Insight by Morningstar Law Group Attorney Tish Shapiro
The North Carolina Court of Appeals recently issued a ruling in LDI Shallotte 179 Holdings LLC v. State of North Carolina Department of Environmental Quality (2026) holding that a state agency can be held liable for a regulatory taking on the basis of improper delays. This case is a novel recognition that improper administrative delay may constitute a temporary regulatory taking.
Background
In 2001, The North Carolina Department of Environmental Quality (“DEQ”) issued a stormwater permit to the owner of a parcel of land which was going to be developed into a residential subdivision in several phases. However, the development was never completed. Over time, DEQ issued a number of notices of violation (“NOVs”) to the owner for violations on portions of the property. The owner did not take any action to bring the property into compliance.
Another portion of the property, one that was not subject of one of the NOVs, was conveyed a number of times over the years, eventually owned by Plaintiff in LDI Shallotte. Plaintiff intended to develop its parcel into a residential subdivision and applied to DEQ for a stormwater permit. Petitioner, through DEQ’s Express Review Program, sought to modify the prior stormwater permit, however DEQ informed Plaintiff that the Express Review Program was not available for their permit because the prior owner of the property (and the permittee under the existing stormwater permit) was not the applicant. DEQ’s determination was based on a footnote in the fee application chart which disallowed applications that overlapped with existing permits, and which had existing noncompliance issues.
Over the course of the next several months, Plaintiff and DEQ discussed numerous steps that Plaintiff would have to take to be able to apply for a stormwater permit. Finally, Plaintiff submitted two applications, one to transfer the permit and one to obtain a new permit. Despite acknowledging receipt of the applications, DEQ did not review them because Plaintiff had not completed everything DEQ recommended. Months later, DEQ returned the application to transfer the original permit. Discussions continued for several months, with DEQ maintaining Plaintiff needed to resolve the NOVs, which Plaintiff was not inclined to do. Eventually, Plaintiff requested DEQ terminate the original permit, which DEQ had the discretion to do, but DEQ declined. The original owner informed DEQ that he did not object to the transfer but would not take any steps toward remedying the NOVs.
Plaintiff then filed a petition in the Office of Administrative Hearings. After a hearing on competing motions to dismiss and for summary judgment, the administrative law judge issued a ruling in Plaintiff’s favor, holding that DEQ erred by excluding Plaintiff from the Express Review Program based on the footnote to the fee chart and by withholding review of the applications. Eventually, DEQ reviewed the applications and issued the permit to Plaintiff. Plaintiff then filed suit against DEQ, asserting that DEQ’s delay in reviewing the applications constituted an inverse condemnation, an unconstitutional taking, and a denial of due process. In this matter, the trial court granted DEQ’s motion to dismiss on the basis that the Plaintiff failed to state a claim upon which relief could be granted. Plaintiff appealed to the Cour of Appeals, where the Court of Appeals found that Plaintiff adequately stated a claim for unconstitutional temporary regulatory taking.
Temporary Regulatory Takings
LDI Shallotte addresses what can constitute a temporary regulatory taking. Under North Carolina law, a temporary taking involves the denial of all use of an owner’s property for a finite period and “requires just compensation for the use of the land during the period of the taking.” Id. (citing City of Charlotte v. Combs, 216 N.C. App. 258 (2011)). A regulatory taking is where a governmental action “den[ies] an owner all economically beneficial or productive use of the property.” Id.
The Court of Appeals agreed with Plaintiff’s argument that DEQ’s refusal to consider the application for the stormwater permit until the NOVs were resolved resulted in Plaintiff being deprived of all economic benefit from the Property for two years and this deprivation was a sufficient basis for the claims of an unconstitutional temporary regulatory taking.
DEQ argued that there could be no taking because it had not formally denied the application and thus there was no “final deprivation of a property interest.” DEQ relied upon a line of cases holding that, to establish an unconstitutional regulatory taking based on a zoning ordinance, a plaintiff must apply for, and be denied, a variance before establishing an impact on the use of the property. Only upon denial is such a plaintiff able to demonstrate the loss of all economically beneficial use of his property. Disagreeing with the DEQ, the Court of Appeals noted that under the DEQ’s argument, if an application was held in limbo and never approved or denied, an applicant would never have any recourse. The Court of Appeals notes, “[b]ecause Plaintiff challenges a regulatory action rather than a regulation itself, a ‘final determination,’ or ‘final deprivation’ as characterized by [DEQ], is not required” Id. Going further, the Court of Appeals held:
In our view, the absence of a definitive denial of Plaintiff’s request for a stormwater permit is not necessarily fatal to Plaintiff’s takings claim. By [DEQ]’s logic, it could indefinitely hold applicants in bureaucratic purgatory by simply refusing to process their requests for stormwater permits. We decline to adopt a rule permanently foreclosing temporary takings claims after excessive administrative delays. There may be instances where grossly protracted inaction, if pleaded in detail, may well survive a motion to dismiss and warrant discovery.
Id.
This is a tremendous win for any owner facing a similar situation. As noted by the Court of Appeals, “The fundamental right to property is as old as our state.” Kirby v. N.C. Dep’t of Transp., 368 N.C. 847, 852–53, (2016) (citations omitted). While there is no express provision in the North Carolina constitution prohibiting taking private property for public use, the North Carolina courts “have long recognized the existence of a constitutional protection against an uncompensated taking . . . .” Id.
The Court of Appeals’ decision in LDI Shallotte is another example of the law of North Carolina protecting the property rights of owners. Unfortunately, it is not unusual for an owner to find themselves mired in a bureaucratic morass, struggling to navigate the many requirements of an agency or municipality including unrelated legacy compliance that can cause excessive administrative delay. In situations such as this, it is critical for property owners to seek guidance from their legal advisors to ensure their rights are properly protected.
If you find your development similarly slowed, mired in institutional delay, do not hesitate to reach out to Morningstar Law Group for assistance in clearing the path.
