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First State Bank v. City of Elkins

Supreme Court of Arkansas

May 24, 2018

FIRST STATE BANK AND PINNACLE BANK N/K/A CENTRAL BANK PETITIONERS
v.
CITY OF ELKINS, ARKANSAS RESPONDENT

          CERTIFIED QUESTION OF LAW FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF ARKANSAS, FAYETTEVILLE DIVISION

          Conner & Winters, LLP, by: Todd P. Lewis and Michael D. Sutton, for petitioners.

          Harrington, Miller, Kieklak, Eichmann & Brown, P.A., by: Thomas N. Kieklak and R. Justin Eichmann; and Michael A. Mosley, for respondent.

          ROBIN F. WYNNE, Associate Justice

         This case presents a question of law certified to this court by the United States District Court for the Western District of Arkansas in accordance with Rule 6-8 of the Rules of the Supreme Court. The federal district court certified the following question:

Whether Ark. Code Ann. § 14-56-202 confers upon cities of the first class the exclusive power to issue or refuse to issue building permits and to regulate the building of houses, and thereby denies such power to cities of the second class, despite the "general powers" listed in Ark. Code Ann. § 14-56-201.[1]

         As set out below, we answer the question in the affirmative.

         The certified question arises from a complaint filed by petitioners First State Bank and Pinnacle Bank n/k/a Central Bank (collectively, the Bank) in the Washington County Circuit Court against the City of Elkins, Arkansas (the City); the case was removed to the federal district court by the City. The complaint is based on the City's moratorium on the issuance of building permits for lots within a partially developed residential subdivision called Stokenbury Farms. Among the relief sought was a declaratory judgment that the City lacked statutory authority to regulate the building of houses or to issue building permits for houses. In its certification order, the federal district court summarizes the factual background as follows:

According to the Complaint, on October 5, 2006, the Elkins City Council accepted the Final Plat for the Stokenbury Farms subdivision, which consisted of 138 lots, 136 of which were residential, and 2 of which contained detention ponds used to hold the subdivision's storm-water runoff. On the same day the Final Plat was submitted for approval, the Mayor of Elkins, City Clerk, Chairman of the Planning Commission, Building Inspector, and representatives from the Water, Police, and Fire Departments all approved the Final Plat. The subdivision's engineer executed and stamped the Final Plat and then filed it of record in the office of the Circuit Clerk and Ex-Officio Recorder of Washington County, Arkansas.
After the Final Plat was recorded, First State Bank agreed to refinance the debt that Stokenbury Farms, LLC, had incurred in developing and constructing the subdivision. About two years later, on September 26, 2008, Elkins filed a lawsuit against Stokenbury Farms, LLC, and some other entities that were involved in the construction and engineering of the detention ponds. The lawsuit alleged that the ponds failed to perform as a result of defective workmanship and did not drain. It appears the lawsuit was non-suited by Elkins, allegedly because Elkins had decided to wait and let the subdivision be "built out" first before taking further action. At some point after August 30, 2010, Stokenbury Farms, LLC defaulted on its financial obligations, and in lieu of foreclosure, deeded 105 undeveloped residential lots to First State Bank. Importantly, First State Bank did not take back two of the lots-the ones that contained the problematic detention ponds that had been the source of conflict with Elkins for the past several years. The Complaint explains that the detention-pond lots remained in the ownership of "an entity related to the developer or this entity's member(s)." The Complaint also makes clear that First State Bank believes it bears no financial responsibility for the condition and upkeep of the ponds, since it does not own the lots that contain the ponds.
Concern about the condition of the detention ponds continued to ebb and ¶ow throughout the next two years until, finally, in late 2014, Elkins began complaining to First State Bank about the high grass surrounding the ponds. Elkins mowed the grass at some point, and then charged First State Bank for the mowing service--allegedly double what the service actually cost. First State Bank then refused to pay the bill, which led to more litigation, and the relationship between Elkins and the Bank deteriorated. On November 17, 2016, Elkins's city council enacted a moratorium "on issuance of building permits in Stokenbury Farms Subdivision until an engineer certifies the functionality of the existing retention ponds." First State Bank maintains that it did not receive notice that Elkins was even considering issuing such a moratorium, and did not receive actual notice that the moratorium had been passed until February 28, 2017, after First State Bank issued a direct request to Elkins for this information. Although at the time First State Bank believed that Elkins lacked the legislative authority to issue a moratorium on building, the Bank nonetheless requested that Elkins supply it with "definitive conditions upon which Elkins would agree to lift the moratorium . . . ." In First State Bank's view, Elkins' response to this request was "vague and non-committal." First State Bank then attempted "to obtain a building permit for residential lots within the Subdivision" but was "rebuffed by Elkins." Fearing that it would lose money on its investment in the subdivision due to the imposition of the moratorium on further construction, First State Bank filed suit in Washington County Circuit Court on April 12, 2017, challenging the constitutionality of the moratorium and Elkins's authority to enforce it. The case was ultimately removed to this Court on May 12, 2017.

(Citations omitted.) According to the certification order, the City has filed a motion to dismiss count I of the complaint, which concerns its statutory authority to regulate the building of houses, and the Bank has filed a motion for judgment on the pleadings as to that count. This leads to the certified question: Whether Ark. Code Ann. § 14-56-202 confers upon cities of the first class the exclusive power to issue or refuse to issue building permits and to regulate the building of houses, and thereby denies such power to cities of the second class, despite the "general powers" listed in Ark. Code Ann. § 14-56-201.

          We begin with the language of the statutes. Arkansas Code Annotated section 14-56-201 (Repl. 1998), titled ...


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