Bulldoze first, ask permission later. That was the N.C. Department of Transportation’s approach in Cabarrus County, where the little matter of a bankruptcy filing threatened to slow the construction schedule for a big highway project.
A federal bankruptcy judge in Raleigh fined DOT for illegally condemning a half-acre of land in 2012 and demolishing a vacant building. And DOT’s lawyer made matters worse, the judge said, by giving “absolutely untrue” statements in an effort to win permission for the condemnation in court – a year after the fact.
“Nothing short of the imposition of punitive sanctions will send the correct message to the department or give it the incentive it clearly needs to mend its ways,” Judge Stephani Humrickhouse, a Raleigh-based federal bankruptcy court judge, wrote in her Dec. 31 ruling.
The case concerns a small piece of real estate in Concord, a half-acre lot with an abandoned country store that was divided among four owners – two churches and two nonprofit groups. One of the groups was NCVAMD Inc., which had been known as the American Lung Association of North Carolina until shortly before it filed for Chapter 7 bankruptcy protection in 2010.
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The bankruptcy filing automatically shielded NCVAMD against actions by its creditors. And, under federal law, this protection included an automatic stay that barred DOT from seizing the property. Nevertheless, DOT condemned the property in October 2012, paid the owners $40,500, and destroyed the building.
Then in September 2013 – after construction had begun on the $37 million George Liles Parkway extension project – DOT took the step that should have come first. Its lawyer, Hilda Burnett-Baker of the N.C. Department of Justice, asked the federal bankruptcy court to lift the automatic stay so DOT could “commence condemnation.”
Burnett-Baker claimed in her motion that DOT had initiated condemnation “prior to becoming aware of the bankruptcy proceedings.” But DOT’s condemnation filing, 11 months earlier, had identified one of the parties in the case as Raleigh lawyer Gregory Crampton, the bankruptcy trustee for NCVAMD. Court documents include emails exchanged over the preceding months between Crampton and DOT’s right-of-way agent, Steve Bost, who wrote in May 2012 that “time is of the essence to either settle or condemn this claim.”
Humrickhouse said it was clear that DOT had known about the bankruptcy case, despite Burnett-Baker’s claim to the contrary.
“That was just an absolutely untrue statement that you signed,” Humrickhouse told Burnett-Baker in an October 2013 hearing in Raleigh, according to an audio recording included in court documents. “NCDOT through its agents was aware of the (bankruptcy) filing.”
Burnett-Baker admitted that DOT was wrong and the condemnation was legally void. She blamed the misstep on other lawyers and said she had learned of the error much later. She told Humrickhouse that “perhaps I should have provided more detail” in her two-page motion seeking permission for the condemnation.
In her written order, Humrickhouse said the NCVAMD trustee deserved punitive damages because of DOT’s “willful violation” and “blatant disregard” for the legal protections of federal bankruptcy law.
“Perhaps the most damning fact against the NCDOT ... is the misleading, if not outright dishonest, statements made in the NCDOT motion ...,” Humrickhouse wrote. “This type of conduct by both the NCDOT and its counsel cries out for punitive sanctions.”
Meanwhile, a DOT contractor is building a 3-mile extension for the George Liles Parkway, a four-lane thoroughfare named for a former Concord mayor. It’s a long-sought road that eventually will connect Interstate 85, U.S. 29 and N.C. 49. Local officials say it will ease traffic congestion and help their search for a new corporate tenant for a 2,000-acre tract where Philip Morris once had a cigarette factory with 1,000 employees.
DOT accepted the judge’s order to pay Crampton $10,044 in attorney’s fees and $10,000 in punitive damages. Humrickhouse and Burnett-Baker indicated that DOT can expect to pay more in what is called an inverse condemnation lawsuit – based on the argument that DOT took the land illegally – that Crampton said is pending.
The upcoming case will give Crampton a chance to win a higher payment for the property from DOT, along with punitive damages and more attorney’s fees.
Noelle Talley, a spokeswoman for the state Department of Justice, said by email that her agency’s lawyers file hundreds of DOT condemnation cases each year, including “one in a case that was in bankruptcy in error. We aren’t aware of this ever happening before, and we’re working with DOT to implement measures to make sure it doesn’t happen again.”
Burnett-Baker told Humrickhouse that DOT tries to honor the legal provisions that are supposed to protect those in bankruptcy proceedings.
“We try very, very hard not to violate the stays ...,” Burnett-Baker said at the hearing in October. “I would hate to put myself on the hook and say it will never happen again; I wish I could say that. But there are 100 counties in the state. ... To the extent that people bring it to my attention, I try to make sure it does not happen.”