North Carolina wants victims of eminent domain to pay up
It might seem like a simple question, but it’s nonetheless one that North Carolina’s courts have never really answered: When the government takes private property, does “just compensation” mean merely paying the property’s value, or actually making the owner whole?
They are not always the same thing. In fact, as one might guess, they are usually not the same thing, and now, in a case that could have national implications, a North Carolina eminent domain lawsuit has put that question squarely before that state’s courts.
The dispute began in 2020, when the North Carolina Department of Transportation (DOT) condemned portions of property owned by Rite Touch Investments along U.S. 70 in New Bern, North Carolina, for a highway project. The taking affected an auto paint and body shop, eliminating access to one of its two work bays and taking land used for parking and vehicle storage.
After the North Carolina Department of Transportation (DOT) offered the property owner approximately one-tenth of what a jury ultimately determined the property was worth, the owner incurred substantial costs for attorneys and experts to obtain the compensation the jury said was due, according to the company. Now DOT is appealing an order requiring it to reimburse Rite Touch $165,185.85 in litigation expenses, nearly $160,000 of which the trial court awarded on constitutional rather than statutory grounds.
Property rights groups such as Pacific Legal Foundation (PLF), which has filed an amicus brief in the case, say the implications could reach other states. It argues that a constitutional guarantee of just compensation becomes hollow if governments can substantially undervalue property, force an owner to litigate to establish its actual value, and then insist that the owner absorb the cost of proving the government wrong.
Thanks, but no Thanks
DOT initially offered $41,400 for the property and increased that to less than $46,000 during mediation, Rite Touch’s brief states. Rite Touch rejected the offer and went to trial: “Rite Touch declined that offer after repeatedly raising concerns that the Department ‘shoved . . . off.’”
The trial turned out not to be such a good idea for the bureaucracy.
“The jury unanimously valued the property taken and damaged at $433,000—the precise amount supported by Rite Touch’s appraiser and nearly ten times DOT’s highest offer,” the company’s brief states. “… After trial, Rite Touch moved for reimbursement of costs and expenses under statute and under the North Carolina and federal Constitutions.”
The trial court found that Rite Touch incurred substantial, necessary, and reasonable litigation expenses, including expert costs, mediation expenses, exhibits, and attorney’s fees as a direct result of the department’s actions.
“The trial court concluded that, without reimbursement, Rite Touch could not receive the value of the property taken and could not be placed in the same financial position that it would have occupied if its property had not been taken, and that Rite Touch would be denied the indemnity, equity, and natural justice required by the North Carolina Constitution, as well as due process required by the North Carolina and United States Constitutions,” the brief recounted.
And now it’s the state of North Carolina saying ‘no thank you’ in the court of appeals.
What Does it Mean to Make an Owner Whole?
The constitutional question makes the dispute much larger than a disagreement over an attorney-fee award, PLF asserts in its brief. In effect, PLF argues, the case exposes a fundamental contradiction in eminent domain law because the constitutional principle of just compensation is supposed to leave owners financially where they stood before the government took their property.
PLF traces the indemnity principle through centuries of Anglo-American property law, from the Magna Carta through the American founding. North Carolina courts likewise have described just compensation as requiring that the owner receive the “full and perfect equivalent” of the property and be returned to the same financial position occupied before the taking, the company argues. The issue presented by Rite Touch is whether that promise can be fulfilled when the owner must surrender a substantial portion of the compensation merely to obtain it.
“Lofty principles are one thing, reality is another,” the PLF brief states. “The North Carolina Constitution promises to indemnify property owners on the target end of the sovereign’s ‘most awesome grant of power.’ But this principle rings hollow when it runs into the reality that condemnors’ offers are often a fraction of the property’s actual value.”
This puts the owner in an impossible position, PLF contends, forced to choose between two options, neither of which will make him or her economically whole: go quietly into the night and accept inadequate compensation or bear the often high costs necessary to prove what the condemnor should have provided in the first place.
“Either way, the owner ends up economically worse off than before the taking,” the PLF brief states. “This appeal is an opportunity for this court to reconcile principle with reality, and to reaffirm that condemnors have special duties of fairness in eminent domain as other courts across the nation have recognized.”
Without such reconciliation, PLF argues, constitutional rights are put in serious jeopardy:
“If the courts accept that it is simply part of the system that property owners are regularly deprived of full indemnity in eminent domain, then the constitution’s promise is meaningless, and it would be understandable if property owners concluded that real justice may be too elusive— too dear in time, spirit, and resources—to merit standing up for their civil rights.”
Condemnation is not Ordinary Litigation
The company’s claim appears to run against the grain of the so-called American Rule, whereby litigants generally pay their own way, win or lose. And at the federal level, Rite Touch is running uphill against a significant precedent.
In United States v. Bodcaw Co. (1979), the U.S. Supreme Court held that appraisal expenses incurred in challenging the government’s valuation generally are not part of the “just compensation” required by the Fifth Amendment, reaffirming earlier precedent excluding attorneys’ fees and litigation expenses. But that established federal constitutional standard does not necessarily negate protections that North Carolina may provide under its own constitution.
And PLF says there is an important distinction to be made, namely, that condemnation is not ordinary litigation and so the American Rule cannot be applied mechanically to eminent-domain proceedings.
That is to say, the balance of power is radically different from ordinary civil litigation. For starters, the government chooses whether and when to initiate condemnation, and North Carolina’s quick-take provisions can permit the transfer of title and possession before the government has prevailed in a conventional trial. Meanwhile, the owner often has little realistic ability to prevail and must instead fight over the amount of compensation.
“The property owner is an entirely innocent party dragged into a lawsuit simply because the government needs (or merely wants) their property,” the PLF brief states. “There is little that an owner can do to stop the taking, even if the property has been owned by a family for generations or is essential to their business, as is often the case. Only by mustering extraordinary proof can owners even mount a public use defense.”
Moreover, the PLF brief continues, the usual rules in civil cases don’t apply in eminent domain.
“Property owners can be deprived of title and possession immediately without the government first proving its case, regardless of the disruption to their homes, lives, or businesses,” the brief states. “There’s no statute of limitations limiting when a condemnor brings a lawsuit, and it alone chooses the initiation date; property is always subject to being taken. And if an eminent domain lawsuit is terminated before final judgment—either by the condemnor voluntarily, or by dismissal before judgment—the condemnor is free to simply start all over again and is not bound by the usual rules of preclusion.”
PLF argues that such extraordinary power demands corresponding due process and just treatment. Because compensation is effectively the property owner’s only protection against the government’s power to take property involuntarily, systematically leaving owners to pay the expense of establishing the property’s true value guts that protection.
The problem becomes particularly relevant when the government’s initial valuation is far below the amount ultimately established. PLF points to evidence that the problem is broader than Rite Touch, including a study of New York City condemnation settlements that found that more than half of the owners studied settled for less than fair market value.
“In cases where owners do not believe that the condemnor’s offer accurately measures just compensation, the owner has two alternatives: (1) forego a challenge and accept less for the property than the Constitution requires; or (2) seek the help of professionals to assert the owner’s constitutional rights and argue for compensation that is just,” the PLF brief states. “And the stark but unavoidable reality of litigation is that it costs money. None of the professionals necessary to prove the condemnor’s offer is substandard— appraisers, engineers, land use planners, and legal counsel, for example—work for free.”
Rite Touch itself provides the perfect illustration. DOT’s highest offer was under $46,000; the jury determined the taking and damage amounted to $433,000. Yet obtaining that result required substantial litigation expenses that the company would never have incurred had the government paid the property’s proper value in the first place.
Who Should Bear the Cost of Government Lowballing?
The case raises another question with implications for eminent domain proceedings nationwide: Who should bear the financial risk when the government significantly undervalues condemned property?
PLF argues that requiring government to reimburse reasonable litigation expenses when owners successfully establish greater compensation would change government behavior.
“It removes the condemnor’s perverse incentive to game play, and will make them provide realistic offers,” the PLF brief states. “When condemnors understand that they must bear the costs of undercompensation, they have every reason to make good-faith deposits up front. This reinforces the just compensation requirement as a real check on the sovereign’s eminent domain power by requiring agencies to realistically assess the true cost of infrastructure and other improvements. It renders the government more judicious in deciding which eminent domain projects are necessary. It also disincentivizes litigation posturing, encourages earlier resolution, and reduces litigation.”
Rite Touch makes essentially the same argument. The company contends that North Carolina’s constitutional guarantee of indemnity cannot mean that an owner receives full value only when the government makes an adequate initial offer. Otherwise, an owner whose property is undervalued must effectively finance the government’s mistake by sacrificing part of the eventual award to the cost of correcting it.
“If Rite Touch had voluntarily sold its property to a willing buyer, it would not have forfeited a large portion of the property’s value to litigation expenses,” the company’s brief states. “The result must be no different when Rite Touch is forced to involuntarily sell its property. Reimbursement is the only way to fulfill the guarantees of North Carolina’s Law of the Land Clause, including due process and just compensation.”
Then, too, PLF argues that requiring the government to make the owner whole reinforces the principle behind just compensation that a single or discrete group of property owners should not be forced to pay a disproportionate amount for a public project.
“Just compensation disperses the costs of public projects and ensuring reimbursement of costs prevents one or a few owners from paying more than their fair share,” the PLF brief states. “Consequently, while federal courts may have set a floor for what must be considered in just compensation calculations, they have not set a ceiling, and North Carolina can and should demand better. North Carolina’s courts should not be blind to the realities of eminent domain litigation. Neither are the courts powerless, and the Supreme Court has long recognized that the law is, at bottom, concerned not only with strict technical adherence, but also with achieving the practical and just result.”
The North Carolina DOT counters on both statutory and constitutional grounds. It argues that state law limits Rite Touch’s recovery of litigation expenses and that the trial court could not circumvent that statutory limitation by awarding nearly $160,000 more on constitutional grounds. On the merits, DOT also argues that established precedent recognizes no constitutional right to recover those expenses in an ordinary takings case.
Both Rite Touch and PLF argue that the North Carolina constitution can provide protections beyond the federal constitutional minimum and that court-created fee-governing rules cannot override the state’s constitutional requirement that owners be indemnified. Indeed, Rite Touch asserts, the case presents an issue of first impression in North Carolina because the courts there have never addressed reimbursement of litigation expenses in eminent domain cases.
“The Constitution does not require Rite Touch to accept a condemnation discount,” its brief states. “Rite Touch should not have to forfeit its fundamental rights to due process and just compensation merely by exercising those rights. Without reimbursement for litigation expenses, Rite Touch would have no process by which it could receive the market value of the property taken from it. Its sole choice would be to (1) accept the Department’s offer of 10 cents on the dollar or (2) decline that offer and be thrust into court to forfeit a large portion of the value of its property to litigation expenses. Neither choice is constitutionally sufficient.”
And that’s particularly where the case has broader implications. Could that reasoning serve as a roadmap for property owners—and for courts interpreting their own constitutions—in other states?
It just might.
