Op-Ed: Razing Homes In The Name Of Economic Development (New York Law Journal)

By Christopher Dunn — As controversy swirls around three major land-use proposals in New York City — construction of the New York Jets Stadium in Manhattan, construction of the New Jersey Nets Arena in Brooklyn, and expansion of Columbia University into Harlem — the Supreme Court of the United States is poised to rule on the constitutional limits on the government’s power to take property for use by private entities in the name of economic development. Since the threat of eminent domain has been lurking in the background of the three local controversies, resolution of this case may have particularly significant ramifications in New York City.

Eminent-domain abuses may not top many civil-rights agendas, but the government’s seizure of one’s home plainly implicates serious civil-rights concerns, particularly when the homes being seized are in minority communities being razed to benefit corporate interests. The advocates now before the Supreme Court seek to erect constitutional barriers to the use of eminent domain for fostering economic development by private entities.

An Overview of the “Public Use” Limits on Eminent Domain

Before turning to the pending case, a brief overview of the constitutional limits on eminent domain is in order. Starting with the Constitution itself, the Fifth Amendment, among its other provisions, mandates that “nor shall private property be taken for public use, without just compensation.” This provision has been construed to bar the government’s taking of property except for “public use” and to require the payment of compensation for any government public-use action that results in property being “taken.”

The provision has been the subject of three Supreme Court cases since 1987, but they all dealt with the takings implications of certain types of government regulatory actions. Two of these decisions suggested the Court was prepared to recognize significantly broader protections for owners of private property when it comes to governmental encroachment.

Not at issue in these decisions was the scope of the prohibition created by the so-called Public Use Clause of this provision of the Fifth Amendment. The Court has addressed that issue on only a few occasions, and its decisions have suggested that the Public Use Clause places few meaningful limits on the government’s power to take private property. Those cases therefore conflict with — at least philosophically — the Court’s more recent “takings” jurisprudence, raising the prospect that the Court may have accepted the current “public use” case to impose new limits on the government’s eminent domain power.

The Court’s most recent and most significant treatment of the Public Use Clause came in 1984 in Hawaii Housing Authority v. Midkiff. That case involved a challenge to Hawaii’s plan to take large tracts of land from a handful of property owners and distribute plots of the land to those living on it so at to break up a centuries-long land oligopoly. The property owners sued, challenging the takings on the grounds that the use of eminent domain to take property from one private property owner to give it to another did not comply with the Fifth Amendment’s “public use” requirement.

The Supreme Court unanimously upheld the taking and did so in sweeping terms. As an initial matter, the Court observed that it previously had equated government authority under the Public Use Clause with the extraordinarily broad police powers. Thus, as the Court explained, “[W]here the exercise of eminent domain is rationally related to a conceivable public purpose, the Court has never held a compensated taking to be proscribed by the Public Use Clause.” Consistent with this, the Court explained that the judiciary had “an extremely narrow” role to play in determining whether a taking was for a public use, declaring that courts were not to second-guess what constituted a public use “unless the use be palpably without reasonable foundation.”

Given all this, the Court had “no trouble” finding the Hawaii land distribution scheme constitutional:

The people of Hawaii have attempted, much as the settlers of the original 13 Colonies did, to reduce the perceived social and economic evils of land oligopoly traceable to their monarchs. The land oligopoly has, according to the Hawaii Legislature, created artificial deterrents to the normal functioning of the State’s residential land market and forced thousands of individual homeowners to lease, rather than buy, the land underneath their homes. Regulating oligopoly and the evils associated with it is a classic exercise of a State’s police powers.

Beyond this, the Court emphasized that it made no difference whether the taking was ultimately successful in serving its intended purpose but only that the state “rationally could have believed the [taking] would promote its objective.” Thus, “[w]hen the legislature’s purpose is legitimate and its means are not irrational, our cases make clear that empirical debates over the wisdom of takings – no less than debates over the wisdom of other kinds of socioeconomic legislation – are not to be carried out in the federal courts.”

Finally, the Court rejected the proposition that the Public Use Clause barred the scheme because it entailed transferring property to private entities for private use. As Justice O’Connor explained, “The Court long ago rejected any literal requirement that condemned property be put into use for the general public. It is not essential that the entire community, nor even any considerable portion, directly enjoy or participate in any improvement in order for it to constitute a public use.”

The Court’s other major Public Use Clause case came thirty years earlier in Berman v. Parker in which it upheld the constitutionality of a congressional statute authorizing the use of eminent domain to clear blighted areas and to convey the property to private entities for redevelopment. In doing so, the Court expressly rejected the argument that the conveyances were unconstitutional because they entailed “taking from one businessman for the benefit of another businessman.”

This was not to say that the Public Use Clause imposes no restrictions on the exercise of eminent domain, but those restrictions are quite limited. Specifically, the Court noted in Hawaii Housing Authority that a taking “executed for no reason other than to confer a private benefit on a particular private party” would not be a valid public use. And it is noteworthy that it has been nearly seventy years since the Court has invoked the clause to invalidate a taking.

“Economic Redevelopment” and “Public Use” in Connecticut

The case now before the Supreme Court is Kelo v. City of New London, which arose out of a plan to use eminent domain to convey approximately ninety acres of property in downtown New London to a private, nonprofit development corporation created by the City of New London. The development corporation in turn was to lease the land to private commercial entities for various uses – including public thoroughfares, residences, hotels, and other commercial development – to complement a research facility built in New London by a major pharmaceutical company. As the Connecticut Supreme Court described it, the overall plan was projected “to create in excess of 1000 jobs, to increase tax and other revenues, and to revitalize an economically distressed city, including its downtown and waterfront areas.”

Represented by an advocacy group that champions property rights, owners within the development area who would not agree to sell their property sued to block the use of eminent domain. The principal constitutional contention advanced by the plaintiffs was straightforward: economic development (and its concomitant increase of tax revenue) cannot be a “public use” within the meaning of the Fifth Amendment. In support of this, the plaintiffs argued that acceptance of economic development as a public use would render the Public Use Clause meaningless for virtually all homeowners because seizure of homes for other economic uses would almost always generate public benefits in the form of increased tax revenue.

Courts in seven states have held that economic development is not a public use upon which eminent domain may be premised, but the Connecticut court had no difficulty, in light of Hawaii Housing Authority and Berman, rejecting the plaintiffs’ contention. As for the concern that allowing economic development to justify eminent domain would open the door to unlimited seizure of homes, the court failed to address it in any meaningful way. Rather, it simply responded by reiterating that “an exercise of the eminent domain power is unreasonable, in violation of the public use clauses, if the facts and circumstances of the particular case reveal that the taking specifically is intended to benefit a private party.”

Three dissenting judges, however, were alarmed. As they explained, justifying eminent domain in the name of private economic development for many “represents a sea change in the evolution of the law of takings because it blurs the distinction between public purpose and private benefit and cannot help but raise the specter that the power will be used to favor purely private interests.” Nonetheless, even they did not take the position that economic development did not qualify as a public use. Rather, in light of the prospect that private entities would be the primary beneficiaries, they argued that government agencies taking land for economic development should bear a special burden of showing, “by clear and convincing evidence, that the anticipated public benefit will be realized,” a burden they concluded the New London plan did not meet.

Prospects in the Supreme Court

Kelo v. City of New London was argued in the Supreme Court on February 22 and should be decided in the next few weeks. In the abstract, the government’s taking of property to facilitate economic development by private entities raises legitimate questions about whether such takings are for “public use” within the meaning of the Fifth Amendment. And one might think, in light of the recent takings cases that were solicitous of property rights, that the Supreme Court might be inclined to impose substantial limits on such takings.

Nonetheless, in light of the Court’s rulings in Hawaii Housing Authority and Berman and in light of the broad public benefits that may arise from economic development in distressed urban areas, it is difficult to see how the Supreme Court could hold that economic development does not qualify as a public use. While the plaintiffs’ lawyer suggested in his argument that the Court should overrule those two decisions, the Justices exhibited little interest in doing so.

Alternatively, the Court might adopt the approach of the dissenters from the state court and require in economic-development controversies that the taking entity be held to a relatively stringent standard of establishing that the stated public benefits of the economic development plan in fact will be realized. Though this also would require a substantial departure from the deferential approach mandated by Hawaii Housing Authority, it seemed to garner more interest from the Court during argument. Yet, even that encountered substantial resistance from pivotal Justices. For instance, Justice O’Connor – who authored Hawaii Housing Authority – commented, “But do you really want courts to be in the business of trying to weigh the evidence to see if the utility will be successful or the hospital will be successful or the road will be well constructed?”

Despite these obstacles, some members of the Court apparently are sufficiently concerned about the implications of the use of eminent domain for economic redevelopment to warrant having accepted the case for review. And if a majority announces new protections for homeowners in the form of the Fifth Amendment’s Public Use Clause, homeowners in Harlem and elsewhere may have new weapons in their fight against economic development by powerful corporate interests.