Kirby v. North Carolina Department of Transportation

IN THE SUPREME COURT OF NORTH CAROLINA

No. 56PA14-2

Filed 10 June 2016

EVERETTE E. KIRBY and wife, MARTHA KIRBY; HARRIS TRIAD HOMES,

INC.; MICHAEL HENDRIX, as Executor of the Estate of Frances Hendrix;

DARREN ENGELKEMIER; IAN HUTAGALUNG; SYLVIA MAENDL; STEVEN

DAVID STEPT; JAMES W. NELSON and wife, PHYLLIS H. NELSON; and

REPUBLIC PROPERTIES, LLC, a North Carolina company (Group 1 Plaintiffs)

v.

NORTH CAROLINA DEPARTMENT OF TRANSPORTATION

On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision

of the Court of Appeals, ___ N.C. App. ___, 769 S.E.2d 218 (2015), reversing orders

entered on 8 January 2013 and 20 June 2013 by Judge John O. Craig, III in Superior

Court, Forsyth County, and remanding for further proceedings. Heard in the

Supreme Court on 16 February 2016.

Hendrick Bryant Nerhood Sanders & Otis, LLP, by Matthew H. Bryant, T. Paul

Hendrick, Timothy Nerhood, Kenneth C. Otis III, and W. Kirk Sanders, for

plaintiff-appellees.

Roy Cooper, Attorney General, by John F. Maddrey, Solicitor General, for

defendant-appellant.

Jonathan D. Guze for John Locke Foundation, amicus curiae.

Hansen Law Firm, PLLC, by Jessica O. Wilkie and Joshua D. Hansen; and

Van Winkle Law Firm, by Jones P. Byrd, for North Carolina Advocates for

Justice, amicus curiae.

Martin & Gifford, PLLC, by G. Wilson Martin, Jr.; and Wait Law, P.L.L.C., by

John L. Wait, for North Carolina Association of Realtors, Inc., amicus curiae.

Carlene McNulty for North Carolina Justice Center, amicus curiae.

Elliot Engstrom for Civitas Institute, Center for Law and Freedom; and Mark

KIRBY V. NCDOT

Opinion of the Court

Miller, pro hac vice, for Pacific Legal Foundation, amici curiae.

Shanklin & Nichols, LLP, by Kenneth A. Shanklin and Matthew A. Nichols, for

Wilmington Urban Area Metropolitan Planning Organization, amicus curiae.

NEWBY, Justice.

In this case we consider whether the use of the Map Act by the North Carolina

Department of Transportation (NCDOT) resulted in a taking of certain property

rights of plaintiffs without just compensation. Upon NCDOT’s recording of the

highway corridor maps at issue here, the Map Act restricted plaintiffs’ fundamental

rights to improve, develop, and subdivide their property for an unlimited period of

time. These restraints, coupled with their indefinite nature, constitute a taking of

plaintiffs’ elemental property rights by eminent domain. The extent to which

plaintiffs may be entitled to just compensation, however, depends upon market

valuation of the property before and after the taking. Such determinations must be

made on an individual, property-by-property basis. We therefore affirm the decision

of the Court of Appeals.

In 1987 the General Assembly adopted the Roadway Corridor Official Map Act

(Map Act). Act of Aug. 7, 1987, ch. 747, sec. 19, 1987 N.C. Sess. Laws 1520, 1538-43

(codified as amended at N.C.G.S. §§ 136-44.50 to -44.54 (2015)); see also N.C.G.S.

§§ 105-277.9 to -277.9A, 160A-458.4 (2015). Under the Map Act, once NCDOT files a

highway corridor map with the county register of deeds, the Act imposes certain

-2-

KIRBY V. NCDOT

Opinion of the Court

restrictions upon property located within the corridor for an indefinite period of time.

N.C.G.S. § 136-44.51. After a corridor map is filed, “no building permit shall be issued

for any building or structure or part thereof located within the transportation

corridor, nor shall approval of a subdivision, as defined in G.S. 153A-335 and G.S.

160A-376, be granted with respect to property within the transportation corridor.”

Id. § 136-44.51(a); see also id. § 153A-335(a) (2015) (“ ‘[S]ubdivision’ means all

divisions of a tract or parcel of land into two or more lots, building sites, or other

divisions when any one or more of those divisions are created for the purpose of sale

or building development (whether immediate or future) and includes all division of

land involving the dedication of a new street or a change in existing streets . . . .”); id.

§ 160A-376(a) (2015) (same). Recognizing the impact of these restrictions, the

General Assembly also designated the property as a “special class” for ad valorem tax

purposes, assessed at reduced rates of “twenty percent (20%) of the appraised value”

for unimproved property, id. § 105-277.9, and “fifty percent (50%) of the appraised

value” for improved property, id. § 105-277.9A. Despite the restrictions on

improvement, development, and subdivision of the affected property, or the tax

benefits provided, NCDOT is not obligated to build or complete the highway project.

Owners whose properties are located within the highway corridor may seek

administrative relief from these restrictions by applying for a building permit or

subdivision plat approval, id. § 136-44.51(a)-(c), a variance, id. § 136-44.52, or an

“advanced acquisition” of the property “due to an imposed hardship,” id. § 136-44.53.

-3-

KIRBY V. NCDOT

Opinion of the Court

In the first instance, if after three years a property owner’s application for a building

permit or subdivision plat has not been approved, the “entity that adopted the

transportation corridor official map” must either approve the application or initiate

acquisition proceedings, or else the applicant “may treat the real property as

unencumbered.” Id. § 136-44.51(b). In the second instance, “[a] variance may be

granted upon a showing that: (1) Even with the tax benefits authorized by this

Article, no reasonable return may be earned from the land; and (2) The requirements

of G.S. 136-44.51 result in practical difficulties or unnecessary hardships.” Id. § 136-

44.52(d). In the third instance, an “advanced acquisition” may be made upon

establishing “an undue hardship on the affected property owner.” Id. § 136-44.53(a).

Property approved under the hardship category must be acquired within three years

or “the restrictions of the map shall be removed from the property.” Id. In all

instances, however, the restrictions imposed upon the property remain indefinitely,

absent affirmative action by the owner and either approval from the State or a certain

lapse of time.

Plaintiffs are landowners whose properties are located within either the

Western or Eastern Loops of the Northern Beltway, a highway project planned

around Winston-Salem. Plaintiffs allege that the project “has been planned since

1965, and shown on planning maps since at least 1987 with the route determined by

the early 1990s.”

-4-

KIRBY V. NCDOT

Opinion of the Court

On 6 October 1997, in accordance with the Map Act, NCDOT recorded a

highway transportation corridor map with the Forsyth County Register of Deeds that

plotted the Western Loop of the Northern Beltway. Plaintiffs whose properties are

located within the Western Loop had all acquired their properties before NCDOT

recorded the pertinent corridor map. On 26 November 2008, NCDOT recorded a

second map that plotted the Eastern Loop. Plaintiffs whose properties are located

within the Eastern Loop had also purchased their properties before NCDOT recorded

that corridor map, some as recently as 2006. The parties do not dispute that the Map

Act imposed restrictions on property development and division as soon as NCDOT

recorded the corridor maps.

The NCDOT has voluntarily purchased at least 454 properties within the

beltway through condemnation proceedings, and since July 2010, has continued to

purchase property located in the Western and Eastern Loops. In June 2013, NCDOT

announced a public hearing regarding modification of the Western Loop boundaries,

noting that “[a] ‘Protected Corridor’ has been identified that includes the areas of the

beltway that the Department expects to purchase to build the proposed road.” At the

hearing an NCDOT official advised that “no funding for the proposed Western Section

of the Northern Beltway had been included in the current” budget through 2020 and

that there was “no schedule” establishing when construction would start.

From October 2011 to April 2012, following denial of their motion for class

certification, Beroth Oil Co. v. NCDOT (Beroth II), 367 N.C. 333, 347, 757 S.E.2d 466,

-5-

KIRBY V. NCDOT

Opinion of the Court

477 (2014), aff’g in part and vacating in part Beroth Oil Co. v. NCDOT (Beroth I), 220

N.C. App. 419, 725 S.E.2d 651 (2012), plaintiffs filed separate complaints against

NCDOT, asserting various, similar constitutional claims related to takings without

just compensation, including inverse condemnation. On 31 July 2012, the Chief

Justice certified plaintiffs’ cases as “exceptional” under Rule 2.1 of the General Rules

of Practice for the Superior and District Courts, and the trial court subsequently

consolidated plaintiffs into the same group for case management purposes.1

The NCDOT timely answered, asserted various affirmative defenses,

including, inter alia, lack of standing, and moved to dismiss plaintiffs’ claims under

Rules 12(b)(1), 12(b)(2), and 12(b)(6) of the North Carolina Rules of Civil Procedure.

On 8 January 2013, the trial court entered an order denying NCDOT’s motion to

dismiss the claim for inverse condemnation.

All parties moved for summary judgment. The trial court first determined that

plaintiffs failed to establish a taking, reasoning that “a regulatory taking” by police

power only occurs when the legislation “deprive[s] the property of all practical use, or

of all reasonable value” (citing and quoting Beroth I, 220 N.C. App. at 436-39, 725

S.E.2d at 661-63), and that the “mere recording of project maps do[es] not constitute

a taking” (citing, inter alia, Browning v. N.C. State Highway Comm’n, 263 N.C. 130,

1For clarity we will refer to plaintiffs’ similar collective “claims” in the singular—for

example, plaintiffs’ inverse condemnation claim. Other plaintiffs were consolidated into

other groups; however, those claims are not before this Court on appeal here.

-6-

KIRBY V. NCDOT

Opinion of the Court

135-36, 139 S.E.2d 227, 230-31 (1964)). Therefore, the trial court concluded the

inverse condemnation claim was “not yet ripe” and granted summary judgment for

NCDOT, dismissing the claim without prejudice.2 Plaintiffs appealed the dismissal

and summary judgment orders to the Court of Appeals, and NCDOT cross-appealed

the same, arguing for dismissal “with prejudice.”

The Court of Appeals reversed the dismissal of plaintiffs’ inverse condemnation

claim. Kirby v. NCDOT, ___ N.C. App. ___, ___, 769 S.E.2d 218, 236 (2015).3 The

Court of Appeals concluded that, unlike regulations under the police power, which

the State deploys to protect the public from injury, “the Map Act is a cost-controlling

mechanism,” id. at ___, 769 S.E.2d at 232, that employs the power of eminent domain,

allowing NCDOT “to foreshadow which properties will eventually be taken for

roadway projects and in turn, decrease the future price the State must pay to obtain

2 Plaintiffs alleged the taking occurred solely on the dates “the maps were published”

and not “on any other dates.” The trial court noted that “in the future, the police powers

granted by the Map Act could deprive the landowners of all practical use or all reasonable

value of their land,” but that plaintiffs had failed to establish a sufficient level of deprivation

for a taking at that time. Not at issue here, the trial court also dismissed plaintiffs’ remaining

takings claims with prejudice and dismissed plaintiffs’ claim for declaratory judgment

without prejudice.

3 The Court of Appeals declined to reach plaintiffs’ other claims because its

“disposition allow[ed] the trial court, upon consideration of evidence to be presented by

Plaintiffs, to award Plaintiffs the relief they sought in their respective complaints.” Kirby,

___ N.C. App. at ___, 769 S.E.2d at 236. The court “further decline[d] to address any

remaining assertions for which Plaintiffs and NCDOT—as appellants and cross-appellants,

respectively—have failed to present argument supported by persuasive or binding legal

authority.” Id. at ___, 769 S.E.2d at 236.

-7-

KIRBY V. NCDOT

Opinion of the Court

those affected parcels,” id. at ___, 769 S.E.2d at 232 (quoting Beroth II, 367 N.C. at

349, 757 S.E.2d at 478 (Newby, J., dissenting in part and concurring in part)). The

Court of Appeals determined that the Map Act imposed restrictions on “Plaintiffs’

ability to freely improve, develop, and dispose of their own property,” id. at ___, 769

S.E.2d at 235, that “never expire,” id. at ___, 769 S.E.2d at 234 (quoting Beroth II,

367 N.C. at 349, 757 S.E.2d at 478), and that, as a result, the Map Act effectuated a

taking of their “elemental [property] rights,” id. at ___, 769 S.E.2d at 234. Therefore,

the Court of Appeals concluded that plaintiffs’ inverse condemnation claim was ripe

and remanded the matter for a “discrete fact-specific inquiry,” id. at ___, 769 S.E.2d

at 235 (quoting and discussing Beroth II, 367 N.C. at 343, 757 S.E.2d at 474 (majority

opinion)), to determine “the amount of compensation due,” id. at ___, 769 S.E.2d at

236.

We allowed NCDOT’s petition for discretionary review. We review orders

granting summary judgment and dismissal de novo and “view the allegations as true

and the supporting record in the light most favorable to the non-moving party.” E.g.,

Mangum v. Raleigh Bd. of Adjust., 362 N.C. 640, 644, 669 S.E.2d 279, 283 (2008).

The NCDOT contends that the Map Act is a valid, regulatory exercise of the

police power, not the power of eminent domain, and that therefore no taking has

occurred. The NCDOT asserts that “cost-cutting” is not the only underlying purpose

of the Map Act and, quoting Blades v. City of Raleigh, 280 N.C. 531, 546, 187 S.E.2d

35, 43 (1972), argues that the Act promotes the general welfare of the public “by

-8-

KIRBY V. NCDOT

Opinion of the Court

conserving the values of other properties and encouraging the[ir] most appropriate

use.” The NCDOT points to “facilitating orderly and predictable development” with

“the least impact on the natural and human environments, and minimizing the

number of businesses, homeowners and renters who will have to be relocated when a

[highway] project is authorized for right-of-way acquisition and road construction” in

support of its contentions. While these policies are laudable, we do not agree that the

Map Act is a valid, regulatory exercise of the police power. We concur with the

analysis of the Court of Appeals.

The fundamental right to property is as old as our state. See N.C. Const. of

1776, Declaration of Rights § XII; Bayard v. Singleton, 1 N.C. (Mart.) 5, 9 (1787); see

also 2 William Blackstone, Commentaries *138 (“The third absolute right, inherent

in every [man], is that of property: which consists in the free use, enjoyment, and

disposal of all his acquisitions, without any control or diminution, save only by the

laws of the land.”). Public policy has long favored the “free and unrestricted use and

enjoyment of land.” J.T. Hobby & Son, Inc. v. Family Homes of Wake Cty., Inc., 302

N.C. 64, 71, 274 S.E.2d 174, 179 (1981) (citations omitted); see N.C.G.S. § 47B-1(1)

(2015) (“Land . . . should be made freely alienable and marketable so far as is

practicable.”). “Property” encompasses “every aspect of right and interest capable of

being enjoyed as such upon which it is practicable to place a money value” and

includes “not only the thing possessed but . . . the right of the owner to the land; the

right to possess, use, enjoy and dispose of it, and the corresponding right to exclude

-9-

KIRBY V. NCDOT

Opinion of the Court

others from its use.” Hildebrand v. So. Bell Tel. & Tel. Co., 219 N.C. 402, 408, 14

S.E.2d 252, 256 (1941).

From the very beginnings of our republic we have jealously guarded against

the governmental taking of property. See John Locke, Two Treatises of Government

295 (London, Whitmore & Fenn et al. 1821) (1689) (“The great and chief end,

therefore, of men’s uniting into commonwealths, and putting themselves under

government, is the preservation of their property.”); James Madison, Property (1792),

reprinted in 6 The Writings of James Madison 101, 102 (Gaillard Hunt ed., 1906)

(“Government is instituted to protect property of every sort; as well as that which lies

in the various rights of individuals, as that which the term particularly expresses.”).

Though our state constitution does not contain “an express constitutional provision

against the ‘taking’ or ‘damaging’ of private property for public use” without payment

of just compensation, we have long recognized the existence of a constitutional

protection against an uncompensated taking and “the fundamental right to just

compensation as so grounded in natural law and justice” that it is considered “an

integral part of ‘the law of the land’ within the meaning of Article 1, Section 19 of our

[North Carolina] Constitution.” Long v. City of Charlotte, 306 N.C. 187, 195-96, 293

S.E.2d 101, 107-08 (1982) (footnotes and citations omitted), superseded on other

grounds by statute, Act of July 10, 1981, ch. 919, sec. 28, 1981 N.C. Sess. Laws 1382,

1402; see also John V. Orth & Paul Martin Newby, The North Carolina State

Constitution 67-72 (2d ed. 2013) (discussing the development and interpretation of

-10-

KIRBY V. NCDOT

Opinion of the Court

the Law of the Land Clause). “Property” clearly includes the rights to improve,

develop, and subdivide, which were severely and indefinitely restricted here by the

Map Act. Our recognition of the impact of the Map Act’s restrictions on property

rights, however, does not end the inquiry.

Determining if governmental action constitutes a taking depends upon

“whether a particular act is an exercise of the police power or of the power of eminent

domain.” Barnes v. N.C. State Highway Comm’n, 257 N.C. 507, 514, 126 S.E.2d 732,

737-38 (1962) (quoting 11 Eugene McQuillin, The Law of Municipal Corporations

§ 32.27, at 319 (Ray Smith ed., Callaghan & Co. 3d ed. 1950)). Under the police

power, the government regulates property to prevent injury to the public. Beroth II,

367 N.C. at 351, 757 S.E.2d at 479 (Newby, J., dissenting in part and concurring in

part); City of Durham v. Eno Cotton Mills, 141 N.C. 615, 637, 54 S.E. 453, 461 (1906)

(“[T]he right of property . . . [is] enjoyed subject to reasonable regulations . . . .” “The

safety of the people is the supreme law . . . .”). Police power regulations must be

“enacted in good faith, and ha[ve] appropriate and direct connection with that

protection to life, health, and property which each State owes to her citizens.” Eno

Cotton Mills, 141 N.C. at 642, 54 S.E. at 462 (quoting Mugler v. Kansas, 123 U.S.

623, 666, 8 S. Ct. 273, 299, 31 L. Ed. 205, 212 (1887)). An exercise of police power

outside these bounds may result in a taking. See Responsible Citizens v. City of

Asheville, 308 N.C. 255, 261-62, 302 S.E.2d 204, 208-09 (1983).

-11-

KIRBY V. NCDOT

Opinion of the Court

Under the power of eminent domain, the government takes property for public

use because such action is advantageous or beneficial to the public. Beroth II, 367

N.C. at 351, 757 S.E.2d at 479. “[T]he sovereign determines the nature and extent

of the property required . . . [and] may take for a limited period of time or in

perpetuity . . . an easement, a mere limited use, . . . [or] an absolute, unqualified fee

. . . .” Town of Morganton v. Hutton & Bourbonnais Co., 251 N.C. 531, 533, 112

S.E.2d 111, 113 (1960) (citations omitted). As such, “[t]he state must compensate for

property rights taken by eminent domain; [however,] damages resulting from the

[proper] exercise of [the] police power are noncompensable.” Barnes, 257 N.C. at

514, 126 S.E.2d at 738 (quoting State v. Fox, 53 Wash. 2d 216, 220, 332 P.2d 943,

946 (1958)).

The language of the Map Act plainly points to future condemnation of land in

the development of corridor highway projects, thus requiring NCDOT to invoke

eminent domain. See Coastal Ready-Mix Concrete Co. v. Bd. of Comm’rs, 299 N.C.

620, 629, 265 S.E.2d 379, 385 (1980) (“The best indicia of [legislative] intent are the

language of the statute or ordinance, the spirit of the act and what the act seeks to

accomplish.” (citations omitted)). Section 136-44.50 contemplates the filing of “a

transportation corridor official map” that has been adopted or amended by a

governing board overseeing a “long-range transportation plan,” and “establishment

of” an “official map or amendment” triggers the beginning of “environmental impact

studies” and “preliminary engineering work.” Sections 136-44.51 to -44.53 provide

-12-

KIRBY V. NCDOT

Opinion of the Court

not only for approval of a building permit or variance but establish procedures for

“advanced acquisition of” the property.

The Map Act’s indefinite restraint on fundamental property rights is squarely

outside the scope of the police power. See Eno Cotton Mills, 141 N.C. at 641-42, 54

S.E. at 462. No environmental, development, or relocation concerns arise absent the

highway project and the accompanying condemnation itself. See, e.g., Town of Wake

Forest v. Medlin, 199 N.C. 83, 85-86, 154 S.E. 29, 30-31 (1930) (providing examples

of police power regulations for protection against nuisances). Justifying the exercise

of governmental power in this way would allow the State to hinder property rights

indefinitely for a project that may never be built. See State v. Vestal, 281 N.C. 517,

523, 189 S.E.2d 152, 157 (1972) (“His property may not be taken . . . without

compensation, under the guise of a regulation of his business pursuant to the police

power.”). Though the reduction in acquisition costs for highway development

properties is a laudable public policy, economic savings are a far cry from the

protections from injury contemplated under the police power. See, e.g., Medlin, 199

N.C. at 85-86, 154 S.E. at 30-31. The societal benefits envisioned by the Map Act are

not designed primarily to prevent injury or protect the health, safety, and welfare of

the public. Furthermore, the provisions of the Map Act that allow landowners relief

from the statutory scheme are inadequate to safeguard their constitutionally

protected property rights.

-13-

KIRBY V. NCDOT

Opinion of the Court

A taking effectuated by eminent domain does not require “an actual occupation

of the land,” but “need only be a substantial interference with elemental rights

growing out of the ownership of the property.” Long, 306 N.C. at 198-99, 293 S.E.2d

at 109 (citations omitted). These elemental rights are generally considered “an

important feature of” the land and, as such, are accounted for within the valuation of

the land. See Town of Midland v. Wayne, 368 N.C. 55, 66, 773 S.E.2d 301, 309 (2015)

(stating that “development rights” are “an important feature of the condemned land

and not a separate, compensable property right”); Brown v. W.T. Weaver Power Co.,

140 N.C. 333, 345, 52 S.E. 954, 958-59 (1905) (“The market value of property includes

its value for any use to which it may be put.” (citation omitted)); see also Beroth II,

367 N.C. at 343-44, 757 S.E.2d at 474-75 (majority opinion) (discussing various

valuation methods).

Through inverse condemnation the owner may “recover to the extent of the

diminution in his property’s value” as measured by “the difference in the fair market

value of the property immediately before and immediately after the taking.” Long,

306 N.C. at 201, 293 S.E.2d at 110-11 (citations omitted); see N.C.G.S. § 136-112(1)

(2015). “Obviously, not every act or happening injurious to the landowner, his

property, or his use thereof is compensable.” Long, 306 N.C. at 199, 293 S.E.2d at

109. Thus, to pursue a successful inverse condemnation claim, a plaintiff must

demonstrate not only a substantial interference with certain property rights but also

that the interference caused a decrease in the fair market value of his land as a whole.

-14-

KIRBY V. NCDOT

Opinion of the Court

By recording the corridor maps at issue here, which restricted plaintiffs’ rights

to improve, develop, and subdivide their property for an indefinite period of time,

NCDOT effectuated a taking of fundamental property rights. On remand, the trier

of fact must determine the value of the loss of these fundamental rights 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.

See, e.g., Nantahala Power & Light Co. v. Moss, 220 N.C. 200, 205-06, 17 S.E.2d 10,

13-14 (1941) (discussing principles involved in fair market valuation); see also Beroth

II, 367 N.C. at 343-44, 757 S.E.2d at 474-75. Accordingly, the trial court improperly

dismissed plaintiffs’ inverse condemnation claim. Therefore, we affirm the decision

of the Court of Appeals, which reversed the trial court’s ruling to the contrary and

remanded this case for further proceedings as described above.

AFFIRMED.

-15-