was the highest bidder, acquiring title to the Houses on April 20, 2016. Id. ¶¶ 31-32.

         Plaintiff inspected the Houses and found that they were in surprisingly good condition. Id. ¶ 33. Plaintiff then proceeded to repair and renovate the Houses. Id. Plaintiff did most of the work itself and did not get a general building permit for much of the work, though Plaintiff did hire a licensed contractor to install new heating and air conditioning units, based on the belief that the contractor would obtain permits and have the work inspected. Id. ¶¶ 33-34.

         The repair and renovation work commenced in the Spring of 2016 and was completed in about a year. Id. ¶ 35.

         Around May of 2017, Plaintiff put the Houses into use as short-term rental properties. Id. ¶ 36.

         On September 28, 2017, Plaintiff received a letter from a construction code enforcement official for the Town advising that the Town needed to “verify that the properties (73 and 75 Hunters Crossing Ridge) are in compliance with State and local fire and building safety codes.” Id. ¶ 37.

         Plaintiff hired an architect and engineers to respond to the Town and to satisfy all building code requirements. Id. ¶ 38. Plaintiff also agreed not to occupy the Houses until the building code requirements were satisfied. Id. ¶ 39.

         In response, the Town threatened to cut water lines and order Duke Energy to cut electric power service to the Houses, and in October of 2017, power to the Houses was cut, and has not been restored, such that the Houses are unused. Id.

         Plaintiff's structural engineer opined that the Houses were structurally sound, safe for occupancy, and not in imminent danger of failing. Plaintiff's geo-technical engineer concluded that the slope was stable and recommended continual monitoring. Id. ¶ 40.

         In November 2017, Plaintiff met with Teague and the Town's construction code enforcement officials. Id. ΒΆ 41. The Town and Teague agreed that Plaintiff would apply for building permits and hire licensed contractors to do any ...

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