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Lack of property interest fatal to landowner’s claims

Where a real estate development company asserted takings and due process claims against a North Carolina county that allegedly thwarted its ability to obtain water and sewer services, but the company had no constitutionally protected “property” interest at the time, its claims failed as a matter of law.


PEM Entities LLC, a real estate development company, asserts a North Carolina county violated the Constitution and state law by imposing new rules for getting water and sewage services. The district court dismissed the complaint, concluding the company lacked standing to bring its takings and due process claims, its equal protection claim was too insubstantial to raise a federal question and the court should not exercise supplemental jurisdiction once the federal claims were dismissed.

Takings and due process claims

PEM’s inability to obtain water and sewer services on terms to which it claims it is entitled is an injury in fact that is fairly traceable to the challenged ordinance and would likely be remedied if PEM prevailed in this suit. Nothing more is needed to establish standing. Nor does the ultimate validity of PEM’s constitutional claims bear on its ability to bring them.

PEM’s problem is a merits one. Both PEM’s takings and due process claims depend on having a constitutionally protected “property” interest. But neither the 2005 preliminary subdivision plan nor the 2019 settlement agreement creates the sort of property interest PEM asserts.

In North Carolina, “[a] party’s common law right to develop and/or construct” does not vest until four requirements are satisfied. One such requirement is that — if a given activity requires a permit — any obligations or expenditures must have been “made in reasonable reliance on and after the issuance of a valid building permit … authorizing the use requested by the party.”

PEM does not assert it ever obtained a building or construction permit for the proposed subdivision. Nor could it. A different Franklin County ordinance — which is unchallenged here — requires developers like PEM to receive final plan approval before any permit may issue. And PEM acknowledges it has “never” even “requested that [the county] approve for recording a final plan of subdivision for any” of the land PEM owns.

PEM alleges it has spent about $100,000 “on engineering and surveys and drillings to prepare” its land “for development.” But North Carolina courts have emphasized that expenditures before the issuance of a permit are “not made in reliance on” a then- unissued permit, and they have rejected attempts to turn “preliminary government approval” into a “vested right.”

Nor did the 2019 settlement agreement create a new vested property right. To the contrary, that document took care to preserve the status quo, declaring that “[a]ny vested rights” created by the 2005 preliminary subdivision plan “shall not be modified or supplemented by any subsequent action … of [the] [c]ounty.” As just explained, however, that plan created no vested property right.

Without a constitutionally protected property interest, PEM’s takings and due process claims fail as a matter of law. Accordingly, the district court’s dismissal of PEM’s takings and due process claims is affirmed because they fail to state a claim on which relief can be granted.

Equal protection

The district court identified various deficiencies in PEM’s equal protection claim, most notably that PEM “fail[ed] to allege”: (1) how “it is similarly situated to developers that received water and sewer service prior to the implementation of” the 2019 ordinance; (2) “that developers requesting a new allocation following implementation of the [2019 ordinance] have received the allocation without the requirement to apply for it” and (3) even if PEM were treated differently, that the county “had no rational basis for such treatment.”

Those problems are real. But they are problems with the merits of PEM’s equal protection claim and the sufficiency of the allegations PEM made in support of it. Thus, the district court’s dismissal of PEM’s equal protection claim should have been for failure to state a claim on which relief can be granted rather than lack of subject matter jurisdiction.

Supplemental jurisdiction

Having concluded the district court correctly dismissed all of PEM’s federal claims, this court sees no abuse of discretion in the court’s decision not to exercise supplemental jurisdiction over the state law claims.


PEM Entities LLC v. County of Franklin, Case No. 21-1317, Jan. 5, 2023. 4th Cir. (Heytens), from EDNC at Raleigh (Myers). Keith Nichols for Appellant. James Wade Sheedy for Appellee. VLW 023-2-007. 11 pp.

VLW 023-2-007