Condemnation of Private property for the Purpose of Economic Development is Affirmed by the Supreme Court

Condemnation of Private property for the Purpose of Economic Development is Affirmed by the Supreme Court

July 2005
By James N. Candler On June 23, 2005, the long awaited decision in Kelo v City of New London (No. 04-108) was handed down by the Supreme Court of the United States. In a 5-4 decision, the court held that a comprehensive development plan adopted by the City of New London, Connecticut, even though it would be carried out by private entities, constituted a sufficient "public use" to permit the condemnation of 15 single-family residential parcels situated within the development area. In order to revitalize the city after decades of economic decline, culminating in the federal government's closing of the Naval Undersea Warfare Center, which employed over 1,500 people, the city authorized a private nonprofit entity, New London Development Corporation ("NLDC") to prepare an integrated development plan for a 90 acre area of the city known as Fort Trumbull. NLDC intended the development plan to capitalize on the commerce that would be generated by a $300 million research facility that Pfizer Inc. announced it would build adjacent to Fort Trumbull. NLDC successfully negotiated the purchase of most of the land in the development area but the owners of 15 parcels refused to sell and as a consequence, the city authorized NLDC to condemn their property in its name under Connecticut's municipal development statute. The statute expressly provides that the taking of property as part of an economic development project is a "public use" and in the public interest, as a matter of legislative determination. The property owners nevertheless challenged the takings, asserting that they did not satisfy the public use requirements of the state and the federal constitutions. The New London Superior Court approved the condemnation of those parcels to be developed for research and development offices, but enjoined the taking of the parcels to be used for parking or retail services to support an adjacent state park as such use, in the trial court's opinion, did not fall within the economic development purposes for which condemnation was expressly authorized by the municipal development statute. Both sides appealed to the Supreme Court of Connecticut, which, in a 4-3 decision, approved all the takings and set aside the lower court's injunction. The Connecticut Supreme Court concluded that all the uses proposed by the NLDC development plan did fall within the scope of the declarations of public purpose provided by the statute. It then reviewed extensively its prior decisions and those of the U.S. Supreme Court regarding state and federal constitutional public use clauses, and concluded that "an economic development plan that the appropriate legislative authority rationally has determined will promote significant municipal economic development, constitutes a valid public use for the exercise of the eminent domain power under both the federal and Connecticut constitutions." Kelo v City of New London, 268 Conn. 1, 40 (2004). The Connecticut Supreme Court majority opinion noted that several sister states had used the same deferential and purposive approach to arrive at the same conclusion, namely, California, Louisiana, Maryland, Michigan, Minnesota, Missouri, New York and North Dakota, whereas the courts of Arkansas, Florida, Kentucky, Maine, New Hampshire, South Carolina and Washington had ruled that economic development by itself does not constitute a public use for eminent domain purposes. Id. at 47. Ironically, the Michigan decision discussed at length by the Connecticut court, Poletown Neighborhood Council v City of Detroit, 410 Mich. 616 (1981), because "it illustrates amply how the use of eminent domain for a development project that benefits a private entity nevertheless can rise to the level of a constitutionally valid public benefit", was overruled four months later by the Michigan Supreme Court in County of Wayne v. Edward Hathcock, 471 Mich. 455 (2004). The U.S. Supreme Court granted certiorari on September 28, 2004 "to determine whether a city's decision to take property for the purpose of economic development satisfies the 'public use' requirement of the Fifth Amendment" to the United States Constitution. Op. at 6. The majority opinion delivered by Justice Stevens, in which Justices Kennedy, Souter, Ginsburg and Breyer joined, observed at the outset that neither the taking of the petitioners' land for the purpose of conferring a private benefit on a particular private party nor a taking under the mere pretext of a public purpose when its actual purpose was to bestow a private benefit, would survive judicial scrutiny of the public use requirement, but that such issues were not presented in this case. The Supreme Court's analysis began with a statement that it had long ago rejected any literal requirement that condemned property be put into use for the general public. Rather, its prior decisions have embraced "the broader and more natural interpretation of public use as 'public purpose.'" Id. at 9. Citing Hawaii Housing Authority v Midkiff, 467 U.S. 229, 244 (1984), the court rejected the petitioners' contention that the mere fact that property would be transferred to private individuals upon condemnation would diminish the public character of the taking, explaining that "[i]t is only the taking's purpose and not its mechanics" that matters in determining public use. Id. at 11. Given the comprehensive character of the city's plan, the thorough determination that preceded its adoption and the city's invocation of a state statute that specifically authorized the use of eminent domain to promote economic development, the court held that the plan unquestionably serves a public purpose and therefore the takings at issue satisfy the public use requirement of the Fifth Amendment. Id. at 13. The petitioners argued as noted in the Connecticut Supreme Court's dissenting opinion, that takings of this kind should require a reasonable certainty that the expected public benefits will actually accrue. But the majority stated that orderly implementation of a comprehensive redevelopment plan requires that the legal rights of all interested parties be established before new construction can be commenced and that requiring postponement of the judicial approval of every condemnation until the likelihood of success of the plan had been assured would impose a significant impediment to the successful consummation of many such plans. Id. at 18. The court also rejected the notion that the court should second-guess the city's determinations as to what lands it needed to acquire in order to effectuate the project. "It is not for the courts to oversee the choice of the boundary line nor to sit in review on the size of a particular project area. Once the question of the public purpose has been decided, the amount and character of land to be taken for the project and the need for a particular tract to complete the integrated plan rests in the discretion of the legislative branch." (citing Berman v Parker, 348 U.S. 26, 35-36 (1954). Id. at 18. Importantly, the court emphasized that "[n]othing in our opinion precludes any State from placing further restrictions on its exercise of the takings power. Indeed, many States already impose public use requirements that are stricter than the federal baseline. Some of these requirements have been established as a matter of state constitutional law [citing County of Wayne, supra] while others are expressed in state eminent domain statutes that carefully limit the grounds upon which takings may be exercised [citing a California statute that permits a city to take land for economic development purposes only in blighted areas]." Id. at 19. Justice Kennedy wrote a concurring opinion in which he asserted that the court's determination to give great deference to legislative determinations of public purpose does not alter the fact that transfers intended to confer benefits on particular, favored private parties, and with only incidental or pretextual public benefits, are forbidden by the public use clause. Justice O'Connor, with whom the Chief Justice and Justices Scalia and Thomas joined, penned a scathing dissent, stating that "under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it may be upgraded – i.e., given to an owner who will use it in a way that the legislature deems more beneficial to the public – in the process. To reason, as the Court does, that the incidental public benefits resulting from the subsequent ordinary use of private property render economic development takings for public use is to wash out any distinction between private and public use of property – and thereby effectively delete the words for public use from the Takings Clause of the Fifth Amendment." Justice O'Connor identified three categories of takings that comply with the public use requirement. First, the sovereign may transfer private property to public ownership – such as for a road, a hospital or military base. Second, the sovereign may transfer private property to private parties, often common carriers, who make the property available for the public's use – such as with a railroad, a public utility or a stadium. Third, in certain circumstances and to meet certain exigencies, takings that serve a public purpose also satisfy the public use requirement even if the property is destined for subsequent private use, such as the condemnation of harmful property use. She would hold that economic development takings do not fall within such exigencies and are unconstitutional. Justice Thomas wrote a separate dissenting opinion in which he stated that the court has replaced a public use clause with a public purpose clause, contrary to the principle embodied in the Constitution by its framers that the government may take property not for "public necessity," but instead for "public use." By replacing the public use clause with a public purpose clause, he argues that the court has granted almost insurmountable deference to legislative conclusions as to what constitutes or serves a public use. He would revisit the court's public use cases and consider returning to the original meaning of the public use clause, namely, that the government may take property only if it actually uses or gives the public a legal right to use the property. Absent a demonstration that private interests will primarily be benefited and that the public benefit is incidental, Kelo would appear to preclude a successful challenge of the condemnation of private property needed for implementation of an economic development project that has received all requisite legislative approvals upon the grounds that it violates the "public use" requirement of the Fifth Amendment. Of course, state statutory and state constitutional limitations upon exercise of the power of eminent domain remain unaffected.
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