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Agcs Marine Insurance Co. v. County

Supreme Court of Virginia

June 15, 2017



         PRESENT: All the Justices



         Two insurers paid claims for property damage to a Harris Teeter grocery store arising from the malfunctioning of a county sewer line. Exercising their subrogation rights, the insurers filed an inverse condemnation suit against Arlington County on the theory that the sewer backup constituted a taking and/or damaging of private property for a public use without just compensation in violation of the Constitution of Virginia. The circuit court dismissed the insurers' complaint with prejudice and denied their motion for leave to file an amended complaint.

         We agree with the circuit court that the original complaint failed to state a claim for inverse condemnation. We disagree, however, with the court's denial of the insurers' motion for leave to amend their complaint. The allegations in the proffered amended complaint, coupled with the reasonable inferences arising from these allegations, assert a legally viable claim for inverse condemnation. We thus affirm in part, reverse in part, and remand for further proceedings.


         Because this appeal arises from the grant of a demurrer, we state the factual allegations in the complaint in the light most favorable to the insurers, giving them the benefit of all reasonable inferences that arise from those allegations. See Coutlakis v. CSX Transp., Inc., 293 Va. 212, 215, 796 S.E.2d 556, 558 (2017). However, we do not accept the veracity of conclusions of law camouflaged as factual allegations or inferences. See Arogas, Inc. v. Frederick Cty. Bd. of Zoning Appeals, 280 Va. 221, 224, 698 S.E.2d 908, 910 (2010). Instead, we review all conclusions of law de novo. See Evans v. Evans, 280 Va. 76, 81-82, 695 S.E.2d 173, 175-76 (2010).

         In this case, the property insurers - AGCS Marine Insurance Company and Indemnity Insurance Company of North America - issued policies to Harris Teeter, the lessee of a building used for its grocery store in Arlington County. The insurers together paid approximately $1.8 million under their policies to Harris Teeter for property damage resulting from the backup of a county sewer line that caused raw sewage to flow into the grocery store in May 2012. The subrogated insurers filed suit against the County alleging only one count - an inverse condemnation claim under Article I, Section 11 of the Constitution of Virginia.

         The original complaint stated that the sewer line and the sewage treatment plant for the sewer line "were maintained for the public purpose of supplying Arlington County with water and sewage disposal services." J.A. at 3. The sewage backup, the complaint alleged, "was caused by the failure of Arlington County to properly maintain and operate the sewage treatment plant." Id. The complaint provided several specific examples of this overall failure, including that the County (1) failed to "properly operate, inspect, maintain and test" the sewer system; (2) failed to maintain and repair the pumps in the plant; (3) failed to supervise its employees at the treatment plant; (4) "ignored warnings from its employees" about the equipment; (5) "bypassed safety features of the equipment"; and (6) neglected necessary repairs. Id.

         Nothing in the complaint expressly or impliedly alleged that the County purposefully caused the backflow of raw sewage into the Harris Teeter grocery store. Nor did the complaint allege that anyone working for the County either purposefully caused the backflow or deliberately allowed it to happen in order to keep the entire system operating for all other users of the county sewer system.

         The County demurred on several grounds, the principal one being that the allegations asserted, at best, a negligence claim barred by sovereign immunity and not cognizable as a constitutional violation. The County also argued that the sewer backup did not itself constitute a public use of Harris Teeter's property. The insurers disagreed and contended that it did not matter that "the sewage backup" itself did not constitute a public use because the only question was "whether the sewage treatment plant serves a public purpose, which it obviously does." R. at 29 (emphases in original); see also id. at 90 (same).

         The circuit court granted the County's demurrer and dismissed the case with prejudice. The insurers moved to reconsider and requested leave to file a proffered amended complaint that amplified their claim. The court denied both motions and entered final judgment.


         On appeal, the insurers argue that their original complaint stated a viable claim for inverse condemnation and that, even if it did not, the proffered amended complaint provides whatever amplification of the claim may be necessary. Like the circuit court, we conclude that the original complaint sounded wholly in tort and did not state a prima facie cause of action for inverse condemnation. We disagree, however, with the circuit court's decision to deny the insurers leave to amend their complaint. The amplified allegations in the amended complaint, coupled with the reasonable inferences that one could draw from them, state a viable claim for inverse condemnation.

          A. The For-Public-Use Requirement of Inverse Condemnation


The Constitution of Virginia states
[T]he General Assembly shall pass no law whereby private property, the right to which is fundamental, shall be damaged or taken except for public use. No private property shall be damaged or taken for public use without just compensation to the owner thereof. No more private property may be taken than necessary to achieve the stated public use.

Va. Const. art. I, § 11. The power of eminent domain is thus limited. Private property cannot be "damaged or taken except for public use, " and, even then, the power can be exercised only to the extent "necessary to achieve the stated public use." Id. When a lawful taking or damaging of property is justified by a public use, it must be remedied by payment of "just compensation to the owner." Id.[1]

         Read literally, the operative clause of Article I, Section 11 of the Constitution of Virginia states only that the General Assembly "shall pass no law" that takes or damages private property except for public use, id., thus implying that the constitutional prohibition acts solely as a limitation upon the legislature. For good reason, we have never accepted such a hyper-literal reading of this provision. From ancient times, ad hoc seizures of property without direct legislative approval were understood to violate the requirement of just compensation no less than outright legislative confiscations. See Magna Carta, ch. 28 (prohibiting the King's officers from taking "the corn or other goods of any one without instantly paying money for them, unless he can obtain respite from the free-will of the seller"), reprinted in Boyd C. Barrington, The Magna Carta and Other Great Charters of England 228, 237 (1899). That ancient maxim found its voice in the Takings Clause of the Fifth Amendment to the United States Constitution, a provision that St. George Tucker believed was meant "to restrain the arbitrary & oppressive measure of obtaining supplies by impress[ment] as was practiced during the last war, not infrequently without any Compensation whatsoever." 4 St. George Tucker, Ten Notebooks of Law Lectures 147 (in the Tucker-Coleman Papers on file with the Earl Gregg Swem Library, College of William and Mary); see also 1 St. George Tucker, Blackstone's Commentaries, Editor's App. Note D, at 305-06 (same).

         Following in this tradition, the Constitution of Virginia declares the right to private property to be "fundamental." Va. Const. art. I, § 11; see also Code § 1-219.1(A). This view presupposes that an essential "interdependence exists between the personal right to liberty and the personal right in property. Neither could have meaning without the other." Lynch v. Household Fin. Corp., 405 U.S. 538, 552 (1972). "In a word, " James Madison said, "as a man is said to have a right to his property, he may be equally said to have a property in his rights." James Madison, Property (Mar. 29, 1792), reprinted in 1 The Founders' Constitution 598, 598 (Philip B. Kurland & Ralph Lerner eds., 1987). Madison continued, "If the United States mean to obtain or deserve the full praise due to wise and just governments, they will equally respect the rights of property, and the property in rights." Id. at 599. It "has long been recognized, " therefore, that property rights are "basic civil rights, " Lynch, 405 U.S. at 552, and that a government's failure to protect private property rights puts every other civil right in doubt.[2]


         Informed by these background principles, Virginia law recognizes inverse condemnation as a viable theory of recovery for de facto violations of Article I, Section 11 of the Constitution of Virginia. See generally Kent Sinclair, Sinclair on Virginia Remedies § 64-1, at 64-1 to -5 (5th ed. 2016). Inverse condemnation arises out of the self-executing nature of Article I, Section 11 and thus must be distinguished from common-law tort claims. See Burns v. Bd. of Supervisors, 218 Va. 625, 627, 238 S.E.2d 823, 825 (1977).

         Inverse condemnation permits recovery only when "property is taken or damaged for public use" - thereby bestowing on the owner a right to "sue upon an implied contract that he will be paid therefor such amount as would have been awarded if the property had been condemned under the eminent domain statute." Id. (emphases added).[3] This implied-contract characterization captures well the idea that just-compensation provisions represent a "historical compact" between citizens and their government that "has become part of our constitutional culture." Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1028 (1992).

          The implied-contract explanation also reinforces the first premise of inverse condemnation law, which recognizes a remedy for a de facto taking or damaging of private property in the same way that eminent domain proceedings provide a remedy for a de jure taking or damaging. In inverse condemnation cases, the law implies the constitutional duty of compensation in circumstances where the taking or damaging of private property would be compensable under traditional eminent domain principles. For this reason, we say that an inverse condemnation claim "is not a tort action, but a contract action" based upon an implied constitutional promise of compensation. Jenkins v. County of Shenandoah, 246 Va. 467, 470, 436 S.E.2d 607, 609 (1993).

         The limits of this implied constitutional promise are found in the express language of Article I, Section 11 of the Constitution of Virginia, from which an inverse condemnation claim arises. See Burns, 218 Va. at 627, 238 S.E.2d at 825 (noting that an inverse condemnation claim is "a contract action under Article I, Section 11 of the Constitution of Virginia" (emphasis added)). Article I, Section 11 prohibits the taking or damaging of private property "for public use without just compensation." Va. Const. art. I, § 11. The power of eminent domain can never be exercised "except for public use, " and, even then, that power can only be exercised to the extent "necessary to achieve the stated public use." Id. The constitutional duty of just compensation thus presupposes that the taking or damaging of private property was "for public use" and done only to the extent "necessary to achieve the stated public use." Id.[4]

          At one level, it is quite easy to apply this for-public-use limiting principle. Because the power of eminent domain extends only to "lawful acts" by government officials, it does not include "negligent" or other "wrongful" acts committed outside of or in violation of their delegated authority. Eriksen v. Anderson, 195 Va. 655, 660-61, 79 S.E.2d 597, 600 (1954).[5] "If they exceed their authority, or violate their duty, they act at their own risk, and the State is not responsible or liable therefor." Id. (citation omitted). What is true for eminent domain is likewise true for inverse condemnation claims. Tortious or wrongful conduct by a government official, acting outside his or her lawful authority, can never be a sufficient ground, in itself, for an inverse condemnation award.[6]

         At nearly all other levels, however, the for-public-use limiting principle can be quite difficult to apply. No "magic formula" addresses the multitude of fact patterns that can arise, and, truth be told, there are "few invariable rules in this area." Arkansas Game & Fish Comm'n v. United States, 568 U.S. 23, ___, 133 S.Ct. 511, 518 (2012). Several of our cases nonetheless provide a useful framework for understanding the factual scenarios that satisfy this limitation on inverse condemnation claims.

         In Jenkins, we considered a county water-drainage easement that crossed two lots in a residential subdivision. On the easement, the lot owners alleged, the county had dug an improperly designed drainage ditch and failed to maintain it. On a regular basis, the ditch flooded the lots because it was "incapable of conveying concentrated storm water." Jenkins, 246 Va. at 469, 436 S.E.2d at 609. We addressed the only for-public-use question before us: whether there was "evidence" that the drainage ditch (situated on an easement dedicated to the county by a subdivision developer) "was part of a water discharge system which served to divert water" from developed land onto the plaintiffs' property. Id. at 470, 436 S.E.2d at 609. We held that there was such evidence. See id.

         We did not hold that the flooding damage triggered inverse condemnation liability simply because the ditch was a component of the county's water-discharge system. Instead, we pointed out that the alleged purpose and function of the ditch - which was located on the plaintiffs' property - was "to divert water from approximately 36 acres of developed land onto their property, " and it was flooding from that very diversion that damaged the plaintiffs' lots. Id. It did not matter that the original design of the ditch or its later disrepair was negligent under traditional tort principles. See id. An inverse condemnation action, we reaffirmed, "is not a tort action, but a contract action" under Article I, Section 11 of the Constitution of Virginia. Id.

         We considered a similar scenario in Hampton Roads Sanitation District v. McDonnell, 234 Va. 235, 360 S.E.2d 841 (1987). There, a pump station operated by a sanitation district handled overload conditions by opening a "bypass valve" that "divert[ed] the overflow from the pump station and discharge[ed] the wastewater upon [the plaintiff's] property." McDonnell, 234 Va. at 237, 360 S.E.2d at 842. "The undisputed evidence, " we observed, proved that the sanitation district "intentionally discharged sewage" onto the plaintiff's property by designing the bypass valve to "permit such discharge when the flow became excessive." Id. at 238-39, 360 S.E.2d at 843. These facts established that the pump station damaged private property "for public uses" under Article I, Section 11 of the Constitution of Virginia. Id.

         In a more recent case, Kitchen v. City of Newport News, we held that an inverse condemnation claim could proceed to trial based on allegations that a municipality had caused residential subdivisions to serve as "contingent retention or detention pond areas" for water overflowing a nearby creek and pond. 275 Va. 378, 387-89, 657 S.E.2d 132, 137-38 (2008). These factual allegations supported the landowner's claim that the municipality flooded his property "for public use" because, whether expressly or implicitly, the municipality chose to use the subdivisions as contingent overflow areas for the municipal water-discharge system. Id.

         Our most recent case addressing the for-public-use requirement is Livingston v. Virginia Department of Transportation, 284 Va. 140, 726 S.E.2d 264 (2012). Like Jenkins and Kitchen, Livingston involved flooding. Various homeowners claimed that the Virginia Department of Transportation (VDOT) redesigned an existing water-discharge system serving an area in Fairfax County. The redesign included relocating a tributary of the Potomac River, narrowing the natural width of the tributary by 62%, filling in portions of watershed marshes to construct a highway, and building the highway "in such a way, " allegedly, "as to serve as a concrete wall blocking any northern flow of water from the channel." Livingston, 284 Va. at 146, 726 S.E.2d at 268. Subsequent failure to ...

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