Found At: www.statewidetitle.com
Issue 292 Article 447
Duke Energy v Kiser, et al. (398PA21-1) 4/28/2023
Easement Rights to Man-made Lake Bottom
Chris Burti, Vice President and Senior Legal Counsel
This opinion resulted from the North Carolina Supreme Court accepting a discretionary review of a unanimous decision of the Court of Appeals, (280 N.C. App. 1 (2021)) that reversed a trial court judgment and order determining Duke Energy Carolinas, LLC's (Duke) scope of authority under an easement it acquired in order to create Lake Norman. The Supreme Court in overturning the Court of Appeals decision determined that that the easement in question grants Duke the right to allow third-party homeowners to build structures over and into the submerged easement property and to use the lake for recreational purposes.
In summary, the opinion states:
Specifically, we consider, once the lake is created, whether this easement grants Duke the right to allow third-party homeowners to build structures over and into the submerged easement property and to use the lake for recreational purposes. To answer this question, we first look to the language of the easement. The plain language of the easement grants Duke "absolute water rights" to "treat [the land] in any manner [it] deem[s] necessary or desirable." Because the easement's plain language is clear and unambiguous and Duke's actions are encompassed within the broad grant of authority, Duke properly allowed third-party homeowners to build structures over and into the submerged property and use the lake in a recreational manner. This expansive scope of authority evidenced by the easement's plain language is consistent with Duke's federal licensing obligations over Lake Norman and has been confirmed by the parties in practice. As such, we reverse the decision of the Court of Appeals.
The grandparents of the Kiser defendants in this case, Kiser (the "Kiser Grandparents") acquired the land at issue in fee simple. The Supreme Court opinion notes that the Kiser Grandparents granted Duke a deeded easement to create a lake with two distinct component parts:
...a component covering the anticipated lake level and a component covering the area subject to higher water. The first component part of the conveyance includes a permanent easement of water flowage, absolute water rights, and easement to back, to pond, to raise, to flood and to divert the waters of the Catawba River and its tributaries in, over, upon, through and away from the 280.4 acres, more or less, of land hereinafter described, together with the right to clear, and keep clear from said 280.4 acres, all timber, underbrush, vegetation, buildings and other structures or objects, and to grade and to treat said 280.4 acres, more or less, in any manner deemed necessary or desirable by Duke Power Company.
The first component (the Flowage Easement) references the 280.4 acres of land which would become submerged property resting below an elevation of 760 feet as part of the planned lake level. To cover the area subject to higher water, the Kiser Grandparents granted Duke, its successors, and assigns: a permanent flood easement, and the right, privilege and easement of backing, ponding, raising, flooding, or diverting the waters of the Catawba River and its tributaries, in, over, upon, through, or away from the land hereinafter described up to an elevation of 770 feet above mean sea level, U.S.G.S. datum, whenever and to whatever extent deemed necessary or desirable by the Power Company in connection with, as a part of, or incident to the construction, operation, maintenance, repair, altering, or replacing of a dam and hydroelectric power plant to be constructed at or near Cowan's Ford on the Catawba River . . . and otherwise use and treat said land up to said 770 feet elevation in any manner deemed necessary or desirable by the Power Company in connection with the construction, reconstruction, maintenance and operation of the dam and power plant above referred . . . and of the reservoir or lake created or to be created by same.
The second component of the easement described in the deed (the Flood Easement) references the land that would rest "up to . . . 770 feet above mean sea level" and thus would remain dry land, but subject to flooding, after the creation of Lake Norman.
After Duke flooded the lands creating Lake Norman, the retained dry land of the Kiser Grandparents became an island (the "Kiser Island"). They then subdivided the island into residential waterfront lots and, retaining one lot (the "Kiser Lot") for their personal use, conveyed the lots to others (the "Third Parties").
Duke was authorized by FERC to adopt a plan for permitting the construction of shoreline improvements extending onto the lakebed. Many of the Third Parties on Kiser Island constructed docks and other structures on the submerged Kiser property pursuant to this permitting process. The opinion notes that some of these structures were built prior to the start of Duke's permitting process and were memorialized as existing when the procedure began. In 2015 during a draught, M. L. Kiser ("M.L."), a grandson of the Kiser Grandparents, erected a bulkhead (the "2015 wall") almost twenty feet from shore. Duke Permitted third parties to construct Docks from the Kiser Lot into Lake Norman and upon the portion of the Kiser land that Duke holds its easements. M.L. then began to backfill to extend his lot without applying for a permit from Duke.
Duke issued a "Stop-Work Directive", and the North Carolina Division of Water Resources gave notice that the construction of the wall would impact the waters of Lake Norman. Duke filed this action alleging trespass, wrongful interference with an easement and requested injunctive relief. The defendants responded by counterclaiming against Duke, challenging its authority under the easements to demand removal of the 2015 wall, to issue permits to the Third Parties for the construction of docks on their lots, and to open the waters over those lots to recreational use.
The Kisers challenged Duke's authority under the easement to demand removal of the retaining wall, to issue dock permits to third-party homeowners, and to allow recreational use of the waters. The Kisers contended Duke did not act within its scope of authority when it permitted the use of submerged Kiser lands by the Third Parties without the Kisers' consent and the trial court ultimately erred in quieting title of the lakefront structures to the Third Parties. The Third Parties are not parties to the easement and the Kisers brought trespass claims against the third-party homeowners for building structures on their submerged property without their consent, joining the homeowners as third-party defendants.
The trial court granted partial summary judgment (the "2018 Order"), to have the 2015 retaining wall and the backfilled area cleared. The trial court entered a subsequent order and judgment (the "2020 Order") granting summary judgment in favor of Duke and the Third Parties by quieting title in the lots, improvements, and use of the waters to the Third Parties. The trial court recognized Duke's broad authority under the easement and ruled that Duke had operated within its "Scope of Authority" when it granted permission for the Third Parties to construct improvements over and into the Kiser's submerged land. The trial court stated, "[T]his Order and Declaratory Judgment does not dispose of all the claims in this action." The Court of Appeals declined to review the 2018 Order as interlocutory and limited its review and analysis to the 2020 Order.
On appeal, the Kisers again argued that Duke acted outside the scope of its authority under the easement by allowing third parties to use the 280.4 acres of Lake Norman without the Kisers' consent and that the trial court erred by quieting title in the waterfront structures to the third-party homeowners. The Court of Appeals reversed the trial court's 2020 Order. While recognizing that the plain language of the Flowage Easement is unambiguous and broad enough to "virtually convey a fee simple interest" to Duke, the Court of Appeals, refused to read the Flowage Easement in such an unlimited way, deferring as the Supreme Court characterized it "to its subjective view of the Kiser Grandparents" purported intent in retaining the fee title to the submerged property.
The Court of Appeals determined an easement granting "virtually unlimited authority to 'treat' property 'in any manner'" does not include the power for the easement holder to permit strangers to the agreement to use the land "for their own benefit." The Supreme Court states that:
Court of Appeals adopted a bright-line principle that unless an easement explicitly states otherwise, an easement holder may not permit strangers to the easement agreement to make use of the land, other than for the use and benefit of the easement holder, without the consent of the landowner where such use would constitute additional burdens upon the servient tenement.
... Therefore, according to the Court of Appeals, because the third-party homeowners here are not mentioned in the easement and did not have a property interest in the land when the easement was created, "Duke exceeded its scope of authority by permitting the [third-party homeowners] to construct and maintain structures over and into the Kisers' submerged land without the Kisers' consent."
Duke and the third-party homeowners filed petitions for discretionary review with the Supreme Court which it allowed. The Court considered whether an easement granted with such broad language allows the easement holder to permit third parties to use the land when the easement holder so deems it "necessary or desirable." The Court recognized that the ordinary rules of contract construction apply to construing an easement and to look to the plain language of the easement itself to discern the parties' intent at the moment of execution.
In addressing whether Duke has authority under the easement to allow the third-party homeowners to build shoreline structures over and into the submerged property and use the waters of Lake Norman the Supreme Court declares that the "language of the Flowage Easement is clear, unambiguous, and broad in scope, plainly allowing Duke to treat the submerged property however Duke deems "necessary or desirable."" Significantly, the easement's text does not limit how Duke may treat the submerged property, confine Duke's exercise of discretion, set conditions that Duke must satisfy before using the submerged property in a particular manner, or prohibit Duke from allowing third-party uses of the property without the Kisers' consent.
It can be clearly argued that the Court in drawing this conclusion clearly seems to be missing "Contracts 101" dogma that all contracts impute a reasonability requirement and that it can be argued that such a construction is itself unreasonable because it makes the reservation of the fee essentially useless and worthless if the easement holder has no restrictions express or implied as the court here has effectively ruled. Further, this opinion can be argued to logically extend that interpretation to an interpretation that unless there are express limitation in a grant of easement, the holder's use is unlimited. We know that there is ample caselaw in North Carolina holding that there are limitations imposed by common law, but those limitations have been ignored here.
The Kisers also contended that because the easement is silent with respect to the third-party homeowners, those third parties have no right to use or otherwise benefit from the easement without the Kisers' consent. Again, the Court determined that "Duke's expansive scope of authority evidenced by the Flowage Easement's broad, unambiguous language. Such an expansive reading is consistent with the original parties' understanding that the purpose of the easement was for Duke to create and maintain a lake. Accordingly, Duke may properly exercise its expansive rights under the Flowage Easement to benefit the third-party homeowners when it is necessary or desirable to Duke." This conclusion compels an observation that there is no logical conclusion that recreational use is necessary or reasonable for lake formed to produce electrical power simply because they can do so over the lands that Duke owns in fee.
There is little to distinguish the "broad" language in the easement in question from similar language used in a typical access easement we see commonly employed today. Thus, an easement simply for "access" granted to a holder and assigns, could be construed as access in all forms for all purposes to whomever the holder might wish including other lands not directly served. The court may well have gutted the limitations of the Lovin case distinguished in the opinion and this may produce far more litigation of the extent of easements that that Court envisioned.
The best that can be said about the opinion is that it should put to rest litigation over rights granted by Duke in Lake Norman which might be the unstated impetus driving the analysis.