STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

COUNTY OF BRUNSWICK 17 CVS 2243

TOWN OF LELAND, NORTH CAROLINA, )

and H2GO BRUNSWICK REGIONAL )
WATER & SEWER, )
Plaintiffs, )
vs. )
TOWN OF BELVILLE, NORTH CAROLINA, )
Defendant. )
_________________________________)
TOWN OF LELAND, NORTH CAROLINA, )
Plaintiff and Cross- )
Claim Plaintiff )
vs. ) ORDER
TOWN OF BELVILLE, NORTH CAROLINA, )
Defendant, )
and )
H2GO BRUNSWICK REGIONAL )
WATER AND SEWER, )
Cross-claim )
Defendant. )
_________________________________ )
INTERLOCAL RISK FINANCING FUND OF )
NORTH CAROLINA, )
Intervenor. )
_________________________________)

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 The Town of Belville, the defendant, brings these motions to dismiss the

claims asserted by the plaintiffs, Town of Leland and H2GO Brunswick Regional Water

& Sewer (“H2GO”), pursuant to Rules 12(b)(1) and 12(b)(6) of the Rules of Civil

Procedure before the court. The court has considered the motions filed, arguments

made by the parties in court during its hearing on July 6, 2018, the briefs of the

parties, and the authorities cited in support of their respective positions.

Motion to Dismiss under Rule 12(b)(1)

The defendant contends that Leland lacks standing to bring those claims, and

its cause of action should be dismissed. “Standing is a necessary prerequisite to a

court’s proper exercise of subject matter jurisdiction.” Neuse River Found., Inc. v.

Smithfield Foods, Inc., 155 N.C. App. 110, 113, 574 S.E.2d 48, 51 (2002) (quoting

Aubin v. Susi, 149 N.C. App. 320, 324, 560 S.E.2d 875, 878 (2002)). "If a party does

not have standing to bring a claim, a court has no subject matter jurisdiction to hear

the claim." Estate of Apple v. Commercial Courier Express, Inc., 168 N.C. App. 175,

177, 607 S.E.2d 14, 16 (2005).

The North Carolina Constitution provides in regard to standing as follows:

All courts shall be open; every person for an injury done

him in his lands, goods, person, or reputation shall have
remedy by due course of law; and right and justice shall
be administered without favor, denial, or delay.

N.C. Const. art. I, § 18.

In Mangum v. Raleigh Bd. of Adjustment, 362 N.C. 640, 642, 669 S.E.2d 279,

281 (2008) our Supreme Court has ruled that generally “[t]he North Carolina

Constitution confers standing on those who suffer harm[.]” In explaining the

rationale for the standing rule, the Court declared that:

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 [O]nly one with a genuine grievance, one personally injured by a
statute, can be trusted to battle the issue. "The 'gist of the question of
standing' is whether the party seeking relief has 'alleged such a personal
stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation[s] of issues upon which
the court so largely depends for illumination of difficult constitutional
questions.'"

Stanley v. Dep't of Conservation & Dev., 284 N.C. 15, 28, 199 S.E.2d 641, 650

(1973) (quoting Flast v. Cohen, 392 U.S. 83, 99, 88 S. Ct. 1942, 20 L. Ed. 2d 947

(1968) (alteration in original) (quoting Baker v. Carr, 369 U.S. 186, 204, 82 S. Ct.

691, 7 L. Ed. 2d 663 (1962)).

In determining who “suffer[s] harm”, the Court concluded that “it is not

necessary that a party demonstrate that injury has already occurred, but a showing

of “immediate or threatened injury” will suffice for purposes of standing. River Birch

Assocs. v. City of Raleigh, 326 N.C. 100, 129, 388 S.E.2d 538, 555 (1990) (citing

Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 342, 97 S. Ct. 2434, 53 L.

Ed. 2d 383 (1977).

In 1993, the Supreme Court had concluded that one must have suffered some

“injury in fact” to have standing to sue. Dunn v. Pate, 334 N.C. 115, 119, 431 S.E.2d

178, 181 (1993). As recently as the opinion handed down in Neuse River Found.,

Inc. v. Smithfield Foods, Inc., 155 N.C. App. 110, 114, 574 S.E.2d 48, 52 (2002),

disc. rev. denied, 356 N.C. 675, 577 S.E.2d 628 (2003), the court required that three

elements be satisfied to establish standing: “(1) injury in fact – an invasion of a

legally protected interest that is (a) concrete and particularized and (b) actual or

imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the

challenged action of the defendant; and (3) it is likely, as opposed to merely

speculative, that the injury will be redressed by a favorable decision. These criteria

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comprise the federal standard for standing found in Lujan v. Defenders of Wildlife,

504 U.S. 555, 560, 112 S. Ct. 2130, 119 L. Ed. 2d 351, 364 (1992).

In Cedar Greene, LLC v. City of Charlotte, 222 N.C. App. 1, 17, 731 S.E.2d

193, 204-05 (2012), rev'd, 366 N.C. 504, 739 S.E.2d 553 (2013) (adopting Court of

Appeals dissent in appeal from declaratory action challenging constitutionality of a

statute) the Supreme Court applied the standard previously set out in Goldston v.

State, 361 N.C. 26, 637 S.E.2d 876 (2006) and Mangum, supra. The court concluded

that the federal standard can be “instructive as to general principles … and for

comparative analysis.” Cedar Greene, 222 N.C. App. at 17, 731 S.E.2d at 204.

The original complaint in this case was filed on December 1, 2017, and an

amended complaint was filed on April 5, 2018. The complaint seeks a declaratory

judgment and injunctive relief. A temporary restraining order was entered on

December 1, 2017 and a preliminary injunction is presently in place.

The Town of Leland and H2GO allege:

First claim for relief: For a declaration that the challenged resolution, putative
transfer and 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.
Second claim for relief: For a declaration that the challenged resolution,
putative transfer and agreements are void because they involve an improper transfer
of government functions.
Third claim for relief: For a declaration that the challenged resolution, putative
transfer and agreements are void because they are oppressive, the result of a
manifest abuse of discretion, in wanton disregard of the public good and contrary to
N. C. Gen. Stat. §130A-55 and N. C. Gen. Stat. Chapter 160A, Article 12.
Fourth claim for relief: For a declaration that the challenged resolution,
putative transfer and agreements are void because they involve an illegal debt
transfer that is unauthorized under North Carolina law and contrary to H2GO’s bond
order.
Fifth claim for relief: For a declaration that the challenged resolution, putative
transfer and agreements are void because they involve an illegal debt transfer in
violation of Section 7.09 of H2GO’s bond order.

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 Sixth claim for relief: For a declaration that the challenged resolution, putative
transfer and agreements are void because it violates N. C. Gen. Stat. Chapter 159,
Article 5 [N. C. Gen. Stat. §§ 159-83(a) and (b)], N. C. Gen. Stat. § 159-93 and N.
C. Gen. Stat. §§ 159-96(a) and (d).
Seventh claim for relief: For a declaration that the challenged resolution,
putative transfer and agreements are void because they involve an illegal debt
transfer in violation of N. C. Gen. Stat. Chapter 159, Article 8 in that Belville is
incurring indebtedness and is contractually obligating itself to pay H2GO’s
indebtedness without issuing new revenue bonds. The system is significantly located
outside Belville’s corporate limits.
In considering a motion to dismiss for lack of standing, the allegations of the

plaintiff are deemed true and the supporting record is considered in the light most

favorable to the non-moving party. See Stone v. N.C. Dept of Labor, 347 N.C. 473,

477, 495 S.E.2d 711, 713, cert denied, 525 U.S. 1016, 119 S. Ct. 540, 142 L. Ed. 2d

449 (1998). The court may also consider and weigh matters that are outside of the

pleadings. Tart v. Walker, 38 N.C. App. 500, 502, 248 S.E.2d 736, 737 (1978).

North Carolina is a notice pleading jurisdiction, and as a general rule, there is

no particular formulation that must be included in a complaint or filing in order to

invoke jurisdiction or provide notice of the subject of the suit to the opposing party.

See Mangum v. Surles, 281 N.C. 91, 99, 187 S.E.2d 697, 702 (1972). Further, “a

plaintiff must demonstrate standing separately for each form of relief sought.”

Friends of Earth, Inc. v. Laidlaw Envtl. Servs. (TOC) Inc., 528 U.S. 167, 185, 145 L.

Ed. 2d 610, 629 (2000).

The court finds that Town of Leland has shown an immediate and threatened

injury and thus has standing to bring this action. The Town of Leland generally

contends that it is an incorporated local government, a freeholder and customer of

the H2GO sanitary district and makes up the majority of its service area. H2GO, a

regional public utility tasked with providing water and sewer service to over 10,000

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resident and commercial customers in northeast Brunswick, was organized and exists

pursuant to N. C. Gen. Stat. Chapter 130A, Article II, part 2.

The Town of Leland, through the causes of action listed above, has alleged that

H2GO, governed by a 5-member elected Board of Commissioners, voted 3-2 to enter

into an agreement with the Town of Belville wherein it would convey the entirety of

its assets and debts, including the water and sewer systems, to Belville and then the

town would contract with H2GO to operate and maintain those systems with the right

on the part of Belville to terminate that contract. Leland further contends that the

transfer of the debt was done without the required preapproval of the Local

Government Commission and H2GO’s bondholder. Leland alleges that all of these

transactions by H2GO and Belville were brought about to avoid the probable

termination of a “reverse osmosis” water treatment plant project by a new majority

of commissioners that resulted when two new members were elected to the board

during the November, 2017 election.

The standing of the Town of Leland arises from its contentions that the multiple

agreements (1) discontinue H2GO’s status as a body politic in violation of the

procedures of Chapter 130A, Article II, Part 2; (2) eliminates the discretion of future

elected H2GO’s Boards of Commissioners; (3) transfers the debt of H2GO without

proper prior approval from the Local Government Commission and the commission’s

bondholder; (4) were in wanton disregard of the public good and a manifest abuse

of discretion; (5) interferes with the contract between Leland and H2GO to handle

utility billing services for Leland residents; and (5) deprives Leland the benefit of the

governance and operation of the sanitary district created by the Commission of Public

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Health whose powers are granted to the district by the General Assembly and places

it in the control of the officials of Belville.

Leland has alleged a direct interest in the outcome of this controversy that will

“assure that concrete adverseness which sharpens the presentation of issues upon

which the court so largely depends for illumination of the issues.” Stanley v. Dep't

of Conservation & Dev., 284 N.C. 15, 199 S.E.2d 641 (1973) (quoting Flast v. Cohen,

392 U.C. 83, 99, 88 S. Ct. 1942, 20 L. Ed. 2d 947, 961 (1968). Although the town

of Leland is not suing as a taxpayer, but as a customer of H2GO and a freeholder, it

pays, along with other account holders, fees for H2GO services. It has standing to

challenge the alleged illegal disbursement of district funds and property to Belville.

Such challenges have been recognized for decades against local officials in Stratford

v. City of Greensboro, 124 N.C. 111-12, 32 S.E. 394, 395 (1899), county officials in

Freeman v, Board of County Commissioners, 217 N.C. 209, 7 S.E.2d 354 (1940) and

state officials in Lewis v. White, 287 N.C. 625, 216 S.E.2d 134 (1975).

The court finds that the Town of Leland has raised sufficient particularized

allegations that affect the plaintiff, which when taken as true, meet the criteria of a

threatened or imminent injury under Goldston and Mangum that could be redressed

by the court should the town prove its claims.

The defendant’s motion to dismiss the claims of Leland pursuant to N. C. Gen.

Stat. §1A-1 Rule 12(b)(1) is denied.

In conclusion, the court expresses no opinion as to the legality of the resolution

passed by defendant, H2GO, the transfer of H2GO’s property and the debt to the

defendant, Town of Belville, or the agreements entered into between Belville and

H2GO. Instead, the court holds only that the Town of Leland has standing to

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challenge the actions of the Town of Belville as unlawful or the result of a manifest

abuse of discretion, in wanton disregard of the public good. The burden is upon the

plaintiffs to prove the alleged violations of the law by the defendants.

Motion to Dismiss under Rule 12(b)(6)

The Town of Belville contends that the plaintiffs’ claims should be dismissed

pursuant to this rule for failure to state a claim upon which relief can be granted.

This motion tests the legal and factual sufficiency of the pleadings. Sutton v. Duke,

277 N.C. 94, 99, 176 S.E.2d 161, 163 (1970). In applying the rule, the allegations

in the complaint are taken as true, but conclusions of law are not. A complaint should

not be dismissed for insufficiency unless it appears to a certainty that plaintiff[s] [are]

entitled to no relief under any state of facts which could be proved in support of the

claim. Id. at 103, 176 S.E.2d at 166 In addition, while the concept of notice pleading

is liberal in nature, a complaint must nonetheless state enough to give the

substantive elements of a legally recognized claim or it may be dismissed under Rule

12(b)(6). Stanback v. Stanback, 297 N.C. 181, 204, 254 S.E. 2d 611, 626 (1979).

The plaintiffs seek a declaratory judgment and injunctive relief. In opposition

to the defendant’s motion they argue that

“[a] motion to dismiss for failure to state a claim is seldom appropriate

in actions for declaratory judgments and will not be allowed simply
because the plaintiff may not be able prevail. The motion is allowed
only when there is no basis for declaratory relief, as when the complaint
does not allege an actual, genuine existing controversy. A claim for
declaratory relief is sufficient if the complaint alleges the existence of a
real controversy arising out of the parties’ opposing contentions and
respective legal rights under a deed, will or contract in writing.” Morris
v. Plyler Paper Stock Co., 89 N.C. App. 555, 557, 366 S.E.2d 556, 558
(1988).

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 A. The defendant contends that the Transfer Declaratory Claims are subject

to dismissal.

In support of its N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) motion to dismiss the

defendant contends:

a. The transfer declaratory claims are subject to dismissal because N.C. Gen.

Stat. § 160A-274(b) provides broad authority for transfers of property between

governmental units.

From the exhibits, it appears that H2GO authorized the transfer of all of its

real and personal property, and Belville similarly authorized its acceptance. The

plaintiffs claim that constitutionally the General Assembly can create a sanitary

district which will be “a body politic and corporate,” but the defendant and H2GO

cannot use N.C. Gen. Stat. § 160A-274(b) to indirectly dissolve that local government

entity. The plaintiffs contend further that the authority and procedures to dissolve a

sanitary district are provided for in various sections of N.C. Gen. Stat. Chapter 130A

which would not permit the effective dissolution of this sanitary district through these

means. The relationship between those statutory provisions creates an actual

controversy between the parties which a declaratory judgment would serve to clarify

and settle the legal authority for these actions.

b. The transfer declaratory claims are subject to dismissal because the boards

of Belville and H2GO did not abuse their discretion.

Early Supreme Court cases instruct us that “courts may not interfere with

discretionary powers conferred on these local administrative boards for the public

welfare unless their action is so clearly unreasonable as to amount to an oppressive

and manifest abuse of discretion.” Newton v. School Committee, 158 N.C. 180, 188,

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73 S.E. 886, 887 (1912). “Courts have no right to pass on the wisdom with which

[governmental units] act. Courts cannot substitute their judgment for that of the

[governmental units] honestly and fairly exercised.” Barbour v. Carteret County, 255

N.C. 177, 181, 120 S.E.2d 448, 451 (1961). However, in Barbour the court found

that the allegations in the complaint supported the conclusion that the county

commissioners, in disregard of their duty to the public, intended to squander public

funds. These allegations, admitted for the purpose of considering the motion to

dismiss, manifested bad faith and stated a cause of action to be heard on the merits.

Even though the plaintiffs must overcome the presumption of legality afforded

to public officials, Leland and H2GO have set out in the amended complaint sufficient

factual basis to support the substantive elements of a claim recognized in Newton

and Barbour.

c. The transfer declaratory claims are subject to dismissal because the transfer

does not eliminate H2GO as a political entity or strip away its governmental

discretion.

The plaintiff in its amended complaint recites various portions of the

conveyance agreement and operating agreement which purports to convey all of

H2GO’s funds and assets to Belville and allegedly allows Belville to govern the system

and set rates for water and sewer services. The plaintiff has set out sufficient facts,

if proven, to support the substantive elements of its claim that these actions

diminishes the ability of H2GO to function and substantially impairs future

commissions in its core governmental discretionary powers.

The motions of the defendant to dismiss pursuant to N.C. Gen. Stat. §

1A-1, Rule 12(b)(6) the Transfer Declaratory Claims are denied.

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 B. The defendant contends that the Debt Declaratory Claims are subject to

dismissal on the grounds that:

a. The transfer agreement contemplated Local Government Commission

approval prior to transfer of the Bond.

The defendant contends that the obligations set out in the Transfer Agreement

would not be transferred until the Local Government Commission’s approval was

obtained. Article 3 “Conditions,” Section 3.01(C) of the Agreement to Convey Water

and Sewer Systems executed on November 27, 2018, provides 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.”

The plaintiffs contend that the “Assignment and Bill of Sale,” executed also on

November 28, 2017, assigned the 2012 SunTrust Revenue Bond (item # 117) from

H2GO to the Town of Belville.

These documents create an actual, real and genuine controversy that arises

out of the parties’ opposing contentions. In addition, the plaintiff raised other alleged

violations of Chapter 159, Article 5 “Revenue Bonds,” which, if proven, would require

the court to determine, what, if any, effect it would have on the legality of the actions

of H2GO and the Town of Belville.

b. The statutes in Chapter 159, Article 8 “Financing Agreements and Other

Financing Arrangements” of the General Statutes are inapplicable to these

transactions.

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 N.C. Gen. Stat. Chapter 159, Article 8, entitled “Financing Agreements and

other Financing Arrangements” excludes from the coverage of this article agreements

made in connection with the issuance of revenue bonds, special obligation bonds …,

or of general obligation bonds …” The court finds that the alleged resolution, transfer,

and agreements described in the complaint are related to the issuance of the water

and sewer system revenue bonds by H2GO to provide funding to the system.

Based upon this exclusion, the plaintiff’s Seventh Cause of Action based on

and arising out of N. C. Gen. Stat. Chapter 159, Article 8 is dismissed. The motions

to dismiss the plaintiffs’ Fourth, Fifth, and Sixth Claims for Relief pursuant to N.C.

Gen. Stat. § 1A-1, Rule 12(b)(6) are denied.

C. In support of its Rule 12(b)(6) motion to dismiss the defendant contends:

H2GO’s undue influence claim is subject to dismissal because the allegations

fail to satisfy the elements of the claim.

The court, as well as the parties in this case, could not find any cases that

address the fact situation before the court and whether an undue influence claim

could arise from an entity exercising improper influence over another entity. The

court finds that H2GO, however, has alleged sufficient facts, which if taken as true,

could support this cause of action.

The motion to dismiss H2GO’s Ninth Claim for Relief is denied.

D. The defendant contends that H2GO’s fiduciary duty and constructive fraud

claim is subject to dismissal because no fiduciary duty can exist between negotiating

or contracting parties.

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 As above, the court finds that H2GO has alleged sufficient facts, when taken

as true, would support this cause of action.

The motion to dismiss H2GO’s Tenth Claim for Relief is denied.

E. The defendant contends that H2GO’s quiet title claim is subject to dismissal

because Belville is now the record owner of the real property at issue and H2GO

cannot show otherwise.

The court finds that the allegations in the complaint state that the Agreement

to Convey Water and Sewer Systems, executed on November 28, 2017 by Brunswick

Regional Water and Sewer H2GO, conveyed to Belville at closing, “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 …” On that same date and time, H2GO executed an “Assignment

and Bill of Sale” with attached exhibits describing in detail a compilation of the

personal and real property conveyed. These deeds were executed and properly

recorded.

H2GO has not alleged any facts to establish his title. All of the pleadings and

exhibits indicate that Belville is now the owner of these properties. The complaint

seeks a declaration finding that the Agreement to Convey Water and Sewer Systems

and the Assignment and Bill of Sale are void and of no effect. If ultimately successful

on its claims for relief, the plaintiffs contend the appropriate remedy would be that

title to the real property would revert to H2GO.

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 Pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(6), the defendant’s motion to

dismiss the Eleventh Claim for Relief seeking an order quieting title in the real

property identified in the Assignment and Bill of Sale is allowed.

F. The defendant contends that Leland’s Open Meetings Law is subject to

dismissal because no violations by Belville are alleged and the allegations of violations

by H2GO’s former board are inconsistent with other allegations.

The plaintiff, Town of Leland, has set out in the amended complaint sufficient

facts to support the substantive elements of a claim alleging an open meetings law

violation against H2GO. Because of the effect on Belville should Leland obtain a

successful result in bringing this cause of action, the court at this time is going to

deny Belville’s motion to dismiss this Twelfth Claim for Relief.

The court is cognizant of the provisions of N.C. Gen. Stat. § 143-318.16A in

which the court may order other persons be made parties if they have or claim any

right, title, or interest that would be directly affected by a declaratory judgment

voiding the action that the suit seeks to set aside. The court, in its discretion,

reserves the right to enter further orders based upon that statutory authority.

Summary

Based on the foregoing, the court orders that the plaintiffs Seventh Claim for

relief and H2GO’s Eleventh Claims for Relief be dismissed.

The defendant’s motions to dismiss the remaining Claims for Relief are denied.

It is ordered that filed copies of this order be mailed to counsel for all of the

parties identified in the Amended Complaint.

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This the 14th day of August, 2018.

___________________________
Judge Presiding

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