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Condemnation interest rate change nixed

 

Two years ago, state lawmakers passed a bill with a last-minute provision that reduced the interest rate that some residents could receive as part of condemnation awards when the North Carolina Department of Transportation took their land and delayed payment for just compensation.

Now, the future of that law is in question after a judge in Forsyth County declared it to be unconstitutional in a March 27 ruling.

“This is a wonderful thing for the property owners. The court has said that you’re going to have to treat everyone equally,” said Tim Nerhood of Hendrick, Bryant, Nerhood, Sanders & Otis. The Winston-Salem firm represents residents whose land has been taken through the DOT’s use of the Map Act, a now-defunct law that the agency used to freeze development on land in the path of proposed highway projects as a way to drive down land acquisition costs.

In 2016, lawmakers slipped a provision into House Bill 959 that dropped the DOT condemnation interest rate from the statutory 8 percent simple interest to the floating prime rate, which was around 3.5 percent at the time. It also capped the rate at 8 percent, preventing owners from benefiting if the prime rate were to spike.

Then-Gov. Pat McCrory signed the bill into law on July 11, 2016, shortly after the Supreme Court’s decisions in the Kirby cases against the DOT, which held that a Map Act filing constituted a taking.

Currently, Map Act plaintiffs who filed inverse condemnation claims before the law took effect would get a presumptive interest rate of 8 percent, while those who filed after the the bill was enacted would get 5 percent as the presumptive rate.  

The change negatively affected about 99 plaintiffs in Forsyth who filed after the bill was enacted, while 200 others in Forsyth and Guilford counties had filed before the change.

Forsyth County Superior Court Judge John Craig wrote in his order that the central question in the case against HB 959 was whether the state could “justify cutting the presumptive interest rate calculation for certain similarly-situated landowners by demonstrating a compelling governmental interest?”

“The answer is obviously no,” he wrote in ruling that the interest rate change was “arbitrary and capricious” and violated the state and US Constitutions.

Under state law, interest is “an integral part of just compensation” in condemnation awards, Craig said. He added that “just compensation is clearly a fundamental right under both the United States and North Carolina Constitution,” which means that “any statute infringing upon that right must be strictly construed.”

Craig made his ruling under the strict scrutiny analysis. But he stated that an appellate court could reach the same conclusion using the rational basis test, because the state “cannot demonstrate that HB 959, as applied to these plaintiffs, is rationally related to a legitimate governmental interest.”  

Craig found that the legislature’s only conceivable motivation for changing the interest rate was for the sole benefit of the DOT. And he held that the “change is arbitrary and capricious and causes disparate treatment among similarly-situated landowners without demonstrating a rational relationship to a legitimate governmental goal.”  

The DOT had argued that the tweak to the interest rate was merely a “remedial measure that was evidentiary in nature and thus exempt from being considered unconstitutional.” But Craig rejected the argument and called it “troubling.”

DOT spokesman Steve Abbott wrote in an email that Craig’s “decision is simply part of the process of developing the law as the legal process moves along.” He added that the agency had not decided whether it would appeal the ruling.  

House Speaker Tim Moore and President Pro Tem Phil Berger were joined with the DOT in the suit but declined to participate in the hearing in which Craig heard arguments for a declaratory judgment on the constitutionality of HB 959. An attempt to speak with their attorney, Chief Deputy Attorney General Alexander Peters of Raleigh, was unsuccessful.  

Matthew Bryant and Paul Hendrick, also of  Hendrick, Bryant, Nerhood, Sanders & Otis, said in a joint statement that “HB 959 was the DOT’s continued attempt to save money on the backs of a few individuals. It’s common sense that you can’t treat identical owners differently and we appreciate Judge Craig’s ruling on the matter.”

The 11-page decision is Abdellmelk v. North Carolina Department of Transportation (Lawyers Weekly No. 021-001-18). An opinion digest is available at nclawyersweeky.com.

Follow Phillip Bantz on Twitter @NCLWBantz  

 

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