With Swan Beach lawsuit, it's time to stop digging


Sunday, January 1, 2017

The issue: Currituck County has appealed a $39 million civil judgment against the county in the Swan Beach Corolla lawsuit to the N.C. Court of Appeals.

Our position: Faced with the mounting costs of the judgment and no guarantee of success in the appellate court, the prudent decision for Currituck taxpayers would be a serious effort to settle the lawsuit.

There is a famous “law of holes” that states “when you find yourself in a hole, stop digging.” There are versions of this adage that go on to warn those, who finding themselves in a rapidly deepening hole, not to ask for a bigger shovel.

Digging themselves into an even greater hole seems to be what Currituck commissioners now risk doing in the county’s long-running dispute with Gerald and Charles “Chip” Friedman, the father-and-son principals in the Swan Beach Corolla real estate development on the county’s Outer Banks.

A commission board in Currituck made the decision nearly 50 years ago — started digging the hole, if you will — to allow Swan Beach Corolla to develop a section of the property it owns in Carova Beach for residential purposes, with the understanding it would be allowed to develop another section for commercial purposes once the residential section was built out.

A subsequent commission board reneged on that agreement, however, when the Friedmans sought to develop the section for commercial purposes in 2004. Digging the already-started hole deeper, Currituck officials noted zoning laws not in effect in the late 1960s when Swan Beach Corolla got underway now prohibit commercial development in the Carova Beach area. Subsequent commission boards dug the hole deeper when they denied the Friedmans’ requests, first in 2008 and again in 2011, to rezone the property for commercial use.

The county’s actions prompted the Friedmans to sue Currituck in 2012, claiming they had a vested right to develop their property but were being denied that right. The Friedmans, who are Jewish, also claimed that the county’s denial was motivated by religious discrimination. The Friedmans made the claim after seeing Currituck’s questionable decision to allow some types of commercial development in the Corova Beach area while continuing to deny their requests.

The Friedmans’ dispute with Currituck has continued in the state’s courts, and as of December still wasn’t resolved. The county initially had the Swan Beach Corolla lawsuit dismissed, but the state Court of Appeals overturned that ruling and remanded the case back to Superior Court for trial.

What’s happened since then is itself a matter of dispute. The Friedmans’ attorney entered a motion of default against Currituck in 2014, claiming the county didn’t respond to the appeals court’s decision within the timeframe specified by a state law outlining the civil rules of procedure. Default judgment in effect means the person being sued agrees with the lawsuit’s claims.

Currituck’s attorney contested the Friedmans’ motion for default judgment, claiming the county wasn’t late with its response, because it was following a different timetable in state law for responding to decisions by the appeals court. 

Two Superior Court judges subsequently didn’t agree with Currituck’s position on the Friedmans’ motion for default. It should be noted, though, that neither seemed to settle the matter of which timetable the county should have followed in its response to the lawsuit. Of the decisions, Judge Milton “Toby” Fitch’s was the most damaging. Not only did he grant the Friedmans’ request for a default judgment, he agreed with the developers’ argument in the case: that they had been unlawfully denied their vested right to develop their property for commercial purposes. He awarded the Friedmans $39 million for damages they claim to have suffered by being unable to develop the property.

Currituck has appealed both Fitch’s and Superior Court Judge Cy Grant’s decisions granting a default judgment in the Friedmans’ lawsuit. The county’s appeal to the state appellate court seeks a definitive ruling on the narrow issue of which timetable the county should have followed in responding to the lawsuit. The appeal asserts both judges were wrong in their assessment that Currituck didn’t respond in time to avoid the default judgment ruling. It’s not clear when the appeals court will decide the matter.

Meanwhile, the hole for Currituck taxpayers is getting deeper. One assessment now puts Fitch’s judgment, which is accruing interest at roughly $8,500 a day, at $53 million. The judgment will only grow larger while the county and the Friedmans wait for the appeals court’s decision. Hinting that a further appeal is also possible, the county’s Chapel Hill-based attorney suggested the state Supreme Court might be asked to make the final decision.

That forces the current Currituck Board of Commissioners to make an extremely difficult decision. The board can continue this costly dispute with the Friedmans — keep digging the hole — and hope the appeals court agrees with its position on the timetable issue. (Notably, the court did not do this when it remanded the lawsuit back to Currituck for trial two years ago.) The other option is one a number of former county commissioners say they favored but never could gather the four-vote majority needed to effect: reach a settlement with the Friedmans.

The latter option likely would require Currituck to pay some or all of the judgment the developers were awarded in Fitch’s ruling. It also would require the county to grant the Friedmans the right to develop their Swan Beach property for commercial purposes. We would hope that any settlement would also include a stipulation by the Friedmans that they were not discriminated against because of their religion.

We know settling the Friedmans’ lawsuit would be controversial. No one wants to pay a costly lawsuit judgment. Also, because of the default judgment, the merits of the Friedmans’ lawsuit also have never been proven. The risk for Currituck not settling, however, is that a $39 million, now possibly $53 million judgment will continue to grow before the county’s appeal is decided — and there’s no guarantee of winning in the end. That’s why it may be time for Currituck to stop digging this hole, forget about asking for a bigger shovel, and to think about climbing out.