Watts v. North Carolina Department of Environment & Natural Resources

MARTIN, Chief Judge.

Defendant North Carolina Department of Environment and Natural Resources (NCDENR) appeals from a decision and order of the North Carolina Industrial Commission awarding $267,733 in damages to plaintiff arising from NCDENR’s negligent issuance of an improvement permit for land purchased by the plaintiff.

Plaintiff entered into a contract to purchase an undeveloped lakefront lot in Montgomery County. A condition of the contract was that the land “perk” for a three-bedroom residence, meaning that the soil was suitable to support an on-site wastewater system. On 30 July 1999, after inspecting the site, David Ezzell (“Ezzell”), an agent of the Montgomery County Health Department (“Health Department”) and NCDENR, issued an improvement permit authorizing construction of a three-bedroom home on the lot. In reliance on the improvement permit, plaintiff purchased the lot for $118,000 and subsequently added a boat dock at a cost of $29,023.94.

In 2002 plaintiff began to pursue his plans to develop the lot. Plaintiff met with a mortgage loan broker about financing the development, seeking an interest-only construction loan that would convert to a thirty-year mortgage upon completion of the construction. Although plaintiff did not apply for a loan at that time, the broker testified that when they met in 2002 plaintiff qualified for the financing at a rate of approximately 5.44% interest for the thirty-year, fixed-rate mortgage.

*180As plaintiff prepared the site and the construction plans, he decided that.he could better use the lot if the proposed driveway were switched from the left side to the right side of the lot. In order to get approval for this change, plaintiff.was required to apply for a new permit. The perk test performed for the new permit revealed that the soil would not perk for the new construction plan, nor would it perk for the original construction plan; therefore, the Health Department notified plaintiff that the permit issued in July 1999 was being revoked. Plaintiff requested that the soil be retested. The retest confirmed the result that the soil was unsuitable for a ground absorption sewage system. Plaintiff was notified of three ways in which the situation could be remedied: (1) he could purchase another adjoining parcel of property with suitable or provisionally suitable soil on which to place the. ground absorption sewage treatment and disposal system, and plaintiff could install a system capable of pumping the effluent to the adjoining parcel; (2) he could obtain an easement to another parcel of property with suitable or provisionally suitable soil on which to place the ground absorption sewage treatment and disposal system and install a system capable of pumping the effluent to the adjoining parcel; or (3) he could install a septic system incorporating both pretreatment (sand or peat filter) and a subsurface drip irrigation under the soil and site conditions of the lot, although the septic system would have to be designed and installed by a professional engineer or individuals authorized in writing by the pretreatment and drip irrigation manufacturers. Plaintiff elected to purchase an adjoining parcel for $70,000. Although plaintiffs contact throughout this process was with the Health Department, the parties stipulated that “the agency of the defendant in question in this case is the Montgomery County Health Department of Montgomery County, North Carolina, and . . . how it operates, it is an agent of the State of North Carolina; i.e., the North Carolina Department of Environmental] and Natural Resources.”

On 2 July 2003, plaintiff filed an action under the North Carolina Tort Claims Act, N.C.G.S. §§ 143-291 et seq., against Ezzell, the Health Department, and NCDENR alleging that defendants had negligently inspected and issued an improvement permit for his lot. Defendants moved to dismiss on jurisdictional grounds and for failure to state a claim upon which relief could be granted. Plaintiffs complaint was heard by the North Carolina Industrial Commission on 15 November .2004. The Deputy Commissioner dismissed the claim against Mr. Ezzell, as he was not a proper party before the Industrial Commission. As to the defendants Health Department and NCDENR, the *181Deputy Commissioner ordered them jointly and severally liable for $267,733 in compensatory damages to plaintiff, $18,611.07 in attorney fees, and $13,034 in costs and expenses. Of the $267,733 compensatory damages, $174,746.54 represent damages arising from future interest payments. NCDENR appealed the decision of the Deputy Commissioner to the full Industrial Commission. The full Commission agreed with the findings and conclusions of the Deputy Commissioner and affirmed the awards of compensatory damages, attorney fees, and costs and expenses. NCDENR appealed the full Commission’s decision and order to this Court.

NCDENR raises five issues on appeal.

I. Public Duty Doctrine

First, NCDENR argues that the Industrial Commission erred in failing to find and conclude that plaintiff’s claim is barred by the public duty doctrine. We first address whether this issue has been preserved for appellate review. NCDENR moved to dismiss plaintiff’s claim pursuant to Rule 12(b)(1) (lack of subject matter jurisdiction), 12(b)(2) (lack of personal jurisdiction), and 12(b)(6) (failure to state a claim upon which relief can be granted), arguing that the public duty doctrine barred plaintiff’s claim. N.C.R. Civ. Pro. 12(b). Although NCDENR did not further argue the motion at the hearing, the Commission concluded that “[t]he North Carolina Industrial Commission has jurisdiction over Plaintiff and Defendants [NCDENR] and The Montgomery County Health Department,” and “[NCDENR] and The Montgomery County Health Department owed plaintiff a duty of care in making a proper assessment of Lot 871 before issuing Improvement Permit No. 99291, authorizing the construction of a three-bedroom residence on the lot.” NCDENR has assigned as error the Commission’s conclusion that it owed a duty of care to plaintiff for the Commission’s failure to apply the public duty doctrine. Thus, NCDENR has preserved this issue for appeal. On appeal, “[t]he Commission’s conclusions of law are reviewed de novo." McRae v. Toastmaster, Inc., 358 N.C. 488, 496, 597 S.E.2d 695, 701 (2004).

The issue before us is whether the public duty doctrine applies to bar plaintiff’s claim against NCDENR for negligent inspection of soil conditions, where NCDENR issued an improvement permit for a lot, plaintiff relied on the permit to purchase the lot, and the permit was subsequently revoked, resulting in damage to plaintiff. We first recognize:

*182The public duty doctrine is a separate rule of common law negligence that may limit tort liability, even when the State has waived sovereign immunity. The rule provides that when a governmental entity owes a duty to the general public, particularly a statutory duty, individual plaintiffs may not enforce the duty in tort.

Myers v. McGrady, 360 N.C. 460, 465-66, 628 S.E.2d 761, 766 (2006).

Our Supreme Court has held that “the legislature intended the public duty doctrine to apply to claims against the State under the Tort Claims Act.” Stone v. N.C. Dep’t of Labor, 347 N.C. 473, 482, 495 S.E.2d 711, 716 (1998). The Supreme Court has also “extended the public duty doctrine to state agencies required by statute to conduct inspections for the public’s general protection.” Lovelace v. City of Shelby, 351 N.C. 458, 461, 526 S.E.2d 652, 654 (2000); see also Hunt v. N.C. Dep’t of Labor, 348 N.C. 192, 202, 499 S.E.2d 747, 753 (1998); Stone, 347 N.C. at 483, 495 S.E.2d at 717. In the present case, the Health Department, an agent of NCDENR, is a state agency required to inspect site for suitability of wastewater treatment systems before issuing improvement permits by N.C.G.S. § 130A-336, and therefore may avail itself of the protection afforded by the public duty doctrine.

The public duty doctrine, however, is subject to two exceptions.

In Braswell this Court recognized two exceptions to the public duty doctrine “to prevent inevitable inequities to certain individuals.” It explained that exceptions to the doctrine exist: (1) where there is a special relationship between the injured party and the governmental entity; and (2) when the governmental entity creates a special duty by promising protection to an individual, the protection is not forthcoming, and the individual’s reliance on the promise of protection is causally related to the injury suffered. These exceptions are narrowly construed and applied.

Stone, 347 N.C. at 482-83, 495 S.E.2d at 717 (quoting Braswell v. Braswell, 330 N.C. 363, 371, 410 S.E.2d 897, 902 (1991)) (citations omitted). We must consider whether the facts of the present case warrant the application of one of the exceptions to the public duty doctrine.

The special duty exception requires (1) a promise of protection made by the governmental entity, (2) the entity’s failure to protect, and (3) reliance by the individual on the promise, causing damage to the individual. Id. at 482, 495 S.E.2d at 717 (citing Braswell, 330 N.C. *183at 371, 410 S.E.2d at 902); see also Cockerham-Ellerbee v. Town of Jonesville, 176 N.C. App. 372, 377, 626 S.E.2d 685, 689 (2006) (quoting Braswell, 330 N.C. at 371, 410 S.E.2d at 902). “[T]he ‘special duty’ exception ... is a very narrow one; it should be applied only when the promise, reliance, and causation are manifestly present.” Braswell, 330 N.C. at 372, 410 S.E.2d at 902.

As the dissent notes, the plaintiff bears the burden to allege and prove an exception to the public duty doctrine. See Wood v. Guilford County, 355 N.C. 161, 170, 558 S.E.2d 490, 497 (2002). However, the dissent contends that “[t]he plaintiff neither asserted nor proved nor did the Commission make any findings of fact or conclusions of law to show either of the[] means to establish a special duty/special relationship existed.” This contention is faulty for a number of reasons.

First, the plaintiff asserted the special duty exception by presenting evidence that a special duty existed. Although plaintiff did not plead a special duty in his complaint, after the defense was pled, plaintiffs evidence with respect to the issue, to which defendant did not object, was an implied amendment to conform to the evidence. N.C.R. Civ. Pro. 15(b) (2005) (“When issues not raised by the pleadings are tried by the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.”)

[Rule 15(b)] allows issues to be raised by liberal amendments to pleadings, and, in some cases, by the evidence, the effect of the rule being to allow amendment by implied consent to change the legal theory of the cause of action so long as the opposing party has not been prejudiced in presenting his case, i.e., where he had a fair opportunity to defend his case.

Taylor v. Gillespie, 66 N.C. App. 302, 305, 311 S.E.2d 362, 364 (1984) (emphasis omitted). In the present case, the plaintiff and defendant stipulated to the facts supporting the issue of the special duty exception, and plaintiff further offered exhibits in support of the issue. Defendant cannot argue prejudice when it voluntarily stipulated to the facts.

Second, the plaintiff met his burden of proof where the facts supporting the exception were admitted by stipulation.

Third, the Commission made findings of fact and conclusions of law to support the application of the special duty exception. The Commission specifically found:

*184On July 27, 1999, plaintiff entered into an Offer to Purchase and Contract for Lot No. 871, Hattaway Circle, located in Montgomery County, North Carolina. One of the conditions precedent to plaintiff purchasing Lot 871 was that the lot perk for a three-bedroom residence.
On July 30, 1999, after' confirming that the soils then present on Lot 871 were suitable for a septic system, The Montgomery County Health Department, Environmental Health Section, issued Improvement Permit No. 99291, authorizing the construction of a three-bedroom residence on Lot 871.
In reliance upon the permit, plaintiff purchased Lot 871 for a purchase price of $118,000.00.
On September 5, 2002, John K. Fowlkes, then acting Environmental Health Coordinator for The Montgomery County Health Department, notified Plaintiff that Lot 871 did not pass the perk test.

These findings contain, all of the elements of the special duty exception. NCDENR, through its agent the Health Department, made a promise to plaintiff by issuing the improvement permit warranting that plaintiff could construct a three-bedroom home on the property as described in the site plan. Plaintiff relied on the permit in negotiating the purchase of the property. Finally, NCDENR, through its agent the Health Department, revoked the permit after plaintiff purchased the lot, prohibiting plaintiff from building on the lot as the permit promised he would be able to do, and causing plaintiff to incur additional expenses in order to use the lot as he had planned.

Based on these findings of fact, the Commission concluded:

[NCDENR] and The Montgomery County Health Department owed plaintiff a duty of care in making a proper assessment of Lot 871 before issuing Improvement Permit No. 99291 .... The defendants failed in this duty of care when they admittedly negligently issued Permit No. 99291 upon discovering that the property was unsuitable for a ground absorption sewage system. Defendant’s breach directly and proximately caused plaintiff to incur damages ....

This conclusion comprises all of the elements of the special duty exception except the reliance element. The conclusion also indicates *185that the duty was owed to plaintiff individually rather than solely to the general public. It is this conclusion of law that defendant assigned as error for failure to apply the public duty doctrine. “The Commission’s conclusions of law are reviewed de novo.” McRae, 358 N.C. at 496, 597 S.E.2d at 701. Although the Commission failed to specifically conclude that the special duty exception to the public duty doctrine applied, its conclusion was adequately supported by the facts; therefore, it is affirmed.

II. Admission of Negligence

Next, NCDENR argues that the Industrial Commission’s conclusion that NCDENR admitted to negligent conduct is not supported by the findings of fact or competent evidence. In its finding of fact 9, the Commission found “[p]rior to the trial of this matter, defendants admitted that they were negligent in issuing Permit No. 99291.” Since NCDENR did not assign error to this finding of fact; it is binding upon us. N.C.R. App. P. 10(a) (scope of review is limited to the consideration of the assignments of error set out in the record on appeal); Johnson v. Herbie’s Place, 157 N.C. App. 168, 180, 579 S.E.2d 110, 118 (2003). Finding of fact 9 adequately supports the Commission’s conclusion that NCDENR admitted negligence.

III. Interest Rate Damages

NCDENR also assigned error to the future interest rate damages awarded by the Commission, arguing that they were not reasonably foreseeable, were speculative, remote, and not reasonably certain, and were awarded according to an improper measure of damages. The Commission based its award on a finding of fact that “as a result of defendants’ negligence and the resulting delay in construction, plaintiff will incur an increased interest rate of at least 1.5% over the term of its loan. The cost of this 1.5% increase in interest is $174,745.54.” NCDENR argues that this finding is not supported by the competent evidence, and that it does not support the Commission’s conclusion of law that “[defendants’ breach directly and proximately caused plaintiff to incur damages in the amount of $267,733.00.”

Assuming, arguendo, the Commission’s finding of fact is supported by competent evidence, the finding does not support the Commission’s conclusion that plaintiff is entitled to recover $174,745.54 in future interest damages. It is true that a tortfeasor “is responsible for all damages directly caused by his misconduct, and for all indirect or consequential damages which are the natural *186and probable effect of the wrong, under the facts as they exist at the time the same is committed and which can be ascertained with a reasonable degree of certainty.” Binder v. General Motors Acceptance Corp., 222 N.C. 512, 514, 23 S.E.2d 894, 895 (1943) (quoting Conrad v. Shuford, 174 N.C. 719, 721, 94 S.E. 424, 425 (1917)). However, “[d]amages which are uncertain and speculative ... are too remote to be recoverable.” Johnson v. Atlantic Coast Line R.R. Co., 184 N.C. 101, 105, 113 S.E. 606, 608 (1922). The future interest damages included in the Commission’s award are uncertain, speculative, and too remote to be recoverable. The figure for future interest damages was calculated based on financial data about projected interest rates, the anticipated number of years over which the loan would accrue interest, and the type of loan (fixed, as opposed to variable). The numbers further depend on plaintiff completing construction of the home on time and according to schedule. In sum total, these factors make the figure of $174,745.54 uncertain and speculative. Our Supreme Court has held that such damages are not recoverable, id.) thus, we hold that the Commission erred in including the amount of $174,745.54 in the damages award.

With regard to the proper measure of damages, NCDENR argues that the Commission should have used the diminution of value of the property to calculate the damages. However, NCDENR did not assign error to the Commission’s award of damages for the cost of purchasing the adjoining lot and constructing a suitable septic system on the lot and the increased construction costs. Thus, our review is limited to the award of future interest rate damages. N.C.R. App. P. 10(a) (“[T]he scope of review on appeal is confined to a consideration of those assignments of error set out in the record on appeal.”) Because we reverse the Commission’s award of future interest rate damages on the grounds that they are speculative, we need not address the measure of damages used.

In addition to the speculative nature of the damages, the award is also error because it fails to discount the future interest rate damages to present value. It is well established that damages for losses which may occur in the future, such as the future interest rate payments in this case, must be reduced to the present worth of such losses, and it is error not to do so. Faison v. Cribb, 241 N.C. 303, 303, 85 S.E.2d 139, 140 (1954); Daughtry v. Cline, 224 N.C. 381, 384, 30 S.E.2d 322, 324 (1944); Lamont v. Highsmith Hospital, 206 N.C. 111, 112-13, 173 S.E. 46, 46-47 (1934).

*187IV. Award of Costs and Attorney Fees

NCDENR also assigns error to the award of costs and attorney fees to the plaintiff, arguing these amounts are not recoverable under the Tort Claims Act.

We consider NCDENR’s argument first as to costs. Our statutes state “[t]he Industrial Commission is authorized ... to tax the costs against the loser in the same manner as costs are taxed by the superior court in civil actions,” N.C. Gen. Stat. § 143-291.1 (2005), and in civil actions “costs may be allowed or not, in the discretion of the court, unless otherwise provided by law.” N.C. Gen. Stat. § 6-20 (2005). When read together, these statutes give the Commission discretion to tax costs against the losing party. “Where the court has taxed costs in a discretionary manner its decision is not reviewable.” Dixon, Odom & Co. v. Sledge, 59 N.C. App. 280, 286, 296 S.E.2d 512, 516 (1982) (citing Hoskins v. Hoskins, 259 N.C. 704, 131 S.E.2d 326 (1963)). Because the Commission’s authority to tax costs is discretionary, its award is not reviewable by this Court, absent a showing of manifest abuse of discretion. However, its conclusions of law are reviewable de novo. McRae, 358 N.C. at 496, 597 S.E.2d at 701.

The Commission cited several statutes supporting its award of attorney fees, including N.C.G.S. §§ 1A-1 Rule 11, 6-21.5, 7A-305(d)(3), 143-291, and 143-291.1. None of these statutes support the Commission’s award in the present case.

The Commission first cited N.C.G.S. § 1A-1 Rule 11 in support of its award. Rule 11 allows a court to award attorney fees as an appropriate sanction against an attorney who violates the rule. To comply with Rule 11, an attorney who submits a signed pleading, motion, or other paper to the court must ensure:

[T]o the best of his knowledge, information, and belief formed after reasonable inquiry [the document] is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the- cost of litigation.

By citing Rule 11 as support for an award of attorney fees, the Commission implies that the award is imposed as a sanction against NCDENR for violation of the rule. We note that the “imposition of [Rule 11] sanctions is reviewable de novo, but the choice of sanction *188is reviewable under an abuse of discretion standard.” Crutchfield v. Crutchfield, 132 N.C. App. 193, 195, 511 S.E.2d 31, 33 (1999).

Reviewing the imposition of the sanction de novo, we find no facts to support it. The Commission made only one finding that contains any of the elements of a Rule 11 sanction, as follows:

Defendants’ position on damages cannot be supported by the evidence of record. Defendants have raised defenses that cannot be supported in law, contending that plaintiff would have been obligated to purchase a second lot even if defendants had not been negligent, or that plaintiff should be compelled to accept the untested system outlined herein. Defendants’ contention that either fact lowered plaintiff’s damage claim to approximately $8,000.00 was belied by their own evidence.

Although the Commission cited the lack of facts and law to support the amount of damages for which NCDENR advocated, the amount of $8,000 did not appear in any pleading, motion, or other paper filed with the Commission, but was rather an argument made by defense counsel at the hearing. As such, “defendants’ position” is not the proper subject of a Rule 11 sanction. Finding no other grounds for Rule 11 sanctions, we hold that the Commission erred to the extent it relied on Rule 11 to support its award of attorney fees to plaintiff.

The Commission next relied on N.C.G.S. § 6-21.5 to support its award of attorney fees. Section 6-21.5 states “[i]n any civil action . . . the court, upon motion of the prevailing party, may award a reasonable attorney’s fee to the prevailing party if the court finds that there was a complete absence of a justiciable issue of either law or fact raised by the losing party in any pleading.” The Commission made no findings to support a conclusion that NCDENR presented no justicia-ble issue. Thus, § 6-21.5 is inapplicable in the present case and does not support the Commission’s award of attorney fees.

The Commission also cited N.C.G.S. § 7A-305(d)(3) as authority for its award of attorney fees. This statute authorizes the court in civil actions to assess or recover “[c]ounsel fees, as provided by law.” The statute does not specifically grant the courts the authority to award attorney fees, but only recognizes that such authority may be conferred by other statutes. Having found no other statute which is applicable to the present case that grants the coürts the authority to award attorney fees, we conclude that § 7A-305(d)(3) does not grant such authority to the courts and, by extension, the Commission.

*189Finally, the Commission cited N.C.G.S. §§ 143-291 and 143-291.1 support an award of attorney fees. When read by themselves, neither section grants the Commission the authority to award attorney fees. However, when read together with § 6-21.1, this Court has held “the Industrial Commission has jurisdiction and authority to award attorney’s fees in a Tort Claims Act case.” Karp v. Univ. of North Carolina, 88 N.C. App. 282, 284, 362 S.E.2d 825, 826 (1987), aff'd per curiam, 323 N.C. 473, 373 S.E.2d 430 (1988). Section 6-21.1 provides “where the judgment for recovery of damages is ten thousand dollars ($10,000) or less, the presiding judge may, in his discretion, allow a reasonable attorney fee ....” N.C. Gen. Stat. § 6-21.1 (2005). The total damages awarded in the present case were $267,733. Even excluding the future interest damages of $174,754.54, the plaintiff’s damages far exceed the statutory maximum of $10,000, and so we find that the Commission was not authorized under §§ 143-291 and 143-291.1 to award attorney fees to plaintiff.

Because none of the statutes cited by the Commission support its award of attorney fees to plaintiff, we hold the Commission erred in awarding attorney fees.

V. Acceptance of Additional Evidence

NCDENR’s final argument is that the Commission erred in denying its motion, made after the conclusion of the hearing, for the Commission to take additional evidence regarding present day discounted value of the future interest rate damages. Because we have reversed and remanded the award of future interest damages on other grounds, we need not consider whether the Commission erred in refusing the additional evidence.

Affirmed as to the Commission’s denial of NCDENR’s motion to dismiss based on the public duty doctrine and its award of costs, reversed and remanded as to award of interest rate damages and attorney fees.

Affirmed in part; reversed and remanded in part.

Judge CALABRIA concurs. Judge TYSON concurs in part and dissents in part by separate opinion.