Lea Co. v. North Carolina Bd. of Transp.

• Decision Date: 02 July 1986
• Docket Number: No. 588PA85,588PA85
• Citation: 345 S.E.2d 355,317 N.C. 254
• Parties: LEA COMPANY v. NORTH CAROLINA BOARD OF TRANSPORTATION.
• Court: North Carolina Supreme Court

Page 355

345 S.E.2d 355

317 N.C. 254

LEA COMPANY v. NORTH CAROLINA BOARD OF TRANSPORTATION.

No. 588PA85.

Supreme Court of North Carolina.

July 2, 1986.

Foster, Conner, Robson & Gumbiner, P.A. by C. Allen Foster and Eric C. Rowe, Greensboro, for plaintiff-appellee.

Lacy H. Thornburg, Atty. Gen. by James B. Richmond, Sp. Deputy Atty. Gen., Raleigh, for defendant-appellant North Carolina Bd. of Transp MITCHELL, Justice.

This appeal involves an action brought by the plaintiff Lea Company under N.C.G.S. § 136-111 for inverse condemnation. The primary issue raised before this Court involves the constitutionality of the statutory interest rate as applied to the facts of this case. The trial court held that it would be unconstitutional to apply the statutory rate of 8% per annum in calculating the additional compensation owed the plaintiff by reason of the defendant's delay in payment from the date of the taking to the date of judgment awarding compensation. We agree.

The plaintiff alleged that the defendant North Carolina Board of Transportation (hereinafter "BOT") had taken a compensable interest in Lea Company's property as a result of intermittent and recurring flooding caused by inadequately sized culverts installed by BOT in its highway structures downstream of Lea Company's property. On 18 August 1980, judgment was entered in Superior Court, Guilford County, holding that BOT was liable to pay just compensation for the taking of Lea Company's property. That judgment on the issue of liability was affirmed by the Court of Appeals, 57 N.C.App. 392, 291 S.E.2d 844 (1982), and by this Court, 308 N.C. 603, 304 S.E.2d 164 (1983).

The case was remanded to the Superior Court for a trial on the issue of damages. On 11 April 1985, the trial court found just compensation for the property taken to be $700,000, the difference in fair market value of the developed real property immediately prior to the taking by BOT and the value immediately after the taking that occurred on 1 September 1974. The trial court also determined that the plaintiff was entitled to compensation for the delay in payment during the time between the date of taking and the date of judgment awarding compensation for the property taken. The additional compensation for delay was measured "by interest on the amount of compensation to which plaintiff is entitled as of the date of the taking."

In determining the appropriate interest rate to use for measuring the additional amount to be awarded the plaintiff for delayed compensation, the trial court received evidence of interest rates which Lea Company had paid on borrowings on unsecured lines of credit and of interest rates Lea Company had received monthly from investments of surplus funds in repurchase agreements during the period from 1 September 1973 through 22 February 1985. The interest rates paid ranged from 6.75% to 21.00% and the interest received ranged from 6.75% to 19.625%. The weighted average was 12.56%.

The plaintiff's expert economist testified to various weighted monthly average rates of interest for a period from September 1974 through December 1984. The evidence of weighted monthly average rates considered by the trial court related to the following:

(1) Prime rates--the rates banks charge their best customers. (low, 6.25% in 3/77; high, 20.50% in 8/81; weighted average 11.50% from 9/74 to 12/84);

(2) Prime commercial paper--high quality commercial paper--borrowings and lendings of excess funds by leading, financially stable corporations in the market place. (low, 5.23% in 2/77; high, 18.07% in 12/80);

(3) Long Term U.S. Government bonds--20 year series. Bonds of other maturities which have been adjusted, but are at constant maturity for 20 years, by the Treasury Department. (low, 6.61% in 2/75; high, 15.13% in 10/81);

(4) New Issue AAA Utility--new issues of the highest quality utilities coming out monthly (reporting ended December 1983; subsequent reporting of A-rated utilities at higher rate because of increased risk). (low, 8.04% in 8/77; high, 17.21% in 9/81);

(5) National Mortgage Contract Note--the weighted average of all conventional mortgage loans, developed by the Department of Housing and Urban Development. (low, 8.63% in 5/75; high, 15.68% in 11/81);

(6) FHLBB Series--the Federal Home Loan Bank Board series--rates of mortgage backed by the Federal Home Loan Bank Board. (low, 8.89% in 7/75; high, 16.38% in 11/81);

(7) HUD Series--rates of mortgages subsidized by the Department of Housing and Urban Development. (low, 8.80% in 1/77; high 18.30% in 9/81); and

(8) Moody's Composite Index--yields on long-term AAA rated corporate bonds (through February, 1985). (low, 7.92% in 9/77, high, 15.49 in 9/81).

From the evidence received, the trial court found inter alia that: (1) as determined from Moody's Composite Index of Yields on Long-term Corporate Bonds, the approximate weighted average interest rate for the period September 1974 through February 1985 was 10.85% per annum; (2) the approximate weighted average prime interest rate for the period September 1974 through December 1985 was 11.51% per annum; (3) "a reasonable and prudent investor could have obtained an average interest rate for the period September 1974 through April 1985 of 11% per annum"; and (4) an interest rate of 11% per annum was a good and fair measure of the amount to be added to the plaintiff's award.

Based on those findings of fact, the trial court concluded inter alia that:

North Carolina General Statute § 136-113 providing for interest at the statutory legal rate from the date of the taking to the date of judgment does not provide plaintiff in this case with just compensation under the Constitution of the United States and the Constitution of North Carolina, because the statutory legal rate is less than the reasonable and just fair market rate of interest between the date of taking and the date of judgment, which is reflective of the cost value of the use of such interest in property or money substitute therefor.

North Carolina General Statute § 136-113 as applied to the facts of this case violates the Constitution of the United States and the Constitution of North Carolina.

The owner is entitled to such addition to the value at the time of the taking as will produce the full equivalent of such value had it been paid contemporaneously with the taking. Interest at the rate of 11% per annum is a good and fair measure of the amount to be added to make the award a full and adequate equivalent of the property taken.

Accordingly, the trial court awarded the plaintiff additional compensation in an amount equal to interest at 11% per annum for the time between the taking and the judgment awarding compensation. On 5 November 1985, we allowed the defendant's petition for discretionary review of the judgment of the trial court.

The defendant BOT concedes that Lea Company is entitled to additional compensation for delay in payment. The principle is long-standing that when the taking of property by the State precedes the payment of compensation, the owner is entitled to additional compensation for the delay in payment. DeBruhl v. State Highway Commission, 247 N.C. 671, 102 S.E.2d 229 (1958). The fifth and fourteenth amendments to the Constitution of the United States and article I, section 19 of the Constitution of North Carolina require this additional payment as a part of just compensation. Kirby Forest Industries, Inc. v. United States, 467 U.S. 1, 104 S.Ct. 2187, 81 L.Ed.2d 1 (1984); Shoshone Tribe v. United States, 299 U.S. 476, 57 S.Ct. 244, 81 L.Ed. 360 (1937); Jacobs v. United States, 290 U.S. 13, 54 S.Ct. 26, 78 L.Ed. 142 (1933); Phelps v. United States, 274 U.S. 341, 47 S.Ct. 611, 71 L.Ed. 1083 (1927); Seaboard Air Line Co. v. United States, 261 U.S. 299, 43 S.Ct. 354, 67 L.Ed. 664 (1923); Airport Authority v. Irvin, 306 N.C. 263, 293 S.E.2d 149 (1982); DeBruhl v. Highway Comm., 247 N.C. 671, 102 S.E.2d 229 (1958). "The additional sum awarded for delay in payment of the value for the property taken is not interest eo nomine, but interest is a fair means for measuring the amount to be arrived at of such additional sums." Airport Authority v. Irvin, 306 N.C. at 272, 293 S.E.2d at 155.

BOT relies heavily on DeBruhl to support its argument that the statutory or "legal" interest rate of 8% per annum is a sufficient measure to satisfy the requirement of just compensation. This Court stated in DeBruhl:

Ordinarily, the legal rate of interest, where the condemned property is located, upon the original sum fixed as compensation for the fair market value of the property on the taking date, is considered a fair measure of the amount to compensate the owner for the delay in paying the award, so as to make just compensation.

247 N.C. at 687, 102 S.E.2d at 241. In response to this language in DeBruhl, the General Assembly in 1959 first enacted N.C.G.S. § 136-113 which now provides that:

To said amount awarded as damages by the commissioners or a jury or judge, the judge shall, as a part of just compensation, add interest at the legal rate as provided in G.S. 24-1 on said amount from the date of taking to the date of judgment; but interest shall not be allowed from the date of deposit on so much thereof as shall have been paid into court as provided in this Article.

N.C.G.S. § 136-113 (Cum.Supp.1985). At the time of the enactment of N.C.G.S. § 136-113, the legal rate of interest as provided by N.C.G.S. § 24-1 was 6% per annum. In 1979, the General Assembly raised the statutory rate to 8% per annum.

The issue before this Court is whether N.C.G.S. § 136-113, which in effect provides interest of 8% per annum as the measure to apply in calculating compensation for delay in payment, is constitutional as applied to the facts of the case sub judice. The trial court found the statute to be unconstitutional as applied and substituted an interest rate of 11% per annum. We affirm.

Our research has not...