Defeated North Carolina Class Action Ultimately Results in Victory for Landowners – NCDOT Loses Map Act Fight

North CarolinaWhat began several years ago as a defeated attempt at a class action against the North Carolina Department of Transportation (NCDOT) ultimately resulted in a win this month for plaintiff landowners in Kirby v. NCDOT (No. 56PA14-2). On June 10, 2016, the North Carolina Supreme Court held that the State's restrictions placed on property owners under the Roadway Corridor Official Map Act (Map Act) constitute a taking of their property, requiring the state to compensate the landowners appropriately. The case was brought originally as a putative class action on behalf of nearly 800 landowners who own property subject to the Map Act’s restrictions within the area of the Northern Beltway highway project planned near Winston-Salem, NC. The plaintiffs’ motion for class certification was denied in Beroth Oil Co. v. NCDOT (Beroth II), 757 S.E.2d 466 (N.C. 2014), aff’g in part and vacating in part Beroth Oil Co. v. NCDOT (Beroth I), 725 S.E.2d 651 (N.C. Ct. App. 2012), on the grounds that the plaintiffs failed to establish the existence of a class under N.C. Rule of Civil Procedure 23 because individual issues in the case predominate over common issues. Subsequently, the Kirby plaintiffs filed separate complaints against the NCDOT, which were designated as exceptional and consolidated for case management. We highlight the NC Supreme Court’s ruling in Kirby, as well as class action lessons learned from the progression of the case through Beroth I and Beroth II.

A Taking Without Just Compensation

Under the Map Act, once the state designates a highway corridor for a planned project by filing a map, owners of property within the highway corridor are prohibited from improving, developing or subdividing the property indefinitely, unless they follow administrative procedures to obtain relief from the restrictions. The Kirby court’s decision hinged on whether the Map Act’s restrictions on property are an exercise of the police power, where property is regulated to prevent injury to the public, or an exercise of eminent domain, where property is taken for public use because it is beneficial to the public. An exercise of police power generally is not compensable, whereas a taking via eminent domain must be compensated. The NC Supreme Court agreed with the Court of Appeals’ assessment that the indefinite restrictions placed upon property owners under the Map Act “are not a valid, regulatory exercise of police power,” as the NCDOT argued. The Court reasoned that 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.” In the eyes of the appellate courts, the Map Act is a “cost-controlling mechanism” that allows the State to decrease the price it will have to pay for the land required to execute future highway projects. The Supreme Court punctuated its analysis with the fundamental nature of constitutional property rights: “From the very beginnings of our republic we have jealously guarded against the governmental taking of property.”

Individual Determinations & Lessons in Class Certification

The NC Supreme Court sent the Kirby case back to the trial court to conduct Individual inquiries into the appropriate amount of compensation for each landowner. The just compensation due to each landowner will be determined by the market value of the property before the NCDOT’s taking (i.e., before the corridor map was recorded) and after the taking. This calculation must consider the impact of the restrictions on each plaintiff’s fundamental rights and any effect of the reduction in ad valorem taxes provided for under the statute.

Although the case did not proceed as a class action, Beroth I and Beroth II have contributed meaningfully to North Carolina class action jurisprudence interpreting N.C. Rule 23, which is not as well-developed as the law surrounding its federal counterpart, Fed. Civ. P. 23. The Beroth cases reiterated the trial court’s discretion in class certification matters, as well as the importance of the predominance factor in determining class certification. In upholding the denial of plaintiffs’ class certification motion, Beroth I noted that “the predominance requirement is ‘the primary issue’ upon which courts from other jurisdictions have based their decisions in ruling on motions for class certification,” and “[t]he trial court is justified in denying the motion [for class certification] where the party seeking class certification fails to meet this requirement.” In Beroth II, the NC Supreme Court affirmed the Court of Appeals’ determination that the trial court did not abuse its discretion in denying plaintiffs' motion for class certification because individual issues predominate over common issues.

Beroth II also delved further into the class certification inquiry, holding that it is inappropriate to analyze the substantive merits of plaintiffs’ claims at the class certification stage. The trial court had analyzed several aspects of plaintiffs' takings claim, discerning whether the “substantial impairment” test or the “ends-means” test was applicable to the case, to come to the ultimate conclusion that individual determinations need to be made for each property and therefore "[c]ommon issues of fact and law would not predominate.“ Plaintiffs argued the “substantial impairment” test should have been applied, not the “ends-means” test. The NC Supreme Court ruled, however, that "[i]n determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met." Citing U.S. Supreme Court precedent from 1974 (Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178, (1974)), and noting the state’s reliance on the interpretation of Fed. R. Civ. 23, the NC Supreme Court declared: “Here both the trial court and the Court of Appeals improperly engaged in a substantive analysis of plaintiffs' arguments with regard to the nature of NCDOT's actions and the impairment of their properties.” The Court went on vacate the Court of Appeals’ discussion on the merits of the plaintiffs’ inverse condemnation claim, while affirming the denial of class certification: “As we have noted at some length, we believe that one of the trial court's fundamental errors was choosing to employ any test to determine the extent of damages suffered by all 800 landowners and whether a taking has occurred at this stage of the proceedings.”

North Carolina class action law continues to develop in areas where federal class action law is robust. For example, our previous post discusses the Ehrenhaus v. Baker case in which North Carolina Court of Appeals recently considered for the first time whether it is legal in a class action settlement agreement for one party to agree to pay the other’s attorneys’ fees and expenses. We will keep you updated on further developments in the North Carolina class action landscape.

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