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Supreme Court Approves Taking of Private Property For Economic Development

The United States Supreme Court issued one of its most controversial opinions of this term in June when it found that a local government has the power, under certain circumstances, to condemn private property for economic development. In a 5-4 decision, the Court in Kelo v. City of New London, held that the city of New London could use its power of eminent domain to take homes as part of a development plan aimed at improving the economy of a distressed city. The decision has generated strong reactions from both sides of the argument. Appraisers are often a critical component of condemnations and, since this matter has received enormous attention, it is helpful to have a working knowledge of the case.

The power of eminent domain (also known as condemnation) authorizes the government to take private property for a public use. There are two general requirements that must be met by a condemning authority. First, the Fifth Amendment of the United State Constitution requires that the property must be taken for a "public use." In addition, the owner of the condemned property must be paid "just compensation" for the condemned property.

In Kelo, the city of New London tested the boundaries of the power of eminent domain. In 2000, New London approved a large-scale development plan that was intended to create over 1,000 jobs, increase tax and other revenues and to revitalize an economically distressed city, including its downtown and waterfront areas. The plan included replacing a residential neighborhood "which was not 'blighted'" with office space for research and development, a conference hotel, new residences and a pedestrian "riverwalk" along the Thames River.

Several property owners were unwilling to sell and the City initiated condemnation proceedings to acquire their properties. The property owners fought the condemnations and alleged that the taking of their properties would violate the Fifth Amendment's "public use" requirement.

Many interest groups filed "amicus curiae" briefs with the Supreme Court expressing their opinions regarding the merits of the case. For example, the National Association of Realtors, the National Association of Homebuilders, the NAACP and AARP all filed briefs in support of the property owners. The National League of Cities, the National Conference of State Legislatures, the U.S. Conference of Mayors, developers and individual governments such as the City of New York and states from Vermont to Hawaii, were among those who filed briefs in support of New London.

The Supreme Court held that the City's proposed disposition of the property qualifies as a "public use" within the meaning of the Fifth Amendment. Justice John Paul Stevens, writing the majority opinion, restated the principal that the term "public use" has been interpreted to mean "public purpose." The Court found that "[p]romoting economic development is a traditional and long accepted governmental function." Therefore, the condemnations were for a public purpose and met the public use requirement.

One of the fundamental bases for the decision was the Court's broad deference to local governments. Justice Stevens wrote that it was not the Court's role to "second guess" the City's judgment regarding the "efficacy of its development plan" or "what lands it needs to acquire in order to effectuate the project."

Justice Sandra Day O'Connor issued a particularly stinging dissent. She argued that cities should not have unlimited authority to seize property. "Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random," O'Connor wrote. "The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms." She added: "The specter of condemnation hangs over all property. Nothing is to prevent the state from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory."

The practical implications of the Kelo decision remain to be seen. Using the power of eminent domain for purely economic reasons will only make sense in rare situations. It is important to keep in mind that governments have had the ability to condemn property to eliminate blight for some time. Therefore, a condemnation similar to Kelo will only be necessary if there is no other public use such as a school and the project is not intended to eliminate "blight." Furthermore, economic and political considerations should act as a check on abuses. Kelo type development plans require significant planning, resources and political support.

The next battles will be fought in Congress and state legislatures as well as in state courts. Within days of the Kelo decision, federal and state legislators announced that they would submit bills to prevent Kelo condemnations. Whether these bills will be ultimately enacted is uncertain.

David Snyder is a partner with the law firm Fox Rothschild, LLP and is a cochair of its Condemnation Group. He is also an affiliate member of the Appraisal Institute and a member of the Institute's Client Advisory Committe.

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