In April, the North Carolina Court of Appeals decided a case involving billboard compensation. Department of Transportation v. Adams Outdoor Advertising of Charlotte, 785 S.E.2d 151 (N.C. Ct. App. 2016). This case is interesting because it addresses a number of billboard issues. But it’s especially notable for Wisconsinites as the North Carolina court relied, in part, on a Wisconsin case.
But back to North Carolina. Adams Outdoor Advertising acquired a billboard and all the property rights associated with it in 2001. Five years later Adams and the lot owner signed a new lease, which was to begin in 2007, run for ten years and have one automatic ten-year extension. In December of 2011, the DOT filed an action condemning the billboard as part of a highway construction project. The parties could not agree on a purchase price, so the matter went to a hearing. The hearing went against DOT and the agency appealed.
On appeal, DOT set forth three main arguments: First, the circuit court lacked subject matter jurisdiction; second, the trial court erred in finding items of damage compensable; and third, that the trial court erred by adopting the wrong measure of compensation. The court of appeals addressed these arguments in turn.
First, the appellate court reviewed DOT’s contention that the circuit court operated under the wrong set of laws. The appellate court explained that North Carolina Article IX governs general condemnation while Article XI specifically allows billboard removal. DOT pointed out that the circuit court had held the hearing under Article XI. The condemnation included a billboard, true, but the billboard was merely incidental to the fact that DOT needed that property. So, according to DOT, the court should have applied the Article IX rules. The court of appeals agreed, somewhat. It held that although the lower court technically applied the wrong article, the distinction was harmless to the specific hearing. Therefore, concluded the court of appeals, the trial court did not lack subject matter jurisdiction.
The second argument involved items of damages that the circuit court deemed compensable. This argument involved four sub-issues, which the court of appeals addressed.
The first sub-issue: Was the defendant’s billboard a permanent leasehold improvement or personal property? The circuit court considered the billboard to be a permanent improvement and therefore compensable. The court of appeals disagreed:
The second sub-issue: Are Defendant’s alleged loss of business and outdoor advertising income compensable property interests? The trial court concluded that there existed a “right to receive rental income.” The court of appeals disagreed again. It reasoned that longstanding North Carolina law prohibits evidence of lost business profits for condemnation actions because they are too speculative in nature, cannot be calculated with certainty, and are reliant on too many contingencies. The appellate court explained that the right to receive rental income instead fell under the category of non-compensable business profits and therefore should not have been considered in this case.
The third sub-issue: Was the DOT permit granted to Adams under North Carolina's outdoor advertising control law a compensable property interest? The reviewing court explained that generally, a government-issued permit does not give rise to a compensable property interest. Thus, it was error for the value of the permit to be considered by the finder of fact in determining just compensation.
The fourth sub-issue: Was the option to renew contained the in Adams’ lease a compensable property interest? DOT argued no, and therefore the lease should not be considered by the finder of fact. In its opinion, the court of appeals began by laying out the rules generally favoring inclusion of the option to renew. However, unlike many other states, North Carolina has not specifically recognized the expectation of perpetual leasehold renewal as a compensable property interest. The court refused to expand the law and concluded that the circuit court had erred.
So, to recap. The court of appeals disagreed with the circuit court on four of the four “compensable item” sub-issues. The court below would be reversed.
Lastly, the court of appeals turned to DOT’s final argument—that the circuit court had adopted the wrong measure of damages. The court of appeals agreed. The court of appeals went into the North Carolina rules addressing the measure of damages and the procedural nature of the case. But, the essence was that the circuit court’s decision to include the compensation for the billboard was erroneous and thus the measure of damages was also erroneous, necessarily.
With that, the court of appeals affirmed that the trial court did not lack jurisdiction. But most importantly, it reversed the circuit court on the several issues of the billboard’s compensation.