The North Carolina Supreme Court has issued its opinion in Beroth Oil Co. v. North Carolina Dep't of Transportation, No. 390PA11-2 (Apr. 11, 2014). That's the case which we've been following about the class-action worthiness of of a case in which the N.C. DOT effectively blighted a huge swath of land by identifying it as a future highway, and then doing mostly nothing to acquire it, even though by virtue of a parcel's identification on the map, the owner was prevented from obtaining building permits, or undertaking other development of the land.
The Supreme Court briefs are posted here, and we also recently posted NCDOT's summary of the effect of a "protected corridor," which is the DOT's way under North Carolina's Map Act of keeping property that it wants for future highways from being developed in the interim (we thought it should be called a "taking"). More background on the case here.
The court's opinion did not deal with the takings issue directly, but was about whether the 800 or so property owners who are subject to the Map Act are entitled to prosecute their takings claims as a class action. Class actions in N.C. are like those pretty much everywhere else in that they are reserved for those cases where common issues of fact or law predominate over the distinct issues, and it would make sense to try the cases collectively.
The Court of Appeals, in Beroth Oil Co. v. N.C. Dep't of Transportation, No. 10 CVS 6926 (N.C. App. May 15, 2012), held that common issues of fact and law would not predominate in takings cases based on NCDOT's designation of multiple properties for future acquisition for a road corridor (but failure to actually take the properties). The property owners argued that the common legal and factual issues predominate, because even though to prove a taking each property owner must show how the DOT's actions impacted their property (and property is, by nature, unique, and the parcels affected here range from fully developed to vacant, from residential to commercial), the singular focus of each of the cases is the DOT's action, which is the same in each case. The Supreme Court agreed with the Court of Appeals that separate lawsuits are required for each property owner, but for a different reason than the lower court.
The Supreme Court opinion is a muddled hash of mostly-correct statements about the law of inverse condemnation and takings, strung together in such a way that the whole is lesser than the sum of its parts. Read it for yourself and see if you can make much sense out of it. For an example, go to page 17, where it seems like the court's rationale finally comes into focus, but is followed immediately by a passage that makes you scratch your head:
Nevertheless, plaintiffs have not shown that all 800 owners within the corridor are affected in the same way and to the same extent. ... While NCDOT's generalized actions may be common to all, the Court of Appeals correctly determined that "liability can be established only after extensive examination of the circumstances surrounding each of the affected properties." This discrete fact-specific inquiry is required because each individual parcel is uniquely affected by NCDOT's actions.
Slip op. at 17. Okay, we get that first part. We don't really agree with it (to us, it seems that the plaintiffs were alleging that the DOT's actions under the Map Act was the common issue, and that overall it would make more sense to resolve these issues all at once; and the plaintiffs should know best what their complaint alleges). But we do see how reasonable minds can differ, since part of the takings inquiry may be how much the DOT's actions have interfered with an owner's use of her property, and that, as the court held, is predominated by individual questions. Got it.
But immediately following the above statement, the opinion veers off track:
The appraisal process contemplated in condemnation actions recognizes this uniqueness and allows the parties to present to the fact finder a comprehensive analysis of the value of the land subject to the condemnation. See N.C.G.S. § 136-112 (2011) (setting forth the measure of damages); DOT v. M.M. Fowler, Inc., 361 N.C. 1, 13 n.5, 637 S.E.2d 885, 894 n.5 (2006) (“Methods of appraisal acceptable in determining fair market value include: (1) comparable sales, (2) capitalization of income, and (3) cost. While the comparable sales method is the preferred approach, the next best method is capitalization of income when no comparable sales data are available.” (citations omitted)); Templeton v. State Highway Comm’n, 254 N.C. 337, 339, 118 S.E.2d 918, 920 (1961) (allowing the admission of “[a]ny evidence which aids . . . in fixing a fair market value of the land and its diminution by the burden put upon it”).We generally agree with the separate opinion that differences in the amount of damages “will not preclude class certification so long as the takings issue predominates.” See Beroth Oil Co. v. NCDOT, ___ N.C. ___, ___, ___ S.E.2d ___, ___ (2014) (390PA11-2) (Newby, J., dissenting in part and concurring in part). Here, however, the takings issue is inextricably tied to the amount of damages; the extent of damages is not merely a collateral issue, but is determinative of the takings issue itself. See Mattoon v. City of Norman, Okla., 1981 OK 92, ¶ 23, 633 P.2d 735, 740 (1981) (observing that “the individual questions and the common questions become so intertwined and interconnected as to make them impossible of separation and impossible to weigh for assessment of predominance”).
Slip op. at 17-18. What? Did we miss something? What do the available methods of appraisal have to do with whether or not there are common issues of inverse condemnation or takings liability (the plaintiffs had already conceded that once they established liability, the damages issues could be determined separately)? The liability issue in takings cases is not necessarily about the value of the property, but whether by exercising some governmental authority other than the eminent domain power, the government has impacted property's use in such a way that it has interfered with the owner's use as if it had condemned it.
And there's more than a few ways to show this: for example, regulation may wipe out the parcel's economically beneficial uses (this most often is a mostly legal question -- like when the law says you can't even pull a building permit -- sound familiar? -- and not a question of the actual damage incurred) (Lucas); a regulation may require a physical invasion, in which case lost value is not relevant (Loretto, Kaiser Aetna); or the right combination of circumstances may show that the property owner is being unfairly required to shoulder more than his fair share of public benefits, in which case the loss of value is just one part of the mix (Penn Central). And as far as we can tell, North Carolina's law isn't significantly different. But instead of reciting those principles, the court put the cart before the horse and determined that the damage question resolves the liability issue ("Here, however, the takings issue is inextricably tied to the amount of damages; the extent of damages is not merely a collateral issue, but is determinative of the takings issue itself.").
And the opinion is full of such diversions, many of which we can't even put into the proper context despite multiple readings.
One way to read this opaque opinion is that since the court can't figure out what could constitute a taking, it simply throws up its hands and says that it was improper for the lower courts to do so. And not being able to figure out if there could be a taking here, there was no way to figure out if proceeding as a class was appropriate. But that would be backing into the class question, and unnecessarily front-loading the ultimate issue in the case, wouldn't it?
The best gloss we can put on the majority opinion is that perhaps the court believed that with multiple possible theories of liability, it was too soon to force the plaintiffs to elect only those in which there could be common issues, and that maybe, on some parcels, the ad hoc Penn Central test would carry the day, while the other tests may be better on the others, and therefore, the court really couldn't say whether a class encompassing all 800 owners was appropriate. But even that doesn't explain why the court simply could not have established sub-classes, one for each "branch" of takings liability.
In case you want to know what the majority held (the court's own view of the its actual ruling), it is buried, oddly enough, in a footnote:
We merely hold that plaintiffs' alleged class encompasses such differing issues that a takings test cannot be determined at this stage.
Slip op. at 21 n.6. Ah, we get it, this decision is like Seinfeld: it's about nothing! So maybe we're right about that latter gloss on the decision.
One justice dissented (see pages 24-36), concluding that there was sufficient common issues present, and that a class could be certified ("The uniqueness and extent of each owner’s damages are of no consequence to the takings issue here."). Between the two opinions, this one seems to make more sense to us, and is more practical.
So the bottom line is that each of potentially 800+ cases must be tried individually. So come on you 800 landowners whose properties have been designated on these DOT maps: now's the time to file your cases. The court decidedly did not reject your ability to go forward and win, only that you could not go collectively.
Indeed, we think the most fair reading of this decision is that the court left all the liability doors wide open.
Beroth Oil Co. v. North Carolina Dep't of Transportation, No. 390PA11-2 (Apri. 11, 2014)
