By Alexis Narducci
An important question when asserting a constitutional claim against a government is when to file the claim, especially when the filing may have consequences for the plaintiff’s ongoing relations with the government or might result in government action to derail a project or practice.
Further, there is often the desire to wait until the injury has actually occurred to plead a tangible injury with specific and incurred losses to avoid a claim of speculative injury.
However, the March 23 decision of the 4th Circuit is a reminder that time and certainty are often luxuries that are not available in lawsuits challenging government policies or practices.
In Epcon Homestead, LLC v. Town of Chapel Hill, the 4th Circuit affirmed the District Court’s denial of Epcon Homestead’s six-figure claim against the town of Chapel Hill because Epcon failed to bring suit within the applicable statute of limitations. The case re-establishes that a 42 U.S.C. §1983 claim challenging the constitutionality of a land use condition under the Takings Clause accrues when the plaintiff knows, or has reason to know, of the injury and not when the injury is fully felt.
Epcon, a housing developer, made a payment of $803,250 to the town under its Inclusionary Zoning Ordinance. In June 2010, the town had enacted the Inclusionary Zoning Ordinance to meet its goal of preserving and promoting a culturally and economically diverse population.
The ordinance requires owners to set aside a certain number of affordable housing units for low-income households at below market prices in all development projects. In the alternative, an owner may pay the town a fee per unit, with the fee used for affordable housing.
In 2014, Epcon’s predecessors in interest submitted and received a special use permit for a development. The permit permitted Epcon to make the fee payment in lieu of setting aside units for affordable housing under the Inclusionary Zoning Ordinance. The fee totaled $803,250, made payable to the town in pro rata payments.
Following approval of the special use permit, Epcon acquired the real property and began the project in 2015.
Epcon made its final fee payment on March 20, 2019. On October 24, 2019, Epcon filed suit, seeking return of the $803,250, plus interest and attorneys’ fees.
The town argued Epcon’s state and federal claims were barred by a three-year statute of limitations. Section 1983 does not contain a statute of limitations, so federal courts borrow the statute of limitations from the most analogous state law cause of action. Owens v. Balt. City State’s Att’y’s Off., 767 F.3d 379, 388 (4th Cir. 2014).
The most analogous North Carolina statute of limitations has been held to be N.C. Gen. Stat. §1-52(5), which applies to any action for an injury to the person or rights of another, not arising on contract and not otherwise enumerated in the general statutes. Nat’l Advert. Co. v. City of Raleigh, 947 F.2d 1158, 1161-62 (4th Cir. 1991).
In support of its statute of limitations argument, the town maintained the issuance of the October 2014 special use permit triggered the statute of limitations because the permit was conditioned on Epcon’s commitment to pay the fee. Thus, the town argued the statute of limitations period for the claim expired in October 2017.
Epcon argued the limitations period did not start until it began making the fee payments in July 2017 because those payments began the tangible intrusion on its constitutional right. Accordingly, Epcon maintained it brought a timely action within the three-year statute of limitations period.
Relying on National Advertising Company v. City of Raleigh and Halle Development, Inc. v. Anne Arundel County, the 4th Circuit panel concluded the §1983 Takings Clause claim began accruing when the town issued Epcon’s special use permit.
In National Advertising Company, the court found an advertiser’s claim began accruing upon enaction of an ordinance and not when the grace period ended five years later. 947 F.2d at 1160-61 (4th Cir. 1991).
In Halle Development, the court held a developer’s claim began accruing when the county provided notice that it would not provide fee credits in exchange for the developer’s conveyance. 121 F. App’x 504, 505 (4th Cir. 2005) (unpublished).
Similarly, the 4th Circuit here found that upon issuance of the special use permit, Epcon knew or had reason to know of the imminent payments giving rise to injury; thus, the court held Epcon’s Taking Clause claim began accruing at that time.
In an alternative argument, Epcon asserted its complaint did not allege a regulatory taking, but rather alleged an unlawful exaction. Epcon argued the claim did not accrue upon issuance of the special use permit because the exaction could not occur unless and until Epcon actually changed the use of the property to the use approved in the special use permit, and Epcon had the option not to go forward with the newly permitted use.
That argument did not sway the court: “The fact that the special use permit did not require and simply permitted Epcon to develop the land for the use described in the application (subject to the condition at issue) is hardly noteworthy … when Epcon learned of the special use permit condition on its recently acquired land, its takings claim become actionable.”
Finally, Epcon argued that under the continuing wrong doctrine, each payment constituted a “continuing wrong” that tolled the statute of limitations. Because state rules on tolling apply when a state statute of limitations is borrowed in a federal questions case, the 4th Circuit turned to North Carolina law on the continuing wrong doctrine. North Carolina law states that for each unlawful act, the applicable limitations period starts anew. Under Epcon’s theory, that would mean that the statute of limitations period started over with each payment Epcon made to the town.
The court found Epcon conflated its state and federal law claims, ruling that Epcon’s state law claim is arguably the unlawful fee payments exacted, but the issuance of the special use permit inflicted the §1983 injury; therefore, the federal cause of action occurred prior to when Epcon actually paid the fee installments.
The 4th Circuit dismissed Epcon’s 42 U.S.C. §1983 Takings Clause claim. The court also declined supplemental jurisdiction and dismissed the state law claims without prejudice, so Epcon can refile its claim in state court.
In dismissing these claims, the 4th Circuit warns plaintiffs who wish to file a Takings Clause claim that they must calculate the relevant statute of limitations period when the clock begins to tick upon the plaintiff’s knowledge of the injury.
The decision is reported at Epcon Homestead, LLC v. Town of Chapel Hill, 62 F.4th 882 (4th Cir. 2023). •
Alexis Narducci practices at Moore & Van Allen, where she represents clients in a variety of litigation matters, government and corporate investigations, and financial services matters.