United States: U.S. Supreme Court Upholds Use of Eminent Domain That May Benefit Private Development Projects

The U.S. Supreme Court’s decision in Kelo v. City of New London, Connecticut, 125 S. Ct. 2655 (2005), has generated extensive media attention and inspired passionate opposition. Kelo addresses the question of whether the Takings Clause of the Fifth Amendment to the U.S. Constitution permits a state to take property by eminent domain, pay just compensation to the owner and then transfer the property to private parties in order to advance a carefully planned, large scale development project. In a split decision (5-4), the Court answered the question in the affirmative. The Court also noted that states are free to restrict their power of eminent domain through changes to state constitutions and statutes. Although Kelo has inspired discussion and debate, it does not change eminent domain law. It remains to be seen, however, whether the opposition that the decision has fueled will limit the eminent domain power through changes to state law.

The Kelo petitioners were homeowners who did not want to part with their property for any price. The respondents were the City of New London, Connecticut ("City") and the New London Development Corporation ("NLDC"). The NLDC is a private, nonprofit entity established to assist the City in planning economic development. The City had experienced economic decline for some time. The City, with NLDC, had engaged in extensive planning activities with respect to a proposed large-scale development project that was to include a waterfront conference hotel at the center of a "small urban village," marinas for recreational and commercial uses, public areas, 80 new residences, a museum, 90,000 square feet of research and development office space, and other office and retail space and parking. The City believed the development project would revitalize the area, add jobs, improve aesthetics, provide public areas of enjoyment, provide residential units and office buildings, and increase the tax base. The City determined that, to facilitate the project, it was necessary to exercise its eminent domain power and convey the taken property to private parties for development. The City authorized NLDC to exercise eminent domain to facilitate the development plan.

Petitioners sought an injunction in Connecticut state court to restrain the City from taking their property. After a seven-day trial, the trial court upheld several of the challenged takings but declared that one of them violated the Fifth Amendment. On Goodwin Procter LLP Page 2 appeal, the Connecticut Supreme Court concluded that all of the takings satisfied both the Connecticut Constitution and the United States Constitution. The U.S. Supreme Court took the case on the petition by the homeowners.

Goodwin Procter LLP submitted an amicus brief on behalf of the National Association of Industrial and Office Properties, Massachusetts Chapter. NAIOP members include private developers as well as private landowners. Thus, while NAIOP is opposed to any arbitrary government infringement of private property rights, it also believes that the power of eminent domain should be available to facilitate well-planned development projects that are expected to improve dramatically the public welfare.

NAIOP’s amicus brief noted that the U.S. Supreme Court has equated "public use" with "public purpose" and "public welfare" in Berman v. Parker, 348 U.S. 26 (1954) and Hawaii Housing Auth. v. Midkiff, 467 U.S. 229 (1984). In Berman, the Supreme Court had upheld a condemnation effected to promote private development that would eliminate a blighted area; in Midkiff, the Court upheld a Hawaii statute that enabled the state to take fee title from a small number of families which controlled the majority of land and transfer the taken land to private lessees. Both cases involved the transfer of land from one private party to another. And, in both cases, the Court noted that the state could effectuate the takings, provided it paid just compensation, because they were intended to advance the public welfare.

NAIOP’s amicus brief explained that economic development plans have the ability to advance the public welfare in several critical respects, such as by providing places to live and work; improving safety, aesthetics and quality of life; increasing employment; and expanding the tax base. The brief also discussed two successful development projects in Boston, Massachusetts, that were achieved through the eminent domain power and the transfer of taken property to private parties – the Metropolitan Building in Boston’s Chinatown and the South Boston Convention Center and Hotel Complex. NAIOP pointed out that it would be anomalous if the Fifth Amendment allowed states and municipalities to exercise their eminent domain power to eliminate blight, but not to take steps that would prevent blight from occurring in the first place.

The majority opinion in Kelo is consistent with NAIOP’s arguments. It notes that the Court had "long ago rejected any literal requirement that ["public use" meant that] the condemned property be put into use for the general public," and that it had "embraced the broader and more natural interpretation of public use as ‘public purpose.’" 125 S.Ct. at 2662. The Court stated that it had defined the concept of public purpose "broadly, reflecting our longstanding policy of deference to legislative judgments in this field." Id. at 2663. The Court further observed that "[p]romoting economic development is a traditional and long accepted function of Goodwin Procter LLP Page 3 government," and that there is "no principled way of distinguishing economic development from the other public purposes we have recognized." Id. at 2665.

The Court also rejected petitioners’ arguments that the City should have to show that the expected public benefits are reasonably certain to occur, noting that the debate over the wisdom of takings are "not to be carried out in the federal courts," id. At 2667, and that "[a] constitutional rule that required postponement of the judicial approval of every condemnation until the likelihood of success of the plan had been assured would unquestionably impose a significant impediment to the successful consummation of many such plans." Id. at 2668.

Kelo is consistent with the Court’s prior holdings construing the Takings Clause. It makes it clear that states may not take property for the sole purpose of benefiting a private party, but that the U.S. Constitution does not prevent states from taking property to further the public welfare even where doing so has the effect of benefiting private parties. It recognizes that the plain language of the Takings Clause requires states to compensate private parties when they exercise their eminent domain power. And, Kelo is a victory for those who favor the ability of states and municipalities to decide for themselves how to further the public welfare, and for those who appreciate that development projects have the ability to benefit the public in numerous respects.

Contrary to suggestions from some who disagree with the Kelo decision, Kelo does not authorize states to take private property and give it to another private property merely to increase the tax base or make the property "more productive." The four justices who dissented in Kelo would have found that the Fifth Amendment does not permit such a taking. And even the majority opinion noted that, if a takings transfers property from one private party to another "for the sole reason that [the latter party] will put the property to a more productive use and thus pay more taxes" it would "certainly raise a suspicion that a private purpose was afoot." Id. at 2666-67. The Court also noted that the takings in Kelo had resulted from "an integrated development plan," id. at 2667, and that the identities of the private parties who were to develop the property "were not known when the plan was adopted." Id. at 2661 n.6. If any of these facts was different, it is not clear how the majority would have ruled.

Thus, while Kelo makes it clear that the U.S. Constitution does not prohibit states and municipalities from exercising the power of eminent domain to further carefully planned private developments intended to benefit the public, Kelo does not foreclose future constitutional challenges to takings that were less well planned, less comprehensive, and more directly intended to benefit a private party and less intended to promote the public welfare.

Further, the Kelo majority "emphasize[d] that nothing in our opinion precludes any state from placing further restrictions on its exercise of the takings power," such as through "state constitutional law" or "state eminent domain statutes." Id. at 2668. Given the passionate opposition that Kelo has engendered, it is likely that there will be a number of efforts at the state level to limit the power of eminent domain. Whether these efforts will bring about significant change remains to be seen.

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