Maryland High Court Green-Lights Inverse Condemnation Lawsuit By Ex-Campground Owner/Operator Who Lost Lakefront Property To Foreclosure; Plaintiff Alleged That State Knew Of Local Sewage Contamination Problems From Failure Of Nearby Septic Systems & Did Nothing About It, Driving Her Out Of Business In The Process

From a client alert from the law firm Ballard Spahr LLP:

• A property owner states a valid claim for inverse condemnation where the owner alleges that its property was taken by the government's failure to act in the face of an affirmative duty to act, the Maryland Court of Appeals has held. The holding is the first time the Court has recognized a claim for inverse condemnation based on government inaction.
  
  In Litz v. Maryland Department of the Environment, the plaintiff sued the Maryland Department of the Environment (MDE), among others, after losing her property when a lake on the property became contaminated from run-off from failed septic systems in the nearby town of Goldsboro. The plaintiff operated a popular campground on the property and the lake was its recreational centerpiece. When the contamination forced the closing of the lake the plaintiff was unable to operate the campground profitably and ultimately lost the property to foreclosure.
  
  The problems with the septic systems and their effects on the lake were well known. Most of the systems were installed in the 1940s and 1950s and began failing in the early 1970s. By 1995, MDE reported that there were “actual water quality impacts” on the plaintiff's lake and that the ''situation has deteriorated and created environmental concerns that will need to be addressed.'' Shortly thereafter, in August 1996, MDE entered into an administrative consent order with Goldsboro that required Goldsboro to identify the failing septic systems and to submit, by January 1, 1997, a plan and schedule for the construction of a public sewer system. Shortly thereafter, Goldsboro and MDE agreed that Goldsboro could not afford a public sewer system so Goldsboro never submitted a plan for one and MDE never enforced the order.
  
  Years later after losing the property, the plaintiff sued MDE in 2010 and alleged that the failure to comply with and enforce the order and to otherwise prevent the contamination of her lake constituted a taking of her property without just compensation. The defendants moved to dismiss the claim on a variety of grounds, including that the loss of her property was not caused by any affirmative act by the state or town but rather by independent third parties using failed septic systems. The trial court dismissed the inverse condemnation claims on the grounds that the plaintiff failed to comply with the Maryland Tort Claims Act and the Court of Special Appeals, hearing the case for a second time, affirmed the dismissal on those grounds as well as on the ground that a takings claim could not arise from the state’s ''failure to regulate.''
  
  In a 4-3 decision, the Court of Appeals, also hearing the case for a second time, reversed and held that the plaintiff did assert a valid inverse condemnation claim. Observing that the claim did not fit ''neatly within conventional thinking about inverse condemnation'' because it was based on inaction by the government rather than affirmative action, the Court relied on decisions from other states that it construed as recognizing that government inaction could support an inverse condemnation claim. The Court found particularly persuasive those cases where the government agency was aware of some risk of injury to property and the agency had some affirmative duty to act to prevent that injury.
  
  The Court observed that MDE was aware of the risk to the plaintiff's lake from the failed septic systems and even after entering into the order with Goldsboro, MDE failed to take action to change the sewage treatment system in Goldsboro.
  
  Consequently, the Court held that the plaintiff properly alleged an inverse condemnation claim because her property was ''alleged to have been 'condemned' by the failure of the State and the Town in the face of an affirmative duty to abate a known and longstanding health hazard.''

Source: Maryland Court of Appeals Opens Door to New Class of Inverse Condemnation Claims.

For the court ruling, see Litz v. Maryland Department of the Environment, No. 23 September Term, 2015 (Md. January 22, 2016).