PHG Asheville, LLC v. City of Asheville

Citations: 822 S.E.2d 79; 262 N.C. App. 231Docket: COA18-251

Court: Court of Appeals of North Carolina; November 6, 2018; North Carolina; State Appellate Court

Original Court Document: View Document

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The City of Asheville appeals a superior court order that reversed its denial of a conditional use permit (CUP) for PHG Asheville, LLC, which intends to construct an eight-story, 178,412 square foot Embassy Suites hotel with 185 rooms on a 2.05-acre site at 192 Haywood Street, located in a Central Business District (CBD). The project is subject to a "Level III site plan" review due to its size and location within the Downtown Design Review Overlay District (DDROD). The Asheville City Council must find that the proposed development meets specific criteria for CUP approval, including safety, compatibility with the surroundings, property value preservation, adherence to local planning, and traffic management. The project received favorable recommendations from the City’s planning department and various commissions before a quasi-judicial public hearing was held on 24 January 2017, where expert witnesses supported the application.

Petitioner’s application for a Conditional Use Permit (CUP) was denied by the City Council after no opposing evidence was presented, despite a resident's concern regarding potential traffic safety issues. On February 14, 2017, the City issued an order detailing 44 findings of fact and 2 conclusions of law for the denial, emphasizing that Petitioner failed to provide competent, material, and substantial evidence for criteria 1, 2, 3, 4, 5, and 7 of the UDO. Key findings included: the Hotel could materially endanger public health and safety; failed to demonstrate compatibility with the site's topography; could injure adjacent property values; was not harmonious with the area's character; did not conform to the City's comprehensive plan; and could cause traffic congestion or hazards. On March 16, 2017, Petitioner filed for a writ of certiorari in superior court, which found the City’s denial arbitrary and capricious, ordered the City Council to grant the CUP on November 2, 2017, and the City subsequently appealed. Jurisdiction for the appeal resides in the Court as a right from the superior court’s final judgment, with judicial review governed by G.S. 160A-388(e), requiring the court to ensure proper procedures, due process, and that decisions are backed by substantial evidence and not arbitrary.

The standard of review by the superior court varies based on the nature of the alleged error. If a party claims an error of law in a decision by a board, both the superior court and appellate court conduct a de novo review, assessing the matter anew. Conversely, if the petitioner questions whether an agency's decision is supported by evidence or is arbitrary, the whole record test applies. This requires the superior court to evaluate all competent evidence to determine if substantial evidence supports the decision. The initial question of whether an applicant has provided sufficient evidence for a special use permit is reviewed de novo. Special use permits, often interchangeable with conditional use permits, are granted when specific factual conditions outlined in the ordinance are met. 

There are distinct review standards at each level—council, superior court, and appellate court. The council acts as the fact-finder, following a two-step process for permit applications. If the applicant presents competent, material, and substantial evidence indicating compliance with the ordinance, they establish a prima facie case for the permit. Denial must be based on contrary findings backed by competent evidence. When reviewing zoning decisions, the appellate court checks if the superior court applied the correct review scope and did so appropriately.

An applicant for a conditional use permit (CUP) must demonstrate a prima facie case through sufficient evidence that meets zoning ordinance criteria. Material evidence must have a logical connection to relevant facts, while substantial evidence must be adequate for a reasonable mind to support a conclusion, surpassing mere suspicion and warranting jury consideration.

An applicant for a conditional use permit (CUP) is entitled to it if they present competent, material, and substantial evidence demonstrating compliance with the ordinance's requirements. Denial of a CUP must be based on opposing evidence that is similarly competent and substantial. Governmental restrictions on land use are interpreted favorably towards property rights. Decisions regarding CUPs must be based on objective criteria derived from presented evidence, rather than personal preferences of council members. Denials cannot stem from subjective views on public impact or vague reasoning. The applicant is not seeking a rezoning but a CUP for a use allowed in the Central Business District (CBD) under the Unified Development Ordinance (UDO). The decision to allow hotel use in the CBD has already been legislatively established by the City Council. Quasi-judicial bodies must act impartially, basing their decisions solely on evidence and not personal biases. The integrity of the quasi-judicial process hinges on neutrality, and due process must be upheld. Quasi-judicial hearings are judicial, not legislative, and the decision-maker must exercise judicial discretion without revisiting zoning issues. Speculative claims about the effects of granting a permit are inadequate for justifying a denial. Additionally, decision-makers should not advocate for or oppose parties involved and must avoid extraneous or incompetent evidence. City and county attorneys have a responsibility to guide boards on proper quasi-judicial procedures. The City contends that the superior court incorrectly applied the review standards in evaluating the City's decision to deny the CUP.

The City argues that the superior court incorrectly utilized de novo review to assess the sufficiency of evidence regarding a conditional use permit (CUP) claim. The court determined that the evidence from PHG and supporting witnesses was competent, material, and substantial enough to establish a prima facie case for the CUP, concluding that the City Council erred in its legal judgment. According to case law, a court reviews de novo whether a petitioner’s evidence meets the criteria of being competent, material, and substantial. The superior court's ruling indicated it did not weigh the evidence but correctly applied de novo review to establish the legal issue concerning the sufficiency of Petitioner’s evidence. The City contended that the superior court should have conducted a whole record review of the City Council’s 44 findings of fact, claiming that the Petitioner needed to specifically challenge these findings. However, the court referenced a precedent (Little River) where it ruled that a petitioner did not need to address every finding of fact if the evidence presented sufficed to show a prima facie entitlement. It concluded that the City Council's findings were unnecessary and irrelevant, as there was no competent, material, and substantial evidence to contest the Petitioner’s prima facie case. As such, the City Council's initial determination that the Petitioner failed to meet the evidence requirement for the CUP was legally erroneous.

The City Council's legal determination rendered unnecessary the making of 44 findings of fact based on unchallenged evidence, as only the ultimate findings concerning the 7 criteria specified by the UDO were required. The superior court had already determined that the Petitioner presented competent, material, and substantial evidence establishing a prima facie case, with no opposing evidence presented. Consequently, the Petitioner was entitled to a Conditional Use Permit (CUP) as a matter of law. The City Council's extraneous findings were deemed superfluous, and the argument that the Petitioner needed to assign specific errors to these findings was rejected. Furthermore, the City's claim that the trial court improperly failed to conduct a whole record review of these findings was overruled.

In terms of preserving arguments, the City only contested that the Petitioner failed to meet 3 of the 7 required criteria for a CUP. The City Council's denial of the CUP was based on a lack of a prima facie case regarding criteria 1, 2, 3, 4, 5, and 7, while arguments related to criteria 1, 2, 5, and 6 were abandoned by the City. The Petitioner’s compliance with these criteria was established as unchallenged and a matter of law.

Regarding criterion 3, concerning the impact on adjoining properties, the City argued that the Petitioner failed to meet the burden of proof due to a lack of material evidence, despite acknowledging the admission of the Petitioner’s expert testimony and reports as competent. The City maintained that the superior court erred by reversing the City Council's conclusion about the Petitioner’s insufficient evidence regarding potential injury to surrounding property values. Citing perceived methodological inadequacies in the expert's analysis, the City referenced case law to support its stance. However, the text indicates disagreement with the City’s position, suggesting that the expert's competent testimony should have sufficed to establish the Petitioner’s prima facie case.

No expert testimony was provided to challenge the applicant's expert appraiser. The town board denied the special use permit, citing the applicant's failure to prove that the proposed tower would not significantly harm the value of adjacent properties. The superior court affirmed this denial, and the appellate court upheld the superior court's decision, outlining the town board's reasoning, which included: 1) the appraisal report lacked benchmarking against comparable developments or the general market, 2) previous studies examined existing towers before nearby homes were constructed, unlike the current case, 3) the report did not assess potential property devaluation, and 4) it ignored the impact on curb appeal due to the tower's height in relation to surrounding residences. The appellate court referenced a similar case, SBA v. City of Asheville City Council, where the rejection of a conditional use permit was based on the applicant's failure to demonstrate that nearby properties would not be adversely affected. The court emphasized that the applicant did not adequately address the impact on properties near the proposed site. The applicant's expert, Tommy Crozier, provided testimony and a report compliant with the Uniform Standards of Professional Appraisal Practice (USPAP), identifying three directly adjacent properties and two across the street. Crozier asserted that the new $25 million hotel project would enhance the values of surrounding properties, which historically had lower valuations.

The Principle of Progression is evidenced in the area by record high transaction prices following the Hotel Indigo's opening in 2009, highlighting property value enhancements due to revitalization and new hotel developments in similar leisure markets. Crozier's report estimates the implied land values of properties adjacent to the Project at $50.00 per square foot, based on sales of vacant or redeveloped sites where existing structures contributed little value. This estimate is contrasted with significantly lower assessed values from the Buncombe County tax assessment prior to the Petitioner’s purchase of the property at 192 Haywood Street. 

The reliance of the City on the cases of SBA and American Towers is criticized, as the expert reports in those cases did not adhere to the applicable USPAP standards and were irrelevant to the issue of telecommunications towers affecting adjoining property values. Unlike those reports, Crozier's findings specifically analyze properties adjacent to the Project in Asheville and adhere to professional appraisal standards. No substantial expert evidence was presented to challenge Crozier’s methodology, and the City Council's objections are deemed inadequate under N.C. Gen. Stat. 160A-393(k)(3)(a), which excludes lay opinions as competent evidence. Crozier’s uncontroverted analysis establishes a clear connection between the Project and its potential impact on neighboring property values, supported by evidence of increased property values in the area since the Hotel Indigo and other hotels opened.

Crozier's report and testimony provide competent and substantial evidence for prima facie compliance with criteria 3, refuting the City's argument that they lack materiality. Regarding criteria 4, the City contends that the Petitioner has not demonstrated that the proposed hotel development aligns with the neighborhood's scale, bulk, coverage, density, and character. However, established precedents indicate that inclusion of a use as permitted under certain conditions signifies legislative approval of its harmony with other district uses. Since a hotel is a permitted use in the CBD zoning district and the City does not contest this, a prima facie case of harmony is established. The Petitioner’s expert, Blake Esselstyn, presented a map and testimony indicating that the proposed Project's scale and architectural style would be consistent with nearby structures, further supporting the claim of harmony. The City’s argument attempting to separate use from development for criteria 4 is rejected. Under criteria 7, concerning traffic congestion and hazards, the City argues a lack of material evidence from the Petitioner. However, traffic engineer Kevin Dean's report, which included a traffic analysis and trip generation data coordinated with the City’s traffic engineer, was accepted as expert testimony, thereby establishing a prima facie case regarding traffic impacts.

Dean conducted a traffic capacity analysis on November 10, 2016, following industry standards which recommend analyzing traffic on weekdays between Tuesday and Thursday. His analysis, based on data from the Institute of Transportation Engineers, indicated that the proposed project would only increase traffic delays at nearby intersections by five percent or less. Dean noted that if conducted on busier days, the project’s impact would be less significant due to higher overall traffic volumes. He concluded that all intersections would continue to operate at acceptable service levels, with some even experiencing reduced delays, and asserted that traffic entering and exiting the site would not conflict.

Despite Dean's expert testimony and the lack of opposing expert evidence, the City Council deemed his analysis deficient. Their concerns included the limited data scope, absence of analysis on weekends, potential environmental impacts on traffic, and the failure to account for future developments in the area. Additionally, a sight distance check was not performed to assess safety risks at the hotel’s parking deck entrance, an issue raised by a public member during the hearing.

The City Council's findings were based on public speculation and opinions, which do not qualify as competent evidence against Dean's analysis under N.C. Gen. Stat. 160A-393(k)(3)(b), which excludes lay opinions regarding traffic safety. The denial of a conditional use permit cannot rest on speculative or vague conclusions. Dean's expert testimony constituted material evidence relevant to the project's traffic impact, and the City failed to present competent evidence that could discredit it. Therefore, the City’s arguments against the project were overruled.

The trial court correctly determined that the Petitioner met the prima facie requirements for a Conditional Use Permit (CUP) to build a hotel in the Central Business District (CBD) zone, supported by a lack of substantial evidence to counter the Petitioner’s claims. The City Council's denial of the CUP application was not supported by any competent evidence to dispute the Petitioner’s prima facie case. Following the superior court's de novo review, which established that the Petitioner provided sufficient evidence, the court appropriately reversed the City Council's decision and ordered the issuance of the CUP. The superior court's examination of the City Council's extraneous findings was deemed unnecessary. The order to reverse the City’s denial and mandate the issuance of the CUP is affirmed, and the case is sent back to the superior court for further action to ensure the CUP is granted. Judges Inman and Berger concur with this decision.