Protecting VA Waterfront Property Rights from Spite Oyster Leases

Persons opposing the dredging project persuade the Virginia Marine Resources Commission (VMRC) to issue them an oyster lease even though they have no intention of growing oysters. Such leases are sometimes called a “spite lease”

Last December, our colleagues who practice in the Eminent Domain section at Pender & Coward law firm, and blog at rightofway.law, raised the question of whether condemnation of oyster leases as a result of the elevation of fecal coliform could result in a constitutional taking. Oyster leases have been a hot topic of discussion lately, particularly here in the Commonwealth of Virginia. Clearly they are at the epicenter of competing property rights and remain the subject of much debate.

In February, The Virginian-Pilot published an article which identified an emerging tactic of some Virginia Beach residents to interfere with planned dredging activities by the City of Virginia Beach. Persons opposing the dredging project persuade the Virginia Marine Resources Commission (VMRC) to issue them an oyster lease even though they have no intention of growing oysters. Such leases are sometimes called a “spite lease” because they are used to block an activity that the lessee wants to stop. As the argument goes, people were allegedly leasing unproductive oyster grounds in the path of dredging projects. The projected result was to either halt the project or extract significant profits from the City in order to continue.

Our Waterfront Property Law colleague, Jeff Wilson, recently published an article in this, the Waterfront Property Law blog, where he extended the analysis by discussing the competing interests between oyster farmers who have valid leaseholds in productive oyster grounds and waterfront property owners. In the same article, Wilson also contemplated tying rights to those oyster grounds to verifiable commercial productivity, as the North Carolina legislature is considering. Essentially, there are acres upon acres of unproductive shellfish grounds in Virginia waters that are being used - - either intentionally or not - - to affect public interest projects, as well as the rights of riparian property owners.

A 2018 Virginia Court of Appeals decision addressed the competing interests of oyster leaseholders with a municipality’s need to keep waterways open through dredging. In that case, the City of Virginia Beach appealed the VMRC’s issuance of an oyster lease to a waterfront property owner located adjacent to the oyster ground. The results of that decision were not favorable to the City. City of Va. Beach v. Va. Marine Res. Comm’n, 2018 Va. App. LEXIS 231, 2018 WL 3977505 (Va. App. August 21, 2018).

The Virginia Court of Appeals made several rulings of particular interest. First, it noted that the VMRC had no discretion to issue an oyster lease if the applicant met all criteria. In other words, it did not assign any public interest exception to the application process; if the applicant met all criteria, then the VMRC “shall” issue the lease. The upshot of this ruling is that the VMRC cannot even consider whether issuance of an oyster lease will interfere with a public dredging project.

"[T]he Virginia legislature passed a new law in the 2019 session which addresses the competing interests of municipalities and their desire to dredge and citizens who hold valid oyster bed leases. . . . In that legislation, the Commonwealth affirms its guarantee of rights to use and occupy the grounds of a valid lease, but creates a path forward for active dredging projects.”

The Court also unequivocally stated that a City may not condemn oyster beds if they are leased to third parties. Period. This suggests that the City does not have the power of eminent domain over leased oyster beds. Accordingly, even if a city is willing to pay for the rights to those property leases, they simply do not possess the power to acquire those rights involuntarily. If a city does not have the right to condemn and if that city dredges anyway, does that mean that it cannot be subject to an inverse condemnation action?

Finally, the Court was clear that the City’s right to control navigable waterways is not superior to oyster leases. By this ruling, the Court implies that the control of navigable waterways is limited to the Commonwealth of Virginia and Congress. The net effect of this is the City may not dredge waterways in an area subject to an active oyster lease.

Not surprisingly, the Virginia legislature passed a new law in the 2019 session which addresses the competing interests of municipalities and their desire to dredge and citizens who hold valid oyster bed leases. Delegate Chris Stolle introduced House Bill 2047 which passed and was codified to Virginia Code §28.2-618. In that legislation, the Commonwealth affirms its guarantee of rights to use and occupy the grounds of a valid lease, but creates a path forward for active dredging projects. The bill divided leases between those which are active and productive and those which are not, and afforded different procedures in each case.

Though the new law does not mention condemnation or eminent domain, it appears to establish a condemnation – or quasi condemnation—action by municipalities over oyster leases. Like actual eminent domain proceedings, this law requires negotiation, encourages compromise and voluntary resolution, and establishes the need to pay compensation for acquisition or disturbance of these property rights. (Of note, this law addresses dredging only and, in our opinion, does not create any new right for oyster beds affected by fecal coliform.)

If the leaseholder does not accept the City’s offer to disturb the leasehold, then the parties are to proceed to mediation. If mediation is unsuccessful, “a court of competent jurisdiction” is left to determine “fair compensation to the lessee”. Interestingly, the legislature used the term “fair compensation” rather than the constitutionally defined term of “just compensation” in this new law.

It will be interesting to see whether this legislation promotes harmony and resolution between competing interests, or whether it spurs a new cottage industry of litigation.