AGCS Marine Ins. Co. v. Arlington Cnty., Record No. 160221

• Decision Date: 15 June 2017
• Docket Number: Record No. 160221
• Citation: 800 S.E.2d 159
• Court: Virginia Supreme Court
• Parties: AGCS MARINE INSURANCE COMPANY, a/k/a Allianz Global Corporate & Specialty, a/s/o Harris Teeter, et al. v. ARLINGTON COUNTY

293 Va. 469

800 S.E.2d 159

AGCS MARINE INSURANCE COMPANY, a/k/a Allianz Global Corporate & Specialty, a/s/o Harris Teeter, et al.

v.ARLINGTON COUNTY

Record No. 160221

Supreme Court of Virginia.

June 15, 2017

Paul R. Bartolacci (Thomas J. Ingalls; Mark E. Opalisky ; Cozen O'Connor, on briefs), for appellants.

Ara L. Tramblian, Deputy County Attorney (Susan D. Stout, Assistant County Attorney, on brief), for appellee.

Amici Curiae: Local Government Attorneys of Virginia, Inc., Virginia Municipal League, and Virginia Association of Counties (Sharon E. Pandak, Chantilly; Zachary C. Packard; Greehan, Taves & Pandak, on brief), in support of appellee.

PRESENT: All the Justices

OPINION BY JUSTICE D. ARTHUR KELSEY

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.

I.

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.

II.

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

1.

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, 92 S.Ct. 1113, 1122, 31 L.Ed.2d 424 (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, 92 S.Ct. at 1122, and that a government's failure to protect private property rights puts every other civil right in doubt.²

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. Board 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 ...