BLOGS: North Carolina Land Use Litigator

Friday, April 18, 2014, 10:58 AM

Flash Boys and the Transportation Corridor Act

Michael Lewis' new book, Flash Boys concerns high frequency traders using advance notice of a stock purchase to reap extra profits.  Fittingly, the North Carolina Supreme Court's decision in Beroth Oil v. NCDOT was published last Friday, the week Flash Boys became the number one best-selling book in the country.  Although unstated, the real issue in Beroth Oil is the same issue in Flash Boys - market manipulation and pricing.   

In 1987, the General Assembly adopted the Transportation Corridor Official Map Act (N.C.G.S. 136.44.50 et. seq. (the "Map Act").  The 1987 session bill adopting the Map Act was entitled, in part, "An Act to control the cost of acquiring rights-of-way for the State's Highway System." 
Beroth Oil and other property owners allege that NCDOT's recordation of a corridor map 16 years ago and failure to condemn their property lowered the market value of their property substantially.  They claim that NCDOT inversely condemned their property - condemned it, but did not file a condemnation action.  

Why would NCDOT engage in this alleged nefarious activity?  NCDOT could manipulate the market by casting a long and dark shadow of condemnation blight over these properties to reduce the amount of Just Compensation which would be awarded to the property owners when NCDOT finally files its condemnation action.  

Beroth Oil and the other named property owners requested the trial court certify a class action to include all property owners affected by the corridor map.  The trial court declined and the property owners appealed.  The North Carolina Court of Appeals affirmed the trial court.
Two Justices concluded that, without full development of evidence or trial, the Map Act was a statute of eminent domain and if the map's restrictions substantially interfered with the property owners' rights, an inverse condemnation had occurred.  What is a substantial interference?  Not much.  It is an interference substantial enough to reduce the market value of the property.  Therefore, they believed the case should be remanded to the trial court with this legal conclusion for the trial court to reconsider class certification. 

The majority of the North Carolina Supreme Court concluded that "[h]ere, 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."  The North Carolina Supreme Court affirmed the trial court's decision denying class certification and returned the case to the trial court for further factual and legal development. 

But the underlying basic question is:  Why have the Map Act?  This is where Flash Boys and the Map Act intersect.  Property owners and NCDOT officials have years of advance notice of a likely forced sale of property for a future highway.  Just Compensation is fair market value.  And either the seller, a property owner, or the buyer, NCDOT, can use this information to unfairly or deceptively manipulate market prices before a condemnation action is filed.  The public policy challenge is finding a means to discourage such unfair or deceptive behavior – and to more accurately implement the constitutional requirement of Just Compensation.

If the history of the stock market is an accurate indicator, solving this public policy challenge will not be easy.  

The case deserves significantly more attention than this superficial treatment.  We are preparing a more in-depth analysis of this case and will distribute it as a client alert.  If you want to receive a copy of the alert, please contact Rachel Adler at radler@wcsr.com.  

Thursday, April 10, 2014, 4:25 PM

"Rails to Trails" or "Rails to Trespass": Supreme Court Speaks on the Abandonment of Certain Railroad Rights of Way

By Mike
Last month, the Supreme Court of the United States (please, there is no such thing as the "United States Supreme Court") decided a very interesting case about easements.  "Easements?", you ask.  Yes, easements.  We use them almost every day.  Well, every weekend, perhaps.  Greenways.  Rails to trails.  Beach access.  You name it.  Also, the case is interesting because it holds the Federal Government to a much older (1940-old, which is old) argument it made about easements, and which contradicts the Government's argument in this recent case.

We're talking today about Marvin M. Brandt Revocable Trust v. United States, No. 12-1173 (March 10, 2014).

Facts.
In 1875, to encourage settlement of the West and to entice railroads to develop, Congress passed the General Railroad Right-of-Way Act, which granted to "any railroad" a "right of way through the public lands of the United States" to the "extent of 100 feet on each side of the central line" provided the railroad either (1) actually constructed its railroad or (2) filed a proposed map of its rail corridor.  From that day forward, after the right of way is obtained, "all such lands over which such right of way shall pass shall be disposed of subject to the right of way".

In 1908, pursuant to the Act, the Laramie[,] Hahn's Peak & Pacific Railway Company obtained a 66-mile, 200-foot wide right of way through southern Wyoming.  By 1911, the Railway had completed construction of its railroad over the Act-granted right of way.  

In 1976, the United States patented an 83-acre parcel to the Brandt family, conveying fee simple title but reserving and excepting certain rights-of-way and easements "to the United States".  For purposes of our discussion today, we'll focus on the reservation and exception that the land was patented "subject to those rights for railroad purposes as have been granted to the Laramie[,] Hahn's Peak & Pacific Railway Company."  That right of way stretched for nearly 1/2-mile across the Brandt parcel, covering 10 of the 83 acres.  As noted by the Court, "[t]he patent did not specify what would occur if the railroad abandoned this right of way".

The rail line owning the right of way changed hands a number of times, ending with the Wyoming and Colorado Railroad.  In 1996, the Railroad notified the Surface Transportation Board of its intention to abandon the right of way.

The Lawsuit.
In 2006, the United States filed this lawsuit seeking a judicial declaration that the right of way had been abandoned and an order quieting title to the right of way in the United States.  All property owners along the right of way settled or defaulted but for the Brandts, which took issue with the attempt to quiet title in the United States.

The Brandts contend that the "stretch of the right of way crossing [the Brandt] family’s land was a mere easement that was extinguished upon abandonment by the railroad, so that, under common law property rules, [the Brandts] enjoyed full title to the land without the burden of the easement".

The United States "countered that it had all along retained a reversionary interest in the railroad right of way—that is, a future estate that would be restored to the United States if the railroad abandoned or forfeited its interest".  In this sense, the United States is arguing that the 1875 Act created something more than an easement, the latter working as the Brandts indicate.  It is this "implied reversionary interest" in the United States that underlies the dispute.

The trial court granted summary judgment to the United States, and the appellate court affirmed.  The Supreme Court granted certiorari, and reversed.  In an 8-1 decision, the Court determined the Brandts held title to their 83 acres free and clear of the abandoned easement.  The other landowners are SOL.

The Majority.
The Majority's decision sits on two pillars: (1) the common law nature of easements and (2) an earlier argument from the United States', on which the United States succeeded, that supports the Brandts' position and contradicts the United States' position in this lawsuit.

First, the common law nature of easements.  Citing myriad secondary sources, the Court notes that an easement is a "nonpossessory right to enter and use land in the possession of another", which "disappears" if the beneficiary "abandons" at which point "the landowner resumes his full and unencumbered interest in the land".  Thus, the railroad's decision to abandon and ruling that it had abandoned "resume[d]" in the Brandts their patented interest in the property.

Second, the United States' inconsistency.  In what appears to be a point of order first raised before the Supreme Court -- there is no mention of this at either the trial court or the appellate court level -- the Court notes that the United States argued successfully in 1940, adopted by the Court "in full", that the 1875 Act "clearly grants only an easement, and not a fee".  See Great Northern Railway Co. v. United States, 315 U.S. 262 (1942).  Thus, the United States cannot now argue that the 1875 Act creates something more than an easement, with an implied reversionary interest in the United States after abandonment.  Of course, if you're the United States, there is likely nary an argument you haven't made before.   

The Dissent.
The dissent takes the position that railroad rights of way have always been treated differently than ordinary easements, and rightfully so, as sui generis property rights not governed by the common law regime.  In the context of railroad rights of way, the dissent points out, "traditional property terms like 'fee' and 'easement' do not neatly track common-law definitions" as the rights of way have characteristics of both easements and fee.  The dissent insists that precedent, including the decision in Great Northern Railway, is clear that railroad rights of way were granted by the 1875 Act "with an implied possibility of reverter in the United States".

And then the dissent gets real, which is our jam:  "By changing course today [from prior precedent regarding railroad rights of way and implied reversionary interests in the United States], the Court undermines the legality of thousands of miles of former rights of way that the public now enjoys as means of transportation and recreation."  Yep, those trails, which had been rails, could likely fail.

"Trespass your way around Town by bike, jog, or stroll."

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.  Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Friday, March 21, 2014, 11:24 AM

N.C. Court of Appeals: Zoning Administrator Cannot Determine Standing to Appeal

By Mike
In 2013, the General Assembly revamped the laws governing zoning boards of adjustment in North Carolina in S.L. 2013-126, entitled "An Act to Clarify and Modernize Statutes Regarding Zoning Boards of Adjustment".  The appellate case we'll discuss today interprets the laws existing prior to that revamping, but with lasting application to the powers of a zoning administrator in the context of handling an appeal of his or her land use decision.

Some Background
Morningstar, a full service marina, operates off Lake Gaston.  Across Lake Gaston, some 145 feet across Lake Gaston, from the Morningstar marina is some land owned by East Oaks, LLC.  East Oaks sought a conditional use permit to build townhouses on the property, an application it subsequently withdrew after someone (we'll never, ever know who) determined the proposed development was permitted under the Warren County zoning laws without the need for a conditional use permit. Accordingly, the Warren County zoning administrator issued a formal determination to East Oaks, LLC regarding its townhouse use.

Morningstar, however, disagreed with the formal determination, claiming that neither the proposed townhouses nor a proposed driveway were permitted under the zoning laws.  Morningstar appealed the townhouse determination and asked the zoning administrator to issue a formal determination regarding the driveway, as well (he'd already decided the townhouse issue).  As to the driveway determination, the zoning administrator refused.

First Appeal - The Townhouses
The Board of Adjustment heard Morningstar's appeal, and reversed the zoning administrator's determination regarding the townhouses.  East Oaks, LLC appealed that determination to the Superior Court though, curiously, Morningstar -- victorious before the Board of adjustment -- did not participate in the appeal to Superior Court.

The Superior Court issued a "consent order" between East Oaks (as petitioner before the Superior Court) and the County (as respondent), which included a conclusion of law that Morningstar "is not a 'person aggrieved'" such that the Board of Adjustment "had no jurisdiction or authority to hear" Morningstar's appeal of the zoning administrator's decision about the townhouses.

Again, we'll point out that Morningstar did not participate in this appeal to Superior Court and, thus, was not a party to the consent order determining its rights (or lack thereof) as a "person aggrieved" (or non-aggrieved, as it were). Interesting.

Second Appeal - The Drive
After seeking a writ of mandamus (it's getting heated, folks), which it ultimately dismissed, Morningstar received a formal determination from the zoning administrator regarding the drive, with which Morningstar also disagreed.  Morningstar then sought to appeal the zoning administrator's formal determination about the drive.

The zoning administrator, however, would not place Morningstar's appeal on the Board of Adjustment's agenda.  Why?  Well, it's simple: based on the "consent order" above, to which Morningstar was not a party, the zoning administrator took the position that Morningstar did not have standing to appeal the formal determination regarding a drive 145 feet across the lake.

Morningstar sought a writ of mandamus, which the Superior Court issued to compel the zoning administrator to place Morningstar's appeal on the Board of Adjustment's agenda.  The County appealed.  

The Court of Appeals
The Court of Appeals, deciding the case pursuant to since-repealed NCGS 153A-345, determined that the zoning administrator has a "statutory duty to transmit Morningstar's appeal to the [Board of Adjustment]" and that "the existence - or nonexistence - of standing is a legal determination" for the Board of Adjustment, NOT for the zoning administrator.

The Court begins with a quote to the since-repealed statute:  "The officer from whom the appeal is taken shall forthwith transmit to the board all the papers constituting the record upon which action appealed from was taken."  NCGS 153A-345.  The current laws also contain similar, mandatory language that the Court of Appeals finds dispositive in the old law:  "The official who made the decision shall transmit to the board all documents and exhibits constituting the record upon which the action appealed from is taken."  NCGS 160A-388(b1)(5).

Closing the loop, the Court goes further with regard to the zoning administrator's limited powers:  "Neither N.C. Gen. Stat. § 153A-345 nor any other provision of North Carolina law confers upon a zoning administrator the power to make a legal decision as to whether a party seeking to appeal to the BOA from a zoning decision is a 'person aggrieved' for standing purposes."  The new laws do not now vest a zoning administrator with such power, either.

So, we can safely view Morningstar Marinas/Eaton Ferry, LLC v. Warren County No. COA13-458 (March 18, 2014) as current law.

The Dissent
Judge Elmore dissents, noting that the relatively recent case Smith v. Forsyth County, 186 N.C. App. 651 (2007) vests the zoning administrator "with authority to refuse to transmit an appeal to the BOA if the appealing party’s application is devoid of any allegations of special damages, namely a decrease in property" and with authority to "unilaterally dismiss the appeal for want of standing".

The majority distinguishes Smith: "We cannot agree with the dissent that our holding in Smith somehow confers a gatekeeper role onto zoning officers given that such a role is nowhere conferred by statute or, for that matter, identified in our decision in that case. Rather, we believe that Smith is consistent with the notion that it is the BOA that has the duty of determining whether a party has made the requisite showing of standing such that the merits of the appeal may be reached.

It remains to be seen if Warren County appeals.

"You did not allege special damages, so I will not transmit your appeal.  Get out!"

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.  Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

John Cooke and Mike Thelen Author Paper on Public-Private Collaboration In North Carolina

By Mike
Next Friday, March 28, 2014, John Cooke will present a paper on public-private collaboration in North Carolina.  The paper will address strategies for succeeding in such instances of collaboration as well as some legal tools available to the local governments and private parties seeking to collaborate in North Carolina.

John and Mike Thelen authored the paper, which John will present to the Joint Annual Meeting of the Government and Public Sector Section and Zoning, Planning and Land Use Section of the North Carolina Bar Association.

You can access the full details of the Joint Annual Meeting in this brochure.


Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.  Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Thursday, March 20, 2014, 3:32 PM

Historic Districts and Certificates of Appropriateness: Raleigh's Latest Land Use Soap Opera

By Mike
A compelling land use row is well underway right here in Raleigh.  It allows commentary over anything from aesthetics, to history and historical context, to equity and fairness, to neighborly (or unneighborly) behavior, to the public perception of legal processes.  We'll spend our time on the legal processes.

Basically, here's what you need to know.   Oakwood is self described as "a nineteenth century neighborhood and historic district located near downtown Raleigh, North Carolina. The neighborhood includes hundreds of homes in a variety of architectural styles."  

The Oakwood neighborhood is in a local historic district as defined by the City's Unified Development Ordinance, which means the neighborhood is and the properties therein are subject to the jurisdiction of the Raleigh Historic Development Commission (RHDC).  The RHDC is charged with issuing certificates of appropriateness for work done in Oakwood, decisions on which are appealable to the City’s Board of Adjustment. 

The Certificate 
Oakwood residents Louis Cherry, a local architect, and his wife applied for and were awarded a certificate of appropriateness to build their “modernist” home in Oakwood.  Yes, Mr. Cherry’s design is not Victorian but neither are the host of other styles making up the rich skyline of Historic Oakwood. 

The Appeal
The day after the certificate issued by the RHDC, a neighbor notified Mr. Cherry that she would appeal the issuance of the certificate of appropriateness.  Shortly thereafter, that neighbor and fellow Oakwood resident filed a timely appeal of the issuance.  “Timely” is key.

"We Build Build Build Build Build the Whole Day Through"
Despite the timely appeal by the dissenting neighbor, Mr. Cherry obtained a building permit and began construction of his “modernist” home.  Construction continued.  And it continued.  Then, the Board of Adjustment heard the appeal and ultimately reversed the RDHC’s decision to issue the certificate to Mr. Cherry.  

A simple timeline sums up succinctly the significant milestones:
September 2013: RHDC approves a Certificate of Appropriateness for a new home on 516 Euclid St.
October 2013: Resident and neighbor Gail Weisner files an appealLouis Cherry begins pulling the permits needed for construction, and begins construction.
January 2014: Board of Adjustment defers the case in order to have more time to review the evidence.
February 2014: Board of Adjustment votes 3 to 2 to reverse the decision by the RHDC.
March 2014: Board of Adjustment will legally certify its findings. Any construction on the house must stop.

It’s reported to be Mr.Cherry’s view that the City needs “to honor their permit not to protect us but to protect the integrity of their approval process”.  The Land Use Litigator understands that some visible local people have started a fund to provide for Mr. Cherry's defense or otherwise publicly expressed their support for the home and in criticism of the Board of Adjustment decision.  For its part, the City announced today that it will, itself, appeal the Board of adjustment’s decision so that an “objective third party” can look at the issue.  This saves Mr. Cherry and his wife from the time and expense.

It is unclear to us why Mr. Cherry built and built and built with knowledge of the pending appeal of his certificate, and it’s even less clear to us why Mr. Cherry thinks the City should now take the reigns from him against its own Board of Adjustment.  Again, Mr. Cherry:  “We thought the worst thing that could happen was it would be remanded back to the RHDC and they may have had to have some review of those proceedings….  And if it had to go back to the RHDC any errors would be corrected. We were encouraged to begin construction and told we didn't have to go to the appeal meeting and that we were being notified as a courtesy.” 

That's one notion.  The other is to call a land use lawyer when you see the opposition mounting before your certificate is even debated by the RHDC.

"An ounce of prevention is worth a pound of cure, Mr. Cherry."

Now, it's national news.  See the Washington Post's take here, which uses the phrase "Frank Lloyd Wrong".  You simply have to read it.

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.  Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.
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