Starlites Tech Corp. v. Rockingham Cty. ( 2020 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA19-406
Filed: 18 February 2020
Rockingham County, No. 17 CVS 1645
STARLITES TECH CORP., Petitioner,
v.
ROCKINGHAM COUNTY, Respondent.
Appeal by petitioner from order1 entered 1 October 2018 by Judge William A.
Wood in Rockingham County Superior Court. Heard in the Court of Appeals 30
October 2019.
Nelson Mullins Riley & Scarborough LLP, by Stuart H. Russell and Lorin J.
Lapidus, for petitioner-appellant.
The Brough Law Firm, PLLC, by G. Nicholas Herman and John M. Morris, for
respondent-appellee.
ZACHARY, Judge.
Petitioner Starlites Tech Corp. (“Starlites”) appeals from an order of the
superior court affirming the Rockingham County Board of Adjustment’s
determination that the operation of Starlites’ business violated the special use permit
requirements set forth in Rockingham County’s amended Unified Development
Ordinance. After careful review, we reverse.
1 We note that the judgment mistakenly refers to 17 CVS 1644.
STARLITES TECH CORP. V. ROCKINGHAM CTY.
Opinion of the Court
Background
Starlites Tech Corp. owner and president Maurice Raynor operated multiple
electronic gaming businesses. Raynor served as the president of M, M & K
Developments, Inc. (“MM&K”), and was the owner and president of Starlites
Technology, Inc.
On 30 September 2011, Danny D. Fulp conveyed the property located at 11652
U.S. 220 Highway, Stoneville, North Carolina, (the “Property”), to MM&K. On 1 May
2014, Rockingham County issued a zoning permit to MM&K, enabling it to “operate
a sweepstakes business” in accordance with the County’s Unified Development
Ordinance (the “Ordinance”). The permit designated MM&K as the owner of the
property, and “Starlite Technologies” as the applicant and occupant. The permit’s
description noted a “change of use to sweepstakes business” and the “addition of [a]
28x45 shelter.”
A few months later, on 2 September 2014, the County amended the Ordinance,
setting forth permit requirements that “severely restricted the general operation of
sweepstakes businesses in the county.” Article II of the amended Ordinance defined
“Electronic Gaming Operations,” in pertinent part, as: “[a]ny for-profit business
enterprise where persons utilize electronic machines or devices, including but not
limited to, computers and gaming terminals, to conduct games of odds or chance,
including sweepstakes[.]”
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Opinion of the Court
Article IX Section 9-11(ii) set forth new restrictions for electronic gaming
operations and, by extension sweepstakes businesses. The restrictions included, in
relevant part, a requirement that electronic gaming operations obtain a special use
permit, which in turn, required that the facility be “setback[ ] 1500 feet from any
protected facility.” Protected facilities included, inter alia, single- and multi-family
dwellings. The amended Ordinance posed a problem for MM&K and Starlites
Technology, Inc. because the Property was “approximately 680 feet from the nearest
single family dwelling unit.”
On 21 January 2015, articles of incorporation were filed for Starlites in order
to turn “the Starlites Technology, Inc. S Corp into a corporation under the advice of
[Raynor’s] attorney.” On 30 January 2015—approximately nine months after the
zoning permit was issued—MM&K conveyed the Property to Starlites. Soon
thereafter, on 14 July 2015, articles of dissolution were filed for Starlites Technology,
Inc. and MM&K. Following MM&K’s dissolution, no application was filed to amend
the original zoning permit issued to MM&K on 1 May 2014 to indicate that the
Property had been conveyed to Starlites.
In November 2016, Officer Ben Curry of the Rockingham County Code
Enforcement Division received a complaint about the Property and determined that
the business constituted a development without a permit. Officer Curry issued
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Opinion of the Court
notices of violation to Starlites on 21 November 2016, 9 December 2016, and 3
January 2017.
Starlites appealed the initial notice of violation to the Rockingham County
Board of Adjustment (“the Board”) on 21 December 2016. Starlites’ appeal came on
for hearing by the Board on 14 August 2017. Starlites argued that the notices of
violation were defective, that Starlites had never ceased operation and was not
subject to the special use permit requirement, and that Starlites ran a “Promotional
Gaming Establishment” rather than an “Electronic Gaming Operation.” Starlites
presented Raynor’s testimony along with invoices that Raynor paid in conjunction
with the continued operation of his businesses.
On 11 September 2017, the Board entered an order denying Starlites’ appeal.
The Board concluded that Starlites’ business operation violated the County’s
amended Ordinance, that Starlites failed to obtain a special use permit, and that
Starlites was not exempt from the requirement to obtain a special use permit.
Starlites appealed by filing a petition for writ of certiorari with the
Rockingham County Superior Court on 10 October 2017, seeking review of the order
for factual and legal errors. Starlites argued, in part, that the Board’s decision was
erroneous, and that the order was:
b. In excess of the statutory authority conferred upon the
Board;
....
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Opinion of the Court
d. Unsupported by substantial competent evidence in view
of the entire record because there was no evidence
contradicting Starlites’ showing that its business
operations on the Property had been continuously operated
since prior to the 2014 adoption of the disputed amendment
to the DSO;
e. Unsupported by substantial competent evidence in view
of the entire record because there was no evidence to
suggest that Starlites was operating an “electronic gaming
operation” as defined by the Rockingham County [Unified
Development Ordinance];
f. Affected by other error of law; and
g. Arbitrary or capricious since the Board should not have
heard the Appeal due to lack of proper service of a Notice
of Violation, because the Board was not impartial, and
because there was no legal basis for the Decision.
The case came on for hearing before the superior court on 25 September 2018.
On 1 October 2018, the superior court entered an order affirming the Board’s order
and dismissing Starlites’ appeal. The superior court concluded, in pertinent part:
2. On de novo review, upon dissolution of [MM&K] on July
10, 2015, the business ceased and was no longer a legally
permitted nonconforming use because [Starlites] never
applied for an amended or new zoning permit; and, even if
the business resumed as a nonconforming use at some
point after dissolution of [MM&K], there was competent
evidence under the whole record test for the [Board] to
conclude that the business was discontinued for more than
one year from and after July 2015 such that [Starlites] was
required after this discontinuance to obtain zoning
approval under the requirements of the 2014 [Ordinance]
amendment for “electronic gaming operations.”
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Opinion of the Court
Starlites timely filed written notice of appeal to this Court.
Standard of Review
Our review “is limited to determining whether the superior court applied the
correct standard of review, and to determin[ing] whether the superior court correctly
applied that standard.” Overton v. Camden Cty., 155 N.C. App. 391, 394, 574 S.E.2d
157, 160 (2002). We review a superior court’s interpretation of a zoning ordinance de
novo, and “apply the same principles of construction used to interpret statutes.” Fort
v. Cty. of Cumberland, 235 N.C. App. 541, 548-49, 761 S.E.2d 744, 749, disc. review
denied, 367 N.C. 798, 766 S.E.2d 688 (2014).
Discussion
On appeal, Starlites argues, in part, that the superior court applied the wrong
standard of review in affirming the Board’s decision. Specifically, Starlites maintains
that the superior court erroneously concluded, under de novo review, that the
Property’s “change of ownership caused its use to discontinue, which prohibited
Starlites from operating as a permissible prior non-conforming use under
Rockingham County’s Unified Development Ordinance[,]” and that “change of
ownership is an impermissible factor to support a determination that the Stoneville
property became a non-conforming use under the 2014 amended [Ordinance].” We
agree that a change of ownership does not constitute a change of use.
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Opinion of the Court
A county board of adjustment sits in a quasi-judicial capacity. Its decisions
must “be based upon competent, material, and substantial evidence in the record.”
N.C. Gen. Stat. § 160A-388(e2)(1) (2019). Every quasi-judicial decision is “subject to
review by the superior court by proceedings in the nature of certiorari pursuant to
[N.C. Gen. Stat. §] 160A-393.” Id. § 160A-388(e2)(2).
In reviewing the decision of a board of adjustment, the superior court sits as
an appellate court. Its review is limited to “determinations of whether 1) the board
committed any errors in law; 2) the board followed lawful procedure; 3) the petitioner
was afforded appropriate due process; 4) the board’s decision was supported by
competent evidence in the whole record; and 5) . . . the board’s decision was arbitrary
and capricious.” Overton, 155 N.C. App. at 393, 574 S.E.2d at 159 (citation omitted).
See also N.C. Gen. Stat. § 160A-393(k) (addressing the superior court’s scope of review
on appeal).
The standard of review applied by the superior court depends upon the
substantive nature of each issue presented on appeal. Morris Commc’ns Corp. v. City
of Bessemer City Zoning Bd. of Adjustment, 365 N.C. 152, 155, 712 S.E.2d 868, 870
(2011) (citation omitted). “When the petitioner questions (1) whether the agency’s
decision was supported by the evidence or (2) whether the decision was arbitrary or
capricious, then the reviewing court must apply the whole record test.” Mann Media,
Inc. v. Randolph Cty. Planning Bd., 356 N.C. 1, 13, 565 S.E.2d 9, 17 (2002) (citation
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Opinion of the Court
and internal quotation marks omitted). On the other hand, de novo review is proper
when the petitioner contends that the board’s decision was based on an error of law.
Id.
Under de novo review, an appellate “court considers the case anew and may
freely substitute its own interpretation of an ordinance for a [board’s] conclusions of
law.” Morris Commc’ns Corp., 365 N.C. at 156, 712 S.E.2d at 871; see id. (noting that
this Court has previously determined that “the superior court, sitting as an appellate
court, could freely substitute its judgment for that of [the board] and apply de novo
review as could the Court of Appeals with respect to the judgment of the superior
court” (citations omitted)). Thus, “reviewing courts may make independent
assessments of the underlying merits of board of adjustment ordinance
interpretations,” which, in turn, “emphasizes the obvious corollary that courts
consider, but are not bound by, the interpretations of administrative agencies and
boards.” Id. (citations and internal quotation marks omitted). We employ this
approach for our de novo analysis below.
After a hearing, the Board entered an order denying Starlites’ appeal,
concluding that Starlites’ business operation violated the Ordinance, that Starlites
did not obtain a special use permit, and that Starlites was not exempt from the
requirement to obtain a special use permit as a permissible nonconforming use. The
Board also made the following relevant findings of fact:
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Opinion of the Court
14. At no time prior to submitting an appeal did [Raynor]
file documentation establishing his business constituted a
grandfathered, non-conforming use that has continuously
operated since 2014 thereby exempted from the special use
requirements of [the Ordinance], Chapter 2, Article IX,
Section 9-11(ii).
....
18. At the hearing, [Starlites] presented invoices from
White Sands Technology billed to NC-Starlites Technology
Inc. from January 2014 to July 2015 and invoices from
[R]edibids billed to NC-[Starlites] from July 2015 to
September 2015.
19. At the hearing, [Starlites] presented Articles of
Incorporation from the North Carolina Secretary of State
indicating that [Starlites] was not created until January
21, 2015.
20. At the hearing, [Starlites] presented additional
invoices from Baracuda [sic] Enterprises billed to [Raynor]
[by] email . . . from January 2016 2015 [sic] to August 2017.
21. At no time prior to submitting an appeal did [Raynor]
file to amend his zoning permit issued to [MM&K] on May
1, 2014.
On appeal to the superior court, Starlites, challenged, inter alia, the following
of the Board’s conclusions:
2. [Raynor’s] electronic gaming operation has not
continuously operated since 2014.
3. [Raynor’s] electronic gaming operation is not an exempt
non-conforming use.
....
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Opinion of the Court
6. [Raynor’s] electronic gaming operation is in violation of
the special use permit requirements as set forth in [the
Ordinance], Chapter 2, Article IX, Section 9-11(ii) because
he is operating without a special use permit.
7. Based on the foregoing Findings of fact and Conclusions
of Law, the [Board] concludes that the applicant has not
met his burden on appeal.
Starlites argued, inter alia:
15. The Decision erroneously contends that Starlites has
not been continuously operating its business on the
Property since 2014. However, Starlites produced
uncontested evidence in the form of testimony and business
receipts showing that its business on the Property had been
continuously operating an electronic gaming business prior
to 2014 and had not been closed for more than a year.
16. The Decision erroneously contends that Starlites’
business on the Property is not an exempt non-conforming
use. But since Starlites has been continuously operating
an electronic gaming business on the Property since before
2014, its business on the Property is in fact an exempt non-
conforming use under Chapter 2, Article XII of the
[Ordinance].
17. The Decision erroneously contends that Starlites is in
violation of the [Ordinance] because it has not obtained a
special use permit for its business on the Property. But
Starlites is not required to obtain a special use permit
because its business is an exempt non-conforming use.
Also, Starlites’ business on the Property is not an
Electronic Gaming Operation as defined by Chapter 1
Article II of the [Ordinance]. Thus, Starlites’ business on
the Property does not require a special use permit.
On review of the Board’s interpretation of the amended Ordinance as it
pertains to nonconforming use, we “apply the same principles of construction used to
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Opinion of the Court
interpret statutes.” Fort, 235 N.C. App. at 549, 761 S.E.2d at 749. “In interpreting a
municipal ordinance the basic rule is to ascertain and effectuate the intent of the
legislative body. Intent is determined according to the same general rules governing
statutory construction, that is, by examining (i) language, (ii) spirit, and (iii) goal of
the ordinance.” Capricorn Equity Corp. v. Chapel Hill, 334 N.C. 132, 138, 431 S.E.2d
183, 187-88 (1993) (internal citations and quotation marks omitted). Because “zoning
ordinances are in derogation of common-law property rights, limitations and
restrictions not clearly within the scope of the language employed in such ordinances
should be excluded from the operation thereof.” Id. at 139, 431 S.E.2d at 188.
Article II of the amended Ordinance defines “nonconformance” as “[a] lot,
structure or land use that is inconsistent with current zoning requirements, but
which was entirely lawful when it was originally established.” Article XIII Section
13-4(f) addresses the impact on nonconforming uses of structures that were in
existence when the amended Ordinance was enacted:
When any nonconforming use of a structure is discontinued
for a period of one year, any future use of the structure
shall be limited to those uses permitted in that district
under the provisions of this ordinance. Vacancy and/or
non-use of the building, regardless of the intent of the
owner or tenant, shall constitute discontinuance under this
provision.
The amended Ordinance also provides that:
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Opinion of the Court
No Special Use Permit shall be granted by the Planning
Board unless each of the following findings is made
concerning the proposed special use:
(a) That the use or development is located, designed,
and proposed to be operated so as to maintain or promote
the public health, safety, and general welfare;
(b) That the use or development complies with all
required regulations and standards of this ordinance and
with all other applicable regulations;
(c) That the use or development is located, designed,
and proposed to be operated so as to maintain or enhance
the value of contiguous property or that the use or
development is a public necessity; and
(d) That the use or development conforms with the
general plans for the land use and development of
Rockingham County as embodied in this chapter and in the
Rockingham County Development Guide.
There shall be competent, material and substantial
evidence in the record to support these conclusions and the
Planning Board must find that all of the above exist or the
application will be denied.
Approximately four months before the amended Ordinance was enacted,
Rockingham County issued a zoning permit allowing MM&K to operate a
sweepstakes business on the Property, in compliance with the County’s then-existing
Ordinance. The permit designated MM&K as the Property’s owner, and “Starlite
Technologies” as the applicant and occupant. The County’s approval of MM&K’s
permit application indicates that, at the time the permit was issued, the Property
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Opinion of the Court
met and complied with the requirements for such a permit. The Property’s
subsequent change of ownership had no impact on the use of the Property.
Starlites maintains that section 13-4(f) of the amended Ordinance essentially
constitutes a “grandfather clause,” allowing a prior permissible nonconforming use to
continue so long as such use was not discontinued for a period of one year. We agree.
We base our decision, first and foremost, upon the plain language of section 13-4(f) of
the amended Ordinance. Moreover, we note that the amended Ordinance contains
no provision that a change in ownership will constitute a “new” use or otherwise
invalidate a prior permissible nonconforming use.
This Court previously addressed a similar issue in Graham Court Associates v.
Town Council of Chapel Hill, 53 N.C. App. 543, 281 S.E.2d 418 (1981). In Graham
Court, we examined “whether the power to control the uses of property through zoning
extends to control of the manner in which the property is owned.” 53 N.C. App. at
544, 281 S.E.2d at 419. Specifically, we considered whether a “change in ownership
. . . constitutes a change in use which the town can regulate by its zoning ordinance[,]”
and ultimately held that it does not. Id. at 547, 281 S.E.2d at 420.
As our Court explained, “zoning is the regulation by a municipality of the use
of land within that municipality, and of the buildings and structures thereon – not
regulation of the ownership of the land or structures.” Id. at 546, 281 S.E.2d at 420
(citation omitted). “The test of nonconforming use is ‘use’ and not ownership or
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Opinion of the Court
tenancy.” Id. at 547, 281 S.E.2d at 420 (citation omitted). Consequently, “[c]hanging
the type of ownership of real estate upon which a nonconforming use is located will
not destroy a valid existing nonconforming use.” Id. at 550, 281 S.E.2d at 422
(citation omitted). “[W]e do not regard a mere change from tenant occupancy to owner
occupancy as an extension or alteration of the previous non-conforming use of the
dwellings. And there is no question as to the right of [alienability] of property along
with its attendant valid non-conforming use.” Id. at 548, 281 S.E.2d at 421 (citation
omitted).
MM&K conveyed the Property to Starlites on 30 January 2015—nine days
after Starlites was incorporated on 21 January 2015, and approximately nine months
after the zoning permit was issued. A few months later, on 14 July 2015, articles of
dissolution were filed for both Starlites Technology, Inc. and MM&K.
At the hearing before the Board, Raynor testified that he dissolved both
entities “when the sweepstakes was officially . . . not allowed to operate anymore
according to the State.” Raynor further testified that the decision to dissolve Starlites
Technology, Inc. and MM&K was also based, in part, on “consolidat[ion]” because he
determined that he “had too many companies[.]” According to Raynor, “Watts Group
was a separate company that had stores of its own as well as Starlites Technology,
Inc., has stores of its own. MM&K was just a development company. It only owns
the property. That’s all—that’s all it ever has.”
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Opinion of the Court
In addition, Raynor testified about the use of certain software at the Property,
and proffered invoices to evidence the resulting expenses incurred during the
disputed “continuous use” of the Property. When a member of the Board asked
Raynor whether Raynor had “change[d] . . . the type of business” conducted, Raynor
replied that the business was “still underneath the same promotional—getting
promotional items. Still using the desktop computers. Everything was still the same.
It’s just a different kind of format they made.” In sum, Raynor testified that the use
of the Property remained the same, and that there had merely been a change in
ownership due to the consolidation of his companies.
In his closing argument, Starlites’ defense counsel summarized the evidence
as follows:
[Raynor] has been operating his business at this location
well before the ordinance at issue was passed. The
ordinance that the County maintains he’s got to comply
with was passed, again, in September 2014. It’s an
electronic gaming ordinance. Well before September 2014
and on a continuous basis, he was offering his customers
promotional games.
The software changed. When the sweepstakes laws
changed, he adopted a skill test, but all throughout, he’s
been operating a business there and he’s been offering his
customers promotional games. So he is a prior
nonconforming use. He’s grandfathered in. This ordinance
doesn’t apply to him, and that’s why he hasn’t applied for
it[.]
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Opinion of the Court
In addition, to demonstrate “continuous use” of the Property, Raynor submitted
invoices showing his payment of expenses both before and after September 2014,
when the amended Ordinance was enacted.
Accordingly, the Board improperly concluded that under the provisions of the
amended Ordinance, a change in ownership constituted a change in use, and that
Starlites was required to amend its zoning permit in order to legally continue the
same use of the Property.
“Remand is not automatic when an appellate court’s obligation to review for
errors of law can be accomplished by addressing the dispositive issue(s).” Morris
Commc’ns Corp., 365 N.C. at 158, 712 S.E.2d at 872 (citation and internal quotation
marks omitted). “Under such circumstances the appellate court can determine how
the trial court should have decided the case upon application of the appropriate
standards of review.” Id. at 158-59, 712 S.E.2d at 872. Here, we can “reasonably
determine from the record[,]” id. at 159, 712 S.E.2d at 872-73 (citation omitted), that
Starlites’ challenge to the Board’s interpretation of the amended Ordinance warrants
reversal of the Board’s ultimate decision.
Because this issue is dispositive, we need not address Starlites’ additional
arguments.
Conclusion
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Opinion of the Court
“In sum, the rule of construction that zoning ordinances are strictly construed
in favor of the free use of real property is appropriately applied here.” Id. at 162, 712
S.E.2d at 874. The Board improperly concluded that Starlites was in violation of the
2014 amended Ordinance. Accordingly, because the Board’s interpretation of its
amended Unified Development Ordinance constituted an error of law, we reverse.
REVERSED.
Judges STROUD and MURPHY concur.
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