U.S. Court of Appeals upholds U.S. District Court ruling based on AANC Supported Legislation!

On December 27, 2022, the U.S. Court of Appeals upheld the U.S. District Court’s ruling that a rental housing provider was allowed to charge residents for out-of-pocket court costs and attorneys’ fees as provided in N.C.G.S. 42-46, and that 2021 legislation supported by AANC made clear that housing providers had been able to do so since at least 2009. Although this ruling only controls federal laws suits, hopefully it sets a victorious precedent for rental housing providers litigating in North Carolina state courts. The original lawsuit centered on the landlord’s ability to charge and recover fees from a resident who defaults on their lease.

After two residents fell behind on their rent in 2018, the multifamily management company began eviction proceedings and notified the residents via a letter that they would be charged for the out-of-pocket expenses associated with the proceedings, consistent with their leases. The residents subsequently caught up on their rent and paid the associated fees up on their rent and paying for the out-of-pocket expenses associated with the eviction proceedings.

In 2020, the two residents sued their rental housing provider, claiming that state law was violated in charging them the out-of-pocket expenses for the eviction proceedings. They alleged that the rental housing provider violated the 2009 version of the North Carolina Residential Rental Agreements Act (N.C.G.S. 42-46), which prohibited debt collectors from threatening to collect and collecting debt by means not permitted by law. Additionally, the plaintiffs asserted that the housing provider violated the North Carolina Debt Collection Act, which prohibits unfair and illegal debt collection practices. In March 2021, the U.S. District Court granted the defendants’ motion for judgment on the pleadings on these claims, and the plaintiff appealed.

In 2018, prior to this lawsuit, AANC supported legislation that amended N.C.G.S. 42-46 to spell out how and when housing providers could seek reimbursement of out-of-pocket expenses for court costs and certain attorney’s fees from residents. Unfortunately, certain courts found that it was not sufficiently clear that these amendments to N.C.G.S. 42-46 were intended to clarify the original 2009 amendment, and thus retroactive to 2009.

While the appeals process was ongoing, AANC worked with the North Carolina General Assembly to clarify that it was always the intent of the legislature that the 2009 amendments to N.C.G.S. 42-46 allowed housing providers to collect on administrative fees, out-of-pocket expenses, and litigation costs in eviction proceedings. With the successful passage of this clarification, signed into law by the Governor in July 2021, the appeals case now centered around whether the clarification of the law would apply retroactively to this case. The 2021 law states that it “is effective when it becomes law and is intended to apply retroactively to all pending controversies as of that date.”

The U.S. District Court, and subsequently the U.S. Court of Appeals, determined that the 2021 law effectively provided that the explicit language made clear that the intent of the legislature for the 2021 law should be applied retroactively to any outstanding court cases, such as this one.