tag: North Carolina Land Use Litigator: April 2014

BLOGS: North Carolina Land Use Litigator

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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

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).

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.
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