Back in December -- only a few months ago, yet it seems like another world away -- we attended oral arguments in Raleigh in a case we've been following for a long time, about North Carolina's "Map Act."
This case is the follow up (after remand) of the N.C. Supreme Court's landmark decision in Kirby v. North Carolina Dep't of Transportation, No 56PA14-2 (June 10, 2016), in which the court held that the "Map Act," a statute by which DOT designated vast swaths of property for future highway acquisition, was a taking because the Act prohibited development and use of designated properties in the interim. The court concluded "[t]hese restraints, coupled with their indefinite nature, constitute a taking of plaintiffs’ elemental property rights by eminent domain." The court remanded the case for a parcel-by-parcel determination of just compensation. Shortly after the decision in Kirby, the North Carolina Legislature repealed the Map Act, turning a permanent taking into a (very) long-term temporary taking.
On remand, the trial court concluded the Chappell case was a permanent taking, and awarded compensation accordingly. DOT had argued that the Map Act's massive use restrictions had not wiped out all uses of the properties, only some, and therefore this could not be valued as a DOT appealed, and here we are.
In Chappell v. N.C. Dep't of Transportation, No. 51PA19-1 (May 1, 2020), the N.C. Supreme Court (unanimously) affirmed the just compensation judgement on narrow grounds, as we hoped it would. As we wrote after the arguments:
Second, we're not sure if the record shows that DOT preserved its main argument by an offer of proof of the uses supposedly remaining under the Map Act "negative easement." If not, that seems like one way for the court to rule in favor of the property owners and affirm, without dealing with the temporary vs indefinite nature of the taking. If the owners are satisfied with being compensated for the fee taking in this proceeding and not seeking the rent-plus-interest, who are we to say otherwise, provided the court does not establish a (wrong) rule that these type of cases generally are valued as permanent fee takes.
The court noted that under a NC statute, partial takings are valued by the "before and after" method. N.C.G.S. § 136-112(1) (2019). In Kirby, the court concluded the Map Act was an "indefinite restraint on fundamental property rights," and limited the owners' rights to "improve, develop, and subdivide their property for an indefinite period of time." Slip op. at 15.
Thus, the relevant determination when calculating just compensation for a taking that involves less than the entire parcel of property starts with the fair market value of the entire property before the taking and the fair market value of what remains after the taking. This is true whether the taking is an indefinite negative easement, as in the case of Map Act takings, or involves some other taking for public use.Slip op. at 15-16.
And here's your first takeaway: the statute is about fair market value, but "the statute does not restrict real estate appraisers with regard to the method they use to determine fair market value." Slip op. at 16. You can use any method (comp sales, income cap, and replacement cost), and "[w]hile the comparable sales method is the preferred approach, the next best method is capitalization of income when no comparable sales data is available." Slip op.at 16. And here, DOT was free to do this.
But, the court concluded, it didn't. Instead, DOT's expert "sought to value the rights that remain to the property owner after the taking based on a three-year temporary negative easement[.]" Slip op. at 18. The appraiser testified he chose this method because he didn't have comparable properties. That's not good enough, the court concluded, because "[l]acking any sales of comparable property from which to determine fair market value, there remained two other methods of assessing the fair market value of the property, the cost approach and the income capitalization approach." Slip op. at 19. If you can't value it one way, try another. Do not go off the map, so to speak.
[T]here was no evidence from a NCDOT appraiser concerning the fair market value of the property after the 1992 and 2006 takings based on a cost approach or income capitalization approach to valuation. Thus, it was not an abuse of discretion for the trial court to exclude testimony that did not relate to one of the three appropriate methods of determining fair market value.
Slip op. at 20.
And here's your second takeaway: labels don't matter as much as substance. Valuing the taking as a "indefinite negative easement" or a "fee simple" taking" isn't terribly important: "[w]hether one assume 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. at 20-21.
Here's your third takeaway: even if a jury instruction was erroneous, the DOT didn't show the error was prejudicial. Slip op. at 22-23. The DOT didn't introduce anything at trial to counter the property owners' appraiser and "[t]here was no evidence of an alternative fair market valuation on a cost basis or income capitalization basis that could have informed the jury's verdict." Slip op. at 23.
So there you have it: an appropriately narrowly tailored decision that upholds the verdict the property owners sought, but did not venture into areas where the court might have screwed up the law for others. As we wrote at the time of argument, a narrow ruling on the evidentiary issue "seems like one way for the court to rule in favor of the property owners and affirm, without dealing with the temporary vs indefinite nature of the taking." Looks like the court wisely did so.
Chappell v. N.C. Dep't of Transportation, No. 51PA19-1 (N.C. May 1, 2020)
