PRESENT: All the Justices
CITY OF VIRGINIA BEACH
OPINION BY
v. Record No. 971117 JUSTICE CYNTHIA D. KINSER
February 27, 1998
RICHARDSON C. BELL,
TRUSTEE FOR BELL LAND TRUST
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
Edward W. Hanson, Jr., Judge
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.
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
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.
2
Bell’s development proposal was to construct a
roadway, water and sewer extensions, and a bulkhead for a
single family dwelling.
3
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
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
$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
5
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
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:
6
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
_______________
[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
7
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
_______________
Bell, not the Trustee, as the basis for the Trustee’s claim
for inverse condemnation.
8
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
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
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
10
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
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.
11
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
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
12
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
_______________
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”).
13
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
14
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.
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.
15