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This cause of action was filed by the Town of Leland on December 1, 2017
against H2GO Brunswick Regional Water & Sewer (hereinafter H2GO) and the Town
of Belville. The parties, by order of the court were realigned to make H2GO a
plaintiff. Cross motions for summary judgment by the parties, along with
accompanying briefs and exhibits, were filed and came on to be heard before the
undersigned on February 28, 2019. All parties were present and represented by
counsel at the time of the hearing of the motions. All exhibits, not hereinafter
excluded by this order, were received and admitted in evidence at the summary
The court finds, pursuant to Rule 56(c) of the North Carolina Rules of Civil
Procedure, that there are no genuine issues as to the following material facts:
1. The towns of Leland and Belville are incorporated local governments in Brunswick
County, N.C.
2. H2GO Brunswick Regional Water and Sewer (“H2GO”) is a sanitary district, organized
and existing pursuant to Chapter 130A of the North Carolina General Statutes. The
original district was formed pursuant to Article 12 of Chapter 130 for the purpose of
providing treated water to the citizens living in the district. On March 1, 1976 a
petition executed by 51% of the resident freeholders within the proposed district was
hearing was held with the representatives of the Department and the county Board
of Commissioners after the proper notices were published. Afterwards, the Board of
through it, requested that the Commission of Health Services create the district. On
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May 8, 1976, the Commission duly created the Leland Sanitary District. The
3. Prior to November 28, 2017, H2GO was properly permitted and provided sewage
section of Brunswick County. Residing within this district was 25,500 people. This
area serviced by H2GO included the entire Town of Belville, a majority of the Town
of Leland, part of the Town of Navassa and other unincorporated areas outside of
those towns. Of the approximate 26 square miles in the district, the percentage
geographical makeup consists of 44.3% from the Town of Leland, 11.5% from the
Town of Navassa, 7.4% from the Town of Belville and the remaining 36.7% from
5. At the end of H2GO’s fiscal year in June of 2017, it had overall assets of over $65
million with liabilities of $8.4 million. It was receiving annual revenue of over $10.6
million (down about $.5 million from the 2016 fiscal year) with total annual expenses
of $7.9 million.
6. Prior to November 28, 2017, H2GO owned and operated a public sanitary sewer
day allocation from the Brunswick County Northeast Wastewater Treatment Plant,
together with manholes, lift stations, force mains, valves, air release valves, service
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traps, service laterals, clean-outs, tracts of land, easements, rights-of-way, and other
related facilities.
7. Prior to November 28, 2017, H2GO owned and operated a public water distribution
gallon ground storage tank and boost pump station, a one million gallon elevated
water storage tank, together with fire hydrants, valves, service line, customer
8. On November 28, 2017, H2GO had in capital improvement funds, debt service
$16.6 million.
9. On November 28, 2017, H2GO had debt associated with the sewer system of
approximately $6 million.
10. Currently and for many years previously, H2GO purchased its finished water from
Brunswick County Public Utilities. Its sources are a six million gallon per day
treatment plant which received its water from a freshwater well field and a 24 million
gallon per day Northwest water treatment plant, which is supplied raw water from
the Cape Fear River by the Lower Cape Fear Water and Sewer Authority.
11. H2GO adopted a bond order in July of 2012 authorizing the issuance of water and
sewer system revenue bonds to provide additional funds to finance the water and
sewer systems. This order authorized an initial bond in aggregate principal amount
not to exceed $6,855,000. The issuance of this order was approved by the North
12. H2GO, pursuant to N.C. Gen. Stat. § 130A-50, is governed by a board of five
commissioners who are elected by the voters residing within the district. The total
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number of registered voters eligible to vote in the H2GO Brunswick Regional Water
13. Going into the November 7, 2017 elections, the five elected commissioners were
William Browning, Carl Antos, Ron Jenkins, Jeff Gerken and Trudy Trombley. The
terms of Gerkin and Trombley had not expired. The remaining three seats faced
election. Jenkins and Antos sought re-election, but Browning chose not to run for re-
election. The voters elected William Beer and Rodney McCoy and re-elected Jenkins
14. Prior to the election, Browning, Jenkins and Antos had voted to construct at a cost
of $34 million a reverse osmosis plant which consisted of a water treatment plant, a
new well field network, raw water transmission lines and a reverse osmosis
concentrate discharge line to the Brunswick River. This partially constructed reverse
osmosis plant would draw water from a 600 foot deep water aquifer for treatment
and containment removal and produce clean and sustainable potable water.
15. The construction of the reverse osmosis plant was one of the issues discussed and
Trombley and Beer now do not favor the construction of the reverse osmosis plant.
17. Shortly after the election, H2GO commissioner Ron Jenkins met with H2GO executive
director Robert Walker to inquire if “there was any way we could transfer the assets
…from H2GO to Belville.” Walker promised Jenkins he would look into it. Town of
Belville attorney James Eldridge later advised Walker of the contents of N.C Gen.
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Property” of Chapter 160A and provides that “[a]ny governmental unit may, upon
such terms and conditions as it deems wise, with or without consideration, exchange
with, lease, lease from, sell to or purchase from any governmental unit any interest
18. Several months before December 1, 2017, there were discussions between Belville
Mayor Mike Allen and town attorney, James Eldridge, related to the issues of H2GO’s
that (1) a merger could not take place; (2) a dissolution could not take place where
Belville could take over H2GO’s assets; and (3) H2GO could not self-dissolve and
19. On the day after the 2017 election, November 8, 2017, town attorney Eldridge in a
“private and confidential” email to executive director Walker asked when H2GO would
hold its organizational meeting and posed this hypothetical question to him: “In the
event some or all of its assets were “sold” to a governmental unit, do you agree that
contract with that [governmental] unit to operate and manage its water/ sewer
services?” He also asked Walker if that governmental unit would be able to sustain
the operations of the sanitary district on the revenues raised from its water and sewer
services after it paid the operating and management costs without additional funding
from that government unit. Walker responded that the organizational meeting for the
new board was December 19, 2017 and any transfer of assets had to take place by
its next scheduled meeting on November 28, 2017. He also responded that H2GO
transferred $1.4 million to reserves during the last fiscal year. Walker indicated of
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20. On November 12, 2017, in an email from Walker to Eldridge, Walker indicated that
he had spoken with Joe Breault, a Belville town commissioner, Mayor Allen and three
of the H2GO board members (Browning, Antos, and Jenkins), and “it appear[ed that]
all three are on the same page to transfer H2GO property (real, personal, cash, and
is of the essence?” Walker characterized the transfer as “the nuclear option” and
realized that it was a “tall order,” but was ready to assist in this effort. In response,
prepare for, produce the instruments needed and close the transfer of assets
transaction.” He admitted that some of this work he could not “readily do or am not
competent to provide” such as setting up all of the revenue, costs and accounting
items.
21. A series of emails were exchanged between Walker and Eldridge over the next
twenty days, mostly marked “private and confidential,” that set out the proposed
details of a transfer of all assets from H2GO to the town of Belville pursuant to the
22. Many of these emails were copied to Mayor Allen and Belville town commissioner
Joseph Breault. Walker advised Eldridge that the board needed to get this transfer
23. Eldridge, in a November 27, 2017 email to Walker, expressed concerns by the
board members whether the board was “stepping beyond their authority” in its
concerns were why they were relying on N.C Gen. Stat. § 160A-274(b). Prior to
the November 28, 2017 meeting, executive director Walker only disclosed the
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planned transfer to Sanitary District Finance Officer Scott Hook, Sanitary District
Clerk Teresa Long, the PIO officer Tyler Wittkofsky, public relations officer Mike
McGill, and lead project engineer and designer for the reverse osmosis plant,
Charles Davis of the Wooden Company. All were told about the plans for the
transfer, but they were expected to keep this information confidential and not
24. On the morning before the last board meeting on November 28, 2017, before the
new members were sworn in, Eldridge was unsure whether to include the “usual
‘Approved as to Form’ signature line for the attorneys on the agreements” because
he was concerned that the attorney for the Sanitary District, Steve Coble, may “not
sign until he has reviewed the doc[ument]s which impede the closing.” No one,
however, could find any statute, ordinance, or charter language that required that
approval language. It was decided not to include that signature line for H2GO
attorney Coble. Excluding that signature line would allow the documents to be
25. With the continued assistance of Walker over a several week period, Eldridge
prepared the drafts of the transaction documents in time for the November 28, 2017
real estate holdings to the town of Belville were prepared by an outside law firm.
Walker met with Clement Goodson, Belville’s outside certified public accountant, who
“was surprised to hear of a transaction of this scope.” They discussed the H2GO’s
checking and savings accounts and its property. Goodson had previously told Mayor
Allen that, after reviewing H2GO’s June 30, 2016 audit, he concluded that H2GO
could continue to pay their bills and operate the systems without additional Belville
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funding. H2GO had an auditor, but he was not asked about the planned conveyand
nor did he participate in the transaction or its discussions. There was no discussion
26. Eldridge, through the last week before the November 28, 2017 H2GO commissioners’
Water and Sewer Systems,” Exhibit 2, “Assignment and Bill of Sale”, Exhibit 2A
“Agreement for the Operation and Maintenance of Water and Sewer Systems,” Exhibit
4, “Resolution of the Brunswick Regional Water and Sewer H2GO,” and Exhibit 5,
27. In preparing the documents, Eldridge did not consult with the attorney for H2GO or
director Walker not to discuss the transaction with attorney Coble. No other
28. Previously, on November 20, 2017 at 6:30 p.m. the town of Belville had its regular
meeting of its Board of Commissioners. Its written agenda did not include any
mention of a transfer of assets and liabilities from H2GO to the Town of Belville. Its
only closed session during the meeting was held in order to consult with the town
attorney regarding “litigation with Urban Smart Growth and Michael White.” There
were no reports offered from the town attorney, mayor, mayor pro tem or the
commissioners under “Other Items and Reports.” This meeting was recessed until 8
a.m. on November 29, 2017. No reason for the recess was offered at the meeting or
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29. Sometime during November 28, 2017, the North Carolina Local Government
Commission (“LGC”) learned of the proposed transfer of its assets and liabilities by
H2GO to the Town of Belville. That commission became concerned that the
Edmundson, Director of the Fiscal Management Section of the Finance Division of the
commission, sent an email at 4:43 p.m. on that date to Executive Director Walker,
Mayor Allen, town attorney Eldridge and to the Belville town administrator. Copies
of the email were sent to North Carolina State Treasurer Dale R. Folwell and other
SLGFD staff has learned that the elected officials for H2GO plan to vote
tonight on transferring the assets and related debt of the District to the
Town of Belville. The debt is secured by system revenues. We cannot
confirm that the bond counsel for H2GO has been consulted on this plan.
We cannot recommend strong enough that H2GO consult with its bond
counsel before taking any action involving its debt or the assets that
generate the revenue that supports that debt. Actions such as those you
are considering may cause the debt to go into default status, which is
surely not your intent. In addition, any transfer of debt will require the
approval of the Local Government Commission before such a transfer
can occur (emphasis added).
We also recommend that the Town of Belville take the time to consider
the full responsibilities of taking on a water and sewer system, including
not only the costs and expertise needed to operate the system but the
costs and long term commitment to adequately maintaining and
eventually replace such a system.
30. In spite of the Edmundson email, the duly noticed H2GO board of commissioners
meeting scheduled for 6:00 p.m. on November 28, 2017 went forward as planned.
No contact with the LGC or bond counsel was made by Eldridge, Walker, Allen, or the
town administrator. One unsuccessful attempt was made by Finance Director Hook
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31. All of the commissioners attended that meeting. The prepared agenda did not have
anything listed under new business. The meeting was called to order by Chairman
Browning at 6:00 p.m. The minutes maintained by the clerk indicate that Commission
32. After the meeting progressed to New Business, the minutes recorded that
Commissioner Antos, after hearing public comments on addressing the issue of the
quality of the water, “set forth” a resolution to sell, convey, transfer and assign all
H2GO real and personal property to the Town of Belville. Afterwards he distributed
for the first time copies of the recently prepared resolution and supporting documents
to the other commissioners. The minutes indicate that Antos stated that he had
“found out about this” two days before Thanksgiving which would have been
November 23, 2017. He further stated that “he believed that Belville had initiated
this” and “[I]n order to save the RO Plant I’m doing something that I never imagined
that I would do by selling H2GO to another municipality, but if that’s what we have
to do then that’s what we have to do.” In response to questioning, Antos stated that
the documents had been written for days. Commissioner Gerkin, Commissioner
Trombley, and H2GO’s attorney Steve Coble had not seen or reviewed the documents
prior to the meeting. Executive Director Walker stated that he had seen the four
documents during the last two days and that he was operating according to the
explained that there were three documents, the Conveyance Agreement, Bill of Sale,
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being met and subject to the “LGC approving the transfer of the SunTrust Bond”
which in his opinion was transferrable. Prior to the vote on the resolution, the LGC
email of that afternoon was read to the board by Commissioner Gerken. The motion
Jenkins) to 2 (Trombley and Gerken). The meeting adjourned at 6:53 p.m. less than
33. Immediately after the meeting Chairman Browning executed the agreement (Exhibit
1) which was delivered to the Town of Belville that evening or early the next morning.
34. The Town of Belville Board of Commissioners, at 8:00 a.m. on the next day,
November 29, 2017, reconvened its November 20, 2017 meeting. No reason had
been publicly given for recessing that November 20, 2017 meeting. Belville later
admitted that the meeting was recessed until November 29, 2017 “in the event that
any matter should arise from the November 28, 2017 meeting of H2GO’s Board of
a closed session was held to consult with the town attorney, the meeting reconvened
on the public record. With a unanimous vote, the resolution “Accepting Agreements
With and Conveyances From Brunswick Regional Water and Sewer (H2GO)” (Exhibit
5) was adopted. The “Resolution Authorizing Certain Capital Outlay Projects and
Expenditures From Water and Sewer Operating Funds” was also unanimously adopted
35. The recitals to both the “Agreement to Convey Water and Sewer Systems” (Exhibit
Agreements with and Conveyances From Brunswick Regional Water & Sewer H2GO”
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(Exhibit 5) contain identical sections which set out the reasons for these transactions.
The county is unable to filter GenX and other chemical contaminants out of the
confined aquifers will provide contaminant free finished water for customers
within the District, thus immediately removing the served population of 25,000
health and welfare, and as an inherent element of its long term Water System
plans, the District has been proactively planning and working to construct and
operate a new 4.0 MG per day RO water treatment plant, and has invested
The RO water treatment plant will be located on real property owned by the
The District’s efforts to complete the RO water treatment plant have been
the $14 million the District has already invested towards safe, clean,
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35. The H2GO Commissioners described in their recitals the “recent events,”
local effect in Brunswick County, that would have required the District to undertake
an additional, redundant, and superfluous economic impact study for the RDO water
treatment plant; (2) the County and the Town of Leland adopting resolutions
requesting that the District delay the RO project until after the November 2017
election; and (3) the results of that election which will leave the District’s divided
governing board with a majority strongly opposed to the RO water treatment plant.
36. The Town of Belville commissioners described in their recitals that those “recent
events” included: (1) Commissioner Trombley openly questioning the need for the
District and stating that construction of the RO water treatment plant will likely be
stopped; (2) Commissioner Jeff Gerken stating that he knows a majority of the
board, when newly-elected Commissioner Beer is seated in December, and “he plans
to vote to kill the project;” and (3) Newly elected William Beer, who campaigned on
a platform to “stop further construction on the RO plant,” stated that he was working
closely with Trombley and Gerken and will seek to “abolish all activities and contracts
37. The “recent events” described in the Town’s recitals, contained in ¶36 above,
38. Additionally both the H2GO and Town of Belville commissioners recited that
based on those recent events, “it is reasonable to consider the risk to public health
and local economic development posed by the new board terminating the RO
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39. Both commissions also found and concluded that (a) “public health, safety, and
welfare will be improved by the construction of the RO water treatment plant which
will provide the only contaminant-free and sustainable source of water for northern
Brunswick County;” (b) “the projected $34 Million Dollar project cost for the RO water
treatment plant and the preservation of the District’s 29 employment positions with
within the Town and in northern Brunswick County;” and (c) by entering into this
agreement “whereby the District conveys the Water and Sewer Systems to the Town”
and by agreement the District “operates, maintains, and manages those public
enterprises on behalf of the Town” will “effectively accomplish the public health and
40. The resolution passed by the H2GO Board of Commissioners provided the
Water and Sewer Systems,” (Exhibit 4) which was prepared by attorney Eldridge. It
provided that:
At Closing, the district shall convey to the Town, free and clear of liens
and encumbrances, the Water and Sewer Systems by delivering
Warranty Deeds for the District’s real property and an assignment and
Bill of Sale for the District’s personal property including, inter alia, the
Systems’ infrastructure, facilities, structures, vehicles, equipment,
supplies, funds, permits, contracts, easements, other property rights,
liabilities, debt obligations, and all other materials and things associated
with or required for the ownership, operation, and maintenance of the
Water and Sewer Systems. Section 1.01 Conveyance by the District.
41. Article 2 of that agreement required that the District at closing deliver to the
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…Agreement, Warranty Deeds, an Assignment and Bill of Sale …in
satisfactory form, conveying to the Town, free and clear of liens and
other encumbrances, title to the District’s Water and Sewer Systems
including, but not limited to, the District’s real property and personal
property including, without limitation, easements, other property rights,
water and wastewater treatment infrastructure, collection line, lateral
lines, pump stations, facilities, structures, vehicles, equipment,
supplies, account and customer information, funds, liabilities, debt
obligations, and all other material and things associated with or required
for the operation and maintenance of the District’s Water and Systems.
Section 2.01 A.1. Closing.
Article 2 of the agreement also required the Town to deliver to the District an
42. Article 3 required confirmation by the District that all of its representations and
term under the parties’ contemporaneous Operating Agreement, the District shall
obtain the approval of the North Carolina Local Government Commission to transfer
the SunTrust Bond to the Town. Section 3.01 C. Further, the District had to expressly
agree that “no litigation, proceedings, lawsuits, or investigations shall have been
commenced with respect to the District, the Water and Sewer Systems, any permits,
contracts, property interests, rights and obligations associated therewith nor …have
sought to enjoin or prevent the Closing or alter any material performance under this
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43. The Agreement allowed the Town to totally rescind the agreement if the District
failed to satisfy any one of the conditions set out in section 3.01. Section 3.02.
44. The Agreement contained cross indemnification clauses that required the parties
to:
reimburse, indemnify and hold harmless the other …from and against
all claims, causes of action, judgments, awards, demands, losses,
settlement payments, deficiencies, liabilities, cost and expenses,
including …reasonable attorney fees and court costs suffered,
sustained, incurred, or required to be paid by the other party …which
result from, relate to, or arise out …[of]
(1) Any untruth, inaccuracy, or breach of any representation, warranty
or statement of the District contained in this Agreement or in any other
agreement, instrument or writing furnished by the [Town] [District] ...,
(2) Any breach of or the failure to fulfill or perform any obligation or
covenant of the [Town] [District] contained in this Agreement.
(3) The ownership, operation and/or use of the District’s Water and
Sewer Systems …” Section 5.01 A. and B. Indemnification.
45. In response to concerns about personal liability by H2GO Commissioner Antos,
on the day before the Commission meeting, Eldridge modified the indemnity language
that the commissioners’ concern was “whether they are stepping beyond their
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authority.” Eldridge contended that sections 5.01 and 7.01 meant that Antos should
not be named individually in any filed lawsuit, but if he is “he should be indemnified
under [an H2GO insurance policy that covered past, current and future elected
officials for ‘operational practices’] and eventually off the hook anyway … and for a
be dismissed against him.” Eldridge’s position was relayed to Antos by Walker, and
46. The final draft of the conveyance agreement was modified again by Eldridge after
address the North Carolina Local Government Commission’s warnings about the
SunTrust Bond issue. The final document contained the provision that LGC approval
of the bond transfer was a condition of the agreement. Section 3.01 stated that
“[T]his agreement is expressly conditioned upon and subject to the District satisfying
… the following express condition: … C. Prior to the expiration of the term under the
parties’ contemporaneous Operating Agreement, the District shall obtain the approval
of the North Carolina Local Government Commission to transfer the SunTrust Bond
to the Town. Section 3.01 C. Conditions to Agreement: Sun Trust Bond. Eldridge
confided in Walker, in a text message sent to him during the meeting, that he was
47. Pursuant to Section 1.01 of the Agreement to Convey Water and Sewer Systems,
Chairman Browning “in consideration of the sum of Ten Dollars and other valuable
(Exhibit “2”) to the Town of Belville of “certain personal property, contracts, permits,
funds, easements and property rights” described on Exhibit A, which was attached to
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the assignment and bill of sale, and shown on the Water System Map, Exhibit B, and
the Sewer System Map, Exhibit C. One hundred twenty-two items are listed in detail
infrastructure, office and maintenance buildings, motor vehicles and equipment, real
assessments, and cash totaling $16,596,282.55. It also listed as sold and transferred
the 2012 SunTrust Revenue Bond, Brunswick County Interlocal Debt, customer
Generally, the Bill of Sale listed all of H2GO’s real and personal assets as well as all
of its debts.
48. Chairman Browning and Town of Belville mayor Mike Allen, also on November
28, 2017, executed an “Agreement for the Operation and Maintenance of Water and
Sewer Systems” (Exhibit 3) in which H2GO would operate the systems that had been
transferred to the Town of Belville. The primary provisions of this agreement are
that:
c. The Town shall pay to the District a weekly base fee of $70,000 for the
section 5.02 are those performance items covered by this amount and in section 5.03
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d. Article 6, Section 6.01 The Parties’ Obligations addresses the obligations
of the District. The district is generally required to (1) provide trained and competent
personnel; (2) provide regular inspections and maintenance of the infrastructure; (3)
maintain maintenance and daily operation records; (4) manage and operate the
systems with good business and operating practices and standards; (5) bill customers
and collect payments; and (6) perform the Town’s obligations under the contracts
e. Perform the Town’s obligations under the contracts and permits associated
g. The district shall assist the Town with seeking financing approval from the
Local Government Commission for the construction of the reverse osmosis water
h. The employees of the district are permitted to enter upon Town property
i. The “past, current, and future members of the governing board are not
licensed nor permitted to use any Town vehicles or equipment and are expressly not
licensed or permitted to enter upon any Town property associated with the Town’s
Water and Sewer Systems excepting the Town Hall public building.” Section 6.01.S.
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j. The District shall perform the administrative and managerial duties required
for the operation of the public enterprise water and sewer systems. Section 6.01.U.
k. The District shall provide utility billing services for the Town’s systems and
will bill the system’s customers “based on the Town’s then current adopted rate
l. The District shall collect the customers’ utility payments and capital recovery
fees in accordance with Town rates. All funds collected by the District shall be
forwarded to the Town along with written accounting of usage, billings, payments
m. The district shall “indemnify, defend and hold harmless” the Town, its
elected and appointed officials and its employees from any all costs, expense or
liabilities caused by the District’s default and breach of this Agreement. There was a
n. Default occurs when (1) the District fails to performs its obligations; (2) the
District materially breaches the agreement; and (3) the agreement is rescinded by
the District’s governing board prior to the expiration of its term. Section 11.01 Default
Defined.
o. Damages to the Town were liquidated “if the operation, maintenance, and
management of its Water and Sewer Systems is not performed” by the District. The
parties agreed that liquidated damages of $9,333.33 per day would be incurred by
the Town for “delays in performance only” beginning on the date on which the default
occurred and continuing each day until the Agreement expires. Section 11.02
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Liquidated Damages Upon District’s Default. This remedy is in addition to any
49. On November 29, 2019 a North Carolina Special Warranty Deed (Exhibit 2A),
Register. Through that deed, thirty-eight parcels of real property were conveyed
from Brunswick Regional Water & Sewer H2GO in fee simple to the Town of Belville.
These thirty-eight tracts comprised all of the real property owned by H2GO.
50. On December 1, 2017, Town of Leland, North Carolina and H2GO Brunswick
Regional Water & Sewer filed the original complaint in this action. On the same date
51. On December 28, 2017 Judge Lock, after a hearing, entered a preliminary
injunction. The First Amended Complaint for Declaratory and Injunctive Relief was
52. The court further finds that there is a legitimate public debate and concern in
the communities of northeastern Brunswick County over the quality of the water
distributed to the citizens through the H2GO system. Both the conveyance
agreement and the Belville resolution recited, and the defendant contends, that
been detected in water drawn from the River. Executive Director Walker, however,
stated in his deposition that on November 27, 2017 at the time of the purported
conveyance and in January of 2019, to the best of his knowledge, that the water
provided by H2GO to its customers “met all state and federal water quality
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standards.” These findings, conclusions of law, and orders by the court are not meant
to resolve those important issues. The court has found facts in an effort to determine
whether the acts and procedures followed by the H2GO Board of Commissioners and
these issues, complied with public policy and with the relevant North Carolina
statutory enactments and the decisions handed down by the appellate courts.
legal testimony which constituted legal arguments and conclusions regarding the
ultimate issues of law to be decided by the court. The motion of the Town of Belville
I.
First Claim for Relief by Town of Leland and H2GO against the Town of
Belville:
Putative Agreements are Void Because They Impair H2GO as a Body Corporate
and Politic in Contravention of N.C. Gen. Stat. Chapter 130A, Article II, Part 2
politic and corporate.” That board can exercise those powers delineated in
subsections (1) through (25) of that statute. In this case H2GO Brunswick Regional
Water & Sewer is a sanitary district existing and operating pursuant to Chapter 130A
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of the North Carolina General Statutes. Prior to end of November, 2017, H2GO
square miles, populated by over twenty five thousand people. The entire Town of
Belville, with its approximately one thousand customers and over thirteen hundred
of the Town of Leland, with its approximately five thousand customers and over
H2GO. A total of 17,805 voters are eligible to vote in those elections. The Town of
Belville has three employees and an annual budget of about one million dollars.
The “Agreement to Convey Water and Sewer Systems,” executed by the H2GO
of Belville the
This meant that the transfer to the Town of Belville was valued at over $16 million
dollars in cash and $40 million in assets. This wholesale transfer and assignments
eviscerated the ability, authority and power of the incoming H2GO Board of
Commissioners to independently operate and manage the water and sewer systems
at a level and quality necessary to fulfil its purpose mandated by N.C. Gen. Stat.
§130A-47 to “preserve and promote the public health and welfare” of its customers.
Although the “Agreement for the Operation and Maintenance of Water and Sewer
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System,” executed also on November 28, 2017 by the parties, required the District
Water and Sewer System,” it was to expire on January 31, 2018 “unless earlier
terminated.”
employees, staff and assets to exercise the powers granted to the board by N.C. Gen.
politic and corporate” created by statute. It would not be feasible or practical for the
operate, or attempt to create or operate, parallel water and sewer systems that would
compete with the ones already in existence. If such attempts were made, it would
probably result in allegations by Belville that H2GO had violated and breached Section
describes an orderly and detailed means and procedures required to dissolve them.
that:
2. Upon receipt of the petition, the county board of commissioners shall notify
the Department of Health and Human Services as well as any board of commissioners
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3. The county board of commissioners shall request that the Department hold
a joint public hearing with the county commissioners concerning the dissolution. The
secretary and the chairperson of the county board of commissioners shall identify the
posting a notice at the courthouse door of the county or counties and by publication
in a local newspaper or newspapers at least once a week for four consecutive weeks.
If all matters pertaining to the dissolution cannot be concluded at the hearing, it can
5. If after the hearing has concluded, the Commission of Public Health and the
the petition,” the Commission shall adopt a resolution to dissolve the sanitary district.
6. After the resolution to dissolve the sanitary has been adopted, the local
sanitary district is authorized to convey all assets, including cash, to any government
unit or public utility company operating under the authority of a certificate of public
return for the assumption of the obligation to provide water and sewage services to
all assets and cash in return for assumption of the obligation to provide water and
sewage services.
The legislature in N.C. Gen. Stat. §130A-73 required similar procedures when
the boundaries of a sanitary district are entirely located within or coterminous with
26
the corporate limits of a city or town. Also as a condition precedent to the dissolution
under this provision, the sanitary district had to be “without indebtedness.” N.C.
Gen. Stat. §130A-73.1 addresses another distinct situation where there has been an
annexation of the area within the district by a city or town. It also requires petitioning
Human Services and governing body of the city or town and adoption. If the county
commissioners, the governing body of the city or town, and the Commission of Public
Health deem it advisable to comply with the petition request, the Commission shall
Mergers of sanitary districts and a city or town also results in terminating the
requires that in the case of a merging of a district contained within a city or town,
where the district and the city or town do not have coterminous boundaries, the
by the voters within the sanitary district and city or town. A majority of the votes
cast in the district and a majority of the votes cast in the city or town is necessary
city or town is defined in N.C. Gen. Stat. §130A-80.1. It requires that an election be
held with all of the voters of the district or the city or town being eligible to vote. A
majority of all the votes cast would be necessary for the merger. An election would
also be required by N.C. Gen. Stat. §130A-80.2 for a merger of a sanitary district
27
Under N.C. Gen. Stat. §130A-81(1), a dissolution of a sanitary district can
subsection 1a. In counties having a population in excess of 275,000 the county board
Pursuant to N.C. Gen. Stat. §130A-82, a county board of commissioners may dissolve
a district which has no outstanding indebtedness when members of the district vote
in favor of dissolution. A plan for continued operation of services and functions must
be adopted by the county commissioners before the dissolution can become effective.
Also, N.C. Gen. Stat. §130A-85 provides for dissolution of a sanitary district when
there are 500 or less resident freeholders living within the district, it has no
plan for continued operations and agrees to assume any other legal district
indebtedness.
As is evident from the above enactments, the General Assembly has adopted
dissolved, merged or incorporated with another government entity. Based upon the
above, it is clear that the General Assembly concluded that in order for a sanitary
The Agreement by H2GO to Convey Water and Sewer Systems was drafted
and executed to avoid all of these safeguards and requirements and to avoid any
28
reconsideration of the reverse osmosis decision by the newly elected board. The
language of the recitals in both the Agreement and Belville’s Resolution Accepting the
Belville contends that the H2GO sanitary district still exists and remains an
independent body politic and corporate. It further contends that the district remains
Section 4.01 provides that it “shall expire on January 31, 2018 unless earlier
the intention of the town to terminate the operation agreement as soon as practically
possible. After the operation agreement expires or is terminated, the district’s board
exist in name only but could not function as a sanitary district or exercise the powers
granted to a sanitary district in N.C. Gen. Stat. §130A-55 and its subsections which
provides that “[A] sanitary district shall be a body politic and corporate” and “may
Generally, the statute grants the district the power (1) to acquire, construct,
maintain and operate sewage collection, treatment and disposal systems and water
supply systems as well as water purification or treatment plants; (3) to levy taxes on
property in order to carry out the powers and duties conferred and to pay the principal
and interest on bonds and notes of the district; (4) to acquire either by purchase,
condemnation or otherwise and hold real and personal property, easements, rights-
of way and water rights; (5) employ engineers, counsel and other necessary persons;
(6) to negotiate and enter into agreements with owners of other existing sewer
29
systems and water supplies; (7) to adopt rules necessary for the proper functioning
of the district; (8a and 8b) to contract with any person to supply raw water or filtered
water and sewer service; (8c) to contract with any person for the treatment of the
district’s sewage in a disposal or treatment plant owned by that person; (9) after
adoption of a plan required under G.S. 130A-60 to alter or modify the plan if approved
by the Department which must determine that the alteration or modification does not
constitute a material deviation from the objective of the plan and is in the public
health interest of the district; (11) to collect and dispose of garbage, waste and other
other governmental units in exercise of its governmental functions; (15) to use the
income of the district and, if necessary, to levy and collect taxes upon all taxable
property in the district to pay the costs of collecting and disposing of garbage, waste
and other refuse; (16) to adopt rules for the promotion and protection of the public
health and to possess the listed powers to do so; (17) to establish zoning units on
property not controlled by other jurisdictions for the purpose of promoting and
protecting the public health; (18) to acquire by contract any distribution system
located outside of the district when the water for the distribution system is supplied
by the district; (20) to dispose of real or personal property belonging to the district
special assessments against benefitted property within the district for the purpose of
treatment and sewage disposal systems; and (25) to negotiate and enter into
agreements with other municipal corporations or sanitary districts for the purpose of
30
N.C. Gen. Stat. §130A-64 also gives the sanitary board the power to “apply
service charges and rates upon the exact benefits derived” in order to maintain and
operate the work of the district and pay the principal and interest on any outstanding
members of that board saw fit. By doing so, the newly elected H2GO board of
Chapter 130A.
The operation and maintenance agreement, recites that “the Town owns and
is responsible” for a public water distribution system and a public sanitary sewer
collection system. An obligation of the town set out in Section 6.02 of this agreement
required it to “[c]ontinue to properly manage and fund the Water and Sewer
correctly and completely understood the practical and legal ramifications and intent
of the “Agreement to Convey Water and Sewer Systems”, “Assignment and Bill of
Sale” and the “Agreement for the Operation and Maintenance of Water and Sewer
Systems.” He concluded in his deposition testimony that after the transfer, the H2GO
board would not have much business to conduct. It would not have any infrastructure,
customers or property, and the former employees of H2GO would become employees
of the Town of Belville. In fact, Section 6.02 of the operation and maintenance
agreement further provided that “all past, current, and future members of the
31
District’s governing board are not licensed nor permitted to use any Town vehicles or
equipment and are expressly not licensed or permitted to enter upon any Town
property associated with the Town’s Water and Sewer Systems excepting the Town
Hall public building.” This provision clearly demonstrates the intent of the Town and
the former majority of the District Board of Commissions to dismantle the sanitary
district as a body politic and corporate and completely remove all significant power
from the new District Board of Commissioners in contravention of N.C. Gen. Stat.
Based upon the above, the summary judgment motion of the Town of Leland
and H2GO Brunswick Regional Water & Sewer as to the first cause of action is
II.
Second Claim for Relief by Town of Leland and H2GO against the Town of Belville:
For a Declaration that the Challenged Resolution, Putative Transfer and Putative
Functions.
The leading case of Plant Food Company v. City of Charlotte, 214 N.C. 518,
519-520, 199 S.E. 712, 713-714 (1938) addresses this issue. Its rule is that:
32
streets, to build bridges and viaducts over which they lead, preserve
civil order; to regulate rates (where power to do so is given in the
charter); to levy taxes, make assessments, and the like. These are
mentioned simply by way of illustration and only roughly indicate the
quality of the power we are discussing. "A public function is one which
is exercised by virtue of certain attributes of sovereignty delegated to a
city for the health and protection of its inhabitants, or the public."
[citation omitted].
A local government may enter into a contract that is binding on itself “unless
the contract purports to bind the government on a matter on which public policy
requires that the government retain discretion as to whether and how to act.” David
GOVERNMENT, Summer, 1990, p. 39. Professor Lawrence suggests that the categories
police power or the government’s taxing and spending powers. On the other hand,
local government can enter into a contract that binds future boards if it involves
whether the contract itself deprives a governing body, or its successor, of a discretion
which public policy demands should be left unimpaired.” Plant Food, 214 N.C. at 520,
The court admitted that “the line between powers classified as governmental
and those classified as proprietary is none too sharply drawn, and is subject to a
are modified under its insistent demands.” Id. 214 N.C. at 520, 199 S.E. at 715.
33
In N.C. Gen. Stat. §130A-47, the State of North Carolina declared as its public
policy that the Commission for Public Health may create sanitary districts without
regard for county, township or municipal lines “for the purpose of preserving and
promoting the public health and welfare.” In order to accomplish that purpose it
granted a sanitary district the powers contained in N.C. Gen. Stat. §130A-55.
legislative, or public in nature and performed for the public good in behalf of the State
rather than for itself.’" "When a municipality is acting 'in behalf of the State' in
promoting or protecting the health, safety, security, or general welfare of its citizens,
for the benefit of the compact community, it is acting within its proprietary powers."
Britt v. City of Wilmington, 236 N.C. 446, 450, 73 S.E.2d 289, 293 (1952) (citing
Millar v. Town of Wilson, 222 N.C. 340, 23 S.E.2d 42 (1942)). The courts have
McCombs v. City of Asheboro, 6 N.C. App. 234, 235, 170 S.E.2d 169, 170 (1969).
The power to establish rates for water and sewer is a governmental function and not
a proprietary one. Candler v. Asheville, 247 N.C. 398, 407, 101 S.E.2d 470, 477
(1958).
chiefly for the private advantage of the compact community." Estate of Williams v.
Pasquotank Cty. Parks & Rec. Dep't, 366 N.C. 195, 199, 732 S.E.2d 137, 141 (2012).
In the case where a governing board “enters a contract which restricts it in the
34
such a contract is ultra vires and is of no legal effect. Raintree Corp. v. Charlotte, 49
N.C. App. 391, 396, 271 S.E.2d 524, 527 (1980) citing, Bessemer Improvement Co.
Thus, actions are void or invalid from the beginning if it is beyond the power of local
reasonable contracts binding upon their successors running through a term of years.”
[T]he Water and Sewer Systems by delivering Warranty Deeds for the
District’s real property and an Assignment and Bill of Sale for the
District’s personal property including, inter alia, the Systems’
infrastructure, facilities, structures, vehicles, equipment, supplies,
funds, permits, contracts, easements, other property rights, liabilities,
debt obligations, and all other materials and things associated with or
required for the ownership, operation, and maintenance of the Water
and Sewer Systems.
Section 1.01 Agreement to Convey Water and Sewer Systems.
The “Agreement for the Operation and Maintenance of Water and Sewer”
and fund the Water and Sewer Systems’ operations through rate adjustments.”
(emphasis added). Clearly, by this conveyance, the Town of Belville would acquire
the ability to oversee and manage the systems and set the rates for present and
future services under the systems. After the expiration of the operation agreement,
or if it is terminated by the Town, the operation of these systems by the Town would
addition to other proprietary functions. The setting of rates, and the levying of taxes
35
and special assessments are some of the specific governmental functions listed in
In order to manage and operate the water and sewage systems, the Town of
Belville, once the operating agreement expired, would solely and permanently have
to exercise those powers contained in N.C. Gen. Stat. §130A-55, many of which are
include the authority (1) to acquire, construct, maintain and operate sewage
collection, treatment and disposal systems and water supply systems as well as water
purification or treatment plants; (3) to levy taxes on property in order to carry out
the powers and duties conferred and to pay the principal and interest on bonds and
and hold real and personal property, easements, rights-of way and water rights; (5)
employ engineers, counsel and other necessary persons; (6) to negotiate and enter
into agreements with owners of other existing sewer systems and water supplies; (7)
to adopt rules necessary for the proper functioning of the district; (8a and 8b) to
contract with any person to supply raw water or filtered water and sewer service;
(8c) to contract with any person for the treatment of the district’s sewage in a
disposal or treatment plant owned by that person; (9) after adoption of a plan
required under G.S. 130A-60, to alter or modify the plan if approved by the
Department which must determine that the alteration or modification does not
constitute a material deviation from the objective of the plan and is in the public
health interest of the district; (11) to collect and dispose of garbage, waste and other
36
other governmental units in exercise of its governmental functions; (15) to use the
income of the district and, if necessary, to levy and collect taxes upon all taxable
property in the district to pay the costs of collecting and disposing of garbage, waste
and other refuse; (16) to adopt rules for the promotion and protection of the public
health [it would be problematic for the Town of Belville to exercise and enforce the
powers delineated in subsections (a) through (f) on any person who resided outside
of its town’s limits]; (17) to establish zoning units on property not controlled by other
jurisdictions for the purpose of promoting and protecting the public health; (18) to
acquire by contract any distribution system located outside of the district when the
water for the distribution system is supplied by the district; (20) to dispose of real or
property within the district for the purpose of constructing, reconstructing, extending
the water systems or sanitary collection, treatment and sewage disposal systems;
and (25) to negotiate and enter into agreements with other municipal corporations
plan.
Based upon the foregoing, the court concludes that the cumulative effect of
the resolutions, transfer and operating agreements was to enter into an agreement
which eliminates the district’s governmental discretionary power and binds the
37
Based upon the above, the summary judgment motion of the Town of Leland
and H2GO Brunswick Regional Water & Sewer as to the second cause of action is
III.
Third Claim for Relief by Town of Leland and H2GO against the Town of Belville:
For a Declaration that the Challenged Resolution, Transfer and Agreements are Void
Because They are Oppressive, the Result of Manifest Abuse of Discretion, in Wanton
Disregard of the Public Good, and Contrary to N.C. Gen. Stat. §130A-55 and N.C.
The case of Reese v. Mecklenburg Cty., 204 N.C. App. 410, 422-23, 694 S.E.2d
453, 462 (2010) provides the standard and guidance as to when governmental action
With little public disclosure or discussion, and the exclusion of the minority
members from any prior notice or knowledge of the proposed board action, after a
meeting that lasted less than one hour, the H2GO Board of Commissioners
38
transferred to the Town of Belville over $40 million in property and $16 million in
deposits. The effect of these actions are discussed previously in more detail, but it
took away the power and authority of the next H2GO board to maintain and operate
sewage collection, treatment and disposal systems and to maintain and operate the
water supply systems, water purification and treatment for all of the people in the
sanitary district.
Belville relies on N.C. Gen. Stat. §160A-274 “Sale, lease, exchange and joint
use of governmental property” to authorize and validate the transfer. Subsection (b)
provides that: “Any governmental unit [includes a sanitary district] may upon such
terms and conditions as it deems wise, with or without consideration, exchange with,
lease to, lease from, sell to, or purchase from any other governmental unit any
interest in real or personal properly.” A review of the cases decided under the
authority granted by this statute does not give much guidance to the issue of the
Except for Barbour, the courts in the above cases did not interfere with the
actions of the municipal corporation. In each case the courts found that the decisions
were reasonable and were made in good faith. None of the cases, however, rose to
the level of H2GO’s transfer of all of its functions, assets, real and personal property,
revenue, infrastructure, contracts, permits and customers so that the sanitary district
to prevent the county’s purchase of a real estate lot to order to construct a hospital
was reversed. The Supreme Court found that the allegations in the complaint were
sufficient to allege that the county commissioners, in total disregard of their duty to
39
the public, intended to “squander” public funds. The plaintiffs alleged that the
property, due its size, location, character of the soil and other factors, was not
suitable for the purpose intended and was not worth half of the amount offered to be
paid by the county. The plaintiffs also contended that prior to the decision to
purchase, there was no appraisal of the value of the property and the action was for
some unknown reason “done in a spirit of haste.” The court concluded that the
actions of the commission were “arbitrary, capricious, and without regard to what
[was] a proper price.” The court went on to declare that the conduct of the
commission did not “comport with the duty which public officials owe those they
Fifty years later in Reese, the Court of Appeals rejected the taxpayer’s claim
because, unlike the facts in Barbour, the county had the property appraised prior to
purchase and acted in compliance with established guidelines for obtaining approval
of the necessary financing by the Local Government Commission and that, even
though the purchase price was too high by 4% and up to 27%, the Board acted within
its discretion and judgment in the development and location of public parks and
recreational facilities. The court approved the findings of the trial court contained in
its order granting judgment on the pleadings in favor of county with respect to this
claim for relief. The court found that, "[a]s a matter of law, and standing alone, a
of a governmental body." The trial court further found that "the Complaint is devoid
40
associated with the Board, or any other allegation that the price differential was the
In this case, like the pleadings in Reese, there is no allegation nor is there any
with the Board or any other action precipitated by corruption. A good faith dispute
has arisen as to how best to provide safe water to the citizens of the sanitary district.
These transactions have produced or will produce these results: (1) the H2GO
board of commissioners will lose all ability to exercise its statutory authority under
N.C. Gen. Stat. §130A-55; (2) all real property and personal property owned by
and funds, used to operate the water and sewer system, with a total value in excess
of $57 million would be conveyed by the district to the Town of Belville; (3) included
service reserve funds, operating reserves, and customer deposits; (4) H2GO’s debt
to the Town of Belville; (5) a public water distribution system and a public sanitary
sewer collection system that served a population in excess of 25,000, with over
10,000 customer accounts, would be conveyed to the Town of Belville; (6) the Town
of Belville would have the authority to charge those customers who did not live in
Belville higher rates; (7) 29 H2GO employees would be terminated and the Town of
Belville would be required to employ most, if not all of them, so they could operate
the system; (8) major portions of the Town of Leland and those who reside in the
Town of Belville for their economic planning and expansion requirements; (9) the
41
elected H2GO Board of Commissioners have been locked out of their district office
and meeting place except when entry is permitted by Town of Belville officials; (10)
the Town of Belville, in order to manage and operate the systems, would have to
exercise all of the power and authority set out in N.C. Gen. Stat. §130A-55 for
sanitary districts, including the sole authority to set rates and fees for utility
customers; and (11) of the approximately 17,800 registered voters in the district,
16,500 (approximately 11,200 of those voters reside in Leland) would be voting for
sanitary district commissioners who no longer had the authority or ability to manage
and operate their water distribution and public sanitary collection systems. That
authority would fall into the exclusive hands of the town commissioners for the Town
of Belville. Those living outside of that town cannot vote for those commissioners.
405 U.S. 330, 31 L.Ed.2d 274 (1972); Texfi Industries v. City of Fayetteville, 301
N.C. 1, 269 S.E.2d 142 (1980). Those people living outside of Belville have been
deprived of this fundamental right. The court must use strict scrutiny in determining
whether the equal protection of the laws was denied those individuals in this case.
The Town of Belville has not demonstrated that the differentiation between the
Northampton Cty. Drainage Dist. No. One v. Bailey, 326 N.C. 742, 746-47, 392
Neither side has produced a case where N.C. Gen. Stat. §160A-274(b) has
that would result in such a dynamic change in the governance of a public entity such
42
as a sanitary district. None of the cases cited or relied upon by the parties dealt with
the sheer enormity of this transaction and its effect on the general public in this
district.
districts (N.C. Gen. Stat. §130A-72, N.C. Gen. Stat. §130A-73, N.C. Gen. Stat. §130-
73.1, and N.C. Gen. Stat. §82), merger of districts and municipalities (N.C. Gen. Stat.
§130A-80, N.C. Gen. Stat. §130A-80.1, N.C. Gen. Stat. §130A-80.2, N.C. Gen. Stat.
with dissolution of the district (N.C. Gen. Stat. §130-81), it appears that the
legislature did not intend that N.C. Gen. Stat. §160A-274 be the means or the vehicle
to accomplish what the outgoing H2GO board of commissioners and the Town of
Belville attempted. When a court has to consider these statutes that are in pari
materia, it has to give effect, if possible to all these provisions without destroying the
meaning of these enactments. Also, “[p]arts of the same statute dealing with the
same subject matter must be considered and interpreted as a whole.” State ex rel.
Comm'r of Ins. v. N.C. Auto. Rate Admin. Office, 294 N.C. 60, 66, 241 S.E.2d 324,
328 (1978).
43
dates of passage. Nat'l Food Stores v. N.C. Bd. of Alcoholic Control, 268
N.C. 624, 628-29, 151 S.E.2d 582, 586 (1966).
Also, courts will “normally adopt an interpretation which will avoid absurd or
bizarre consequences, the presumption being that the legislature acted in accordance
with reason and common sense," State ex rel. Comm'r of Ins. v. North Carolina Auto.
Rate Admin. Office, 294 N.C. 60, 68, 241 S.E.2d 324, 329 (1978), and "with full
knowledge of prior and existing law," State v. Benton, 276 N.C. 641, 658, 174 S.E.2d
793, 804 (1970). Rhyne v. K-Mart Corp., 358 N.C. 160, 189, 594 S.E.2d 1, 20
(2004).
authorizes a city to “sell …any enterprise that it may own upon any terms and
conditions that the council may deem best.” However, that statute does not authorize
a sanitary district to sell a public enterprise. The “sanitary district” inclusion language
of N.C. Gen. Stat. §130A-55(20) does not apply to this Article. It is fair to conclude
that the General Assembly intended to provide to a city the specific authority to sell
merger and incorporation control in this situation where the final result is the transfer
to the Town of Belville of all of the sanitary district’s real and personal property,
supplies, funds, permits, contracts, easements, other property rights, liabilities, debt
obligations and all other materials and things associated with …the ownership,
operation, and maintenance” of said systems. N.C. Gen. Stat. §160A-274 grants a
44
governmental unit the authority to sell to another governmental unit “any interest in
real or personal property” but not the wholesale transfer of the governmental unit in
its entirety.
that the courts have ruled that local governments cannot dispose of property held in
governmental use, and that general authority to convey only applied to property held
Southport v. Stanly, 125 N.C. 464, 467, 34 S.E. 641, 642 (1899) in which the court
concluded that the town could not convey in a long term lease property designated
for the use of the town. It reasoned that to allow such a conveyance,
45
Of the court’s conclusion in Stanly that “if a city could sell every parcel and
thereby effectively abolish itself,” Professor Lawrence stated that it would certainly
be a “slippery slope”, but in such a case the city would be protected by the abuse of
The court has already raised the profound effect of the transfer of the systems
and its governance on the ability of those who reside outside of Belville but within
the sanitary district. They would be limited to voting for members of the sanitary
district commission that does not have the authority or ability to address their
forced to plead their needs and requests to the Town of Belville officials who are
elected solely by Belville residents. It is not difficult to see the conflicts that could
arise when competing interests for service and development of services, between
those who live in Belville and those who do not, come before the Belville commission.
In exchange for all that Belville will receive, the town has few obligations under
the conveyance agreement. The obligations of the District are detailed and
and warranties.” They consist of only an acknowledgment (1) that the town is a
municipal corporation “with the power and authority to enter into and perform its
obligations under this Agreement and all other documents …” (2) that the documents
and instruments have been duly authorized and executed and are valid and binding
instruments; and (3) that compliance with the terms of the agreement does not
46
“conflict with or constitute a breach or violation of, or a default under any agreements
to which the town is a party, any applicable, rule or regulation of any governmental
unit or agency thereon.” Section 7.09 recites that “this agreement is the “complete,
entire and final agreement of the parties with respect to the subject matter hereof.”
The operation and maintenance agreement for the water and sewer systems
sets out in detail in section 6.01 the obligations of the district. It sets out the few
obligations of the town in section 6.02 along with the same general representations
of the town contained in the conveyance agreement. Under section 6.02 the town is
obligated to (1) reimburse the district on a timely basis; (2) continue to properly
manage and fund the Water and Sewer Systems’ operations through necessary rate
regarding any problems with the system; (4) pursue enforcement/ remedial actions
against those who actions result in or reasonably likely to result in issues and
problems with the systems operations; and (5) be responsible for regulatory
January 31, 2018 or sooner if terminated by one or both parties. Other than to
“continue to properly manage and fund the systems’ operations,” the town does not
obligate itself in writing under the conveyance or operations agreement to accept the
regular responsibilities and standards of service imposed by N.C. Gen. Stat. §130A-
47 and owed to the people of the district that the sanitary district commission was
N.C. Gen. Stat. §160A-86 requires that governing boards of cities and sanitary
districts adopt policies containing a code of ethics to guide their actions in the
47
performance of their official duties. Although the court was not presented the codes
for either board, it is apparent that the affairs and procedures followed in the H2GO
were not conducted in an “open and public manner.” N.C. Gen. Stat. §160A-87(5).
Although the court specifically does not find from what it has heard or has been
presented to it, that there are any open meetings violations, the court reluctantly
comes to the conclusion that the affairs of the governing boards were not conducted
(1) exchanges of emails between the Belville town attorney Eldridge and H2GO
that were transacted during the course of the November 28, 2018 H2GO board of
commissioners meeting;
(2) the exclusion of H2GO attorney Coble from the ability to see, review or
Jenkins and Antos to keep from commissioners Trombley and Gerken any mention of
(4) arranging for a compact time frame of less than 24 hours starting with the
rapid passing by the sanitary district board of the resolution of, the agreement to
convey the water and sewer systems, and the assignment and bill of sale on the
48
resolution by the Town of Belville Board of Commissioners during the 8 a.m. meeting
on the morning of November 29, 2017, and the execution and filing of the assignment
and bill of sale in the Register of Deeds office at 11:34 a.m. on November 29, 2019
and the execution and filing of the special warranty deed in the office of the Register
of Deeds office at 12:39 p.m. on November 29, 2019 for the purpose of avoiding a
(5) the failure to include notice of the consideration of these actions on the
H2GO board agenda on November 28, 2017 and the later addition of an agenda item
(6) the failure to contact, consult beforehand, and seek prior approval from
the Local Government Commission or bond counsel for H2GO of the proposed transfer
knowledge of the proposed transfer to disclose to the other commissioners the receipt
of the email hours before the board meeting from Sharon Edmundson, Director of
the Fiscal Management Section of the Finance Division of the North Carolina Local
Government Commission which recommended that before action is taken that H2GO
consult with its bond counsel and consider the possible ramifications if it did not;
(8) the failure to disclose to the public any mention of the conveyance or the
49
Commissioners meeting of November 20, 2017 although the commissioners had
Further, N.C. Gen. Stat. §160A-312 authorizes cities and towns to acquire,
own and operate public enterprises in order to provide services to the city and its
citizens. Water services and wastewater collection are identified as permitted public
enterprises under N.C. Gen. Stat. §160A-311(2) and (3). However, the General
Assembly limited and qualified the ability of the city to operate a public enterprise
proximity to the city’s boundaries. See, Lumbee River Elec. Membership Corp. v. City
of Fayetteville, 309 N.C. 726, 738-39, 309 S.E.2d 209, 217 (1983) (reasonable to
extend electric service to a subdivision whose entrance was across the street from
an area serviced by the city even though it was outside the city limits).
That term “within reasonable limitations” does not refer solely to the territorial
extent of the city’s venture but “embraces all facts and circumstances which affect
the reasonableness of the venture.” Quality Water Supply, Inc. v. City of Wilmington,
97 N.C. App. 400, 406-07, 388 S.E.2d 608, 612 (1990). In Quality Water, the court
found that the extension of a water line beyond the city limits to be reasonable
because the land to be serviced by the water line lies adjacent to areas which have
been studied by the City for annexation. In addition, the water line extension, which
would be paid for by a third party, could service those newly annexed areas.
50
The Town of Belville has about 2,000 residents, 1,300 registered voters and
employees and an annual budget of about one million dollars. Its geographical
configuration comprises about two square miles. It did independently have water and
sewer services. The area that the Town of Belville attempted to acquire to provide
water and sewer services to was approximately twenty-four square miles. That area
included parts of the Town of Leland, 11.5 square miles of which is within the sanitary
district, with its 5,000 sanitary district’s metered customers. It also included the
The maps, attached as exhibits 6-12, were provided by Leland town planner
Benjamin Andrea. They demonstrate the areas that encompass the H2GO sanitary
$10 million operating budget and the 29 H2GO employees to its employment.
in the transition, the customers of H2GO could face interruption and problems with
their service. Presently, the three Belville employees are untrained and unqualified
This acquisition by the Town of Belville will result, according to an email inquiry
by Eldridge, in revenue that exceeded the expenses required to operate and maintain
the system. This profit would run counter to the ruling in Domestic Elec. Serv., Inc.
v. Rocky Mount, 285 N.C. 135, 144, 203 S.E.2d 838, 844 (1974) in which the court
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concluded that “the primary function of a municipal corporation is to provide local
government within its limits and authorized services to its inhabitants, not to engage
in business enterprises for profit outside its corporate limits.” In addition, N.C. Gen.
Stat. §130A-47 provided specifically that “no municipal corporation or any part of the
the request of the governing board of the municipal corporation.” That was not done
After considering all of the facts and circumstance, the court concludes that
under N.C. Gen. Stat. §160A-312(a), it was unreasonable for Belville to acquire and
operate these water and sewer public enterprises outside its corporate limits. Such
Less than two hours before the November 28, 2017 meeting of the H2GO’s
Board of Commissioners, the director of the Fiscal Management Section of the Finance
Division of the North Carolina Local Government Commission sent an email to H2GO
Executive Director Walker, Belville Mayor Allen and Belville town attorney Eldridge.
the assets and related debt of the district to Belville, that H2GO consult with its bond
counsel before taking any action because any action on the debt or the assets that
generate the revenue to pay the debt could cause the debt to go into “default status.”
She also advised that any transfer of the debt would require the approval of the LGC
before such a transfer can occur. She also recommended that the Town “take the
time to consider the full responsibilities of taking on a water and sewer system[s],
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“including not only the costs and expertise needed to operate the system[s] but the
costs and long term commitment to adequately maintain and eventually replace such
a system.” She invited the town and H2GO officials to contact her at any time. By
statute, LGC is charged with reviewing and supervising all of the significant financial
Within two hours after the receipt of the LGC email, the H2GO commission
voted to convey the water and sewer systems and its assets, property rights,
liabilities, and debt obligations. No attempts were made by the Belville or H2GO
officials, as suggested, to contact LGC to inquire about their contractual and statutory
contacting LGC officials, modified the language of the agreement to require the
District, prior to the expiration of the operating agreement, to obtain the approval of
LGC to transfer the SunTrust Bond to the town. No further inquiry was made after
receipt of the LGC email regarding the financial health of the town and the issue of a
long term commitment and possible replacement of the systems. Modifications to the
instruments were made during and after the commissioners’ meeting. Executive
Director Walker believed that the district’s bond was transferrable. He also believed
that Scott Hook, who knew previously about the proposed conveyance, made one
unsuccessful attempt to contact the bondholder once by phone. The vote was not
delayed.
Conclusion
The court finds that there was competent and substantial evidence to support
the legal conclusion that the commissioners of both governing boards of H2GO and
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Belville, acting in concert, failed to act in good faith, and their actions were so clearly
Based upon the above, the summary judgment motion of the Town of Leland
and H2GO Brunswick Regional Water & Sewer as to the third cause of action is
IV.
Fourth Claim for Relief by Leland and H2GO against Belville:
For a Declaration that the Challenged Resolution, Putative Transfer, and Putative
Agreements Are Void Because They Involve an Illegal Debt Transfer that is
Unauthorized by North Carolina Law and Contrary to H2GO’s Bond Order
The Seventh Claim for Relief by Leland and H2GO against Belville was
The plaintiffs contend that H2GO, in Section 1.01 of the Agreement to Convey
Water and Sewer System, agreed to convey at closing to the Town of Belville those
systems free and clear of liens and encumbrances. In support of that conclusion, the
plaintiffs cite the following sections and language in both the agreement and
assignment and bill of sale. In Section 2.01(A)(1) of the agreement, the district was
required to deliver fully executed documents to Belville at closing that conveyed its
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funds, liabilities and debt obligations. In Section 3.01 the agreement was conditioned
on the expressed requirement that the district provide the town “with satisfactory
evidence that any third-party approvals have been obtained relative to assigning
and/or transferring the permits, contracts, liabilities, and debt obligations, including
Browning, H2GO bargained, sold and assigned to the town, in addition to all of the
real and personal property and other listed items, the 2012 SunTrust Revenue Bond
which was listed as item 117. Also, counsel for Belville in correspondence with Judge
asserted that the bonds were among the assets and liabilities conveyed to Belville.
Many of the preliminary injunction provisions are premised on that assertion in that
Belville would “retain title to and ownership of the real and personal property of the
water and sewer system and its liabilities.” Also, Belville was ordered to make the
payments on the bond promptly after presented with the invoices by H2GO.
Section 2.05 of the Bond Order prohibited the transfer of the SunTrust Revenue
Bond “to any person other than a bank, an insurance company or a similar financial
institution” by the Bond Register without prior approval from the Local Government
Commission. No prior approval of the transfer to Belville was sought or received from
The plaintiffs argue that by the language of these instruments, the transfer of
the SunTrust Revenue Bond and the revenue to meet the district’s obligations was
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Defendant Belville, however, contends that H2GO‘s bond was not transferred,
the conveyance. In support of this contention, Belville argues that Section 3.01 of
upon and subject to the District satisfying, or the Town’s waiving in writing, the
Bond”. This section required that “[p]rior to the expiration of the term under the
parties’ contemporaneous Operating Agreement, the District shall obtain the approval
of the North Carolina Local Government Commission to transfer the SunTrust Bond
to the town.” Belville contends that this specific provision clearly demonstrates the
intention of the parties that H2GO’s obligations under the Bond would not be
If the bond indebtedness and obligation has not been transferred, as the
defendant contends, then the transfer of the district’s real property, personal
supplies, funds, permits, contracts, easements” and “all other materials and things
associated with or required for the ownership, operation, and maintenance of the
Water and Sewer Systems” would violate section 7.09 of the Bond Order executed
by H2GO on July 10, 2012. That section states: “[t]he District covenants that it will
not sell, lease or otherwise dispose of the System or any part thereof except as
It would also violate N.C. Gen. Stat. §159-92(a) which requires that “[a]ll
revenue bonds issued under this Article shall be equally and ratably secured by a
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pledge, charge, and lien upon revenues provided for in the bond order … in
accordance with the provisions of this Article and of the bond order.” This statute
creates an automatic lien on all revenues provided for in the bond order. Section 5.03
Pledge of Net Revenues of the bond order reiterates that statutory mandate. It
provides that the “District pledges the Net Revenues to secure the payment of the
principal of, redemption premium, if any, and interest on the bonds. The Revenues,
as received by the District, shall immediately be subject to the lien of this pledge
without any physical delivery thereof or further act and the lien of this pledge shall
have priority over any or all other obligations and liabilities of the District …” Section
7.10 Creation of Liens requires that the district will not create any charge or lien on
the net revenues that rank equally with or prior to the charge or lien on the net
revenues. Under the terms of the conveyance, the district transferred the systems
free and clear of all liens. As a result, this would mean that the holders of the bonds
have lost their lien on the net revenues which would be received by Belville.
The sections of the agreement to convey and assignment and bill of sale cited
by both parties seem to contradict each other on the issue of whether the SunTrust
these conveyances, has not acted, ordered a hearing on the issue, declared the bond
in default, intervened in this lawsuit, nor has it revealed its position regarding
approval of the transfer. If the transfer of the SunTrust Bond does not receive
approval by the commission, the town, pursuant to section 3.02 of the agreement,
can “rescind this Agreement and convey back to the district, by warranty deeds and
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an assignment and bill of sale, …the Water and Sewer systems including, without
By granting summary judgment for the plaintiffs in the first three issues and
thereby nullifying the transfer and conveyances by H2GO to Belville, LGC will not
have to consider a request of the Town for approval unless it chooses to. SunTrust
also has not declared the bond to be in default or sought a declaration from LGC that
the bond was in default. The preliminary injunction required that the payments
continue while this suit progressed. Although LGC and SunTrust are not under the
The court is not in a position to determine what this non-action by the LGC and
SunTrust means or how this affects the parties’ contentions regarding the bond.
The Bond Order, which authorized the issuance of the water and sewer revenue
bonds of H2GO, was a contract between the district and the holders of the bonds.
The agreements therein are “to be performed by or on behalf of the District shall be
for the equal benefit, protection and security of the Holders of any and all of the
“any person who shall be the registered owner of such Bond or Bonds.” The
customers who receive or could receive services from the water and sewer systems
and the towns within the district are not parties to this contract.
Section 11.06 Parties Interested Herein of the bond order also provides that:
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or by reason of this Bond Order or any provision hereof, this Bond Order
and all its provisions being intended to be and being for the sole and
exclusive benefit of the parties hereto and the Holders from time to time
of the Bonds issued hereunder.
Under this section Leland did not acquire any rights nor secured any claims or
causes of action under the Bond Order. The only parties to this contract that could
be involved in any default with respect to the Bond debt are H2GO and the
Although a bond holder could claim that a default has taken place by the
transfer of the assets to Belville under Section 8.01 Events of Default, there is no
evidence that any holder has. One could claim that the transfer of the assets and
revenues can trigger a default under Section 8.01(c) in that it could result in the
district being “incapable of fulfilling its obligations” under the order. The court
cannot, however, assert the rights of any bondholder and declare a default under the
order or Chapter 159, Article 5 or ask or order the Local Government Commission to
do so.
Based upon the foregoing, the defendant Belville’s motions for summary
judgment as to the plaintiffs’ Fourth, Fifth and Sixth causes of action are Granted.
The plaintiffs motions for summary judgment as these same causes of action are
Eighth Claim for Relief (For Preliminary and Permanent Injunctive Relief, Including
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This is not a cause of action but a request for a remedy which is addressed
Plaintiff H2GO alleges that following the election it was subject to undue
influence from Belville by having its attorney, James Ethridge, (a) improperly
described in the Agreement to Convey Water and Sewer Systems; (b) intentionally
regarding the transfer; and (c) drafting the resolution and agreement.
Undue influence is defined as "a fraudulent influence over the mind and will of
another to the extent that the professed action is not freely done but is in truth the
act of the one who procures the result." In re Estate of Loftin and Loftin v. Loftin, 285
N.C. 717, 722, 208 S.E. 2d 670, 674-75 (1974). There are four general elements of
undue influence: (1) a person who is subject to influence; (2) an opportunity to exert
undue influence; (3) a disposition to exert undue influence; and (4) a result indicating
undue influence. Griffin v. Baucom, 74 N.C. App. 282, 286, 328 S.E.2d 38, 41
(1985).
surrounding facts, circumstances and inferences from which a jury could find that the
person's act was not the product of his own free and unconstrained will, but instead
was the result of an overpowering influence over him by another (emphasis added).”
H2GO would have to show that for the influence to be undue, "there must be
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something operating upon the mind of the person whose act is called in judgment, of
sufficient controlling effect to destroy free agency and to render the instrument [in
Carl Antos’ case, the vote; in Robert Walker’s case, the cooperation with Eldridge],
...not properly an expression of the wishes of the maker, but rather the expression
of the will of another. It is the substitution of the mind of the person exercising the
influence [Eldridge] for the mind of” Antos and Walker causing them to take an action
which each one would not have made. In re Will of Prince, 109 N.C. App. 58, 61,
425 S.E.2d 711, 713-14 (1993) (quoting In re Will of Kemp, 234 N.C. 495, 498, 67
The facts, circumstances and inferences from the evidence do not support
H2GO contends that the source of the undue influence was Belville. No case
supports the contention that an entity could be the subject of undue influence. Robert
Walker was an employee of H2GO and Carl Antos was only one of five of its elected
commissioners. No case has ruled that an entity had a “mind” that could be operated
upon or controlled.
The evidence shows that Walker, shortly after the election, was asked by an
H2GO commissioner Jenkins “if there was any way we could transfer the assets …from
H2GO to Belville.” Walker promised Jenkins he would look into it. Eldridge would
later in an email advise Walker of the purported authority contained within N.C. Gen.
Stat. §160A-274(b). Walker in a November 12, 2017 email to Eldridge stated that he
had spoken with Belville Mayor Allen, Belville town commissioner, Joe Breault and
H2GO commissioners, Browning, Antos, and Jenkins and advised that the three
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commissioners were “on the same page to transfer H2GO property (real, personal,
cash and other assets, etc.) to Belville. Should we meet to strategize as time is of
current liabilities.” This was over two weeks prior to the vote. The evidence clearly
shows that Walker was acting pursuant to the direction provided him by his
the actions and votes of the commissioners. The vote to adopt the resolution to
convey the systems and to enter into the agreement to convey those systems was
the majority’s effort to ensure the continued construction of the RO plant and not due
to any undue influence from Belville or its attorney. The majority of the H2GO
commissioners and the governing authorities of Belville all shared the same goal and
November 27, 2017 that Antos remained concerned about personal liability and
indemnification and asked Eldridge to, “if possible, include ‘current and past elected
officials’ in the mutual indemnity language.” Walker cited H2GO’s liability insurance
as additional coverage but asked that the indemnity language be added. As a result
of that request, modifications were made and Eldridge rendered an opinion to Walker
that Antos would not be individually named in a lawsuit, but if he was, he would be
indemnified under that policy and probably be dismissed from the lawsuit. This was
not legal advice to Antos but a general opinion as to the meaning and significance of
the modified language. No undue influence was exercised over Antos or any other
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The defendant Belville’s motion for summary judgment as to H2GO’s Ninth
claim for relief is Granted. H2GO’s motion for summary judgement is Denied, and
H2GO contends that because Belville had its town attorney (1) give advice to
(2) draft the challenged resolutions and agreements; (3) exclude the district’s
transfer, it assumed a fiduciary duty to act in the best interest of H2GO concerning
the transaction.
“To establish constructive fraud, a plaintiff must show that “defendant (1) owes
plaintiff a fiduciary duty; (2) breached this fiduciary duty; and (3) sought to benefit
himself in the transaction.” Sullivan v. Mebane Packaging Grp., 158 N.C. App. 19, 32,
581 S.E.2d 452, 462, disc. review denied, 357 N.C. 511, 588 S.E.2d 473 (2003).
Walden, 70 N.C. App. 543, 546, 320 S.E.2d 329, 331 (1984), and it can extend to a
case in which a fiduciary relation exists in fact and in which there is confidence
reposed on one side and resulting domination and influence on the other. Abbitt v.
Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931). "Only when one party
figuratively holds all the cards—all the financial power, technical information, for
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example—have North Carolina courts found that the 'special circumstance' of a
fiduciary relationship has arisen." Broussard v. Meineke Disc. Muffler Shops, Inc., 155
F.3d 331, 348 (4th Cir. 1998). North Carolina courts generally find that parties who
interact at arms-length do not have a fiduciary relationship with each other, even if
they are mutually interdependent businesses. Tin Originals, Inc. v. Colonial Tin
Works, Inc., 98 N.C. App. 663, 666, 391 S.E.2d 831, 833 (1990).
The evidence does not show any special trust or fiduciary relationship between
the parties. This was an arms-length transaction in which Belville and the outgoing
majority of H2GO’s commission each sought and shared a common goal. There was
outgoing majority concluded that this was the only way to assure that the RO project
would continue before the new majority took over the voting control of the district
commission. To have that goal achieved, it required the mutual approval by both the
town and district commissions of the written instruments prepared by the town
attorney with the explicit assistance and cooperation of the district employees within
its attorney did not exercise a domineering influence over H2GO, and no fiduciary
claim for relief is Granted. H2GO’s motion for summary judgment is Denied, and this
claim is Dismissed.
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The amended complaint’s Eleventh Cause of Action against Belville was
The amended complaint’s Twelfth Cause of Action against Belville and a cross
claim against H2GO, in which a violation of the open meetings law is asserted, was
declaratory judgment declaring that the actions of H2GO and its subsequent conduct
in the emergency meeting was unlawful, invalid and void. It raised the issues of (1)
at the December 4, 2017 meeting or afterwards; (2) whether the resolutions voted
on by the H2GO board members on December 4, 2017 and afterwards was lawful,
valid or binding; and (3) whether, prior to its organizational meeting on December
19, 2017, the H2GO board was duly sitting and authorized to conduct business on
December 4, 2017. The fourth issue was stayed from consideration by the order of
Commissioner Beer was properly sworn in because N.C. Gen. Stat. §130A-
50(e) Election and terms of office of sanitary district boards provides that “[t]he
elected members of the board shall take the office on the first Monday in December
following their election …” December 4, 2017 was the first Monday in December
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Pursuant to N.C. Gen. Stat. §143-318.12(f) an emergency meeting was called
for December 4, 2017 to discuss the temporary restraining order, the resolutions and
agreements, legal representation and the appropriate direction to the staff. Initially,
at the meeting the newly elected commissioner, Bill Beer was sworn in. The other
newly elected commissioner did not get sworn in at that meeting. The board
“null and void” and declaring that “they could not be lawfully accepted by the Town
of Belville and declared them withdrawn.” The board also instructed the executive
circumstances that require immediate consideration by the public body.” N.C. Gen.
Stat. §143-318.12(f). The court finds that the facts and circumstances facing the
board justified the emergency meeting at which it took necessary and appropriate
action.
The court concludes that: (1) Beer, after he was sworn in, was qualified to
(2) the resolutions voted on by the H2GO board members on December 4, 2017 and
afterwards were lawful, valid and binding; and (3) on December 4, 2017 the H2GO
declaratory judgment declaring that the actions of H2GO and its subsequent conduct
were unlawful, invalid and void. As a result, the defendant’s first counterclaim is
Dismissed.
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The town contends in its second counterclaim that the agreements were valid
and binding contracts between H2GO and the town. It also contends that H2GO
breached the agreements by (1) failing to cooperate with Belville to effectuate the
intent and purpose of the agreements; (2) unilaterally passing unlawful resolutions
declaring the agreements unlawful, void and of no legal effect; and (3) failing to
indemnify the town with respect to all claims in this litigation, its attorney fees, costs
and expenses.
Based upon the rulings of the court granting the plaintiffs’ motions for
summary judgment as to the first, second and third causes of action, the plaintiffs’
Based upon the foregoing findings of fact and the rulings on the various causes
H2GO, the Agreement to Convey Water and Sewer Systems, and the
Assignment and Bill of Sale and Special Warranty Deed are unlawful, void
and of no effect.
full effect.
with and in support of the rulings of the court which will order that the
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public records state that H2GO is the lawful owner of all assets and debts
described in the specialty warranty deed and the assignment and bill of
sale.
4. The court defers ruling on any request for attorney fees and litigation costs.
5. The previous order staying any consideration of open meetings law remains
in effect.
6. The court retains jurisdiction to entertain any further motions by the parties
______________________________
Superior Court Judge
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