Court Opinion

ID: 9352563
Source: CourtListenerOpinion
Date Created: 2023-01-06 21:00:32.925849+00
Date Added: 2024-06-11T16:57:45.344391
License: Public Domain

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                                               PUBLISHED

                               UNITED STATES COURT OF APPEALS
                                   FOR THE FOURTH CIRCUIT

                                               No. 21-1317

        PEM ENTITIES LLC,

                             Plaintiff - Appellant,

                      v.

        COUNTY OF FRANKLIN,

                             Defendant - Appellee.

        Appeal from the United States District Court for the Eastern District of North Carolina, at
        Raleigh. Richard E. Myers, II, Chief District Judge. (5:20-cv-00407-M)

        Argued: October 28, 2022                                        Decided: January 5, 2023

        Before THACKER and HEYTENS, Circuit Judges, and Lydia K. GRIGGSBY, United
        States District Judge for the District of Maryland, sitting by designation.

        Affirmed by published opinion. Judge Heytens wrote the opinion, in which Judge Thacker
        and Judge Griggsby joined.

        Keith Nichols, KIRK PALMER & THIGPEN, P.A., Charlotte, North Carolina, for
        Appellant. James Wade Sheedy, DRISCOLL SHEEDY, P.A., Charlotte, North Carolina,
        for Appellee.
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        TOBY HEYTENS, Circuit Judge:

               A real estate development company asserts a North Carolina county violated the

        Federal 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 jurisdiction over

        the state law claims once the federal claims were dismissed. Although the complaint’s

        defects go to the merits, not jurisdiction, we agree with the district court’s bottom line.

        Accordingly, we affirm.

                                                      I.

               This case involves a multi-phase, single-family residential community in Franklin

        County, North Carolina. In 2005, the county’s planning board approved a single page

        “Preliminary Subdivision Plan” that had been drafted by private entities and consisted

        mainly of a sketch laying out proposed lots and roads. The sketch separated the area into

        15 different “phases,” which could be “engineered, developed, and constructed in portions

        (not entirely at once in one continuous construction project).” JA 9–10. The bottom-left

        corner of the document listed six items under the caption “General Notes.” JA 44. This

        case turns on the fourth item: “This development will be served by Franklin County water

        and sewer to be installed by the developer.” Id. The document was stamped “Approved”

        and contains handwritten notations by county employees. Id.

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              In 2012, plaintiff PEM Entities LLC bought 150 acres of undeveloped land located

        in the preliminary subdivision plan. PEM did not immediately develop the property—

        indeed, the land remained undeveloped when PEM filed suit.

              In 2019, the county adopted a water and sewer allocation ordinance that established

        an application process for new water and sewer connections and capped water allotments

        for new developments. 1 The ordinance proved unpopular with various developers,

        including PEM. The developers asserted they were exempt from the 2019 ordinance

        because the county’s approval of the 2005 preliminary subdivision plan created a vested

        property right in water and sewer services that could not be undone by the later-enacted

        ordinance.

              The same year the ordinance passed, the county and the developers (including PEM)

        reached a settlement over disputes involving road and water services. The agreement said

        the developers “may apply for a water and sewage allocation effective in 2020 and each

        subsequent year for up to 50 lots” and the “[c]ounty will rule on” those applications “in

        good faith, in [c]ounty’s ordinary course of business and in a nondiscriminatory fashion,

        treating [d]evelopers on an equal footing with any other submitted applications.” JA 77–

        78. The agreement also provided that “nothing herein is intended to provide or imply that

        [c]ounty is waiving or altering, in whole or in part, any of the provisions of the [2019

        ordinance] with respect to the availability of water and sewer to the [p]roperty.” JA 77.

              1
                The county asserts the 2019 ordinance is an amended version of a 2017 one.
        Although a document attached to the complaint supports this view, we do not pursue the
        matter because it does not impact our analysis.

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        Finally, the agreement stated that “except as set forth in this [a]greement,” “[a]ny vested

        rights accorded to the [p]roperty under the [2005 preliminary subdivision plan] shall not

        be modified or supplemented by any subsequent action including ordinance, rule, and/or

        regulation of [c]ounty.” JA 78.

               PEM submitted a water and sewage application to the county. PEM acknowledges

        it “never has recorded a plan of subdivision (plat) for any land” within the preliminary

        subdivision plan, nor has it “requested that [the county] approve for recording a final plan

        of subdivision for any land” within that plan. JA 16. PEM continued to insist, however,

        that the proposed subdivision plan exempted it from the 2019 ordinance.

               In 2021, PEM sued the county in federal district court. Counts 1–5 and 9 raised

        purely state law claims. Count 6 asserted the 2019 law effects an unconstitutional taking

        of PEM’s vested property right to receive water and sewer services under the preliminary

        subdivision plan. Counts 7 and 8 contended that, as applied to PEM, the 2019 ordinance

        violates the Due Process and Equal Protection Clauses.

               The district court dismissed PEM’s complaint. The court determined that neither the

        preliminary subdivision plan nor the settlement agreement “create[s] a property interest for

        [PEM] in an unlimited right to water and sewer service,” and PEM had thus “failed to

        demonstrate a concrete, particularized injury for Article III standing” on its takings and

        due process claims. JA 143. The court next concluded PEM’s equal protection challenge

        was “insufficient to state a ‘substantial’ claim” and thus failed to establish federal question

        jurisdiction. JA 145. The district court accepted PEM’s concession that it had failed to

        allege diversity jurisdiction over the state law claims and declined to exercise supplemental

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        jurisdiction over those claims. We review the district court’s dismissal of the federal law

        claims de novo, and its decision not to exercise supplemental jurisdiction over the state law

        claims for abuse of discretion. See Welch v. United States, 409 F.3d 646, 650 (4th Cir.

        2005) (former); Jordahl v. Democratic Party of Va., 122 F.3d 192, 197 (4th Cir. 1997)

        (latter).

                                                      II.

                We agree with the district court’s bottom-line conclusion but get there via a

        somewhat different route. See Moore v. Frazier, 941 F.3d 717, 725–26, 729 (4th Cir. 2019)

        (affirming dismissal of complaint that had been based on lack of subject matter jurisdiction

        on the ground that the complaint failed to state a claim on which relief could be granted).

                                                      A.

                It is important to avoid “confus[ing] weakness on the merits with absence of Article

        III standing.” Davis v. United States, 564 U.S. 229, 249 n.10 (2011). This is especially true

        because a claimant’s standing implicates a federal court’s subject matter jurisdiction, see

        Wittman v. Personhuballah, 578 U.S. 539, 543 (2016), meaning the issue “cannot be

        waived or forfeited,” Virginia House of Delegates v. Bethune-Hill, 139 S. Ct. 1945, 1951

        (2019), and the court may not issue any decision on the merits without confirming that

        standing exists, see Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 93–95 (1998).

                PEM has standing to raise its 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. See Federal Election Comm’n v. Cruz, 142 S. Ct. 1638, 1646 (2022)

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        (listing requirements for Article III standing). Nothing more is needed to establish standing.

        Nor does the ultimate validity of PEM’s constitutional claims bear on its ability to bring

        them. See Arizona State Legislature v. Arizona Indep. Redistricting Comm’n, 576 U.S. 787,

        800–04 (2015) (explaining plaintiff state legislature had standing to raise its constitutional

        claim even though the Court ultimately concluded the legislature “does not have the

        exclusive, constitutionally guarded role it asserts”).

               PEM’s problem is a merits one. Both PEM’s takings and due process claims depend

        on having a constitutionally protected “property” interest. U.S. Const. amend. V (“nor shall

        private property be taken for public use, without just compensation”), amend. XIV, § 1

        (“nor shall any State deprive any person of life, liberty, or property, without due process

        of law”). And we agree with the district court that neither the 2005 preliminary subdivision

        plan nor the 2019 settlement agreement creates the sort of property interest PEM asserts.

               “Property interests” “are not created by the Constitution.” Board of Regents of State

        Colls. v. Roth, 408 U.S. 564, 577 (1972). “Rather they are created and their dimensions are

        defined by existing rules or understandings that stem from an independent source such as

        state law.” Id.

               In North Carolina, “[a] party’s common law right to develop and/or construct” does

        not vest until four requirements are satisfied. Browning-Ferris Indus. of S. Atl., Inc. v.

        Guilford Cnty. Bd. of Adjustment, 484 S.E.2d 411, 414 (N.C. Ct. App. 1997) (citing cases).

        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

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        valid building permit . . . authorizing the use requested by the party.” Id.; see id. (citing

        three decisions by the Supreme Court of North Carolina).

               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. See Unified Development Code of Franklin County, NC, art. 28,

        § 28-4(C)(12). 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. JA 16.

               PEM alleges it has spent about $100,000 “on engineering and surveys and drillings

        to prepare” its land “for development.” JA 27. But North Carolina courts have emphasized

        that expenditures before the issuance of a permit are “not made in reliance on” a then-

        unissued permit, Warner v. W & O, Inc., 138 S.E.2d 782, 786 (N.C. 1964) (emphasis

        added), and they have rejected attempts to turn “preliminary government approval” into a

        “vested right.” Browning-Ferris, 484 S.E.2d at 414; see MLC Auto., LLC v. Town of S.

        Pines, 702 S.E.2d 68, 74–79, 75 n.1 (N.C. Ct. App. 2010) (neither then-current zoning

        rules nor letters from a town’s planning department created a vested right). Indeed, the

        word “preliminary”—which is stamped right on the document PEM relies on, JA 44—

        comes close to being an antonym for “final” or “vested.” 2

               2
                  Even if PEM could have a vested property interest based on the preliminary
        subdivision plan, the language PEM cites does not confer approval for an unlimited
        allocation of water, unencumbered by any allocation restrictions. Rather, it simply provides
        that the development would be “served by Franklin County water and sewer.” JA 44. When
        (Continued)
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               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.” JA 78 (emphasis added). As

        we 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, we affirm the district court’s dismissal

        of PEM’s takings and due process claims because they fail to state a claim on which relief

        can be granted.

                                                     B.

               We likewise conclude the district court was right to dismiss PEM’s equal protection

        claim but should have done so for failure to state a claim rather than lack of jurisdiction.

               Congress has given district courts subject matter jurisdiction over “all civil actions

        arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. In

        nearly all situations, “a case arises under federal law when federal law creates the cause of

        action asserted.” Gunn v. Minton, 568 U.S. 251, 257 (2013). Here, the cause of action for

        PEM’s equal protection claim comes from 42 U.S.C. § 1983, a federal statute.

               To be sure, “[t]he mere assertion of a federal claim is not sufficient to obtain

        jurisdiction under” 28 U.S.C. § 1331, and this Court has sometimes dismissed suits brought

        it comes to unlimited water, PEM had at best a unilateral expectation rather than any
        “legitimate claim of entitlement.” Roth, 408 U.S. at 577.

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        under Section 1983 “because the federal claims were insubstantial and were pretextual state

        law claims.” Lovern v. Edwards, 190 F.3d 648, 654 (4th Cir. 1999). At the same time, “it

        is well settled that the failure to state a proper cause of action calls for a judgment on the

        merits and not for a dismissal for want of jurisdiction.” Bell v. Hood, 327 U.S. 678, 682

        (1946). “The preliminary jurisdictional test of facial insubstantiality is a rigorous one

        against the challenger,” and “[t]he mere claim that a right exists under federal law suffices

        to avoid summary dismissal unless it is facially insubstantial or frivolous.” Ridenour v.

        Andrews Fed. Credit Union, 897 F.2d 715, 719 (4th Cir. 1990). Only when a claim asserted

        under federal law is “so insubstantial, implausible, foreclosed by prior decisions of [the

        Supreme Court], or otherwise completely devoid of merit as not to involve a federal

        controversy” should the complaint be dismissed for lack of jurisdiction. Oneida Indian

        Nation v. Oneida Cnty., 414 U.S. 661, 666 (1974).

               PEM’s equal protection claim gets over this low bar. 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.” JA 146.

               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.

        See King v. Rubenstein, 825 F.3d 206, 220 (4th Cir. 2016) (“To succeed on an equal

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        protection claim, a plaintiff must first demonstrate that he has been treated differently from

        others with whom he is similarly situated and that the unequal treatment was the result of

        intentional or purposeful discrimination.” (quotation marks omitted; emphasis added)); see

        also Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (“[W]here the well-pleaded facts do not

        permit the court to infer more than the mere possibility of misconduct, the complaint has

        alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’ ” (quoting Fed. R.

        Civ. P. 8(a)(2)). Thus, although we agree with the district court’s dismissal of PEM’s equal

        protection claim, we conclude it also should have been for failure to state a claim on which

        relief can be granted rather than lack of subject matter jurisdiction.

                                                        C.

                   Having concluded the district court correctly dismissed all of PEM’s federal claims,

        we see no abuse of discretion in the court’s decision not to exercise supplemental

        jurisdiction over the state law claims. See 28 U.S.C. § 1367(c); Waybright v. Frederick

        Cnty., 528 F.3d 199, 209 (4th Cir. 2008) (“With all its federal questions gone, there may

        be the authority to keep [this case] in federal court . . . but there is no good reason to do

        so.”). 3

                                                 *      *      *

                 In contrast, if the district court had been right in dismissing the federal claims for
                   3

        lack of subject matter jurisdiction, the proper approach would have been dismissing the
        state law claims for lack of jurisdiction under Section 1367(a) rather than declining to
        exercise jurisdiction under Section 1367(c). If there is no anchoring federal claim over
        which the court has “original jurisdiction,” dismissal of the state law claims is mandatory
        because there is no basis for supplemental jurisdiction in the first place. 28 U.S.C.
        § 1367(a).

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               PEM seeks preferential treatment to bypass a regulatory ordinance enacted years

        after it acquired title to undeveloped land. But PEM had no constitutionally protected

        property right in the unlimited provision of water and sewer services unencumbered by

        future regulation, nor has it identified any basis for concluding it was subject to

        unconstitutional disparate treatment. Because PEM’s constitutional claims fail on the

        merits, the district court’s dismissal of PEM’s complaint is

                                                                                 AFFIRMED.

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