7/1/2009 Newsletter and Legal Memorandum (print version)

The North Carolina Court of Appeals has affirmed a lower court decision granting summary judgment in an action by a landowner seeking to prevent the Caldwell County Railroad Company and Caldwell County Economic Development Commission, Inc., its lessor, from barricading the crossing providing sole access to the plaintiff's property.

The facts in Schwarz & Schwarz, LLC v. Caldwell Cty. R.R. Co., (08-458) filed on June 16, 2009 as set out in the opinion of the Court of Appeals are as follows:

"In 2001, plaintiff purchased a fee simple interest in a 43.5 acre parcel of land from Singer Furniture Company, a furniture manufacturing company that operated its business on the site from the 1940's until the 1990's. Plaintiff leases the facility to commercial tenants who use the facility for manufacturing or storage purposes."

"Defendant Caldwell County EDC owns a 100-foot railroad right-of-way easement located along the eastern boundary of the property which physically separates the property from Norwood Road , a public road. A deed to a 100-foot easement was first obtained in 1902 by the Carolina and Northwestern Railroad (C&NR) which remained in possession of the easement through several mergers until 1995, when the successor of C&NR, Southern Railway, conveyed the right-of-way to the Caldwell County EDC. The right-of-way is currently leased by defendant and defendant has operated trains over the right-of-way since 1995."

"Prior to the 1940's, no crossing existed over the right-of-way. Around 1945 or 1946 a crossing was constructed during development of the property. No easements, agreements, crossing rights, or other record documents convey a right to establish or maintain a crossing over the right-of-way."

"The current litigation arose when the crossing was damaged by a truck's docking gear that caught on the track after leaving the loading docks of the facility on 8 December 2005. On 10 December 2005, defendants repaired, then barricaded the tracks, preventing any trucks from crossing the railroad. Plaintiff requested that defendant restore the tracks to their condition prior to the damage and remove the barrier in order for trucks to cross the railroad and have access to the facility. In response, defendant requested that plaintiff execute a licensing agreement before it would reopen the crossing. The agreement required an $1,800 per year maintenance fee and required plaintiff to provide insurance. Plaintiff refused to sign the agreement and filed an action against defendant on 27 February 2006 for trespass to land and declaratory judgment."

"Defendant filed a motion for summary judgment on 10 April 2008. On 16 April 2008, plaintiff also filed a motion for summary judgment. Summary judgment was granted in favor of defendant on 15 August 2008."

The plaintiff appealed the trial court's granting defendant's motion for summary judgment. The Court of Appeals states that the plaintiff's "arguments present three essential issues: (I) whether the crossing arose out of an easement by necessity; (II) whether defendant is estopped from preventing use of the property because plaintiff and its predecessors have used the crossing since the 1940's; and (III) whether closing the crossing exceeds reasonable use of the easement."

The existence and validity and existence of the railroad easement and that the defendant controls the easement through its lease of the easement from the Caldwell County EDC was not disputed in the case. The defendant's evidence showing that the railroad right-of-way existed prior to the crossing, constructed during the 1940's was not challenged either. The Court notes: "Plaintiff has produced no record evidence that controverts defendant's evidence or shows the crossing existed at the time the railroad was constructed. Plaintiff has also failed to produce any evidence of an express easement reserving a right to use the crossing. Thus, the question becomes whether the crossing was created by necessity.
    To prove an easement by necessity, plaintiff must show:
        (i)    the claimed dominant tract and the claimed subservient tract were once held in common ownership that was severed by a conveyance; and
        (ii) the necessity for the easement arose out of the conveyance." Citation omitted.

"Plaintiff has not established by record evidence that the necessity for the easement arose out of the conveyance of the property to the railroad company in 1902. However, defendant presented evidence that until the 1940's the property which plaintiff now owns was a meadow possibly used as a berry patch. Even viewing the evidence in the light most favorable to the plaintiff, there is no indication that an easement by necessity arose at the time the railroad was constructed."

This statement on the part of the court seems to be a bit of a non sequitur. The court seems oblivious to the fact that the proof of necessity is a question of fact and its determination comes at trial where the facts are controverted. Here, it is apparently uncontested that the railroad right of way cut off all access to the public road. The court makes no mention of the defendants making any allegation that the plaintiff had any other means of access. With what the court has offered us in this opinion, and taking the uncontroverted facts as presented by the Court of Appeals in the light most favorable to the defendants, it would seem that summary judgment may have been more appropriately granted to the plaintiff on this issue.

The plaintiff's next argument addressed by the Court is that the defendant should be estopped from closing the crossing because plaintiff and its predecessors in interest have used the crossing since the 1940's. The Court of Appeals states that the "continued use of the crossing by plaintiff and its predecessor in interest since the 1940's cannot estop defendant from closing the crossing. This principle is soundly established in N.C. Gen. Stat. § 1-44 which provides:

No railroad, plank road, turnpike or canal company may be barred of, or presumed to have conveyed, any real estate, right-of-way, easement, leasehold, or other interest in the soil which has been condemned, or otherwise obtained for its use, as a right-of-way, depot, station house or place of landing, by any statute of limitation or by occupation of the same by any person whatever. N.C.G.S. § 1-44 (2007). Although the crossing has been in use for over sixty years, plaintiff cannot rely on the doctrine of estoppel to prevent defendant from closing the crossing."

Notwithstanding the Court's assertions, the statute cited operates to prevent exercise of a legal defense of the statute of limitations. The plaintiff in this case was seeking equitable relief from the court which is not expressly enjoined by N.C.G.S. Section 1-44. The statute speaks to title and the court notes that the railroad's title was uncontroverted; therefore, it is inapplicable to the doctrine of estoppel which rests on equitable principals and which is rarely appropriate for summary judgment.

The Court of Appeals treats the last issue with equal lack of adroitness. "Finally, plaintiff's argument that defendant cannot increase the burden of its easement on plaintiff's fee simple estate is erroneous. Plaintiff contends defendant's decision to close the crossing exceeded the reasonable use of the easement and was an increased burden on plaintiff's property. Plaintiff's assertion may be a correct statement of law applicable to most easements. However, because the easement at issue in the instant case is a railroad purpose easement, plaintiff's assertion is erroneous."

"In the case of a railroad purpose easement, a property owner may use areas of the right-of-way that are not required for railroad purposes. Norfolk S. Ry. Co. v. Smith, 169 N.C. App. 784, 788, 611 S.E.2d 427, 430 (2005). ‘However, the owner's use is subject to the railroad's easement.' Id. "

"It is well settled by statute and precedent in this jurisdiction that when a railroad has acquired and entered upon the enjoyment of its easement, the further appropriation and use by it of the right of way for necessary railroad business may not be destroyed or impaired by reason of the occupation of it by the owner or any other person. Keziah v. Seaboard Air Line R. Co., 272 N.C. 299, 308, 158 S.E.2d 539, 546 (1968). "The railroad may expand its use of the right-of-way, to the extent of its statutory right, for any legitimate purpose as determined by the railroad's sound business judgment." Norfolk , 169 N.C. App. at 789, 611 S.E.2d at 430. "'Use' by the railroad includes managing safety risks on its right-of-way." Id. Because a railroad is required to maintain the safety of the right-of-way, a property owner cannot create risks that interfere with the railroad's maintenance of the right-of-way. Id."

"The law surrounding railroad purpose easements is clear. A railroad has the authority and ability to expand its use of a right-of-way to manage safety risks. As such, it was within defendant's authority to determine that the crossing interfered with the use of the railroad and subsequently close the crossing. For the foregoing reasons, the trial court did not err by granting summary judgment in favor of defendant."

These latter statements by the Court, for all their conviction, are clearly incorrect. N.C.G.S. Section 136-194 makes express limitation upon the railroads' exercise of authority over their right of way easements with respect to cattle guards and private crossings. It even makes the failure to erect and maintain them a misdemeanor.

"Every company owning, operating or constructing any railroad passing through and over the enclosed land of any person shall, at its own expense, construct and constantly maintain, in good and safe condition, good and sufficient cattle guards at the points of entrance upon and exit from such enclosed land and shall also make and keep in constant repair crossings to any private road thereupon. (Emphasis added) Every railroad corporation which shall fail to erect and constantly maintain the cattle guards and crossings provided for by this section shall be liable to an action for damages to any party aggrieved, and shall be guilty of a Class 3 misdemeanor and only fined in the discretion of the court. Any cattle guard approved by the Commission shall be deemed a good and sufficient guard under this section. (1883, c. 394, ss. 1, 2, 3; Code, s. 1975; Rev., ss. 2601, 3753; 1915, c. 127; C.S., s. 3454; 1933, c. 134, s. 8; 1941, c. 97, s. 5; 1963, c. 1165, s. 1; 1993, c. 539, s. 481; 1994, Ex. Sess., c. 24, s. 14(c); 1998-128, s. 14.)"

Contrary to the court's assertions, this case is not about the crossing or its safety or the railroad's exercise of its business judgment with regard to safety. It is rather about the railroad charging a crossing fee of $1800 per year plus the price of an indemnity policy for the railroad's liability for the crossing. We know of no case law that suggests that the railroad is entitled to charge the land owner for a license to exercise its rights in the fee.

This very issue is being currently debated in the North Carolina Legislature and there is grave concern in many quarters that there is an effort being made to strengthen the railroads' authority to the detriment of the landowners without new compensation for the taking. The railroads have introduced legislation currently pending that would have virtually eliminated the rights of landowners abutting railroad corridors that have been established in statute and the courts. Thanks to the efforts of the North Carolina Land Title Association and the Real Property Section of the North Carolina Bar Association, this effort has been limited to a more palatable bill. The bill was introduced as House Bill 116 and has passed the House and is now in the Senate's Judiciary I committee. You can read the proposed legislation at:

http://www.ncleg.net/Sessions/2009/Bills/House/PDF/H116v4.pdf

This month's edition of Dirt Tales continues the saga of issues created by improper cancelation of deeds of trust.

James T. Kirk was relating to his good friend from the Navy, Lt. Spock, the woes he experienced in trying to develop a piece of investment property. Spock wasn't to be outdone and had a tale he wanted to share about his venture into buying investment property. Spock had purchased a duplex that he intended to use as rental property. There was an existing mortgage on the duplex but it had been sold and assumed several times and then wrapped around a few more times such that his attorney couldn't figure out who really owned the debt. Percentages of the note had been sold to various parties and some of it had been packaged and sold with other debts overseas. It was a mess and Spock wasn't going to get clear title to his property if he couldn't identify and locate all the parties who held a piece of the mortgage.

One day while he was listening to the radio Spock heard an ad about debt elimination from the esteemed Vulcan Institute of Financial Independence. He called the toll free number and enrolled in the program. Although it cost him $10,000 to hire the services of one of their experts he now held in his hand a Satisfaction of Mortgage certificate. The duplex was his debt free. He went to the bank and applied for and got a new loan on the duplex. With the money he borrowed he bought another piece of rental property. Look out Carlton Sheets there's a new real estate mogul in town Spock liked to say.

Spock was buying property, getting new loans and buying more property building himself a nice stream of rental income. About six months after he bought the first duplex a notice of foreclosure was posted on the property. Spock took the papers to an attorney who informed him that the existing mortgage had not been properly satisfied. It seems that the Vulcan Institute had sent some kind of notice to the original mortgage holder advising them that unless they responded and objected in a certain period of time Vulcan would be deemed to become their agent for purposes of managing the mortgage instrument. When the original mortgage holder failed to respond Vulcan assumed agency and drafted and filed an instrument purportedly canceling the deed of trust.

The bank that Spock got the loan on the first duplex would like to know what they could have done to have avoided being placed in a second lien position. Their attorney should have carefully examined all the instruments of record affecting the duplex. Obviously the deed of trust cancelation did not come from the party to whom the mortgage had been given and that should have raised a concern. Of course, that is often the case with the assignee canceling an instrument they have purchased and this raises a concern for the practitioner because on its face in a title examination this would look like any other refinance where one mortgage was replacing another and an assignee of the original mortgage would be filing the satisfaction of debt. Please see Household Realty Corporation v. Lambeth 656 S.E.2d 336 (NC 2008) for a case with similar facts.

The Newsletter and Legal Memorandum - Statewide Title, Inc.