NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

BRUNSWICK COUNTY SUPERIOR COURT DIVISION

FILE NO.: 17-CVS-2243

TOWN OF LELAND, NORTH CAROLINA, )

and H2GO BRUNSWICK REGIONAL )
WATER & SEWER, )
)
Plaintiffs, )
)
vs. )
)
TOWN OF BELVILLE, NORTH )
CAROLINA )
)
Defendant. )
__ )
)
TOWN OF LELAND, NORTH CAROLINA, )
)
Plaintiff and Cross-Claim )
PLAINTIFF TOWN OF
Plaintiff )
LELAND’S BRIEF IN
)
OPPOSITION TO JOINT
vs. )
MOTION BY PLAINTIFF H2GO
)
AND DEFENDANT BELVILLE
TOWN OF BELVILLE, NORTH )
TO MODIFY JULY 12 ORDER
CAROLINA )
)
Defendant )
)
and. )
)
H2GO BRUNSWICK REGIONAL WATER )
& SEWER, )
)
Cross-Claim Defendant. )
_______________________________________ )
)
INTERLOCAL RISK FINANCING FUND )
OF NORTH CAROLINA, )
)
Intervenor. )
)

Plaintiff Town of Leland, North Carolina (“Leland”), respectfully submits this

Brief in opposition to the Joint Motion by Plaintiff H2GO and Defendant Belville to

Modify July 12 Order” (the “Joint Motion”).

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 INTRODUCTION

Defendant, the Town of Belville, North Carolina (“Belville”) can comply with this

Court’s July 12, 2019 Permanent Injunction, Partial Final Judgment and Stay Pending

Appeal (the “July 12 Order,” Exhibit A) and return H2GO Brunswick Regional Water &

Sewer’s (“H2GO”) assets – it had absolutely no right to them in the first place. However,

Belville cannot give the assets back with conditions, such as those imposed in the

unlawful side-deal settlement agreement and inappropriate Joint Motion. Enforcement

of this principle is especially important here because Belville and the new pro-Belville

H2GO Board (collectively the “Belville faction”) seek to give the assets back in a way that

accomplishes an illegal objective (the completion of an unlawful tie-up-and-hold strategy

of H2GO’s 2018-19 Board so that a pro-Belville Board can control the RO Plant) and

prejudices Leland (by impairing Leland’s right to recover counsel fees from Belville,

which is the party responsible for paying them). The Joint Motion is thus not a proposal

to end the illegality of the H2GO-Belville Transfer that this Court declared “unlawful,

void and of no effect.” It is a continuation of that illegality, the product of manifest abuse

of the Court system, and a thinly-veiled request for this Court’s endorsement of a

settlement agreement that would permit wrongdoers to profit from their unlawful and

unethical activity and would punish Leland, which stood up to a conspiracy that

threatened lawful governance in the region. Consistent with the demands of law and

equity, this Court should deny the Joint Motion.

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 BACKGROUND

I. THE JOINT MOTION ARISES FOLLOWING JUDICIALLY-DECLARED UNLAWFULNESS

BY BELVILLE AND A PRIOR PRO-BELVILLE H2GO BOARD.

In the November 2017 election, the philosophical balance of H2GO’s Board tipped

in favor of cooperation with the County for water treatment options and away from a

district-only approach. Belville and the outgoing H2GO majority (including Ron Jenkins

who is now H2GO’s chairman) did not want a regional-minded board to see a single day

in power, so they clandestinely arranged for H2GO to give itself, a $60 million enterprise,

to Belville for $10. They finalized the transaction on November 28 and 29, 2017. Leland

sued a few days later to stop the transaction and obtained a TRO and a preliminary

injunction (Exhibit B) from Judge Thomas Lock. On March 21, 2018, the Chief Justice

designated the case as exceptional pursuant to Rule 2.1 and appointed the Hon. Charles

H. Henry, Jr., as the presiding Superior Court Judge.

By Order entered April 22, 2019 (the “April 22 Order,” Exhibit C), this Court

granted summary judgment to Leland on the first, second, and third causes of action in

the First Amended Complaint (concerning the lawfulness of the H2GO-Belville transfer)

and to Belville regarding the fourth, fifth, and sixth causes of action (regarding the

financing implications of the transfer). The Court held, in pertinent part that “the

commissioners of both governing boards of H2GO and Belville, acting in concert, failed

to act in good faith, and their actions were so clearly unreasonable as to amount to an

oppressive and manifest abuse of their discretion.” (April 22 Order at 53.)

In the July 12 Order, the Court entered a permanent injunction (the “Permanent

Injunction”) with, among others, the following terms:

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 1. H2GO is hereby declared to be the lawful and
rightful owner of the Property and is entitled to immediate
possession of the same;

2. Belville is hereby declared to be unlawfully

holding title to and unlawfully in possession of the Property;

3. All rights, title and interest in the Property are

hereby conveyed to H2GO by operation of this Order;

4. The public records shall reflect that H2GO is

the lawful and rightful owner of all of the Property;

5. The Brunswick County Register of Deeds shall

record and index this Order as a conveyance of the Property
by the court from Belville to H2GO and the establishment of
title and the right of possession of the Property in H2GO;

6. Belville shall immediately return to H2GO the

transferred cash assets and any other tangible or intangible
property that Belville received from H2GO in connection with
the November 28, 2017 transactions;

7. Belville shall take any reasonable steps (such as

signing documents) that may be required to consummate the
transfer of the Property back to H2GO and Belville shall not
withhold any such reasonable efforts;

8. Belville is enjoined and prohibited from

maintaining ownership or control of the Property pursuant to
the Conveyance Agreement, the Assignment, the Deed or the
Operating Agreement (the “Transaction Documents”), from
interfering with H2GO's lawful ownership or control thereof
based on the Transactions, or from taking any actions that
would have the effect of enforcing the Transaction
Documents[.]

(July 12 Order at 6-7.)

The Court’s April 22 ruling on the first three causes of action and its related July

12 Permanent Injunction are plainly correct. As Belville cowered from facing appellate

review and has withdrawn its appeal, those rulings are now the law of the case and

binding on Belville.

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 At Belville’s request, the Court’s July 12 Order also included a stay pending

appeal, as follows:

1. Pursuant to North Carolina Rule of Civil

Procedure 62(c), the Permanent Injunction set out in Section
I of this Order is hereby stayed and suspended pending
resolution of any appeals regarding the court's April 22 Order
or this Order.

2. The Preliminary Injunction Order entered on

December 28, 2017, shall remain in effect during the
pendency of any appeals regarding the April 22 Order or this
Order.

...

4. The Court's Order Staying Open Meetings Law

Claim entered January 3, 2019 shall remain in effect.

5. If the April 22 Order or this Order are overturned by

the Court of Appeals, the Preliminary Injunction shall remain
in effect pending final adjudication of Leland's Open Meetings
Law claim or of any claim reinstated by an appellate court.

(July 12 Order at 10-11.)

The December 21, 2017 Preliminary Injunction Order (the “Preliminary

Injunction”) provides, at paragraph 12, that it “shall remain in effect until it is modified

by further order of this Court or until this civil action is resolved[.]”

The Belville faction’s Joint Motion seeks to weaken this Court’s Permanent

Injunction and to have this Court undo its stay when the conditions precedent for

dissolving the stay are unsatisfied. Leland’s appeal remains pending, and as the Open

Meetings Law claim remains, the entire civil action is not resolved.

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II. THE BELVILLE FACTION’S JOINT MOTION IS BASED ON AN UNLAWFUL SIDE DEAL
THAT FURTHERS THE UNLAWFUL TRANSACTION AND SEEKS TO REWRITE THIS
COURT’S JULY 12 ORDER.

After offering Leland an unfavorable settlement and receiving Leland’s request

for further discussions on Friday, February 21, 2020 (see Background, infra, at § IV), the

Belville faction hastily reopened meetings on February 24, 2020, entered into a putative

settlement agreement (hereinafter the Belville faction’s “Side Deal”) that excludes

Leland. More problematically, the Side Deal shows little regard for—and indeed

violates—this Court’s Orders. The Belville faction’s members then raced to the

Courthouse and filed withdrawals of their appeals with less than a week left before the

record on appeal was due to be filed in the Court of Appeals.

Per this Court’s Permanent Injunction, quoted above, Belville has no lawful

interest in H2GO’s property. Contrary to that July 12 Order, the Side Deal provides that

Belville will return H2GO’s property (⁋ 2) and terminate the conveyance agreement (⁋ 3)

only if certain conditions precedent are met. Those conditions involve either Leland

withdrawing its appeal or the Belville faction filing a “first” joint motion for relief from

the Preliminary Injunction Order’s Paragraph 9, which prohibits H2GO and its

commissioners from taking any action which would have the effect of rescinding or

voiding the contracts between Belville and H2GO and prohibits H2GO and its

commissioners from taking any action to reclaim the property transferred to Belville on

November 28 and 29, 2017. (Side Deal at ⁋ 4.)

Interestingly, the first joint motion referenced in the Side Deal involves seeking

relief from a provision that originated with Belville. Judge Lock included Paragraph 9

of the Preliminary Injunction as a result of Belville’s efforts to enfeeble the 2018-19

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H2GO Board. When that Board voted on December 4, 2017, to declare the H2GO-Belville

Transfer unlawful and void and to request the return of its assets, Belville filed a motion

for contempt, claiming that H2GO had violated the provision of the TRO which enjoined

Belville and H2GO from

taking any action in furtherance of the challenged Resolution

and Agreements or Belville’s acceptance of the transfer
thereunder, including but not limited to executing any
transfer documents, closing the transfer or any related
transactions, implementing any course of conduct regarding
the transfer, or otherwise acting in any manner that advances
the challenged transfers.

The frivolous motion for contempt was withdrawn, but the Court assuaged Belville by

including Paragraph 9 of the Preliminary Injunction Order. The Side Deal thus seeks to

remove a Belville-imposed restriction, which was designed to restrict the last Board, now

that Belville has a Board that will bend to its will.

The Side Deal further provides for a “second” joint motion if Leland does not

dismiss its appeal. This mandatory, second joint motion requires the members of the

Belville faction to ask the Court for relief from two provisions of the Preliminary

Injunction: (1) Paragraph 4, which leaves H2GO and not Belville, the governing body of

the Sanitary District by suspending designated provisions of the operating agreement,

and (2) Paragraph 8, which enjoins construction and pre-construction activities regarding

the RO Plant. In other words, a material term of the Side Deal is that H2GO has to be

able to build the RO Plant.

Given their past arguments, one can expect the Belville faction’s members to argue

that no provision of the Side Deal requires H2GO to build the RO Plant. They cannot

gainsay that they have so agreed, however, for several obvious reasons.

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 First, their Joint Motion acknowledges that proceeding with the RO Plant is a

condition of the Side Deal: “Pursuant to the [Side Deal] Settlement Agreement: . . . H2GO

will proceed with the construction of the NPDES-permitted, aquifer-sourced RO Plant.”

(Joint Motion ⁋ 27(c)(ii).)

Second, Belville’s leader, Mike Allen, has publicly stated that Belville would

continue to use litigation tactics to hold up the 2018-19 H2GO Board, but would give the

assets back if a pro-Belville Board that would build the RO Plant took office. Recorded

giving an impromptu speech while the 2018-19 H2GO Board members were in closed

session, Belville’s Mayor stated:

So, if you keep the current injunction in, this appeal will go
beyond, way beyond, a November election. ...And the real
fight is about putting it back into your hands. If everything
should goes back to the way it should be right now, I can
promise you this: if you put the right people on that board, I
will turn the assets back over the day they're sworn in. Give
it all back. We will step back from it, move back and let
H2GO do their business.

(Affidavit of Joseph S. Dowdy, Exhibit D; Affidavit of Debra Willis; Exhibit E; Affidavit

of Mike James, Exhibit F.)

He repeated and reaffirmed his comments after the November 2019 election in an

interview with a local news station, which reported:

[Reporter:] Belville Mayor Mike Allen says they’ll ask their

attorneys to drop the appeal as soon as the new board is
seated

[Belville Mayor speaking:] “My town had no intentions of

trying to be water and sewer operators but we had to protect
those resources the best that we could.”

See Alex Guarino, Elections results change the majority in favor of a stand-alone RO

plant, now what?, WECT, Interview at 2:24 (Nov. 6, 2019), available at

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https://www.wect.com/2019/11/06/elections-results-change-majority-favor-stand-

alone-ro-plant-now-what/.

Third, a former candidate activist who has become a member of that Board with

Belville’s support testified in his deposition in this case that “[Belville] Mayor Allen . . .

said that if he could be assured that the – that H2GO would complete the [RO] project

and – and start pumping aquifer sourced water that he would return the assets to the to

H2GO.” (Excerpts from Deposition of Steve Hosmer, Exhibit G, at 84:23 - 85:2.)

The Side Deal also includes a gang-up-on-Leland provision to deny Leland its

attorneys’ fees for having to bring this action to stop an attack on local governance in this

state and a patently illegal transaction:

Motion for Attorneys’ Fees by Leland. The Parties [the

Belville faction] agree that an award of attorneys’ fees and/or
costs to any party in the Litigation, with respect to the claims
asserted in the Litigation, would not be warranted under the
facts of the case or applicable law, including but not limited
to G.S. § 6-21.7. Should Leland file a motion for attorneys’ fees
and/or costs or take any other action to seek recovery of
attorneys' fees and/or costs incurred in the Litigation from
either or both of the Parties, the Parties will cooperate in
defending against any such award. Should any award of
attorneys’ fees and/or costs be made, no Party will contend
that the other Party bears unequal responsibility in any way
with respect to such fees and/or costs or the payment of same.

(Side Deal ⁋ 8.) Under N.C. Gen. Stat. § 6-21.7, a city or county is liable for attorneys’

fees, and Belville’s conduct in the litigation and appellate process warrants the taxing of

costs pursuant to the rules of civil and appellate procedure that prohibit such misconduct.

Belville is the party that owes fees under these provisions. However, Belville has

conditioned return of the assets it received in the void H2GO-Belville transfer on H2GO

helping Belville evade liability for statutory attorneys’ fees and litigation misconduct.

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 Notably, the Side Deal includes a broad, general release, but exempts from it: “any

request for an award of attorney’s fees made by Leland in the Litigation or to any claim

arising out of or relating to any obligation imposed by this Agreement.” Thus, the Belville

faction have locked their members into defending against Leland’s attorneys’ fee demand

against Belville. They thus purport to allow Belville to receive contribution or

indemnification from H2GO for attorneys’ fees for which Belville is responsible. (Side

Deal at ⁋ 7.) The Side Deal also reserves claims “related to” the obligations in the

Agreement. (Id.) Presumably, Belville would claim an ability to sue under the Side Deal

if H2GO does not proceed with the RO Plant.

It is laughable for the Belville faction to contend that the Side Deal seeks to comply

with the Court’s July 12 Order. Quite the contrary, it seeks to modify that Order in a

way favorable to the Belville faction.

III. THE SIDE DEAL FOLLOWS TWO YEARS OF CONSTANT MISCONDUCT BY BELVILLE
AND ITS ACCOMPLICES.

After committing the unlawful putative transfer, Belville and its allies have

engaged in an unlawful tie-up-and-hold strategy designed to ensure that they would

control H2GO. They have abused the civil litigation process and otherwise acted

unlawfully and unethically.

Their conduct began with the frivolous December 6, 2017 motion for contempt.

(Motion for Contempt, Exhibit H.) With that motion, Belville prevented the 2018-19

H2GO Board from taking action to reclaim its assets. Belville now takes the position

that such a rule should apply only to a board that is not pro-Belville.

Belville also sought to delay the litigation in this Court (something it now denies

with no credibility). Consider, for example, the following:

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  Leland originally filed this action on December 1, 2017.

 Belville resisted alignment between Leland and H2GO when H2GO desired it,
forcing the matter to a hearing on March 9, 2018 at which Judge Lock allowed the
alignment.

 Belville also initially resisted designation of this case as a Rule 2.1 case, nearly
forcing a hearing and forcing prolonged discussion of the issue. Your Honor was
not appointed until March 21, 2018.

 Leland and H2GO filed an Amended Complaint on April 5, 2018, but by filing an
extension request and a motion to dismiss without an answer, Belville avoided
answering until September 2018.

 When the parties met with the Court to discuss a schedule, they jointly determined
that discovery should close on November 30, 2018, summary judgment should be
fully briefed by January 25, 2019, and trial would occur on March 11, 2019. To
set these dates, the Court split the difference in the parties’ proposals (i.e., Belville
was proposing more remote deadlines).

 After the Court denied the vast majority of Belville’s Motion to Dismiss, Belville’s
former Town Attorney sought delay, asserting that the parties’ schedule should be
pushed out “to provide for what heretofore has not been addressed; the mandatory
mediation of this superior court civil action.”

 Belville then proposed a general, two-month delay of all deadlines, obtaining

approximately one-month for each deadline.

 Leland proposed that it be allowed to make an early motion for summary judgment
based on the facial validity of the documents, but Belville opposed this measure,
claiming that it needed evidence about its own documents.

 Belville also wrote letters to the Court claiming that H2GO’s counsel could not
adequately represent H2GO on the Open Meetings Law claim and suggested that
another attorney needed to be appointed to represent the prior Board that stands
accused of Open Meetings Law violations. Ultimately, Leland agreed to stay that
claim just to keep the case moving in the face of such obstruction.

(See, e.g., Eldridge 8/16/18 Mediation Emails, Exhibit I; Warren 8/29/18 Scheduling

Email, Exhibit J; Baldwin 9/11/18 OML claim Correspondence, Exhibit K.)

As a product of Belville’s efforts, a case (regarding a rushed transaction that

Belville contended was simple and lawful) took nearly seventeen months to reach a ruling

11
on summary judgment. That was an average speed, not an expedited one. Belville did

not need an extraordinary delay – it only needed enough delay to push a final appellate

decision past the November 2019 election. Its plainly obvious goal was simply to make

sure that the 2018-19 H2GO Board had its hands tied completely. It strains credulity

when Belville tries to deny these motives because its Mayor admitted them publicly,

including in front of television cameras.

And while that 2018-19 H2GO Board had its hands tied, Belville and its

accomplices took cheap shots at them. By way of example only:

 Belville violated the preliminary injunction and used H2GO’s property against the
sitting commissioners. In violation of the preliminary injunction, Belville used a
public relations contractor H2GO hired before the transfer arrange for favorable
press for Belville’s position that the transfer was lawful (when it wasn’t) and that
the RO Plant should be built. (See Response in Opposition to Belville’s Motion to
Stay, Exhibit L, at 16-21 (summarizing evidence with citations).)

 A Belville-friendly activist group attended H2GO meetings in 2018-19 and derided

the H2GO majority for not building the RO Plant when it could not do so because
it did not have its assets or any governmental discretion regarding its assets.
(Deposition of Steve Hosmer 93:16 – 94:22 and referenced materials (noting
attendance at H2GO meetings) & 34 (noting that the activist group was keeping
Belville apprised of its efforts).)

 Belville used the return of H2GO’s property as leverage in the November 2019
election. (See Johanna Ferebee, Did Belville violate state law by endorsing some
H2GO candidates, accusing others of lying?, Port City Daily (Oct. 31, 2019),
available at portcitydaily.com/local-news/2019/10/31/ did-belville-violate-state-
law-by-endorsing-someh2go-candidates-accusing-others-of-lying, Exhibit M.)

Belville also capitalized on the public’s misimpression that the H2GO Board had the

option of building the RO Plant when it did not. (See StarNews Editorial Board, OUR

VIEW: Why H2GO should not kill the reverse osmosis plant, StarNews (Apr. 29, 2019),

available at: https://www.starnewsonline.com/opinion/20190429/our-view-why-h2go-

should-not-kill-reverse-osmosis-plant, Exhibit N.) Belville took steps to make sure that

12
the last Board never had the power to even consider whether to do so without Belville’s

permission. It is true that the Board of H2GO changed hands and now has a significant

pro-Belville majority, but that is hardly noteworthy given that the last Board sat

practically powerless for two full years and was under constant attack by the Belville

faction without much ability to fight back (i.e., it couldn’t really take any action because

it had no property and therefore could not commit that property to future action).

On April 30, 2019, Belville filed an appeal and began (incorrectly) claiming that a

stay was in effect before the ink was dry on the Court’s April 22 Order. Belville then

resisted efforts to have the Court enter a permanent injunction and again fought hard to

leave H2GO’s assets in Belville’s control. Belville filed a second notice of appeal while

the July 12, 2019 Order was still warm. (Belville Notices of Appeal, Exhibit O.)

Notably, Belville resisted a provisional measure that would have allowed H2GO

to have its assets but would have prohibited wasting of the RO Plant equipment or

property. (Exhibit L at 21.) At that time, Belville did not consider the ability to take

action on the RO Plant an emergency if it did not have control of the H2GO Board.

Belville also rebuffed a proposal for Leland to construct the RO Plant.

IV. THE BELVILLE FACTION SCUTTLED REGIONAL COMPROMISE AFTER INITIALLY

INDULGING IT.

Leland’s interest in this matter concerns more than just the RO Plant. Leland

prefers a solution in which all of the area local governments work together to address

regional concerns in a collaborative manner. (2/21/2020 Leland Letter to H2GO, Exhibit

P.) If it is approached in such a manner, Leland favors immediate construction of the

RO Plant. (Id.) But if strife and factionalism are to remain the norm, Leland doubts the

propriety of an expensive project when Brunswick County is building an RO Plant that

13
will serve the entire county, including H2GO. (Id.) Leland also needs the dysfunction in

the region to stop. It bears remembering that Leland recently faced – and was forced to

spend substantial funds to stop – the Belville coup of H2GO, which this Court declared

unlawful. Leland also must address counterproductive hostility from H2GO that is

designed to stifle Leland’s economic development. (Id.)

Realizing that Belville’s delays had produced a situation in which a regional

compromise, as opposed to the outcome of an appeal, was the only way for order to be

restored, Leland hosted a series of settlement meetings during the summer of 2019, while

the record on appeal was being compiled. The attendees included not only Belville,

H2GO, and Leland, but also Navassa and Brunswick County. On August 13, 2019, the

representatives of Belville, H2GO, and Leland announced a tentative resolution of the

litigation that would include an interlocal agreement to promote economic development.

(Press Release, Exhibit Q.) The tentative agreement provided for Navassa and the

County to potentially join. Then-commissioner and now H2GO Chairman, Ron Jenkins,

who had voted in favor of the H2GO-Belville transfer, was one of the attendees and was

very supportive of the agreement.

H2GO District Counsel, Steve Coble, and Leland’s undersigned counsel began

working on a draft settlement agreement and a related interlocal agreement in August

and September. As the Court may recall, Mr. Coble contacted the Court and the Court

hosted a call about potentially approving a tentative settlement agreement in that time

frame. After the initial draft was completed and circulated, on or shortly before October

1, 2019, Mr. Coble retained Ward and Smith (H2GO’s former and current counsel) to

14
assist with finalizing the agreements. With benefit of hindsight, it is now apparent that,

by mid-October, the deal was essentially dead.

Then activist and now H2GO Board member, Steve Hosmer, attended the H2GO

meeting at which H2GO’s Board planned to vote on the proposal and derided the

proposal. (See Draft Interlocal Agreement as of 10/15/2019, Exhibit R;

portcitydaily.com/local-news/2019/10/16/still-no-h2go-vote-on-proposed-settlement-

belvillesays-it-wont-latest-version, Exhibit S.) At the same time, Belville’s Mayor issued

a press release through Mike McGill of Water PIO claiming that the interlocal agreement

would kill the RO Plant. (Belville declines proposal aimed to settle H2GO dispute, WECT

(Oct. 15, 2019), available at: https://www.wect.com/2019/10/15/belville-declines-

proposal-aimed-settle-hgo-dispute/, Exhibit T.) Mayor Allen’s press release was untrue.

The interlocal agreement required the RO Plant to be built through cooperation. Given

the controversy, the H2GO Board declined to take up the proposal until after the election.

Thus, when the Belville faction’s members say that they will do anything to see

the RO Plant built, and when they say that seeing the RO Plant built is their highest

priority, those things simply are not true. What they actually mean, and have meant

from the beginning, is that their first priority is seeing the RO Plant built in a way that

gives them more control to wield against Leland. They were content to wait when

proposals were on the table that would have the RO Plant built for the benefit of all

stakeholders, but when the RO Plant is advantageous to their efforts to compete with

Leland, exigent health concerns demand its immediate construction.

The Belville faction’s post-election conduct demonstrates its oppressive

tendencies. Belville and H2GO did nothing regarding settlement for approximately six

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weeks after the new H2GO Board took office. On January 24, 2020, H2GO sent Leland

a proposal offering to pay Leland only a portion of the fees that Leland is entitled to

recover from Belville, but in return for that, Leland was required to give up significant

rights to protect its interests. (1/24/2020 H2GO Proposal, Exhibit U) On February 19,

2020, the day before the Town Council meeting at which Leland would consider the

proposal, H2GO sent a revised proposal notifying Leland that there would be no

interlocal agreement, only a settlement agreement. (2/19/2020 H2GO Supplement.

Exhibit V.) Then, while H2GO’s Board was in a “recessed public meeting,” four members

of the H2GO Board, along with their Executive Director, attended the Leland Town

Council meeting on February 20, 2020. Leland wrote back on February 21, 2020,

proposing a continuation of the prior discussions. In response, and in a move reminiscent

of the original H2GO-Belville-Transfer, H2GO and Belville reopened meetings that had

been held open and entered into the Side Deal they now seek to put before this Court.

This action by the Belville faction’s members occurred on February 24, 2020 – one

business day after receiving Leland’s letter regarding the settlement proposal.

With less than a week left to file the record on appeal, Belville and H2GO

immediately jettisoned their appeals. After fighting so hard to keep a stay in place and

insisting in this Court that Belville had a very important interest in retaining possession

of H2GO’s assets, Belville and H2GO summarily withdrew their appeals on February 25,

2020, and February 24, 2020, respectively.

V. THE STATUS OF APPEALS.

Belville hurriedly filed appeals and insisted that it had stayed this Court’s Orders.

H2GO and Leland timely filed their own appeals after the entry of the July 12 Order.

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 It is, at best, doubtful that Belville ever really intended to prosecute its appeal. It

extended the time to serve the record on appeal to July 29, 2019. Given the tentative

settlement (that Belville would later tank), Leland extended its time to serve

amendments and objections through October 3, 2019. The parties obtained extensions to

file the settled record on appeal through December 2, 2019, January 2, 2020, February 1,

2020, and March 2, 2020. When Leland consented to or joined in these extensions, it was

hoping that cooler heads would prevail, and a regional compromise could be reached

(whether or not it was exactly the one already being considered). Instead, the region got

the unlawful Side Deal upon which the Belville faction now seeks to proceed. Leland has

obtained an extension through April 1, 2020 to file the record on appeal. (Most Recent

Extension, Exhibit W.)

The Belville faction implies that Leland should not proceed with its appeal because

it received relief when the Court declared the H2GO-Belville Transfer unlawful and void

on the first three causes of action and because Belville has fled from its appeal. But the

H2GO-Belville illegal debt transactions appear capable of repetition, but evasive of

review, and the public interest seemingly requires review in this case. If the Belville

faction did not want to get caught up in the Court system or appeals, it should not have

engaged in unlawful activity to start with and should not have abused the litigation and

appellate process to delay until now.

Not only are the appeals not finalized, as the Court’s July 12 Order contemplated,

but Leland’s Open Meetings Law claim also remains pending. That claim should proceed

for two reasons. First, and most obviously, the Belville faction’s Side Deal seeks to deny

Leland its attorneys’ fees for prosecuting the litigation. Accordingly, Leland has not yet

17
fully prevailed. Second, it appears based on Belville’s conduct during the litigation and

the current conduct by the Belville faction that the Open Meetings Law violation may be

more extensive than originally contemplated and probably included tie-up-and-hold and

abuse of process components. An Open Meetings Law claim appears necessary to protect

the public’s fundamental right to be informed.

The original Preliminary Injunction extended to all of the claims, including the

Open Meetings Law claim, and at Belville’s request, the stay pending appeal is in place

until all appeals have been exhausted. At Belville’s initiative, the Open Meetings Law

claim has been stayed, and as the present time, all appeals have not been exhausted.

And neither the Preliminary Injunction, nor the stay provisions of the Permanent

Injunction, provides for an early exit at the Belville faction’s initiative.

DISCUSSION

I. THE COURT SHOULD DENY THE JOINT MOTION BECAUSE IT IS THE FRUIT OF A
POISONOUS TREE (THE ORIGINAL UNLAWFUL H2GO-BELVILLE TRANSFER).

In the Joint Motion, the Belville faction states: “As the result of the withdrawal of

Belville[’s] and H2GO’s appeals, no party is contesting the Court’s finding that the

November 2017 transfer between H2GO and Belville is void and of no legal effect. (Jt.

Mot. at ⁋ 28.) But the Belville faction fails to appreciate that such a void transfer (and

the agreements purportedly carrying it into effect) can provide no consideration for a

subsequent settlement agreement:

The authorities from the earliest time to the present

unanimously hold that no court will lend its assistance in any
way towards carrying out the terms of an illegal contract. In
case any action is brought in which it is necessary to prove
the illegal contract in order to maintain the action, courts will
not enforce it, nor will they enforce any alleged rights directly
springing from such contract.

18
Lamm v. Crumpler, 242 N.C. 438, 443, 88 S.E.2d 83, 87 (1955) (citing McMullen v.

Hoffman, 174 U.S. 639 (1899)). In Lamm, the Supreme Court held that a written contract

to convey land, which was void because it stifled bidding, could not provide consideration

for a subsequent oral contract and that the oral contract was not enforceable because it

arose from and relied upon the prior void contract. Id. at 442, 88 S.E.2d at 86 (“No

principle of law is better settled than that a party to an illegal contract cannot come into

a court of law, and ask to have his illegal objects carried out.”).

The Belville faction’s Side Deal suffers from the same defects as the Lamm oral

contract. Belville seeks to trade away that which it does not lawfully own. Belville does

not now have, nor has it ever had, any lawful interest in H2GO’s property, and the

putative transaction and putative agreements by which it claimed to acquire such

interests were void ab initio. Belville thus cannot rely upon them to bargain its way into

a better position, and H2GO is receiving no consideration for offering such incentives.

With the Side Deal, Belville and H2GO also seek to accomplish the unlawful

objectives that inspired the unlawful putative transfer and putative agreements.

Specifically, the evidence conclusively proves that Belville and H2GO consummated the

void transaction because they wanted a pro-Belville Board to construct the RO Plant.

They cannot use the Side Deal to accomplish this objective. See Kessing v. Nat'l Mortg.

Corp., 278 N.C. 523, 536, 180 S.E.2d 823, 831 (1971) (holding that partnership agreement

based on a usurious and therefore void loan contract was also unenforceable).

II. THE SIDE DEAL UNLAWFULLY TIES THE HANDS OF H2GO.

In its April 22 Order, this Court acknowledged the longstanding rule in this state

that a local government cannot contract away its governmental discretion. (April 22

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Order at 34-35 (citing Plant Food Company v. City of Charlotte, 214 N.C. 518, 519-520,

199 S.E. 712, 713-714 (1938).) Not content with running afoul of this rule once, the

Belville faction has managed to do it again. Specifically, as noted above, the Side Deal

contemplated that H2GO must build the RO Plant as a condition of settlement and leaves

open the possibility that Belville can sue if it does not. The Side Deal also obligates

H2GO to assist Belville in evading attorneys’ fees when such a commitment is

unsupported by lawful consideration.

III. JUDICIAL ESTOPPEL SHOULD PRECLUDE BELVILLE’S EFFORTS TO AVOID THE

STAY PENDING APPEAL.

Prior to entry of the July 12 Order, Leland argues that the permanent injunction

should go into effect immediately, with an anti-waste provision that prevented the RO

Plant site or equipment from being destroyed. Belville insisted that an anti-waste

provision would be a horrible thing and would be the wrong remedy while appeals were

pending and waxed eloquent about the many virtues of the preliminary injunction order.

Judicial estoppel precludes Belville’s sudden change of heart.

North Carolina courts apply judicial estoppel “to protect the integrity of the

judicial process by prohibiting parties from deliberately changing positions according to

the exigencies of the moment.” Whitacre P'ship v. Biosignia, Inc., 358 N.C. 1, 28–29, 591

S.E.2d 870, 888–89 (2004) (citations and internal quotation marks omitted). Our

Supreme Court has adopted the judicial estoppel test promulgated by the United States

Supreme Court, which has recognized that, although “the circumstances under which

judicial estoppel may appropriately be invoked are probably not reducible to any general

formulation of principle,” there are three factors that generally guide the Court’s exercise

20
of discretion in determining whether to apply the doctrine. Id. (citations and internal

quotation marks omitted).

First, a party's subsequent position “must be ‘clearly

inconsistent’ with its earlier position.” Second, courts
regularly inquire whether the party has succeeded in
persuading a court to accept that party's earlier position, so
that judicial acceptance of an inconsistent position in a later
proceeding” might pose a “threat to judicial integrity” by
leading to “ ‘inconsistent court determinations' ” or “ ‘the
perception that either the first or the second court was
misled.’ ” Third, courts consider “whether the party seeking
to assert an inconsistent position would derive an unfair
advantage or impose an unfair detriment on the opposing
party if not estopped.”

Id. (citations and footnote omitted). Intent to manipulate or mislead is not required. Id.

at 32, 591 S.E.2d at 891.

This case calls for application of the doctrine of judicial estoppel. The Court

granted Belville the relief it requested in staying the July 12 Order and leaving the

Preliminary Injunction in place. Citing putative “exigencies of the moment,” Belville now

seeks to change its position and H2GO, which gave itself away to Belville seeks to support

Belville’s new position. To protect the integrity of the Court system, this Court should

deny the Joint motion.

IV. THE SIDE DEAL INCLUDES AN UNCONSTITUTIONAL EXCLUSIVE EMOLUMENT IN

FAVOR OF BELVILLE, ATTEMPTS TO IMPAIR LELAND’S RIGHTS WITHOUT DUE
PROCESS, AND IS AN ABUSE OF DISCRETION BY H2GO.

As noted above, the Side Deal provides, as consideration for Belville relenting in

its lawlessness, a declaration by H2GO that Leland is not entitled to attorneys’ fees, a

commitment that H2GO will help Belville evade Leland’s forthcoming motion for

attorneys’ fees, and an apparent promise to repay at least a portion of the fees recovered

from Belville by Leland. This consideration is unlawful.

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 There can be no question that the provision is a giveaway to Belville. Section 6-

21.7 of the General Statutes provides: “In any action in which a city or county is a party,

upon a finding by the court that the city or county violated a statute or case law setting

forth unambiguous limits on its authority, the court shall award reasonable attorneys’

fees and costs to the party who successfully challenged the city’s or county’s action.”

Section 6-21.7 further provides that, in general matters against a city or county in which

there is no unambiguous ultra vires action, “the court may award reasonable attorneys’

fees and costs to the prevailing private litigant.” Though a small town, Belville is a city

as defined by N.C. Gen. Stat. § 160A-1(2); H2GO is not. Further, Belville has engaged in

the litigation misconduct and misrepresentations that should result in the taxing of fees

and costs. H2GO’s commitment to help Belville avoid (or pay for) Leland’s attorneys’ fees

is thus a gift to Belville.

It is a gift that H2GO lacks the authority to give. Article I, Section 32 of the North

Carolina constitution provides, “No person or set of persons is entitled to exclusive or

separate emoluments or privileges from the community but in consideration of public

services.” Favoring one community over another is an exclusive emolument. State v.

Felton, 239 N.C. 575, 80 S.E.2d 625 (1954) (invalidating a statute authorizing a race

track in only one county). To receive an emolument or privilege, a municipality must

offer, as consideration, a public service. Madison Cablevision, Inc. v. City of Morganton,

325 N.C. 634, 386 S.E.2d 200 (1989) (holding that municipality-operated cable television

system provided a service that benefitted the public generally). Returning unlawfully

procured public assets is not a public service.

22
 The Side Deal also purports to include H2GO’s declaration that Leland is not

entitled to recovery of its attorneys’ fees. That declaration is ultra vires, as N.C. Gen.

Stat. § 130A-55 gives H2GO no power to make such a declaration. It also is lacking in

basic Due Process, as Leland was affording neither notice nor an opportunity to be heard

before a unit of government declared (albeit incorrectly and unlawfully) that Leland was

not entitled to recovery of its attorneys’ fees from Belville.

The Side Deal further constitutes an abuse of discretion because H2GO is giving

away its own entitlement to recover considerable attorneys’ fees against Belville for no

consideration, as Belville was already obligated to return H2GO’s assets. The dismissal

of appeal provided no consideration because the only available evidence is that Belville

no longer intended to prosecute it. Citing Barbour v. Carteret County, 255 N.C. 177, 181,

120 S.E.2d 448, 451 (1961), and Reese v. Mecklenburg County., 204 N.C. App. 410, 422-

23, 694 S.E.2d 453, 462 (2010), this Court’s April 22 Order reinforced the proposition

local government bodies cannot act in a way that constitutes a that manifest abuse of

their discretion. (April 22 Order at 38.) The Court specifically noted that the Barbour

court overturned a municipal transaction that amounted to squandering public funds and

acting arbitrarily and capriciously in a spirit of public haste. (Id. at 40.) Undeterred, the

Belville faction has decided to repeat its error. For this reason also, the Side Deal is

unlawful.

V. THE BELVILLE FACTION HAS UNCLEAN HANDS AND THEREFORE CANNOT AVAIL
ITSELF OF AN EQUITABLE REMEDY.

The conditions for terminating the Preliminary Injunction (i.e., the end of the

litigation) and the stay pending appeal (i.e., the end of all appeals) have not been

satisfied. The Belville faction nonetheless comes before this Court and asks for

23
extraordinary equitable relief in the form of a premature termination of these Court

orders. Their misconduct disqualifies them even asking.

Equity requires that the party seeking relief must not “come[] into court with

unclean hands.” Ray v. Norris, 78 N.C. App. 379, 384, 337 S.E.2d 137, 141 (1985). The

doctrine of unclean hands applies when a party has “acted in bad faith, or [its] conduct

has been dishonest, deceitful, fraudulent, unfair, or overreaching in regard to the

transaction in controversy.” Collins v. Davis, 68 N.C. App. 588, 592, 315 S.E.2d 759, 762

(1984), aff’d, 312 N.C. 324, 321 S.E.2d 892 (1984); Crumley & Assocs., P.C. v. Charles

Peed & Assocs., P.A., 219 N.C. App. 615, 619, 730 S.E.2d 763, 766 (2012). A party injured

by the wrongful conduct may invoke the doctrine. Ray, 78 N.C. App. at 385, 337 S.E.2d

at 142.

The doctrine applies here to bar the present Joint Motion. Belville and H2GO

engaged in a transfer that this Court declared to be the result of a manifest abuse of

discretion. Belville then used the Court proceedings to maintain the disempowerment of

the 2018-19 H2GO Board, delayed the proceedings in this Court to maximize the time of

disempowerment, and filed an appeal that it did not intend to prosecute. With a pro-

Belville H2GO Board now in power, the Belville faction now seeks to capitalize on the

advantages created by their inequitable conduct and to bully their way into the initial

unlawful objective (to have an RO Plant built on terms that favor Belville,

notwithstanding that the 2018-19 H2GO Board would have pursued a different

approach). Leland will be harmed by the granting of the Joint Motion because it is based

on the unlawful Side Deal that seeks to cheat Leland out of its attorneys’ fees and because

it forecloses unhindered consideration of the RO Plant by H2GO.

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 The present circumstances are entirely the fault of the pro-Belville faction and

their allies. The Side Deal depends upon, and rewards, Belville’s misconduct. Under

these circumstances, equity precludes the Belville faction from coming to this Court and

asking to avoid the mess it created. They should be required to wait until the process is

completed to obtain relief from the Preliminary Injunction and stay Orders.

VI. THE JOINT MOTION IS PREMATURE.

The conditions of the Preliminary Injunction and stay Orders have not been

satisfied for, among others, the following reasons.

First, as explained above, the Side Deal does not comply with the Permanent

Injunction. Instead, it seeks to water down that injunction and to provide illicit benefits

to Belville.

Second, Leland’s appeal remains pending. Leland has a great deal of confidence

in this Court’s ruling on the first three causes of action, and Leland has no doubt that

the Court properly determined that H2GO’s 2015-17 Board and Belville acted unlawfully

in giving H2GO away. But the problem with the transaction is not just that it happened,

but that the lawlessness it invoked might be contagious.

If one lacks ethical constraints, why not give a local government away if you think

your side can win the next election? Why not abuse the courts and take up the time of

the other litigants and an overworked judge while one waits for his public relations

efforts to work, and if there’s no consequence for it? Is it not wishful thinking to imagine

that Belville and its confederates are the only ones who would try something so

undemocratic and anarchistic? More concretely, what is to stop the Belville faction from

doing this very same thing again if the next election does not go their way? Leland

25
believes that the appellate courts should have the opportunity to weigh in on this

transaction to prevent its recurrence.

Leland respects this Court’s analysis of the financing claims, though it politely

disagrees with that analysis. And Leland respectfully submits that the Court’s April 22

Order raises important questions about the implications of transferring a bond, whether

local governments can enter into conveyance agreements that address how a borrowing

local government will pay its bond indebtedness, and whether the LGC and bondholders

must be involved in lawsuits involving violations of the bond statutes that harm

ratepayers and freeholders. An appellate court’s rulings on these issues may impact not

only the general law of this state, but also the specific parties before the Court. If the

appellate courts hold that H2GO and Belville violated state local government finance

laws, or on remand this court so concludes, those decisions might impact whether H2GO

can (and should) obtain financing for the RO Plant without additional input and

cooperation in the region.

Third, Paragraph 5 of the July 12 Order, like Paragraph 12 of the December 21,

2017 Preliminary Injunction Order, contemplates that the Preliminary Injunction will

remain in effect until the litigation is fully and finally resolved. Leland’s Open Meetings

Law claim remains pending, such that this condition is not satisfied. Particularly given

that the Belville faction is trying to gang up on Leland to prevent it from receiving its

counsel fees and thereby fully prevailing on the first three causes of action, then Leland

needs to proceed with that claim. As the claim appears stronger now that the Belville

faction has acted on its tie-up-and-wait strategy, Leland should be permitted to proceed

with the claim once all appeals are exhausted.

26
VII. BELVILLE AND H2GO WILL NOT BE PREJUDICED BY THE DENIAL OF THEIR
MOTION.

The denial of the Joint Motion means only that this Court will not agree to indulge

the Belville faction’s unlawful conduct. If it wants, Belville can still give back H2GO’s

property. Neither the Preliminary Injunction, nor the July 12 Order, prohibits that.

Belville just cannot impose illegal conditions on the return, which it could not do anyway.

Fully possessed of its assets, H2GO will be free to own and operate a sanitary

district. The only thing H2GO will not be able to do is construct the RO Plant; that will

have to wait until the courts fully adjudicate the unlawfulness in which Belville and

H2GO engaged, including the Open Meetings Law violations. But that is not unfair given

the rampant lawlessness that the Belville faction (including the current H2GO majority)

have engaged in regarding that RO Plant, and it is not inequitable given that Belville

held the last Board in the very same position. Brunswick County supplies H2GO’s water

and is working on its own RO solution, and it received bids to construct its plant on March

17, 2020..

H2GO and Belville chose to pursue a Side Deal – and an unlawful one – rather

than keep working on a global resolution. The natural and probable consequence of that

is remaining litigation. They can claim no prejudice in confronting that reality.

CONCLUSION

Make no mistake about it, the Belville faction is not coming before this Court in

contrition and accepting its judgment. Its members instead come before this Court

shamelessly demanding a full pardon after a finding of wrongdoing that they lack the

nerve to contest and asking this Court to excuse them from a mess of their own making.

They should not be allowed to get away with that, and they don’t need a special ruling

27
from this Court to comply with the law, which they never should have broken in the first

place. The Court should deny their Joint Motion and decline to pass favorably on their

unlawful Side Deal.

This 19th day of March, 2020.

TOWN OF LELAND, NORTH CAROLINA,

By Counsel,

Joseph S. Dowdy (NC Bar # 31941)

Todd S. Roessler (NC Bar #28046)
Phillip A. Harris, Jr. (NC Bar #39740)
KILPATRICK TOWNSEND & STOCKTON LLP
4208 Six Forks Road, Suite 1400
Raleigh, NC 27609
Phone: (919) 420-1700
Fax: (919) 420-1800
JDowdy@KilpatrickTownsend.com
TRoessler@KilpatrickTownsend.com
PHarris@KilpatrickTownsend.com

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 CERTIFICATE OF SERVICE

I, the undersigned attorney, hereby certify that on the date indicated below, I

served a true copy of the foregoing PLAINTIFF TOWN OF LELAND’S RESPONSE TO

JOINT MOTION BY PLAINTIFF H2GO AND DEFENDANT BELVILLE TO MODIFY

JULY 12 ORDER via electronic mail to the following:

Charles S. Baldwin IV
Andrew L. Rodenbough
BROOKS, PIERCE, McLENDON
HUMPHREY & LEONARD, LLP
CBaldwin@BrooksPierce.com
ARodenbough@brookspierce.com
Counsel for the Town of Belville, North Carolina

James E. Eldridge
ELDRIDGE LAW FIRM, P.C.
jee@ec.rr.com
Counsel for the Town of Belville, North Carolina

Donalt J. Eglinton
Edward J. “Trip” Coyne III
WARD AND SMITH, P.A.
dje@wardandsmith.com
ejcoyne@wardandsmith.com
Counsel for H2GO Brunswick Regional Water & Sewer

Cathryn M. Little
LITTLE & LITTLE, PLLC
Cathrynmlittle@aol.com
Counsel for IRFFNC

Respectfully submitted on March 19, 2020,

Joseph S. Dowdy (NC Bar # 31941)

29