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Town of Nags Head v. Richardson

Court of Appeals of North Carolina

July 3, 2018

TOWN OF NAGS HEAD, Plaintiff,
v.
RICHARDSON, et al., Defendants.

          Heard in the Court of Appeals 16 November 2017.

          Appeal by Defendants from Judgment Notwithstanding the Verdict entered 17 October 2016 by Judge Gary E. Trawick in Dare County Superior Court. Cross-appeal by Plaintiff from orders entered 17 December 2014 and 25 August 2015 by Judge Gary E. Trawick in Dare County No. 11-CVS-304 Superior Court.

          Hornthal, Riley, Ellis & Maland, LLP, by Benjamin M. Gallop and M. H. Hood Ellis, for Plaintiff.

          Nexsen Pruet, by Norman W. Shearin, for Defendants.

          INMAN, JUDGE.

         This appeal, following a jury verdict for property owners and entry of judgment notwithstanding the verdict ("JNOV"), presents an issue of first impression: whether a municipality that takes an easement in privately owned oceanfront property to replenish the beach can avoid compensating the private property owner by asserting public trust rights vested in the State. On the record before us, we hold that the property owner is entitled to compensation as provided by the eminent domain statute.

         We also hold that the jury's verdict was supported by a scintilla of evidence and reverse the trial court's entry of JNOV. But because expert testimony supporting the verdict was admitted in error, we remand for a new trial.

         Defendants William W. Richardson and Martha W. Richardson (the "Richardsons") appeal the entry of JNOV that set aside a jury verdict of $60, 000.00 compensating them for an easement taken by the Town of Nags Head (the "Town") through eminent domain. The Town took the easement across a portion of the Richardsons' property to complete a beach nourishment project. In entering the JNOV, the trial court concluded that the Richardsons were entitled to no compensation, reasoning that: (1) the land subject to the easement was encumbered by public trust rights, so the easement was already implied in favor of the Town to protect and preserve those public trust rights; and (2) in the event the easement was not already implied and thus constituted a compensable taking, the Richardsons failed to introduce evidence supporting the jury's verdict based on the fair market value of the temporary easement. The Town cross-appeals the denial of its motions in limine seeking to exclude testimony by the Richardsons' expert witnesses. We reverse both entry of JNOV and denial of the motions in limine and remand for new trial.

          I. FACTUAL AND PROCEDURAL HISTORY

         In early 2011, the Town undertook a beach nourishment project along ten miles of its coastline to combat erosion and improve flood and hurricane protections. The Town mailed a notice of condemnation to owners of oceanfront property along the affected coastline, including the Richardsons. In the notice, the Town informed private property owners of the purposes of the project and asked them to grant the Town an easement across the sand beach portion of their properties. Specifically, the Town requested the following:

The property on which the Town will need to work lies waterward of the following locations, whichever is most waterward: the Vegetation Line; the toe of the Frontal Dune or Primary Dune; or the Erosion Escarpment of the Frontal Dune or Primary Dune.
Please be aware that this is not a perpetual easement; the Town only requests that it have the easement rights through April 1, 2021.
You will not lose land or access rights if you sign the easement. We are simply asking for your approval to deposit sand and work on a specific section of your property on one or perhaps more occasions, during a ten year period. Except for the brief periods when construction or repairs are ongoing, you will still be able to access the beach from your property and construct a dune walkover . . . .
At the outset of the nourishment project, a survey will be conducted to establish the existing mean high water line, which is currently your littoral property line and will remain your property line after the project. . . . As set forth on the enclosed Notice, the Town may need to enter the beach in front of your property.

         The notice also included this rendering, which identifies the portion of beach subject to the requested easement and the Town's understanding of related rights and interests:

         (Image Omitted)

         Finally, the notice stated that the Town would bring a condemnation action to take, by eminent domain, the easement rights requested in the notice if no voluntary grant of the easement was executed.

         The Richardsons did not grant the Town the easement rights requested in the notice and, on 28 March 2011, the Town filed a condemnation action. The Town sought the following easement rights (the "Easement Rights") in the Richardsons' dry-sand beach property lying between the toe of the dune and the mean high water mark (the "Easement Area;" together with the Easement Rights as the "Easement"):

The Town, its agents, successors and assigns may use the Easement Area to evaluate, survey, inspect, construct, preserve, patrol, protect, operate, maintain, repair, rehabilitate, and replace a public beach, a dune system, and other erosion control and storm damage reduction measures together with appurtenances thereof, including the right to perform the following on the property taken:
• deposit sand together with the right of public use and access over such deposited sand;
• any alterations of contours on said land;
• construct berms and dunes;
• nourish and renourish periodically;
• perform any other work necessary and incident to the construction, periodic Renourishment and maintenance of the Town's Beach Nourishment Project . . . .

         Consistent with the Town's earlier notice, the Easement terminates on 1 April 2021.

         The Richardsons filed an answer and motion to dismiss in response to the complaint. On 20 July 2011, the trial court entered a consent order denying the Richardsons' motion to dismiss, vesting title to the Easement in the Town as of the date the complaint was filed pursuant to Section 40A-42 of our General Statutes, and continuing all other hearings authorized by statute until after the Town deposited sand on the beach and Easement Area as part of the nourishment project. The action was then designated an exceptional case and assigned for all purposes to a single superior court judge.

         In 2014, after the nourishment project was completed, Judge Gary Trawick presided over a hearing pursuant to Section 40A-47 on all issues other than damages. By order entered 17 December 2014 (the "40A-47 Order"), Judge Trawick decreed that: (1) the area affected by the taking of the Easement was the Richardsons' entire lot consisting of 30, 395.2 square feet; (2) the property taken, i.e., the Easement Area, was approximately 7, 280.54 square feet of beach lying between the toe of the dune and the mean high water mark at the time of condemnation; and (3) the rights taken were those described in the Town's complaint.[1] Judge Trawick denied a motion by the Town requesting a ruling that the Easement Area, or any portion of it, was subject to public trust rights.

         The damages issue was scheduled for trial before a jury in August 2015. In pre-trial motions, both parties raised the issue of the public trust doctrine. After reviewing the issue further, Judge Trawick continued the trial and entered an order revising the 40A-47 Order (the "Revised 40A-47 Order").

         The Revised 40A-47 Order concluded that the entire Easement Area was located within the State's "ocean beaches" as defined in N.C. Gen. Stat. § 77-20(e) (2015), and therefore was subject to public trust rights as described in N.C. Gen. Stat. § 1-45.1.[2] The Revised 40A-47 Order provided both parties with the opportunity to seek new appraisals in light of Judge Trawick's ruling. Judge Trawick certified the Revised 40A-47 Order for immediate appeal pursuant to Rule 54(b) of the North Carolina Rules of Civil Procedure, but neither party noticed an appeal.

         In advance of the trial on damages, the Town filed motions in limine seeking to exclude testimony by two appraisers hired by the Richardsons, Gregory Bourne ("Mr. Bourne") and Dennis Gruelle ("Mr. Gruelle"). The trial court prohibited all expert witnesses from testifying to opinions not disclosed prior to or at the time of their respective depositions. The trial court otherwise denied the motions.

         At trial, Messrs. Bourne and Gruelle provided testimony and portions of their written appraisal reports were published to the jury. Mr. Bourne's report and testimony asserted that the taking had diminished the fair market value of the remainder of the Richardsons' property by $160, 000. Mr. Gruelle's report and testimony asserted that the taking had diminished the value of the remainder of the Richardsons' property by $233, 000.00.

         Mr. Bourne testified that, in valuing only the land constituting the Richardsons' entire lot, he first determined the "[h]ighest and best use[, which] is that use which you can physically and possibly build that is legally permissible, that is financially feasible, and that reflects the maximum value, that will generate the maximum value of the property." After determining the best and highest use of the Richardsons' entire lot to be residential, he employed sales comparison and cost approaches to reach a "before [taking] land value [of] $855, 000." After including the improvements to the property and other adjustments, Mr. Bourne arrived at a pre-taking value of the improved lot of $1, 040, 000.

         To determine the impact of the Easement taking on the fair market value of the Richardsons' lot, Mr. Bourne reviewed comparable sales and found an eight percent difference in the value of oceanfront lots that extended all the way to the mean high water mark and beachfront lots that stopped short of the ocean. He made this comparison because, per Section 146-6(f), title to new land seaward of the former mean high water mark created by the nourishment project would vest in the State.[3]The Town's use of the Easement, therefore, affixed the Richardsons' property line at the former mean high water mark and created a strip of State-owned land between the Richardsons' property line and the ocean. After considering damage to the unencumbered portion of the lot, Mr. Bourne testified that the proper measure of damages was "[t]he difference between the before and the after [fair market values of the Richardsons' property] and I came up with $160, 000." Applying his calculation to the entire lot's unimproved value of $855, 000, Mr. Bourne "came up with an after the taking land value, that is the value of the land now encumbered by this easement for 10 years, of $70, 000."

         The Richardsons' other appraiser, Mr. Gruelle, testified that the highest and best use of the Richardsons' lot was residential and, after comparing sales of similar properties, concluded that "the value of the site was [$]880, 000. . . . [$]880, 000 is attributable to the value of the land."

         Taking the $880, 000 value of the entire lot with its highest and best use as residential property, Mr. Gruelle calculated a value of $28.95 per square foot. He then multiplied that number by the total square footage of the Easement Area, 7, 280, and arrived at a total value of $210, 756 for the Easement Area. Mr. Gruelle estimated that, based on the Easement Rights taken, the Town's use of the Easement Area for ten years exploited 90 percent of its land value; as a result, Mr. Gruelle testified that the value of the Easement taken was approximately $190, 000.[4] Mr. Gruelle combined the Easement value with other negative impacts on the unencumbered property-including the effect on the view and ease of beach access resulting from the increased height of the dunes-to which he assigned a value of $43, 000, and opined that "the total impact of the property is $233, 000. . . . That is the just compensation to leave the property owner whole."

         At the close of the Richardsons' evidence, the Town moved for directed verdict. Reasserting the grounds raised in its motions in limine, the Town argued that Messrs. Bourne's and Gruelle's valuations were unreliable and should be stricken; if that evidence were stricken, the Richardsons would have failed to prove damages, and the Town would be entitled to a directed verdict. The trial court denied the motion.

         Michael Moody, an expert witness for the Town, provided an opinion on two distinct fair market values: (1) the difference in fair market value of the Richardsons' entire lot before the taking and the remainder after the taking under the "before and after method;" and (2) the fair market value of the Easement. Mr. Moody determined the difference in total market value to be zero and determined the fair market value of the Easement to be $330. He arrived at the second number through the "market extraction" method, whereby he found two comparable vacant oceanfront lot sales, one encumbered by a permanent easement for beach nourishment and one unencumbered. Mr. Moody then calculated the difference in those sale prices, which came out to $1, 000, and attributed that difference to the presence of the permanent easement. Because the Easement in this case was for a ten-year period rather than perpetual in duration, he reduced the extracted amount by two-thirds and arrived at a fair market value of $330 for the Town's taking.

         The Town renewed its earlier motion for directed verdict at the close of its evidence, and the motion was denied. Following instruction by Judge Trawick and deliberations, the jury returned a verdict finding that the fair market value of the Easement was $60, 000, and the difference in fair market value of the Richardsons' property pre-taking and the remainder post-taking was zero. The jury awarded the Richardsons $60, 000 as the greater value.

         The Town timely filed a motion for JNOV, arguing, among other things, that the Richardsons had failed to introduce evidence showing the fair market value of the Easement. Joined in the motion for JNOV was a motion for new trial and a motion for remittitur. Neither motion was ruled on by the trial court.

         Eight months later, following a hearing and additional briefing, Judge Trawick entered JNOV in favor of the Town, declaring that the Richardsons should recover nothing. Judge Trawick identified two bases for his ruling: (1) there was no compensable taking, as the Town already possessed an easement by implication to protect and preserve the State's ocean beaches by virtue of the State's public trust rights; and (2) in the event there was a compensable taking, there was no evidence from which the jury could find a fair market value of the Easement, [5] so the only available calculation of damages was the "before and after" value of the unencumbered property. Because the jury found that value to be $0, that was the proper amount of damages.

         The Richardsons appealed the JNOV; the Town cross-appealed the 40A-47 Order and Judge Trawick's ...


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