PHG Asheville, LLC (“PHG”) applied for a conditional use permit to construct a hotel in Asheville in July 2016. After hearing evidence at a public hearing, the city council denied the application. In its denial, the city council made forty-four findings of fact and concluded that the application failed to satisfy six of the seven criteria set out in the city’s development ordinance. When PHG sought judicial review, both the trial court and the Court of Appeals held that the city had applied the incorrect legal framework and the permit should issue. With slight modification, the Supreme Court affirmed. Given the prevalence of conditional use zoning in towns and cities in North Carolina, this ruling will bolster real estate development across the state.
At its core, this case was about two issues. The first is whether the applicant for a conditional use permit bears the burden of production or the burden of persuasion. The second is the standard of judicial review to be applied to different aspects of the local governmental body’s decision. The Supreme Court held that the applicant bears the burden of production and not the burden of persuasion when applying for a conditional use permit and that the lower courts had applied the proper standards of review—de novo and whole record—to the different aspects of the case.
The Supreme Court held that de novo review applies to the legal question of whether the applicant made the necessary prima facie showing of entitlement to the conditional use permit (and that the trial court had deployed the correct standard). This inquiry looks to whether there was competent, material, and substantial evidence in the record to satisfy the criteria set forth in the specific ordinance. This burden is the same as the burden needed to overcome a motion for directed verdict at trial. Once the applicant meets its burden of production, the governmental body must issue the conditional use permit in the absence of competent, material, and substantial evidence in the record to the contrary.
There is another form of review floating through this opinion—the whole record test. The whole record test involves the reviewing court looking at all competent evidence and deciding whether the governmental body’s decision is supported by substantial evidence. The whole record test applies to a challenge to governmental action on the basis that the action was either (1) arbitrary or capricious or (2) not supported by competent, material, or substantial evidence.
Under the Court’s opinion, there was no need to perform a whole record test here. For the majority, the case was decided on the de novo review where PHG met its burden of production and there was no competent countervailing evidence in the record. Had the court found the record to contain countervailing evidence, then it would have performed a whole record test. For the same reason, there was no need to assess whether the action here was arbitrary or capricious.
The dissent from Justice Earls accuses the majority of overruling its prior decisions and replacing the whole record test with de novo review, effectively placing the judiciary in place of the city council (this provoked a footnote that is nearly an entire page in length in response, footnote 5). He separately took issue with the majority’s reading of the ordinance—for the dissent, the ordinance imposed the burden of persuasion and not merely the burden of production on the applicant. Performing a whole record test, the dissent found that the decision of the city council was neither arbitrary nor capricious and therefore should have been affirmed.