Eminent domain after Kelo v. City of New London: an argument for banning economic development takings.

• Author: Cohen, Charles E.

1. INTRODUCTION II. HISTORY OF THE DOCTRINE A. Public-Private Takings in the Colonial and Revolutionary Eras B. Public-Private Takings in the Nineteenth Century C. Public-Private Takings in the Early Twentieth Century D. Public-Private Takings in the Latter Twentieth Century: Berman, Midkiff, and Poletown E. The Kelo Decision 1. The Majority Opinion 2. Justice Kennedy's Concurring Opinion 3. Justice O'Connor's Dissenting Opinion 4. Justice Thomas's Dissenting Opinion. III. JUSTIFICATIONS FOR EMINENT DOMAIN A. Overview of Common Justifications B. Coercion and Undercompensation 1. Subjective Premium 2. Surplus from Transfer 3. Mitigating Undercompensation: Reciprocity of Advantage 4. Efficiency Concerns IV. A BAN ON ECONOMIC DEVELOPMENT TAKINGS A. Reciprocity of Advantage B. Efficiency Concerns C. Capture and Oppressive Takings D. Broad Judicial Deference E. Proposed Modifications to the Public Use Framework F. Shortcomings of Proposed Modifications to the Public Use Framework G. Proposing a Legislative Ban on Takings for Economic Development H. Consequences of a Ban on Takings for Economic Development I. INTRODUCTION

   When the New London Development Corporation (NLDC) embarked on an ambitious program to revitalize a ninety-acre parcel along the Thames River in southeastern Connecticut, it encountered formidable opposition from Susette Kelo and nine of her neighbors. NLDC, a non-profit development agency established by the City of New London, wanted to use its power of eminent domain (1) to take, with compensation, the homes and businesses occupying the proposed site of its new development. The goal of the project was to revitalize economically distressed New London, which had an unemployment rate twice that of the state average. (2) Plans called for developers to construct a mixed-use complex containing homes, a hotel, a marina, restaurants, shops, office space, and other amenities. Although the fee interest in the land would be owned by NLDC, the property would be occupied under long-term ground leases by the developers and operators of the new project. NLDC was able to purchase through negotiation most of the property in the proposed development site, but Susette Kelo and her neighbors refused to sell. When NLDC initiated condemnation proceedings to take the land through eminent domain, Kelo and her neighbors dug in their heels and sued, claiming that the proposed project was not a "public use," as required by the United States (3) and Connecticut (4) Constitutions, because the property would be occupied by private entities after the taking. Kelo and her neighbors lost in the Connecticut Supreme Court by a 4-3 margin, (5) but the U.S. Supreme Court granted certiorari in the case, (6) bringing the once-sleepy academic backwater of the public use requirement for the exercise of eminent domain to the fore.

   After a long period of relative dormancy in the field of eminent domain generally, much recent attention has surrounded so-called "public-private" takings for economic development like the one at issue in Kelo. (7) Such public-private takings occur when the government uses its eminent domain power to transfer non-blighted property from a private individual or entity to another private individual or entity. The debate in these cases has centered on whether the proposed end-use of the condemned property properly can be considered "public" as is required by the Fifth Amendment's Takings Clause. The conceptions of public use can be generally divided into two categories: the "narrow" view and the "broad" view. Under the narrow view, the term "public use" means "use by the public." Under this approach, property is taken for "public use" only if the public has the right to use the property, or the property is owned by the government, after it is taken. Under the broad view, property is taken for "public use" if the taking results in some public advantage or benefit. Under this view, anything that enhances public welfare constitutes a "public use." (8) The broad view is almost universally accepted; indeed, throughout most of American history, it has been the dominant view. (9) Advocates of the use of eminent domain for economic development projects contend that the indirect benefits accruing to the public from these projects--job creation, an increased tax base and economic revitalization--constitute public uses because they produce a public benefit. Opponents contend that such projects primarily benefit the developers, provide uncertain public benefits, and, if considered public uses, could lead to unfettered use of the eminent domain power.

   The question of whether the intended use of property marked for condemnation by eminent domain is a "public use" has not, until recently, been given serious consideration by federal courts. While it has frequently been stated that a law taking property from A and giving it to B for a purely private use is beyond the power of government, (10) for most of the history of the federal Takings Clause, and of the similar state constitutional provisions, most courts have adopted a policy of extreme deference to the decisions of government policy makers on the public use issue. The famous modern U.S. Supreme Court decisions in the area, Berman v. Parker (11) and Hawaii Housing Authority v. Midkiff, (12) adopted a rational basis standard of review, (13) which has been interpreted as requiring deference to a governmental public use determination "until it is shown to involve an impossibility." (14)

   Usually included in the trio of public use cases granting extreme deference to the governmental taker is the Michigan Supreme Court's recently overturned decision in Poletown Neighborhood Council v. City of Detroit, in which the court upheld, over a public use challenge, the taking of a 465-acre neighborhood for the construction of a General Motors plant. (15) All three cases involved so-called "public-private" takings. Indeed, these cases and others have been so deferential in their analysis of the public use requirement that many scholars have concluded that the Public Use Clause is "moribund," effectively imposing no check on the use of the eminent domain power. (16) As a result, say critics, this awesome (some have said "despotic") (17) governmental power has been abused, overused, and sold to the highest-bidding special interest, breeding inefficiency and running roughshod over the property rights of untold numbers of citizens. (18)

   Some scholars and property rights activists were hoping for relief from this state of affairs when the Supreme Court granted certiorari in Kelo in September 2004. (19) The Court's writ, coming as it did in the wake of several high-profile decisions from state supreme courts and lower federal courts employing unusually hard-nosed approaches to questions of "public use," (20) led some to believe that the Court was about to announce a new, tighter standard for judicial review of public use determinations. (21)

   Those hopes were dashed when the Court, in a 5-4 decision, affirmed the Connecticut Supreme Court's finding that the New London economic development project constituted a public use for Fifth Amendment purposes. (22) Relying heavily on Berman and Midkiff, the Court reaffirmed its policy of extreme deference to governmental "public use" determinations. (23) Justice Kennedy's concurring opinion emphasized that courts should take seriously accusations of "impermissible favoritism to private parties" (24) and suggested "the possibility that a more stringent standard of review than that announced in Berman and Midkiff might be appropriate for a more narrowly drawn category of takings." (25) Other than this quiet hint at the theoretical possibility of a shift in the future, and the faint suggestion in the majority opinion that a "carefully considered" or "integrated" development plan would be strong, or perhaps essential, evidence that a taking was not a pretext for conferring a benefit on a private party, (26) those dissatisfied with the current legal regime found little to celebrate in Kelo.

   The Kelo decision was correct as a matter of law, following naturally from Berman and Midkiff and consistent with American judicial and legislative approaches to the public use question that pre-date the U.S. Constitution. Yet the policy implications of the Kelo decision and the precedents underlying it are extremely troubling. As Justice O'Connor correctly noted in her dissent in Kelo, the majority's holding that the construction of economic development projects may constitute a public use means that "all private property is now vulnerable to being taken and transferred to another private owner, so long as it might 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." (27) She declared that for the majority to hold that "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." (28) The result, she contended, was "effectively to delete the words 'for public use' from the Takings Clause." (29)

   For years, judicial acceptance of this broad view has, in fact, produced the kind of results Justice O'Connor warned of in her Kelo dissent. The result has been that the existing public use regime has failed to produce the two most important goals of a proper eminent domain regime: efficiency and justice. (30) "Efficiency" or "utility" occurs when societal resources are deployed so as to increase overall societal wealth. (31) "Justice," most commonly invoked in the context of eminent domain, is achieved when the government is prevented from "forcing some people alone to bear burdens which, in all fairness and justice, should be borne by the public as a whole." (32)

   Rather than advancing the goals of efficiency and justice, modern...