Proposition 90 and The Kelo Case

By: Gary Giesler , Esq.

The US Supreme Court’s decision in Kelo v. City of New London (125 S. Ct. 2655 (2005)) has led to a national debate about the right of government to use eminent domain to seize private land to promote economic development. In fact, politicians and the general public have widely criticized the Court’s decision in the case. Proposition 90 on the California ballot is designed to negate Kelo and send California back to the stone age. This article addresses our view that much of this criticism is based on people’s misconception of the decision and the law with respect to eminent domain.

The Kelo decision involved the Supreme Court’s affirmation of the use of eminent domain for economic development by the city of New London, Connecticut, which had by the early 2000s fallen on hard economic times. Upon learning of pharmaceutical company Pfizer’s interest in opening a research facility on the outskirts of the Fort Trumbull neighborhood of New London, the city government began considering redevelopment plans for the neighborhood to encourage new economic activities that could be achieved through the new Pfizer plant. The city approved a development plan that included a resort hotel and conference center, a new state park, 80–100 new residences, and various research, office, and retail space. To achieve this plan, the development corporation established by the city government offered to purchase all 115 residential and commercial lots in the Fort Trumbull neighborhood; however, the owners of 15 of these properties did not wish to sell to the redevelopment agency. The city of New London chose to exercise its right of eminent domain to condemn the 15 holdout owners' lots. The owners sued the city in Connecticut courts, arguing that the city had misused its eminent domain power. Kelo and others argued that economic development, did not qualify as public use. As we now know, the Supreme Court decided against the plaintiffs.

The Kelo decision is viewed by some as a misinterpretation of the Fifth Amendment the consequence of which is to benefit large corporations at the expense of individual homeowners and local communities. In fact, several state legislatures are considering passing legislation to counter what they believe will be the negative effects of the decision, including the unprecedented – and frightening – expansion in the use of eminent domain. Although Kelo has generated much criticism from the general public, we believe that the Supreme Court’s decision in the case was neither unexpected nor novel. And we believe the principles in Kelo are vital to economic development.

The Supreme Court’s decision in Kelo merely affirms existing law, rather than establishing new law. This is an important distinction when legislation is pending countrywide to limit the use of eminent domain. As stated by Professor Thomas Merrill of Columbia Law School, “Before undertaking far-reaching reforms of the eminent domain system that would seek to prohibit states and local governments from using eminent domain for economic development purposes, it is important to understand just what Kelo did and did not decide, and what may be significant about the decision."

Therefore, a look at the substance of the Kelo decision is necessary. Justice John Paul Stevens wrote the majority opinion in Kelo; he was joined by Justices Anthony Kennedy, David Souter, Ruth Bader Ginsburg and Stephen Breyer. Justice Kennedy wrote a concurring opinion, outlining a more detailed standard for judicial review of economic development takings than Stevens had done. In so doing, Kennedy called for a fact-based test instead of the Court’s existing minimum scrutiny test, i.e., to justify the use of eminent domain power the government policy need only bear a rational relation to a legitimate government purpose. Presenting an opposing view, Justice Sandra Day O'Connor wrote the principal dissent, joined by Chief Justice William Rehnquist, Justice Antonin Scalia, and Justice Clarence Thomas. In her dissenting opinion, Justice O'Connor suggested that allowing the Kelo decision to stand would result in the use of the eminent domain power in a reverse Robin Hood fashion—taking from the poor, giving to the rich. Clarence Thomas also submitted a separate originalist dissent, in which he argued that the precedents the Court's decision relied upon were flawed and accused the majority of replacing the Fifth Amendment's "Public Use" clause with a very different "public purpose" test.

In his testimony in front of the US Senate Committee on the Judiciary on September 19, 2005, Professor Merrill outlined five myths about Kelo, all of which he dispelled during his testimony. Being in agreement with Professor Merrill, we discuss his five myths.

Myth One: Kelo breaks new ground by authorizing the use of eminent domain solely for economic development.

A majority of the public believes that the decision in Kelo made new law and somehow expanded the use of eminent domain for state and local governments. The Kelo decision did not create any new rights nor did it expand any rights for cities. All it really did was affirm the status quo. The eminent domain powers at issue in Kelo are powers that cities all across America have had already and the Supreme Court simply said that they were not going to restrict those powers.

In fact, Justice Stevens cited several precedents in his majority opinion, such as Berman and Midkiff, as well as others that include numerous Supreme Court decisions upholding “takings that facilitated agriculture and mining" because of the “importance of those industries to the [economic] welfare of the States in question." Another such precedent closer to home for those of us residing in Los Angeles is the taking by the city government of the area called Chavez Ravine from the local residents in the early 1950s. The city used the land to induce the owner of the Brooklyn Dodgers to relocate the franchise to Los Angeles in order to promote economic development and clean up an area that was considered economically depressed. Today the Dodger Stadium occupies the land. In addition, presently a comparable project is planned for the corner of Hollywood Boulevard and Vine Street where property owned by the Metropolitan Transit Authority is being sold to a developer for a large scale, luxury hotel and commercial development. The City of Los Angeles is trying to exercise its right of eminent domain so that it can acquire the privately owned property along Vine Street which consists of small merchants and a small office building some of whom are refusing to sell. Hence, government takings for the benefit of private individuals and enterprises to promote economic development has been an accepted use of eminent domain for many years.

Justice Stevens further points out in his opinion that “this ‘Court long ago rejected any literal requirement that condemned property be put into use for the general public’" and instead “it embraced the broader and more natural interpretation of public use as ‘public purpose.’" Justice Stevens then concluded that “Promoting economic development is a traditional and long accepted function of government. There is moreover, no principled way of distinguishing economic development from the other public purposes that we have recognized."

Myth Two: Kelo authorizes condemnations where the only justification is a change in use of the property that will create new jobs or generate higher tax revenues.

Many unfamiliar with the Kelo decision, except for the snippets they have heard from the media, friends and neighbors, believe that the Supreme Court in Kelo sided with developers and cities interested in seizing property from private citizens. They believe that after Kelo, the “new" law allows cities to take private property and sell it to private developers simply by declaring that it is in the community’s interest. This is not true.

Justice Stevens points out that the redevelopment project in the City of New London was not purely for economic gain. He states that the project was also designed to generate a number of traditional public “uses" such as a renovated marina, a pedestrian riverwalk, the site for a new U.S. Coast Guard museum, and public parking facilities for the museum, an adjacent state park, and retail facilities. He also notes that the “suggestion that the City’s plan will provide only purely economic benefits" was “unpersuasive."

In fact, Justice Stevens specifically states in his majority opinion that, “…it has long been accepted that the sovereign may not take the property of A for the sole purpose of transferring it to another private party B, even though A is paid just compensation. On the other hand, it is equally clear that a State may transfer property from one private party to another if future ‘use by the public’ is the purpose of the taking…" Justice Kennedy similarly stated in his concurring opinion that, “The determination that a rational-basis standard of review is appropriate does not, however, alter the fact that transfers intended to confer benefits on particular, favored private entities, and with only incidental or pretextual public benefits, are forbidden by the Public Use Clause."

As such, the assertion that Kelo stands for the proposition that local governments may take private property for purely economic development without regard for public purpose is simply wrong. Kelo specifically states that all acquisitions of property through eminent domain must have a public purpose.

Myth Three: Kelo dilutes the standard of review for determining whether a particular taking is for a public use.

Many believe that following the Kelo decision, local governments are free to abuse their powers to unimaginable heights because the courts’ standard of review is so lax that anything could be passed off as having a public purpose.

To the contrary, Kelo emphasizes that courts should carefully review condemnations that result in a private transfer of property, or are not carried out in accordance with some planning exercise, in order to determine whether the government is taking property “under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit." Justice Kennedy specifically states that, “A court applying rational-basis review under the Public Use Clause should strike down a taking that, by a clear showing, is intended to favor a particular private party, with only incidental or pretextual public benefits, just as a court applying rational-basis review under the Equal Protection Clause must strike down a government classification that is clearly intended to injure a particular class of private parties, with only incidental or pretextual public justifications."

The standard of review after Kelo is actually more stringent than before. As stated by Professor, Merrill, “Before Kelo, courts merely had to ask whether the use of eminent domain is ‘rationally related to a conceivable purpose.’ After Kelo, courts are instructed to investigate the factual circumstances to determine whether the invocation of a public purpose is a ‘mere pretext’ to justify a transfer driven by ‘impermissible favoritism to private parties.’

In addition, land use and zoning have traditionally been state issues, and it would be inappropriate for the Supreme Court to proclaim a one-size-fits-all definition of "public use" that could be applied to the multiplicity of possible situations in all the various states. In fact, Justice Stevens, in his majority opinion, stated that, “For more than a century, our public use jurisprudence has wisely eschewed rigid formulas and intrusive scrutiny in favor of affording legislatures broad latitude in determining what public needs justify the use of the takings power." Therefore, while the Court’s review of eminent domain cases has become more stringent after Kelo (rather than less), states and local governments need a wide latitude in planning “public purpose" projects, which principle Kelo reaffirms.

Myth Four: The original understanding of the Takings Clause limits the use of eminent domain to cases of government ownership or public access.

Many critics of the Kelo decision, including Justice Thomas, claim that the founders of the country intended the phrase “public use" in the Fifth Amendment to limit government’s use of eminent domain and that the Kelo decision in effect changed the meaning of that phrase to include takings never contemplated by our forefathers. Others worry that the Kelo decision erased the requirement that eminent domain be invoked for “public use" and gave municipalities and local governments free reign with very little restraint placed on them.

Similarly, in his dissent, Justice Clarence Thomas accuses the majority of replacing the Fifth Amendment’s “Public Use Clause" with a very different “public purpose" test. He argues that the Court should return to the original understanding of the Takings Clause, which he claims limited eminent domain to acquisitions of property for the government or for actual use by the public. That view takes literal constitutional interpretation to a new level.

According to Professor Merrill, this is erroneous because, “Unfortunately, other than the language of the Takings Clause itself (“nor shall private property be taken for public use without just compensation"), there is virtually no direct evidence about what the Framers understood by the words ‘for public use.’" Therefore, with little evidence of what our forefathers meant by the Takings Clause, it is difficult to argue that Kelo changes its original understanding. Critics who argue this point can merely speculate as to what limits our forefathers envisioned on the Takings Clause.

Myth Five: Takings for economic development pose a particular threat to 'discrete and insular minorities.'

Many understood Kelo as a tool for the rich to take away from the poor, and as an affront to Americans’ very way of life. Many claimed that the small developers, the small business owners, and the small property owners will be the ones hurt by the Kelo decision, which they claimed favored the big firms that have the means to hire lobbyists and lawyers to go down to city hall. In fact, both Justice Thomas’ and Justice O’Connor’s dissents discuss the potential for abuse. Justice Thomas for example argues that strict enforcement of the public use requirement can be seen as a type of judicial review designed to protect “discrete and insular minorities."

According to Professor Merrill, “one way to test [Justice Thomas’] prediction about the impact of eminent domain on poor communities would be to compare the benefits poor communities receive from real estate projects that rely solely on market transactions with the benefits they receive from projects facilitated by eminent domain." In addition, Justice O’Connor’s argued in her dissent that “blight" has to be found before eminent domain can be used for economic development. Would requiring a determination of “blight" reduce the danger of poor and minority communities being targeted for economic development takings? According to Professor Merrill, “Making ‘blight’ a precondition of economic development takings as is the case in California seems designed largely to reassure the middle class that its property will not be targeted for such projects, not to protect the very poorest communities."

Therefore, while the possibility of abuse is always present when government action is involved, there is no actual evidence that the use of eminent domain for economic development would affect “discrete and insular minorities" more negatively than government taking for any other purpose currently legally available.

CA Initiative:

In the aftermath of Kelo, many state legislatures have contemplated or passed legislation to limit government’s use of eminent domain. In California, the California Eminent Domain Limitations Act (Proposition 90) would ban the use of eminent domain to transfer property from one private owner to another. In our opinion, this is unnecessary, unprecedented legislation which will have major adverse consequences in terms of California development.

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