Of Counsel—Eminent Domain Heats Up

March/April 2006

The eminent domain battle, which pits the rights of property owners against the government’s right to take private property for public use, exploded last summer with the U.S. Supreme Court’s decision in Kelo v. City of New London. The court ruled that the government can use eminent domain to take private land solely for economic development purposes.

Many argue that the decision impermissibly intrudes upon and threatens private real estate ownership. Some opponents of the decision even tried to retaliate by having a New Hampshire town seize the home of Justice David Souter, who voted with the majority, for economic development.

The U.S. Congress and state legislatures responded to Kelo by introducing several bills aimed at curtailing its reach. One U.S. bank in the Southeast even stopped lending to commercial developers who plan to build on land seized from private citizens. Such unprecedented responses to a court decision will likely lead to a lengthy debate in the courts, Congress, state legislatures, and public forums.

Understanding the Case

The Kelo decision centered on 90 acres of privately owned land that the city of New London, Conn., wanted to develop to revitalize the downtown and waterfront areas of what court documents call “an economically distressed city.” The city said the development would create more than a thousand jobs and increase tax and other revenues.

After purchasing most of the property earmarked for the project from willing sellers, the city then initiated condemnation proceedings against those who refused to sell. Those owners sued, claiming, among other things, that economic development does not satisfy the “public use” requirement of the Takings Clause of the Fifth Amendment of the U.S. Constitution. 

The Supreme Court ruled that New London’s proposed use of the property qualifies as a public use. Pursuant to Kelo, a government no longer needs to declare an area “blighted” before it can take it for economic development so long as the plan is deliberative and so long as the taking serves a public purpose. Writing for the majority, Justice Stevens concluded that creating jobs in a depressed city can satisfy the meaning of “public purpose.”

Dissenting Voices

Proponents of eminent domain for economic development argue that it’s a critical tool governments need to assemble land for urban projects that generate new jobs, investment, and taxes, helping the revitalization of economically distressed areas.

Opponents say the Kelo decision tramples constitutional guarantees regarding private property rights. They worry that if the government can take the private land of one owner and give it to another private owner just because that owner can use the land more productively, then large companies will benefit while the poor, powerless, and disenfranchised will be disproportionately hurt. Governments could use the Kelo ruling to replace “any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory,” wrote now-retired Justice Sandra Day O’Connor in her dissent.

Future litigation will likely center on the thoroughness and reasonableness of the proposed redevelopment plans. Property owners also might challenge the standards for valuing property taken for economic development purposes, seeking to establish higher values based on the benefits of the future use.

The Legislative Response

In the majority decision, the justices wrote, “Nothing in our opinion precludes any state from placing further restrictions on its exercise of the takings power.” State legislatures from coast to coast immediately accepted the court’s invitation. Since Kelo, at least 31 states have introduced bills prohibiting, limiting, or clarifying their eminent domain practices. Likewise, the U.S. Congress included language in the Federal Appropriations Act that blocks federal funding for projects that use eminent domain for economic development without a traditionally recognized public purpose.

Though the Supreme Court in Kelo acknowledged that “the government’s pursuit of a public purpose will often benefit individual private parties,” the majority opinion stated that a city would “no doubt be forbidden” from taking private land for the purpose of conferring a private benefit on a particular private party. Doing so “would serve no legitimate purpose of government and would thus be void,” it stated. Opponents can only hope that courts considering future challenges to eminent domain takings for economic development will remember that admonition. 

—Steven S. Kaufman is a partner and Robin M. Wilson is an associate in the Cleveland office of Thompson Hine LLP. The firm is contributing this column through the efforts of Thompson Hine associate Mark A. Weintraub, formerly of The Federal Metal Co., and Scott Horne, ISRI’s general counsel/vice president of government relations. Reach Weintraub at mark.weintraub@thompsonhine.com and Horne at scotthorne@isri.org.

The eminent domain battle, which pits the rights of property owners against the government’s right to take private property for public use, exploded last summer with the U.S. Supreme Court’s decision in Kelo v. City of New London. The court ruled that the government can use eminent domain to take private land solely for economic development purposes.