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CITY OF VIRGINIA BEACH v. BELL


CITY
OF VIRGINIA BEACH v. BELL


February 27, 1998
Record No. 971117

CITY OF VIRGINIA
BEACH

v.

RICHARDSON C. BELL,
TRUSTEE FOR BELL LAND TRUST

OPINION BY JUSTICE
CYNTHIA D. KINSER
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH

Edward W. Hanson,
Jr., Judge
PRESENT: All the Justices


In this appeal, we
consider first whether the City of Virginia Beach (the City) is a
proper defendant in this action for inverse condemnation. We next
determine whether the denial of a permit required by the City's
Coastal Primary Sand Dune Zoning Ordinance (the Ordinance)
constitutes a regulatory taking and thereby requires the City to
compensate the property owner for the value of the property
taken. Because the denial of the permit was pursuant to the
City's Ordinance, the City is a proper defendant. However,
because the City's Ordinance pre-dates the owner's acquisition of
the property, the denial of the permit does not constitute a
compensable taking. Accordingly, we will reverse the judgment of
the circuit court.

I.

The General Assembly
enacted the Coastal Primary Sand Dune Protection Act (the Dune
Act) in 1980.
See Code ?? 62.1-13.21
to -13.28.
[1] The policy behind the Dune
Act is to "preserve and protect coastal primary sand dunes
and beaches and to prevent their despoliation and destruction and
whenever practical to accommodate necessary economic development
in a manner consistent with the protection of such
features." Code ? 62.1-13.21. The Dune Act contains a model
ordinance which certain local governments, including the City,
could adopt.
See Code ? 62.1-13.25.

In 1980, the City
passed the Ordinance, which mirrors the Dune Act's model
ordinance.
See Va. Beach Code ??
1600-1619. The Ordinance regulates the use and development of
coastal primary sand dunes and requires developers who wish to
"use or alter any coastal primary sand dune within this
city" to obtain a permit from the Virginia Beach Wetlands
Board (the Wetlands Board). Va. Beach Code ? 1603. If the
Wetlands Board denies the permit application, the applicant may
either resubmit the application in modified form or seek review
by the Virginia Marine Resources Commission (VMRC).
See
Va. Beach Code ? 1608 (c); Code ? 62.1-13.27.

The instant appeal
involves two parcels of land, lots 21 and 22, located seaward of
the primary coastal dune on the Chesapeake Bay shore. In 1979,
Seawall Enterprises, Inc. (Seawall), a corporation in which
Richardson C. Bell (Bell) and his wife owned 50% of the stock,
bought the two parcels. When Seawall purchased lots 21 and 22,
neither the Dune Act nor the Ordinance was in existence. Seawall
intended to develop residential houses on the lots and attempted
to do so in 1979; however, the City did not approve the plan.

When Seawall
dissolved, Bell and his wife received title to lots 21 and 22 by
a deed dated August 5, 1982. In late 1982, Bell submitted to the
City an application to develop lots 21 and 22, but the City did
not approve the 1982 plan either. In 1992, Bell again submitted a
development plan for the two lots.
[2] The City informed Bell that
he first had to submit the plan to the Wetlands Board and obtain
a dune permit as required by the Ordinance. However, upon his
pursuit of such a permit, the Wetlands Board denied Bell's
application.

After the Wetlands
Board's denial, Bell appealed to the VMRC, which also denied
Bell's application. Bell then appealed to the court below, and on
November 3, 1993, the court affirmed VMRC's decision. By that
time, the Bells had divorced, and in a deed dated March 17, 1993,
Bell and his wife transferred lots 21 and 22 to the Bell Land
Trust. Bell is currently the trustee of that trust.
[3]

In August 1995, the
Trustee filed an amended motion for judgment against the City. In
the motion, the Trustee alleged that the Wetlands Board's denial
of Bell's application for a permit deprived lots 21 and 22 of all
economically beneficial use and therefore constituted a
regulatory taking in violation of Article I, ? 11 of the
Constitution of Virginia. The Trustee thus sought compensation
from the City for the value of the property taken.

A jury trial was
held in January 1997. The City moved to strike the evidence at
the conclusion of the Trustee's evidence as well as at the
conclusion of all the evidence. The trial court denied both
motions, and the jury returned a verdict in favor of the Trustee,
awarding damages of $110,000 plus interest. The City filed a
motion to set aside the verdict, which the court denied. The
trial court then entered judgment in favor of the Trustee. The
City appeals.

II.
A.

The first issue is
whether the City is a proper defendant. "It is axiomatic
that a plaintiff has the duty to name the proper parties as
defendants . . . ."
Lake v. Northern Virginia
Women's Medical Center, Inc.
, 253 Va. 255, 260, 483
S.E.2d 220, 222 (1997). The City contends that it is not a proper
defendant because when it adopted the Ordinance, it was
implementing state policy. The City also posits that the Wetlands
Board, in denying Bell's application, was acting pursuant to the
Dune Act and was therefore also implementing state policy.
Consequently, under this theory, the denial of the permit
constituted state action. In sum, the City argues that since the
City had minimal involvement with the regulation of lots 21 and
22, the City is not a proper defendant.

We reject these
contentions. First, the City enacted the Ordinance with the
stated intent to "regulat[e] the use and development of
coastal primary sand dunes." Va. Beach Code ? 1600. Thus,
the restriction imposed on the property was the result of city,
not state, policy. Second, in refusing to issue the permit, the
Wetlands Board was acting pursuant to the City's Ordinance, which
bestows upon the Wetlands Board the power to grant or deny permit
applications.
[4] Nor is it relevant that the
final administrative decision was from the VMRC, a state agency.
In denying the application, the VMRC was using its statutory
power to review the decision of the Wetlands Board. Code ?
62.1-13.11. In conducting its review, the VMRC was ensuring that
the Wetlands Board, a city agency, was acting in accord with the
Dune Act. Therefore, the VMRC was determining the legality of
city, not state, action. Thus we conclude that the City is a
proper defendant.

B.

We next consider
whether the Wetlands Board's denial of Bell's application
resulted in a compensable taking. Article I, ? 11 of the
Constitution of Virginia prohibits the government from taking or
damaging private property for public uses without just
compensation.
[5] The United States Supreme
Court has stated that a compensable taking exists for purposes of
the Fifth Amendment, without the need for a "case-specific
inquiry," when state regulations compel property owners
"to suffer a physical 'invasion' of [their] property"
or when regulatory action "denies all economically
beneficial or productive use of land."
Lucas v.
South Carolina Coastal Council
, 505 U.S. 1003, 1015
(1992).
[6] The Trustee contends that the
denial of the permit was a categorical taking under
Lucas
because the Ordinance's effect is to eliminate the property's
only economically beneficial use.
[7]

However, in Lucas
the Court also recognized that not all categorical takings are
compensable. The Court declared that a state may "resist
compensation," even in categorical takings, if an
"inquiry into the nature of the owner's estate shows that
the proscribed use interests were not part of his title to begin
with."
Lucas, 505 U.S. at 1027.
Thus, a property owner may seek compensation for a categorical
taking only when the state is exercising regulatory power over
the "bundle of rights" that the owner acquired when
first obtaining title to the property.
Id.

We, therefore,
disagree with the Trustee's contention that the denial of the
application is akin to the compensable taking found in
Lucas.
The instant case differs from
Lucas in a
significant aspect: the timing of the owner's purchase of the
property in relation to the effective date of the regulatory
restriction. In
Lucas, the plaintiff
property owners purchased the land prior to the enactment of the
regulation restricting the use of their property. Thus, the
subsequent regulation directly affected the property owners'
"bundle of rights" which, at the time of their
purchase, included the right to develop their property freely.

In contrast to Lucas,
however, the Ordinance at issue here predated Bell's and the
Trustee's acquisition of the property. Therefore, the
"bundle of rights" which either Bell or the Trustee
acquired upon obtaining title to the property did not include the
right to develop the lots without restrictions.
[8] Thus, because the regulatory
restriction was in Bell's and the Trustee's chain of title, the
City did not deprive Bell or the Trustee of the right to develop
the property freely since that right was never Bell's or the
Trustee's to lose. At best, any rights impaired by the Ordinance
were those of the property owner at the time the Ordinance came
into effect.

The Trustee argues,
however, that the principle in
Lucas is
not that a property owner, in order to enjoy unrestricted
development of the property, must buy the property before the
enactment of the regulatory restriction. Rather, the Trustee
posits that under
Lucas, a state must
show that the regulatory restriction "does not proscribe a
productive use that was previously permissible under relevant
property and nuisance principles," and only then can the
state claim that it is not taking any rights from the property
owner.
Lucas, 505 U.S. at 1029-30. In
other words, according to the Trustee, the prohibited purpose
under a regulatory restriction must have "always [been] unlawful;" otherwise, a restriction on development
constitutes a taking.
Lucas, 505 U.S. at
1030.

However, the
Trustee's argument again ignores the critical fact distinguishing
Lucas from the instant case. In Lucas,
the owners' acquisition pre-dated the regulatory restriction.
Therefore, the only way the State of South Carolina could have
argued that the restriction was not a taking would have been to
show that, at the time of the owners' purchase, fundamental
nuisance and property law had always prevented them from
developing their property and that the statutory restriction was
simply making explicit relevant property and nuisance law. In
contrast to
Lucas, not only Bell but
also the Trustee acquired lots 21 and 22 after the enactment of
the Ordinance restricting the property's development. Therefore,
the City need not prove the existence of any nuisance or property
law preceding the Ordinance that would have prevented the
development of the property. Such an inquiry is irrelevant and
unnecessary since Bell and the Trustee acquired property already
burdened by regulatory restrictions. Thus, the City, by enacting
the Ordinance, took no property rights from Bell or the Trustee
since they cannot suffer a taking of rights never possessed.

Nevertheless, the
Trustee seeks to avoid the Ordinance's restrictions by contending
that the Ordinance did not pre-date Bell's ownership rights to
lots 21 and 22. The Trustee posits that Seawall's acquistion of
lots 21 and 22 in 1979 established Bell's ownership rights in the
property because he was a shareholder in Seawall. Essentially,
the Trustee asks this Court to look at the substance, and not the
form, of ownership and to determine Bell's ownership rights as of
1979.
[9]

The Trustee's
position, however, is contrary to well-settled principles of law.
It "is elementary that a corporation is a legal entity
entirely separate and distinct from the shareholders or members
who compose it."
Cheatle v. Rudd's Swimming Pool
Supply Co., Inc.
, 234 Va. 207, 212, 360 S.E.2d 828,
831 (1987). In
Bogese, Inc. v. State Highway and
Transp. Comm'r
, 250 Va. 226, 462 S.E.2d 345 (1995),
we considered whether, under the unity of lands doctrine, unity
of ownership existed when a corporation owned one parcel of land
and a general partnership, whose partners were the same
individuals as the corporate shareholders, owned the adjacent
parcel. In holding that unity of ownership did not exist and that
two distinct entities owned the two parcels, we stated that
"where persons have deliberately adopted the corporate form
to secure its advantages, they will not be allowed to disregard
the existence of the corporate entity when it is to their benefit
to do so."
Id. at 230, 462 S.E.2d
at 347 (quoting
Board of Transp. v. Martin,
249 S.E.2d 390, 396 (N.C. 1978)). Thus, we recognized that only
"'an extraordinary exception' will justify piercing the
corporate veil."
Id. at 230, 462
S.E.2d at 348 (quoting
Cheatle, 234 Va.
at 212, 360 S.E.2d at 831).

Accordingly, Bell,
who accepted the benefits of corporate ownership, cannot avoid
its disadvantages. Seawall's acquisition of lots 21 and 22 in
1979 does not protect Bell or the Trustee from the restrictions
of the Ordinance. Any rights that Seawall acquired in lots 21 and
22 belonged solely to Seawall as Seawall was an entity distinct
and separate from Bell.
[10] Thus, Bell's ownership rights
in lots 21 and 22 must be defined as of 1982, not 1979. Since the
Ordinance pre-dated Bell's acquisition of lots 21 and 22, Bell,
and now the Trustee, took the property subject to the Ordinance's
restrictions.

Our decision that
neither Bell's nor the Trustee's ownership rights include the
right to develop the property free from regulatory restrictions
is in accord with
Prince William County v. Omni
Homes, Inc.
, 253 Va. 59, 481 S.E.2d 460, cert.
denied
, U.S. , 118 S.Ct. 58 (1997). In that case,
Omni purchased a parcel of unimproved land, which was adjacent to
another undeveloped parcel, with the intent of building an urban
residential development. Since the development of Omni's
subdivision would require obtaining road and utility access, Omni
secured an informal agreement with the adjacent landowners to
gain such access through the adjoining parcel. However, Prince
William County subsequently purchased the adjoining tract,
thwarting Omni's plans to obtain road and utility access through
the adjacent property. Omni therefore brought suit, and the trial
court ruled that the county's purchase of the adjoining tract was
a regulatory action that constituted a taking in violation of the
Fifth Amendment of the United States Constitution and Article I,
? 11 of the Constitution of Virginia.

This Court reversed,
holding that the county's purchase of the adjoining tract was not
a taking. We stated that Omni had not "lost the
right
to develop its property."
Id. at
72, 481 S.E.2d at 467. Rather, Omni "had not acquired the
rights necessary to realize its preferred method of development
either as a matter of contract or easement."
Id.
Accordingly, the county's action did not affect Omni's property
rights since Omni, at the time of the county's purchase, had no
right of access through the adjacent property. Thus, since the
county could not damage a nonexistent right, the purchase was not
an uncompensated taking under either the United States or
Virginia Constitutions.

Like the property
owners in
Omni, neither Bell nor the
Trustee acquired the right to develop lots 21 and 22 free of the
Ordinance's restrictions. Rather, the restriction on the lots was
in the chain of title at the time of Bell's acquisition and
likewise when Bell and his wife deeded the property to the Bell
Land Trust. Thus, Bell, and now the Trustee, acquired the
property with full knowledge of the risk involved in attempting
to develop it. "One who buys with knowledge of a restraint
must assume the risk of economic loss."
Omni,
253 Va. at 69, 481 S.E.2d at 465.

For these reasons,
we hold that the denial of Bell's permit was not a regulatory
taking for which the City owes compensation to the Trustee.
Accordingly, we will reverse the judgment of the circuit court
and enter final judgment here for the City.
[11]

Reversed and
final judgment.

 

 

 

 

FOOTNOTES:

[1] The Dune Act was originally
codified in Code ?? 62.1-13.21 to -13.28. For purposes of this
opinion, references to the Dune Act are to the sections in effect
when this action was commenced. The Dune Act is now recodified as
Coastal Primary Sand Dunes and Beaches in Code ?? 28.2-1400 to
-1420.

[2] Bell's development proposal
was to construct a roadway, water and sewer extensions, and a
bulkhead for a single family dwelling.

[3] For purposes of
clarification, when we use the name "Bell," we refer to
his acting in an individual capacity. When we address his actions
as trustee of the Bell Land Trust, we will use the term
"Trustee."

[4] Indeed, the Wetlands Board's
Notice of Public Hearing states that in considering the
application, the Wetlands Board was acting "[p]ursuant to
the City of Virginia Beach Zoning Ordinance, Articles 14 and
16."

[5] Article I, ? 11 provides in
pertinent part:

[T]he General
Assembly shall not pass any law . . . whereby private
property shall be taken or damaged for public uses, without
just compensation . . . .

[6] Lucas
addressed the issue of regulatory taking in the context of the
Fifth Amendment to the United States Constitution. However, in
interpreting art. I, ? 11 of the Constitution of Virginia, we
have cited to and sought guidance from cases involving takings
under the Fifth Amendment.
See, e.g.,
City of Virginia Beach v. Virginia Land Investment,
239 Va. 412, 417, 389 S.E.2d 312, 314 (1990);
Commonwealth
ex rel State Water Control Board v. County Utilities Corp.
,
223 Va. 534, 542, 290 S.E.2d 867, 872 (1982).

[7] We assume, without deciding,
that the Trustee may assert the denial of a permit application
submitted by Bell, not the Trustee, as the basis for the
Trustee's claim for inverse condemnation.

[8] Contrary to the Trustee's
assertions, the fact that a residential home had once occupied
lot 21 or that the surrounding lots similar to lots 21 and 22
contained residential houses does not necessitate a finding that
the "bundle of rights" included the right to develop a
residential home. The only fact relevant to a proper
determination of Bell's or the Trustee's property rights is the
date of acquisition of the lots.

[9] Again, we assume, without
deciding, that the Trustee can assert whatever rights Bell, as
one of the grantors of the Bell Land Trust, has.

[10] The mere dissolution of
Seawall did not effect a transfer in title to its property. Code
? 13.1-745(B)(1). Furthermore, "[t]he termination of
corporate existence shall not take away or impair any remedy
available to . . . the corporation . . . for any right or claim
existing . . . prior to such termination. Any such action or
proceeding by . . . the corporation may be prosecuted . . . by
the corporation in its corporate name." Code ? 13.1-755.
Finally, any right Seawall may have had to compensation for a
regulatory taking would not have passed to Bell or the Trustee.
See
Riddock v. City of Helena, 687 P.2d
1386, 1388 (Mont. 1984) (holding that "the right to
compensation for a taking is a personal right which does not pass
to a successor with the transfer of land").

[11] The City also assigned error
to the trial court's failure to dismiss the instant action on the
basis of res judicata and in admitting evidence regarding the
value of lots 21 and 22. Because we find that the denial of a
permit under the Ordinance does not constitute a taking for which
the City owes compensation, we do not address the City's
additional assignments of error.

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