The Town of Black Mountain v. Lexon Insurance Company ( 2014 )

NO. COA14-740
NORTH CAROLINA COURT OF APPEALS
Filed: 16 December 2014
THE TOWN OF BLACK MOUNTAIN, NORTH
CAROLINA and THE COUNTY OF
BUNCOMBE, NORTH CAROLINA,
Plaintiffs,
v. Buncombe County
No. 12 CVS 05118
LEXON INSURANCE COMPANY and BOND
SAFEGUARD INSURANCE COMPANY,
Defendants.
Appeal by defendants from order entered 4 March 2014 by
Judge Gary M. Gavenus in Buncombe County Superior Court. Heard
in the Court of Appeals 20 October 2014.
Cannon Law, P.C., by William E. Cannon, Jr. and Ronald E.
Sneed, P.A., by Ronald E. Sneed, for plaintiffs-appellees.
Shumaker, Loop & Kendrick, LLP, by William H. Sturges and
Daniel R. Hansen, for defendants-appellants.
HUNTER, Robert C., Judge.
The Town of Black Mountain, North Carolina (“the Town”) and
the County of Buncombe, North Carolina (“the County”)
(collectively “plaintiffs”) filed suit against Lexon Insurance
Company and Bond Safeguard Insurance Company (“defendants”)
seeking to enforce a series of subdivision performance bonds.
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The trial court entered summary judgment in plaintiffs’ favor.
On appeal, defendants argue that summary judgment for plaintiffs
was improper because: (1) neither the Town nor the County has
standing to enforce the bonds; and (2) the statute of
limitations for plaintiffs’ claim has run.
After careful review, we affirm the trial court’s order.
Background
From March 2005 through February 2007, defendants entered
into four subdivision performance bonds (“the bonds”) as
sureties for The Settings of Black Mountain, LLC and Richmarc
Black Mountain, LLC (collectively “developers”).1 Approval from
the County for the developers to begin construction on a
residential subdivision was conditioned on obtaining the
performance bonds to secure completion of the project. Thus,
the obligee on each of the bonds in question was the County, not
the Town. Each of the bonds contained a clause indicating that
defendants, as sureties, would not be required to complete the
infrastructure or pay the principal amount of the bond until
they received a resolution from the obligee indicating that the
improvements had not been installed or completed by the
1
Although plaintiffs named all four bonds in their complaint,
the construction secured by one of the bonds has since been
completed; thus, only three remaining bonds are the subject of
plaintiffs’ claim.
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developers. The bonds also contained a provision holding
defendants and the developers jointly and severally liable for
any amounts due upon default.
The real property that was secured by the bonds was annexed
by the Town at varying times between May 2005 and February 2007.
Defendants assert that they lacked knowledge of the annexation
until 5 January 2012. In 2009, the Town sought confirmation
from the developers that they intended and had the means to
complete the infrastructure secured by the bonds. In a letter
dated 23 October 2009, attorneys for the developers indicated
that they were working toward closing a recapitalization loan.
On 18 December 2009, a principal in one of the development
companies stated via e-mail that “we still believe we have
viable entities, though obviously troubled. We are committed to
finishing our communities without need of the bonds[.]” Indeed,
construction activity by the developers continued into 2010.
Ultimately the companies failed. Richmarc Black Mountain, LLC
filed its final annual report on 7 June 2011, and The Settings
at Black Mountain, LLC was administratively dissolved on 21
August 2011.
On 5 January 2012, the County contacted defendants and
asked if they would consent to an assignment of the bonds to the
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Town. In its inquiry, the County conceded that, due to the
annexation, “Buncombe County no long[er] has any jurisdiction
over the properties and cannot enforce any rights per its
ordinances.” Defendants did not consent to the assignment.
On 1 August 2011 and 20 December 2011, the Town sent
defendants notice that the developers had ceased all
construction activity. On 22 June 2012, the County assigned its
rights in the bonds to the Town, which accepted assignment on 9
July 2012. On that same day, the Town adopted a resolution
finding the infrastructure to be incomplete. The Town sent
defendants notice of their claims under the bonds on 24 July
2012. Following nonpayment by defendants, plaintiffs filed
their complaint for breach of contract on 25 October 2012. Both
the County and the Town brought suit because they anticipated
that defendants would challenge standing if either party sued
separately; thus, their claims are pled in the alternative
pursuant to Rule 8 of the North Carolina Rules of Civil
Procedure.
Plaintiffs and defendants each moved for summary judgment
and were heard on their respective motions 10 February 2014.
The trial court entered an order granting summary judgment for
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plaintiffs on 4 March 2014. Defendants filed timely notice of
appeal.
Discussion
I. Standing
Defendants first argue that neither the Town nor the County
has standing to bring suit. Specifically, defendants contend
that once the Town annexed the property covered by the bonds,
the bonds were extinguished, leaving no rights for the County to
assign. We disagree.
“This Court reviews orders granting summary judgment de
novo.” Foster v. Crandell, 181 N.C. App. 152, 164, 638 S.E.2d
526, 535 (2007). Summary judgment is appropriate “only when the
record shows that there is no genuine issue as to any material
fact and that any party is entitled to a judgment as a matter of
law.” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572,
576 (2008) (internal quotation marks omitted). The burden of
proof rests with the movant to show that summary judgment is
appropriate. Development Corp. v. James, 300 N.C. 631, 637, 268
S.E.2d 205, 209 (1980). We review the record in the light most
favorable to the non-moving party. Caldwell v. Deese, 288 N.C.
375, 378, 218 S.E.2d 379, 381 (1975).
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Defendants rely on Stillings v. City of Winston-Salem, 311
N.C. 689, 319 S.E.2d 233 (1984), in support of their contention
that the bonds were extinguished when the subject properties
were annexed by the Town. In Stillings, the Court stated the
issue it considered as follows: “Does an exclusive solid waste
collection franchise granted by a county remain effective in
areas subsequently annexed by a city and thereby entitle the
franchisees to compensation for a taking when the city, pursuant
to statutory mandate, begins providing its own garbage
collection service?” Id. at 691, 319 S.E.2d at 235. The Court
answered this question in the negative. Id. In holding that
the exclusive waste collection franchise entered into by the
county and a private party terminated in the geographic areas
annexed by the city, the Court noted that the garbage collection
company, “had no rights which the [c]ity was bound to respect.”
Id. at 694-96, 319 S.E.2d at 237-38. According to the statutory
mandate in N.C. Gen. Stat. § 160A-47, the city was required to
provide garbage collection services without charge to its
residents in newly annexed areas. Id. at 694, 319 S.E.2d at
237. Therefore, annexation created a conflict between the
exclusive franchise rights held by the plaintiffs and the
statutory mandate imposed on the city. In recognition of the
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rule that “[c]orporations which receive franchises take the
granted privileges subject to the police power of the state,”
the Court ultimately held that “[b]y annexation of the property
in question, the county’s franchise terminated and the police
power of the [c]ity became operative.” Id.Defendants argue that, pursuant to Stillings, “once a town
annexes territory that is the subject of a private contract
between the county and a private citizen, the annexation
effectively nullifies the contract.” Thus, defendants contend
that the bonds were extinguished when the annexation took place,
rendering them unenforceable by either the County or the Town.
We do not read Stillings so broadly. The Stillings Court
did not hold that the franchise agreement between the garbage
collection company and the county was terminated in its
entirety; rather, the contract was terminated only in those
geographical areas annexed by the city. See Stillings, 311 N.C.
App. at 696, 319 S.E.2d at 238. Therefore, Stillings does not
support the idea that annexation automatically terminates an
entire agreement between a county and a private party.
Furthermore, the conflict between the exclusive waste collection
franchise and the police powers of the annexing city was crucial
to the Stillings Court’s holding. Here, unlike in Stillings,
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the bonds do not conflict with the Town’s police power. There
is no statute requiring the Town to behave adversely to the
agreement between defendants and the County. Rather than
attempting to terminate the bonds, the Town seeks to enforce
them. This situation contrasts sharply with the facts of
Stillings, where the annexing city was required by statute to
provide free garbage collection services in direct contravention
of the exclusive franchise agreement between the county and the
plaintiffs. Based on these material distinctions, we decline to
extend the Stillings holding to the facts of this case.
We agree with defendants that the County lost standing to
enforce the bonds after annexation. The bonds were created
pursuant to the County’s “subdivision control ordinance,”
allowing the County to “provide orderly growth and development”
by entering into surety bonds with developers to “assure
successful completion of required improvement.” See N.C. Gen.
Stat. § 153A-331 (2013). But the County’s power to issue
subdivision control ordinances was geographically limited by
N.C. Gen. Stat. § 153A-122 (2013), providing that such
ordinances are only applicable “to any part of the county not
within a city.” Therefore, after annexation, the County no
longer had statutory authority to call the bonds. The County’s
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attorney admitted as much in his 5 January 2012 e-mail to
defendants requesting their consent to assignment, wherein he
stated that “Buncombe County no long[er] has any jurisdiction
over the properties and cannot enforce any rights per its
ordinances.” We also agree with defendants that, prior to
assignment, the Town did not have standing to enforce or call
the bonds because it was not a party to the agreements.
However, we find nothing in the law or within the
agreements themselves indicating that assignment of the bonds
from the County to the Town was impermissible or without legal
effect. See North Carolina Bank & Trust Co. v. Williams, 201
N.C. 464, 465-66, 160 S.E. 484, 485-86 (1931) (holding that an
indemnity bond was freely assignable as a chose in action).
Indeed, defendants “do not contest the general law that, absent
contrary language or public policy, bonds can be assigned.”
Here, the bonds do not contain any language restricting their
assignability, and we believe public policy favors assignability
under these facts. It is uncontested that substantial
infrastructure remains incomplete as a result of the developers’
financial troubles. If neither the Town nor the County are able
to call the bonds, defendants would in effect receive a windfall
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by being released from their obligation to pay the sums owed
under the bonds.
Accordingly, we hold that the assignment of the bonds from
the County to the Town was sufficient to allow the Town to
enforce the agreements against defendants. Thus, the assignment
conferred standing upon the Town to sue for the alleged breach
of those agreements. We affirm the trial court’s order as to
this issue.
II. Statute of Limitations
Defendants also argue that summary judgment for plaintiffs
was improper because their cause of action is time-barred by the
statute of limitations. We disagree.
N.C. Gen. Stat. § 1-52(1) (2013) provides that actions
concerning a “contract, obligation or liability arising out of a
contract” have a three-year limitations period. Plaintiffs do
not dispute that section 1-52 applies to claims for breach of
contract. However, they assert protection under the doctrine of
nullum tempus occurrit regi, which generally allows for
governmental bodies to be exempt from statutory time limitations
in bringing civil lawsuits. In Rowan Cnty. Bd. of Educ. v.
United States Gypsum Co., 87 N.C. App. 106, 359 S.E.2d 814(1987) (“Rowan I”), and Rowan Cnty. Bd. of Educ. v. United
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States Gypsum Co., 332 N.C. 1, 418 S.E.2d 648 (1992) (“Rowan
II”), our Courts analyzed the doctrine of nullum tempus in North
Carolina and developed a framework for its application. “If the
function at issue is governmental, time limitations do not run
against the State or its subdivisions unless the statute at
issue expressly includes the State. If the function is
proprietary, time limitations do run against the State and its
subdivisions unless the statute at issue expressly excludes the
State.” Rowan II, 332 N.C. at 9, 418 S.E.2d at 654 (emphasis in
original).
Because section 1-52 is silent as to its application to the
State or its subdivisions, this issue turns on whether
plaintiffs are engaged in a proprietary or governmental
function. The Rowan II Court noted that the distinction between
governmental and proprietary action in the context of sovereign
immunity is the same as the distinction to determine whether the
State benefits from the protection of nullum tempus. Rowan II,
332 N.C. at 9, 418 S.E.2d at 654. Thus, the case most helpful
to this analysis is Derwort v. Polk County, 129 N.C. App. 789,
501 S.E.2d 379 (1998).
In Derwort, the issue before this Court was whether Polk
County’s enactment of a subdivision control ordinance pursuant
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to sections 153A-121 and 153A-331 rendered it immune from suit
under the public duty doctrine. Id. at 792, 501 S.E.2d at 381.
The Court noted that section 153A-121 was included under the
heading titled “Delegation and Exercise of the General Police
Power,” and that section 153A-331 allowed counties to issue
ordinances “in a manner that . . . will create conditions
essential to public health, safety, and the general welfare.”
Id. Citing Lynn v. Overlook Development, 98 N.C. App. 75, 78,
389 S.E.2d 609, 611 (1990), it also noted that “[a] municipality
ordinarily acts for the benefit of the public, not a specific
individual, in providing protection to the public pursuant to
its statutory police powers.” Id. at 791, 501 S.E.2d at 381.
The Court went on to hold that “[t]he plain language of the
statute and our case law thus indicate that subdivision control
is a duty owed to the general public, not a specific
individual,” and therefore the county was immune from suit by
virtue of the public duty doctrine. Id. at 792, 501 S.E.2d at
381.
However, defendants argue that City of Reidsville v.
Burton, 269 N.C. 206, 152 S.E.2d 147 (1967), is more applicable
than Derwort, and therefore, we should find that the act of
suing under the bonds is a proprietary rather than governmental
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function. In Burton, the Court noted that generally municipal
corporations are immune from application of a statute of
limitations because “construction and maintenance of public
streets and of bridges constituting a part thereof are
governmental functions[.]” Id. at 210, 152 S.E.2d at 151.
However, the Court held that the City of Reidsville was engaged
in a proprietary function when it sued for breach of contract
with a private party in the construction of a bridge that was
not used by the public, was not maintained by the city, and was
not connected to any public streets. Id. Here, unlike in
Burton, there is evidence in the record that the subdivision
secured by the bonds allowed public access. Specifically, the
developers were required to allow for limited public use of the
subdivision clubhouse. Additionally, the developers were
required to include easements sufficient for the Town to
maintain and access all waterlines. Based on this distinction,
we do not find Burton controlling.
Here, the County entered into the bonds pursuant to section
153A-331, the same statute utilized by Polk County in Derwort.
Section 153A-331 provides that counties are authorized to enact
subdivision control ordinances for a variety of purposes
consistent with their governmental police powers, such as: (1)
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“provid[ing] for the orderly growth and development of the
county”; (2) “creat[ing] conditions that substantially promote
public health, safety, and the general welfare”; and (3)
“provid[ing] for the more orderly development of subdivisions by
requiring the construction of community service facilities in
accordance with county plans, policies and standards.” Id. The
statute goes on to allow counties to enter into bonds like those
at issue in this case “[t]o assure compliance with these and
other ordinance requirements[.]” Id.Because the enabling statute allowing for the creation of
the bonds between defendants and the County explicitly states
that such bonds exist to “assure compliance” with subdivision
ordinance requirements, which this Court has characterized as “a
duty owed to the general public, not a specific individual,”
Derwort, 129 N.C. App. at 792, 501 S.E.2d at 381, and the
subdivision is open to the public, we conclude that plaintiffs
are engaged in a governmental function by attempting to enforce
the bonds against defendants. See also State Art Museum Bldg.
Comm’n v. Travelers Indem. Co., 111 N.C. App. 330, 335, 432
S.E.2d 419, 422 (1993) (“A court may [] consider whether or not
the State’s action is for the ‘common good of all’ and therefore
governmental, or for pecuniary profit and therefore
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proprietary.”); Sides v. Cabarrus Memorial Hospital, Inc., 287
N.C. 14, 23, 213 S.E.2d 297, 303 (1975) (noting that
“governmental functions . . . are those historically performed
by the government, and which are not ordinarily engaged in by
private corporations.”). Therefore, under the Rowan rulings,
plaintiffs are not subject to the statutory time limitation in
section 1-52.
Even assuming that the County and the Town were engaged in
a proprietary function sufficient to trigger the three-year time
limitation in section 1-52, we would still find that summary
judgment for plaintiffs is proper. Defendants argue that this
cause of action accrued before 25 October 2009, three years
before the complaint was filed on 25 October 2012, because by
that time plaintiffs knew or should have known that the
construction work would not be completed within a reasonable
time. We disagree. The bonds themselves do not specify any
particular date by which time the construction needed to be
completed. Although there is evidence that the Town was
concerned in mid-2009 by the relative lack of progress on the
construction, as late as 18 December 2009, a principal in the
development companies stated that they were “committed to
finishing [the] communities without need of the bonds.” Indeed,
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construction activity by the developers continued well into
2010. Therefore, because it is clear that the developers
themselves had not yet given up on the project, we disagree with
defendants’ contention that there is a genuine issue of fact
regarding whether plaintiffs knew or should have known prior to
25 October 2009 that the project would not be completed within a
reasonable time.
Conclusion
After careful review, we hold that the Town has standing to
bring suit against defendants for breach of contract.
Furthermore, plaintiffs are engaged in a governmental function
and are exempt from the otherwise applicable statute of
limitation. Therefore, we affirm the trial court’s order
granting summary judgment for plaintiffs.
AFFIRMED.
Chief Judge McGEE and Judge STEELMAN concur.