The Court of Appeals of Virginia issued a relatively recent decision in Town of Iron Gate v. Simpson, 82 Va. App. 38 (2024), which is essentially a primer on what not to do as a condemning authority facing an inverse condemnation case.

Background of the Case

The opinion indicates that Simpson owned property in the Town of Iron Gate, Virginia where the Town had a stormwater drainage pipe running underneath much of Simpson’s land.  Simpson, however, did not know about the presence of the pipe when she originally bought the property in 2013. She also did not know that this pipe had a history of flooding the property. The prior landowner of Simpson’s property had previously brought the pipe’s flooding to the Town’s attention as early as 2010, and the Town responded by encasing the pipe in a boot in 2011.  Despite the attempts to fix the pipe, the flooding continued, and even worsened over time.

As the flooding worsened in 2017 and 2018, Simpson reported the issue to Town on her own.  The Town excavated a portion of Simpson’s property and removed a section of the pipe beneath Simpson’s yard.  The Town, however, did not replace the pipe, and instead left an open ditch in Simpson’s yard. The flooding persisted, and Simpson soon sought a declaratory judgment asking the trial court to determine that the Town had taken her property without just compensation.

Liability Trial

The matter went to trial on the Town’s alleged liability, and Simpson “presented evidence that the Town knowingly allowed the pipe to flood her property with stormwater.”  In response, the Town argued that surface water – not stormwater from the pipe – had collected on Simpson’s property and that the buildup of surface water did not constitute a taking for public use.  The Town also introduced its plan to fix the pipe whereby, as part of the plan, Simpson would be required to grant the Town an easement across her property to allow the Town to make repairs.  While Simpson was presented with the Town’s plan, she refused to sign onto the plan.

The trial court ultimately found that the Town had taken Simpson’s property without just compensation and found that the Town “knew and has known for years that the storm water management system does not always operate properly…and that it will cause storm water to back up onto [Simpson’s] property.”  The trial court also found that the Town “has intentionally and knowingly allowed [Simpson’s] property to serve as a storm water drainage overflow site.”

[Definitely do not do what the Town did, and argue that “Furthermore, to the extent any stormwater had flooded Simpson’s property, … it had done “everything in its power” to repair the pipe but was “stymied” by Simpson and the litigation.” There are various ways to succesfully defend these sorts of cases, but trying to contend that the landowner not entering into a settlement of a case is failure to mitigate damages is not one of them. ]

Just Compensation Trial

The case proceeded to a jury trial on the issue of just compensation.  Simpson relied on her appraiser to testify that Simpson’s property had reduced in market value “because the pipe was not fixed and either Simpson or future owners would have to continue suing the Town for inverse condemnation.”  During cross-examination, the Town asked the appraiser about his assumption that the value of the property would decrease because future landowners would need to continue litigating the issue of just compensation, and Gruelle responded by stating that “the Town had been claiming it would fix the pipe since 2019 and still had not done so.”   [The court’s opinion doesn’t reveal any effort by the town to move to exclude this obviously circular and speculative answer which does not appear to be based on anything but the appraiser’s own ipse dixit.]

Somehow the Town chose at this point to put on only one witness, the former mayor of the Town, who would have testified that Simpson never presented any claim to the Town for damages to her property. [If putting on only one witness, that would definitely not be the only witness to choose to put on in a just compensation trial; not putting on an appraiser to counter is just strainge.] The trial court reasoned that whether Simpson presented a claim of damages to the Town would not have ultimately changed the amount that Simpson is now entitled to for the taking.  The jury then awarded Simpson $37,586.00 as just compensation for the Town’s taking.  The trial court also awarded Simpson $206,785.74 in attorneys’ fees and costs.

The Appeal

Claim for Inverse Condemnation

On appeal, the Town assigned error to the trial court’s decision to overrule the demurrer. The Town argued that Simpson failed to state a claim of inverse condemnation because she only alleged that the Town negligently repaired the pipe – which would not sustain a claim of inverse condemnation.

The Court of Appeals rejected the Town’s argument and determined that Simpson properly stated a claim for inverse condemnation.  In doing so, the Court relied on the Supreme Court’s precedent from Livingston v. Va. Department of Transportation, 284 Va. 140, 159 (2012) which held that the government’s failure to maintain a water-discharge system showed that the government “[i]n essence…elected to use the [private property] as makeshift storage sites for excess stormwater.”  Furthermore, Simpson alleged that the Town had knowledge of the pipe’s propensity to cause flooding for years – dating back to 2011 when the prior owner brought the flooding to the Town’s attention.  Consequently, the Court held that Simpson’s petition adequately stated a claim for inverse condemnation because she stated that the Town chose to do nothing to prevent the flooding problem from reoccurring despite knowing that the pipe would continue to flood Simpson’s property.

It is important to note that the Court of Appeals was limited in its analysis based on what the Town specifically assigned error to on appeal.  According to the opinion, the Town assigned error to the trial court’s decision to overrule the demurrer, which requires both the trial court and the Court of Appeals to accept all of the petitioner’s (Simpon’s) statements as true and then determine whether the petitioner is entitled to relief. The Courts do not weight the evidence on a demurrer, nor do they take into account the evidence that was actually elicited at trial.

Mitigation Evidence

The Town also assigned error to the trial court’s decision to prevent the Town from putting on evidence of Simpson’s alleged failure to mitigate her damages. During the jury trial on just compensation, the Town tried to put on evidence that it offered an agreement to Simpson to repair her property to her specifications. The trial court excluded the evidence because it constituted inadmissible evidence of a settlement offer. On appeal, the Court of Appeals agreed that the Town’s offer was an inadmissible settlement offer, but it went further to also state that “the Town’s purported plan to fix the pipe was outside Simpson’s control and therefore cannot show whether she took proper steps to mitigate damages.”  The Court of Appeals gave the example that “a property owner fails to mitigate damages by…leaving furniture in the path of water infiltration” and not by refusing a unilateral offer made by the government.

Attorney Fees and Costs

Finally, the Town assigned error to the trial court’s award of $206,785.74 in attorneys’ fees and costs to Simpson. In awarding Simpson her attorneys’ fees and costs, the trial court relied on Code § 25.1-420 which provides that when a landowner obtains a declaratory judgment in an inverse condemnation proceeding then the trial court “shall determine and award…such sum as will…reimburse such plaintiff for his reasonable costs, disbursements and expenses, including reasonable attorney, appraisal and engineering fees, actually incurred because of such proceeding.”

On appeal, the Town argued that Simpon failed to put on evidence of the attorneys’ fees that she “actually incurred” because she hired her attorneys pursuant to a contingency fee agreement.  Therefore, as the Town argued, Simpson did not actually incur any attorneys’ fees because she had not yet paid any fees or costs to her attorneys given the contingency fee agreement between her and her counsel. Furthermore, the Town argued that, because Simpson did not pay any attorneys’ fees yet, she could not be reimbursed for any attorneys’ fees.

However, for the first time in a published appellate decision in Virginia, the Court of Appeals held that a landowner in an eminent domain proceeding actually incurs attorney fees and costs even though the landowner has not yet paid the attorneys.  The Court ruled that “to ‘incur’ attorney fees and costs means to become legally responsible for them, not necessarily to pay them out.”  The Court also held that the reimbursement of attorneys’ fees does not require a landowner to pay their attorneys’ fees first, but instead it simply means that the condemning authority must indemnify the fees and costs of the landowner. This led the Court to ultimately hold that Simpson was entitled to recover all of the attorneys’ fees and costs that she was liable for throughout the proceedings – including her attorneys’ fees that she incurred while defending the appeal.

Notably, the same language used in Code § 25.1-420’s attorneys’ fee provision – that entitle a landowner to the fees that he actually incurred – also appears in other statutes governing eminent domain proceedings.  For instance, the same phrase appears in Code § 25.1-248, which awards attorneys’ fees to a landowner that he “actually incurred” while preparing for a condemnation proceeding that was ultimately dismissed by the condemning authority. This statute was recently analyzed by the Court of Appeals in the unpublished opinion Cascade Creek Homes Inc. v. County of Chesterfield, Va., Record No. 1179-23-2 (Aug. 27, 2024).  The Court in Cascade Creek, however, declined to rule on the condemning authority’s argument that a petitioner did not actually incur attorneys that they had not yet paid. The same language is also found in Code § 25.1-249 (dismissal of proceedings after just compensation trial begins) and Code § 25.1-419 (when a taking is abandoned by a condemning authority).

Conclusion

Town of Iron Gate v. Simpson adds to the body of case law which confirms that a condemning authority may be found to have inversely condemned private property under the “contingent retention pond” theory. This theory of liability requires .  Furthermore, the Court of Appeals has established that a condemning authority is liable for paying a landowner’s attorneys’ fees in various eminent domain proceedings despite the fact that the landowner had not actually paid the fees yet.

Perhaps most importantly, the case stands for the proposition that if you work for a municipality, county, political subdivision, or other condemning authority, and the entity is  facing an inverse condemnation claim, the entity needs to have counsel are experienced in this nuanced and dangerous area of the law and who are familiar with how to defeat this sort of claim.

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Scott Ingram is a Pender & Coward attorney focusing his practice on civil litigation, construction law, and local government matters, including work with Pender & Coward’s Eminent Domain / Right of Way Practice Group.  Prior to joining the firm, Scott served as a law clerk for the Honorable Randolph A. Beales of the Court of Appeals of Virginia. During law school at Washington & Lee, Scott served as the Executive Editor for the German Law Journal, he served as a Legal Writing Burks Scholar, and he worked for the firm as a legal intern supporting the litigation team.