Remove ImagesHagen Lawsuit May Cost High Point $1M
December 20, 2012
The North Carolina Supreme Court issued two opinions on Dec. 14, 2012 that have gotten the attention of the High Point City Council.
The most important of the two for High Point was a four-word, unsigned opinion by the court: "Discretionary Review Improvidently Allowed."
As legal opinions go, that doesn't make exciting reading. It simply means the NC Supreme Court has decided it should have let a Court of Appeals decision stand without review. In this case, the NC Supreme Court decided to deny review after already having heard arguments in the case on Oct. 16, 2012.
The case in question was L&S Water v. Piedmont Water Authority, an appeal by the water authority, formally the Piedmont Triad Regional Water Authority (PTRWA), of an April 19, 2011 Appeals Court decision upholding a trial court's decision that the water authority, by creating the Randleman Dam, had damaged the owners of five downstream hydroelectric plants, including US Sen. Kay Hagan's husband, Chip Hagan, by restricting the flow of the Deep River.
By letting the appeals court and trial court decisions stand, the NC Supreme Court left the water authority responsible for damages – exactly how much in damages, a Guilford County Superior Court will have to decide.
Former High Point City Attorney Fred Baggett, now a contract attorney the High Point City Council uses for advice on legislation and court cases, briefed the City Council on the case on Monday, Dec. 17, in its first Finance Committee meeting under new High Point Mayor Bernita Sims.
Baggett said the hydroelectric plant owners have alleged $5 million in damages, although that amount has not yet been tested in court, where the owners will have to prove that a reduction in the flow of the Deep River actually cost them that much money.
Nonetheless, High Point City Manager Strib Boynton, worst-casing the effect on High Point's budget, said he was planning for that amount if things go wrong for the water authority in the damages trial.
"We are 19 percent of the water authority," Baggett said. "All that's good and all that's bad in the water authority, including their debts."
High Point's share of $5 million in damages would be about $1 million.
The trial court and Appeals Court cases involved riparian rights – the rights of owners of properties adjacent to a water source to use that water. The trial court found that the reduction of the water flow caused by the creation of the Randleman Dam was a taking – an exercise of the North Carolina statutory eminent domain power.
When a government entity, such as the water authority, takes property, or in this case, part of the value of the property, it has to pay the owner for the loss in value. The Fifth Amendment to the US Constitution provides that private property can't be taken for public use "without just compensation."
The water authority's board of directors on May 10, 2011 voted unanimously to appeal the trial court's decision.
The water authority argued that the hydroelectric plant owners didn't have a sufficiently defined interest in the water flow of the Deep River, and that the trial court should have taken into account the permit the North Carolina Environmental Management Commission issued the water authority for the Randleman Dam and the state law on dams impounding water. Riparian rights are derived from common law, and statutes generally trump common law.
In other words, the water authority argued that, if the hydroelectric plant owners were going to complain, they should have done so during the dam permitting process, and that the State of North Carolina wouldn't have permitted a dam had it not expected the thing to dam up a river.
The appeals court found that the plant owners did not have to contest the dam permit, because they were not challenging the right of the water authority to draw water from the Deep River, but merely asking for payment for their loss of generating power.
Judge J. Douglas McCullough wrote for the Appeals Court, "The issuance of a permit does not alter the rights of the property owners to seek just compensation."
For now, it seems that the only figure on the table for that compensation is the $5 million, to be spread among the six members of the water authority: Greensboro, High Point, Archdale, Randleman, Jamestown and Randolph County.
Baggett said, "We assume and hope it is high."
The second Dec. 14 North Carolina Supreme Court decision Baggett warned could affect High Point was the court's ruling in Hest Technologies Inc. and International Internet Technologies LLC v. State of North Carolina. In that ruling, the NC Supreme Court upheld a state law outlawing video sweepstakes, reversing earlier rulings by the North Carolina Court of Appeals and a trial court that the law violated the First Amendment.
The lower courts found the law overbroad – that it limited speech protected by the First Amendment as well as unprotected speech – and that video games are expressive speech, like movies or songs.
The NC Supreme Court overruled the lower courts by finding that the video sweepstakes law limits primarily conduct – gambling – with only incidental restrictions to speech.
Baggett told the councilmembers, "Therefore, as of this moment, internet sweepstakes games are illegal."
Only a few of the parlors have opened in High Point, but other business owners have complained about them.
The City Council on Sept. 17, 2012 considered a text amendment to the High Point development ordinance proposed by the High Point City Project to add video sweepstakes parlors to the development ordinance's permitted use schedule and table of off-street parking requirements.
The net effect of the text amendment, which was also supported by the Uptowne High Point Association, a group of business owners on North Main Street between State and Ray avenues, would have been to prohibit new video gambling businesses in Uptowne because they didn't have enough parking. At the City Council meeting, the groups were represented by Jay Wagner, chairman of the Uptowne High Point Association and vice chairman of the City Project.
Opposing Wagner was then Councilmember Latimer Alexander, who exhibited a newfound purist streak of economic libertarianism, arguing ferociously against the text amendment as something that unfairly singled out video gambling.
The City Council voted unanimously to refer the text amendment to the City Council's now-defunct Planning, Economic Development and Information Technology Committee, where it died.
Baggett said that High Point has already received a letter from attorneys for the video gambling industry, saying that the companies they represent will bypass the law by modifying their video games. The law defines video games very specifically.
"So the game continues," Baggett said. "Whether they will continue to operate and invite prosecution, I don't know. My advice to High Point is to wait and see."