Chappell v. NCDOT a Win For Landowners – With Asterisks For Pending Cases

The Supreme Court of North Carolina has issued the latest rulings in a line of condemnation cases brought under the now-notorious Map Act. Members of the NCAJ Eminent Domain section briefed the case of Chappell v. NCDOT (No. 51PA19) as amicus curiae. The case was largely a win for the landowners, but the NCDOT likely gained back some ground, and there are some important asterisks for any pending map act cases looking ahead.

The story began in Cumberland County in 1992 when NCDOT recorded a protected roadway corridor that encumbered the Chappell family’s property for a future road project. Importantly, the Map Act corridors prohibited landowners from improving, subdividing, or developing their property. The Chappells filed an inverse condemnation action in 2014 seeking just compensation for the impact and lost value from the restrictions on their property. Other recent cases (Kirby v. NCDOT and Beroth II v. NCDOT) held that the Map Act restrictions were a compensable taking, and that landowners should recover damages from the indefinite restraint on their property rights. “The value of the loss of those rights is to be measured ‘by calculating the value of the land before the corridor map was recorded and the value of the land afterward, taking into account all pertinent factors, including the restriction on each plaintiff’s fundamental rights, as well as any effect of the reduced ad valorem taxes.’”  Chappell, slip opinion, quoting Kirby.

The trial court applied the existing Map Act precedents and issued rulings that were ultimately very favorable to the landowners at trial, and NCDOT appealed to the Court of Appeals, and finally to the Supreme Court. NCDOT asserted four main points of error, claiming:

• The NCDOT was improperly deprived of its quick-take authority by denying efforts to acquire the entire parcel on the eve of trial via a conventional condemnation filing.
• The evidence should not have been presented to the jury based upon valuation as the equivalent to a fee-simple taking, assuming the project in its completed state.
• Property taxes paid by landowners for the decades after the taking were improperly awarded as damages.
• The trial court’s post-verdict wrongly applied the prudent investor rule to determine interest on the pre-judgment damages by included calculations that included equity investments like stocks.

The Court found no reversible error on the first three issues, but they reversed and remanded after clarifying an important new wrinkle in the prudent investor rule.

DOT’s Quick Take Powers

The court affirmed that trial courts have discretion to make necessary orders and that DOT was not unlawfully denied immediate possession because there is no specified procedure for a condemnation after the filing of inverse claim. Rather, DOT could have and still may obtain possession of the parcel pursuant to its counterclaim for condemnation. Attorneys for landowners should expect in the future for DOT to assert counterclaims and motions asserting its quick-take rights. It will be interesting to see how Superior Court judges in specific cases apply the requirement for a deposit in this setting, especially where the bulk of the damages relate back to the original inverse condemnation claim.

Property Taxes

The Court concluded that the trial judge properly applied precedent from Kirby by compensating the owners for ad valorem taxes actually paid during the period when the property had virtually no market value.

Valuation and the Nature of the Taking

The Chappell decision reaffirmed the earlier holding that the vital issue is the fair market value of property before and after the taking.  Under the facts, the trial judge was within her sound discretion to exclude DOT’s appraisal opinions and evidence where those opinions were not based on valid appraisal or valuation methods. The DOT testimony was based upon the assumption of a three-year, temporary negative easement, which was contrary to the Kirby holding “that a Map Act recording creates an ‘indefinite restraint on fundamental property rights.’” Slip op. quoting Kirby.

This portion of the opinion did create a potential new way for DOT to admit its evidence, however, and one can foresee an immediate tactical change by DOT in future Map Act cases.  The Court suggested that DOT could offer appraisal evidence based upon an income approach or cost basis, which might be competent evidence for a jury.  Future litigation will undoubtedly see income- and cost-based appraisals from DOT’s fee appraisers.  Obviously this will only apply to improved properties, so clients with raw land that is unimproved will not have to worry about this nuance, but this will be the new battleground in future cases.

Fortunately, whether it is an improved parcel or not, property owners will still be able to rebut these more inferential value methods by returning to the touchstone that fair market value and the absence of any qualifying sales shows that there remains an absence of willing buyers and no real fair value to be found in the marketplace. Court summed up its analysis this way:

“Whether one assumes the road is built, calls the taking similar to a fee simple taking, or gives the taking some other name, the fact that there was evidence of no market whatsoever for the property, in other words, that no one wanted to buy a house in the Outer Loop corridor once the 1992 map was recorded, was a proper consideration in determining the after- taking fair market value.”  Slip op.

Pre-Judgment Interest

The only overt “loss” from the case is reflected in a modification of the Court’s jurisprudence on interest.  The Justices clarified recognized the existing rule that allows recovery of interest at the statutory rate, or based upon the prudent investor rule, which allows returns more commensurate with real-world market data.  Courts must not include evidence of market returns that reflect equity investments (i.e., stocks).  Instead, “the appropriate interest rate to apply to a judgment in an inverse condemnation case must be a rate produced by debt instruments or debt obligations, such as commercial bonds or treasury bills during the relevant time period.”  The practical effect will likely reduce future the total recovery of future judgments, but landowners retained the vital ability to apply compounding interest rates even if bond rates are lower that an equity market fund.

Landowners represented by NCAJ members breathed a major sigh of relief last week.  Even though DOT prevailed on some peripheral arguments, the latest Map Act decision retains vital protections for the public we serve, and the core holdings remain undisturbed that our clients are entitled to just compensation for loss of their rights and value in their property.

Shiloh Daum is an attorney with Sever-Storey, LLP, eminent domain lawyers representing landowners.