Inverse Condemnation: Should I Sue in Federal Court or North Carolina State Court?

A recent decision from the United States Fourth Circuit Court of Appeals held that, for inverse condemnation cases involving North Carolina land and actions by North Carolina state agencies, the proper place to sue is in North Carolina state courts. See Zito v. North Carolina Coastal Resources Comm'n, 8 F. 4th 281 (US Court of Appeals, 4th Circuit Aug. 9, 2021).

The federal Court of Appeals held that the State of North Carolina possessed something called "Sovereign Immunity," which prevented the State from being sued in federal court by Michael and Catherine Zito (the "Zitos"). Under the United States Constitution, the federal government and each State government are considered separate and distinct. For various complex legal reasons, because they are separate and distinct, absent agreement, generally the various governments cannot be sued in the courts of the other governments. This is the basic idea of sovereign immunity.

However, the federal Court of Appeals held that Zitos had the ability to sue the State of North Carolina in the courts of North Carolina. The Zito case involved an inverse condemnation claim involving beachfront property here in North Carolina. In the past, the question of whether to sue in federal or state court was relatively easy. If the State took some action that constituted a "taking" of private land, then the proper place to sue -- called "venue" -- was state court. If the federal government took some action that was alleged to be "taking," then the proper venue was federal court. A few years ago, the United States Supreme Court complicated the question of venue. But, the Zito case may have made things simple again (at least for states like North Carolina).

As noted, the Zito case involved the concept of inverse condemnation with respect to beachfront property in South Nags Head, North Carolina on one of the barrier islands off the coast. In 1974, North Carolina enacted the Coastal Area Management Act ("CAMA") aimed at protecting and managing coastal areas. Included among the statute's provisions -- and subsequent regulations -- were various set-back requirements for houses built on the barrier islands. For example, new homes would need to be set-back at least 60 feet from the "vegetation line" (the line where natural vegetation begins marking the boundary between beach and more stable land away from the waterline). These set-back requirements are justified as a method of protecting this vegetation line which, in turn, prevents destruction and disturbance of the beaches and dunes that buffer the inlands from storms and tidal erosion.

The Zitos bought their house in 2008 and it was grandfathered into the CAMA regulations. But, the house was destroyed by a fire in 2016. Because the house was destroyed, pursuant to the CAMA regulations, the Zitos were required to seek a permit to rebuild from their local town planning board. They did so, but because of erosion since the house was constructed, the house location no longer satisfied the set-back requirements, being only 15 feet from the vegetation line. Thus, the town planning board denied the permit to rebuild. The Zitos then sought a zoning variance from the planning board, but, after public hearings, that, too, was denied. The Zitos then appealed the adverse decisions to the North Carolina Coastal Resources Commission. The Zitos lost again.

As an aside, the Zito case is an apt illustration of how complex land use, zoning, and permit regulations are here in North Carolina. The Zitos lost their no-doubt very valuable beachfront vacation home to a fire in 2016 and are still fighting for the right to rebuild. The case does not disclose the dimension of the Zitos' property, but, given the 60 foot set-back requirement, the land may no longer be a buildable site. As such, the entire value of the property has been destroyed. Unless they win their inverse taking claim, they will lose all of that value (other than what the insurance might have paid). The case demonstrates why it is so important for landowners to hire experienced North Carolina inverse condemnation and land use attorneys. The laws and procedures are complex and landowners need dedicated and trusted legal allies.

Back to the story. After losing before the Resources Commission, the Zitos then sued in the United States District Court arguing that CAMA's restrictions amounted to an unconstitutional taking without just compensation which is a violation of the United States Constitution. At this point, the sovereign immunity question became paramount since the State of North Carolina (through its sub-agency, the Resources Commission) was being sued in the courts of a distinct and separate government. Ultimately, the District Court ruled that sovereign immunity applied and dismissed the Zitos’ case. As noted, the federal Court of Appeals affirmed. Now the Zitos will have to take their case to the North Carolina Superior Court in Dare County.

For more information, and to schedule a confidential consultation with experienced and dedicated eminent domain and condemnation attorneys in Charlotte, contact Arnold & Smith, PLLC. Use our “Contact” page or give us a call at 704-370-2828. We handle land use, zoning and condemnation legal matters in Mecklenburg County and elsewhere in North Carolina. We have offices in Charlotte, Lake Norman, and Union County.