Relating to Real Estate

In Litz v. Maryland Department of Environment, No. 23, Sept. Term 2015 (Md.Ct.App. Jan. 22, 2016), the Maryland Court of Appeals held that a property owner has a claim that government has “taken” property when a governmental entity has failed to act in the face of an affirmative duty of the government to do so, and that inaction causes the owner to lose all effective value of its property. This case is significant because the Court embraced a “novel” theory that governmental “inaction” -- as opposed to affirmative acts of government -- can be a basis for a condemnation claim.

By way of background, the Maryland Constitution prohibits a governmental “taking” of private property for public use without just compensation. This “eminent domain” provision is commonly encountered when a local government institutes formal action -- condemnation proceedings -- to acquire private property for public use (e.g., road-widening). Additionally, courts have acknowledged that a “taking” can occur as an “inverse condemnation” -- where “property has been taken in fact by the governmental defendant, even though no formal exercise of the power of eminent domain” has occurred. Inverse condemnation claims typically arise in situations where governmental regulations effectively deny an owner the physical or economically viable use of property (e.g., downzoning property to no effective use).

In Litz, the property owner (Litz) owned and operated a commercial recreational camp, centered upon a lake, at which fishing, swimming, and boating activities occurred. The lake was within the limits of a local town, the Town of Goldsboro in Caroline County. Goldsboro had a population of 246 at the 2010 United States Census. The areas surrounding the lake were served by private septic systems (for which Goldsboro issued permits) and contained stream tributaries and town drainage systems that flowed into the lake. As a result of failing septic systems in the area, and their discharges into the town drainage systems and streams that flowed into the lake, the lake became contaminated. The failure of the septic systems and the contamination of the streams/drainage systems and lake occurred over a number of years and were known to the local town and the Maryland Department of Environment (“MDE”). In fact, 14 years prior to the commencement of litigation, Goldsboro and MDE entered into a Consent Order which required the town to take certain actions regarding the failed septic systems, to submit to MDE for review and approval a plan and schedule for construction of a public sewer system, and to implement such plan. Neither Goldsboro nor MDE took action under the Consent Order. Ultimately, the lake became so contaminated that the recreational camp business was destroyed and the Litz’s property became substantially devalued, resulting in the property being sold at a mortgage foreclosure.

Litz sued MDE and Goldsboro, asserting that those governmental entities had “taken” her property by “inverse condemnation” by failing to address the pollution and sewage problems that caused the loss of her property. Litz alleged that her property was “condemned” by the inaction of MDE and Goldsboro in not addressing the failure of the community sewage systems, when Goldsboro and MDE had duties to protect public health (e.g., enforce the consent order and applicable law). The lower courts dismissed the claims on the basis that there were no affirmative acts by the governmental authorities which led to the taking. The Court of Appeals reversed and remanded for further proceedings.

In the majority opinion in Litz, which was written by Judge Harrell, the Court acknowledged that the property owner’s claim did not “fit neatly within conventional thinking about inverse condemnation . . . [because] her allegations focus predominantly on the inaction of [governmental actors], rather than any affirmative action by those parties” (emphasis added). Nevertheless, the Court held, “as a matter of Maryland law,” an inverse condemnation claim exists “where a plaintiff alleges a taking caused by a government entity’s … failure to act, in the face of an affirmative duty to act.” The Court acknowledged that the property owner alleged that her property was “condemned” by the inaction of MDE and Goldsboro in not addressing the failure of the community sewage systems, when Goldsboro and MDE had duties to protect public health (e.g., enforce the consent order), and thus the Court determined that Litz was entitled to a trial on those issues.

The decision in Litz was sharply split, 4-3. The dissenters, Judges Battaglia, McDonald, and Watts, argued 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 government entity is insufficient to state a claim for inverse condemnation” (emphasis added). The dissenting judges expressed concern that the Litz majority opinion would greatly expand the concept of inverse condemnation and open the door to numerous claims.

The Litz case represents a substantial expansion in condemnation law. If a government can be deemed to “take” property by failing to act, what situations can give rise to a “takings” claim? If a government agency fails to issue a permit within the time required by ordinance – an omission in the face of a duty to act – has the government “taken” the property subject to the permit? What other “inaction” by governmental actors can form the basis for a condemnation claim? Future cases will illuminate the scope of government “inaction” that can constitute a “taking” for which compensation must be paid. Stay tuned…

For questions, please contact Bill Shaughnessy (410) 576-4092.