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In a case of first impression in Maryland, the Court of Appeals, Maryland’s highest court, (the “Court”) held on January 22, 2016, that as a preliminary and procedural matter, government failure to act may give rise to a “taking” of property which could justify a constitutional compensation claim under the legal theory of “inverse condemnation”.

In Gail B. Litz v. Maryland Department of the Environment, et al., No. 23 September Term, 2015, Ms. Litz made a second appearance before the Court regarding land containing a lake named “Lake Bonnie” in Caroline County, Maryland, that was contaminated allegedly by run-off from failed septic systems serving homes and businesses in the Town of Goldsboro, Maryland. The human sewage seeped out of the septic fields into ground and surface water flowing into drainage swales, which drained into streams flowing into Lake Bonnie. She inherited the property in 2001 and intended to continue to operate the popular recreational campground (and lake) on it as her business and income source.  Her inability to operate the campground because of the pollution to Lake Bonnie caused her to lose the property through foreclosure by the bank holding the mortgage on May 14, 2010.

Ms. Litz asserted that authorities at the state and local level had failed to act to stop the pollution affecting her property and business.  She asserted an “inverse condemnation” claim due to such inaction.  Finally, she stated that the Local Government Tort Claims Act and the Maryland Tort Claims Act did not limit the liability of state and local government in her claim for compensation.

According to the Court’s opinion, over time, the septic systems within the Town began to fail, the septic fields overflowed into the open drainage system (designed primarily as a storm water management system), and contaminated two streams which provided water to Lake Bonnie.  On September 18, 1995, the Caroline County Health Department concluded that the ‘“use of the stormwater management system in the Town as a sewage system has gotten to crisis proportions.”’

Also, on August 8, 1996, the Maryland Department of the Environment and Goldsboro’s then-Mayor William H. Bartin signed an administrative consent order which “explain[ed] the problems, order[ed] Goldsboro to take certain actions, impose[d] mandatory reporting obligations and specifie[d] penalties for non-compliance.”  The consent order’s timetable for action went unmet by the Town.

Before concluding that the Court’s ruling that the case may proceed against the governmental entities was a total victory for Ms. Litz, it must be noted that the Court’s opinion clearly cautions as follows:  “We conclude only that it was improper to decide as a matter of law, at the present stage of the litigation that Ms. Litz failed to state a claim for inverse condemnation.  Her entitlement to relief may become clearer or blurred after the respective sides have the opportunity to conduct discovery and argue the law of liability.”

Usually a condemnation case requires a “taking” – some affirmative government action.  In its opinion the Court states:  “A difficulty with [] Litz’s claim of a “taking” fitting neatly within conventional thinking about inverse condemnation is that her allegations focus predominantly on the inaction of [government entities], rather than any affirmative action by those parties. There is no controlling Maryland law that we could find that sheds light on this wrinkle”.  (Emphasis added)

Several judges on the Court dissented and wrote as follows:  “Simply stated, [the minority of judges on the Court] would hold that an affirmative action by a governmental entity— i.e., a “taking”—is essential to a claim for inverse condemnation. Alleging an omission or inaction by the governmental entity is insufficient to state a claim for inverse condemnation. By holding otherwise, the [majority of judges on the Court] greatly expands the definition of inverse condemnation, the consequences of which are yet to be seen”.

Before the case reached the Court, lower courts had dismissed Ms. Litz’s claims against state agencies.  However, the Town of Goldsboro had remained a defendant.  Ms. Litz contended that she stated a claim against all the defendants for inverse condemnation by alleging that their failure to address the pollution and sewage problems led directly to the substantial devaluing of her property and its ultimate loss.  State defendants asserted that the lower courts dismissed properly Ms. Litz’s inverse condemnation claim against them because ‘“her allegations did not reveal any affirmative act (regulatory or otherwise) by the State which led to a taking. Additionally, the State [defendants] argue that any injury Ms. Litz suffered was the result of acts caused by private third parties, i.e., the property owners in Goldsboro whose septic fields failed.

Article III, Section 40 of the Maryland Constitution deals with eminent domain.  The provision prohibits taking of property without compensation but also ‘“grounds a cause of action that has come to be known as an inverse condemnation.”’  In such cases, the rulings of the United States Supreme Court regarding federal “takings” under the United States Constitution serve as authority for state courts in applying their own constitutional provisions.  According to the Court, an inverse condemnation claim is characterized as ‘“a shorthand description of the manner in which a landowner recovers just compensation for a taking of his property when condemnation proceedings have not been instituted.”’  And, furthermore,:  ‘“The Supreme Court explains that a government is liable for inverse condemnation if it “forc[es] some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”’

The Court posited that “To state a claim for inverse condemnation, a plaintiff must allege facts showing ordinarily that the government action constituted a taking. Defining a “taking” for purposes of an inverse condemnation claim is a “fact-intensive” inquiry. The Supreme Court has explained that a plaintiff seeking to state a claim for inverse condemnation “bears a substantial burden” and must be able to show that “justice and fairness” entitle him or her to compensation. …. Significant factors in the analysis include: ‘“the economic impact of the regulation, its interference with reasonable investment backed expectations, and the character of the governmental action.”’  So, according to the Court “an inverse condemnation claim may arise ordinarily in multiple ways.”

Furthermore the Court stated:  “Ms. Litz’s property was alleged to have been “condemned” by the failure of the State and Town in the face of an affirmative duty to abate a known and longstanding public health hazard. Although questions of which [defendants] had statutory or legal duties with regard to abatement of the contamination are open in the proceeding as far as it has advanced, it is not frivolous to hypothesize that state, county, and municipal agencies may have duties to step in to protect the public health, as illustrated by the execution of the 1996 Consent Order.”

The defendants asserted they were protected by the Local Government Tort Claims Act and the Maryland Tort Claims Act.  The Court disagreed, stating its conclusion that Maryland lawmakers did not intend a claim for inverse condemnation to come within the ambit of either Tort Claims Acts.  The Court reasoned that since the goal of constitutional provisions is to prohibit governmental property takings without “just compensation” and the only measure of “just compensation” is “fair market value”, any limitation on that value, which would be reflected by “caps on damages” reflected in the Tort Claims Acts, should not (and would not) apply to condemnation cases.  Similarly, any notice requirements to governmental authorities, as required by those Acts, would not apply.  Therefore, the argument in favor of the Acts’ applicability in condemnation cases would be rendered moot.  Both the majority and minority numbers of judges on the Court agreed on these principles.

This case may yet return to Maryland’s highest court again, once Ms. Litz’s contentions are fully presented in a trial court, free of preliminary procedural proceedings.  After all, the Maryland Court of Appeals states that there is no controlling Maryland law on government inaction constituting a condemnation or “taking”.  The Court of Appeals may wish to elaborate further on such a principle.  Needless to say, the recent event of water contamination in Flint, Michigan may lend something of an urgency to the consideration of issues surrounding government inaction as grounds for a condemnation claim.

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