In early May, North Carolina’s second highest court issued rulings in two cases involving government attempts to acquire property via eminent domain. The Court of Appeals rulings highlight both the power of eminent domain and the nuisances of state law regarding both compensation and interlocal agreements when it is used.
The first case involved a dispute between two counties and two towns over the construction of a new water supply system. In September 2001, Dominion Energy expressed interest in building a natural-gas-fired electrical plant in Person County. Water supply in the county is handled by the town of Roxboro. While existing water sources are adequate to meet current needs, they could not have handled the proposed power plant.
Person County and Roxboro soon identified the Dan River in neighboring Caswell County as the most likely source for additional water. Though Dominion opted not to build the power plant, Rox-boro and Person County decided to continue with the Dan River project as they had already spent $500,000 on it. In March 2003, they entered into an interlocal agreement with the Caswell County town of Yanceyville to extract water from the Dan River for the benefit of the three localities.
Caswell County had, however, consistently opposed the project. When Yanceyville began condemnation proceedings against a landowner pursuant to the agreement, Caswell County sued to determine the legality of the interlocal agreement and whether the town had the authority to use eminent domain to acquire the property.
Caswell County’s argument centered largely on N.C. Gen. Stat. § 153A-15(b): “Notwithstanding the provisions of [N.C. Gen. Stat. § 160A-240.1], or any other general law or local act conferring the power to acquire real property, before any… city… which is located wholly or primarily outside another county acquires any real property located in the other county by exchange, purchase or lease, it must have the approval of the county board of commissioners of the county where the land is located.”
Specifically, it argued that the eminent-domain action would effectively give Roxboro and Person County, the major players in the deal, control over land in Caswell County without Caswell County’s consent.
The Court of Appeals rejected the argument. “Given the numerous and material benefits afforded Yanceyville under the terms of the agreement, we must disagree,” wrote Judge Ann Marie Calabria for the court. She noted that the town would acquire a second water source and pumping station in the arrangement as well as the capacity for future growth. State law also gives localities broad authority to enter into interlocal agreements.
The case is Caswell Cty. v. Town of Yanceyville. The Court of Appeals’ decision can be found on the Internet at www.aoc.state.nc.us/www/public/coa/opinions/2005/040472-1.htm.
A different panel of the Court of Appeals also issued a ruling in a different eminent-domain case May 3. The case involved the proper way to determine compensation when only part of a property is taken by eminent domain.
In 1999, the N.C Department of Transportation made improvements at the intersection of Garrett and Chapel Hill roads in Durham County. The roadwork required that taking part but not all of a gas-station property owned by M. M. Fowler, Inc. Access to the service station was reduced from two to one entrances by the widening. The state offered $166,850, which the company thought was inadequate.
At trial, M. M. Fowler sought to introduce evidence that the taking of land had reduced its profits by $90,000. The NCDOT objected, claiming that state law precluded its consideration. The evidence was admitted and the jury awarded M. M. Fowler $450,000.
Upon appeal, the NCDOT again argued that the evidence about loss of profits should not have been admitted at trial.
The Court of Appeals, however, sided with M. M. Fowler. The court noted that the general rule in determining damages in highway condemnation cases is the “difference between the fair market value of the entire tract immediately prior to said taking and the fair market value of the remainder immediately after said taking.” Loss of profits should ordinarily not be considered.
The N.C. Supreme Court, however, created an exception in a 1962 case called Kirkman v. Highway Comm’n. In it, the high court held that admitting evidence of lost profits is appropriate “when the taking renders the remaining land unfit or less valuable for any use to which it is adapted, that fact is a proper item to be considered in determining whether the taking has diminished the value of the land itself.” The case involved a motel and restaurant that lost business because access to the highway was eliminated.
“We conclude that Kirkman creates a limited exception in cases where access to property that is being taken through eminent domain is restricted or denied,” wrote Judge Steelman for the Court of Appeals in upholding the award to M. M. Fowler.
“In such instances, evidence of lost profits is admissible to show diminution in the value of the remaining property where the taking renders the property less fit for any use to which it has been adapted, as well as to show the fair market value of the property after the taking.”
The case is Department of Transp. v. M.M. Fowler, Inc., and is available online at www.aoc.state.nc.us/www/public/coa/opinions/2005/040073-1.htm
Michael Lowrey is associate editor of Carolina Journal.