by Elias E. Guzman

Eminent domain actions are guided by the Fifth Amendment of the United States Constitution, which guarantees that governments shall not take private property “for public use, without just compensation.” It is this notion of “public use” that was examined in the recent Supreme Court case Kelo v. City of New London, 125 S.Ct. 2655 (2005). In Kelo, the Court held that a local government body, or its agent, can in fact use eminent domain to take private property for a “private use,” as long as the taking is justified by being part of a larger economic development plan that helps or benefits the community.

Kelo arises out of condemnation proceedings initiated by the development agent of the City of New London (“City”) (which were challenged by certain landowners, including Kelo). The City is located in an area that sits at the junction of the Thames River and the Long Island Sound in southeastern Connecticut. Although the City suffered from decades of decline and low unemployment, the City sought to turn such decline around by developing the Fort Trumbull area, which was comprised of 115 privately owned properties and situated on a peninsula that juts into the Thames River. This area was not blighted; in fact, many of the properties were in great condition. In 1998, Pfizer announced it would build a $300 million research facility on a site immediately adjacent to Fort Trumbull. Local planners hoped that this move would draw new business to the area and serve as a catalyst to the area’s rejuvenation. City officials, through an already existing private non-profit entity, targeted Fort Trumbull with an integrated development plan, which proposed seven parcels with designations for various uses.

On approximately 90 acres, the development plan intended to generate commerce by constructing a hotel, restaurants, a riverwalk, single family residences, a museum, and office and retail space. The anticipated benefits of the development plan included: the creation of new jobs, generation of tax revenue, creation of leisure and recreational opportunities on the waterfront and in the park, and in general, build momentum for the revitalization of the downtown area of the City. In January 2000, after satisfying all state and local requirements, the City approved the plan and authorized its development agent to purchase property or acquire property by exercising eminent domain in the City’s name. Susette Kelo, one of nine protesting landowners that owned fifteen properties on Fort Trumbull, did not agree with the development plan and brought sought suit against the City and the legal battles ensued.

At the outset of its reasoning, the Court set forth two polar propositions that are perfectly clear in the law. At one end, a government cannot 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 end, the government can transfer property from one private party to another if future “use by the public” is the purpose of the taking (i.e., condemnation of land for a railroad with common-carrier duties).

The Court indicated if the City were taking property solely for the purpose of conferring a benefit on a particular private party, such action would amount to an unconstitutional taking. However, the Court determined that the City’s development plan was “carefully considered” and there was no evidence of an illegitimate purpose. In fact, the development plan passed through all the local and state requirements, in addition to a trial, and no evidence of ulterior motive was ever offered. Therefore, the City’s development plan was not adopted to benefit a particular class of identifiable individuals.

Needless to say, the City was not planning to open (in its entirety) the condemned land for use by the general public. However, it did not have to. The Court noted that the idea that “any literal requirement that condemned property be put into use for the general public” was rejected long ago. Hawaii Housing Authority v. Midkiff, 467 U.S. 229 (1984); Strickly v. Highland Boy Gold Mining Co., 200 U.S. 527, 531 (1906). Since these cases, public use has been embraced to mean “public purpose,” which is a more natural interpretation than the narrow, and rejected, rule of “use by the public.”

The issue then becomes whether or not a local government’s development plan can serve as a public purpose. The Court has a long standing policy of deference to legislative judgments in this field. Berman v. Parker, 348 U.S. 26 (1954) (Upheld a redevelopment plan targeting a blighted area of Washington D.C.); Hawaii Housing Authority v. Midkiff, 467 U.S. 229 (1984) (Concluded that the State’s purpose of eliminating social and economic evils of a land oligopoly qualified as a valid public use). In takings, it is important to look at the purpose of the takings, not merely at its mechanics (i.e., State transferring properties to private individuals upon condemnation).

In Kelo, the City was not confronted with the need to remove blight in the Fort Trumbull area. But, the City determined the area was sufficiently distressed to justify a program of economic rejuvenation. The City formulated an economic development plan that it believed would bring appreciable benefits to the community, including jobs and increased tax revenue. To effectuate this plan, the City invoked a Connecticut statute that specifically authorized the use of eminent domain to promote economic development. The Court gave deference to that City decision and held the plan unquestionably serves a public purpose and the takings thus satisfied the public use requirement of the Fifth Amendment.

Petitioners argued that use of eminent domain for “economic development” blurred the boundary between public and private takings. The Court disagreed, noting that the government’s pursuit of a public purpose will often benefit individual private parties and public ownership is not the sole method of promoting the public purposes of community redevelopment projects. Petitioners further argued that a bright-lined rule was necessary to prevent a city from transferring A’s property to citizen B for the sole reason that citizen B will put the property to a more productive use and thus pay more taxes. The Court reasoned that such one-to-one transfers of property, while not presented in Kelo, would be looked at with a skeptical eye and would raise “a suspicion that a private purpose was afoot.” But, the court refused to craft an artificial restriction on the concept of public use based on the hypotheticals posited by Petitioners.

Petitioners next argued that for takings of this kind, there should be a “reasonable certainty” that the expected public benefit will actually occur. Again, the Court refused to accept this argument, noting that it would be “an even greater departure from our precedent,” and anyhow, “[w]hen the legislature’s purpose is legitimate and its means are not irrational, our cases make clear that empirical debates over the wisdom of the takings – no less than debates over the wisdom of other kinds of socioeconomic legislation – are not to be carried out in the federal courts.” Further, a comprehensive redevelopment plan, such as the one in Kelo, requires that the legal rights of all interested parties be established before new construction begins. Any rule that requires postponement, pending judicial approval until the likelihood of success of the plan could be assured, would “impose a significant impediment to the successful consummation of many such plans.” Just as the Court refused to second-guess the City’s judgment about the efficacy of its development plan, it declined to second-guess the City’s determinations about what lands it needs to acquire in order to effectuate the project.

Before the ink of the Kelo opinion dried, California planners and developers undoubtedly began pondering redevelopment areas with wider more confident eyes. Well, before doing so, the reach and limitations of Kelo, must be understood. Kelo, at this point, is expressly limited, as the Court emphasized “nothing in our opinion precludes any State from placing further restrictions on its exercise of the takings power.” California, and many other states, impose “public use” requirements in takings that are stricter than the federal requirements, as the pertinent statutes carefully limit the grounds upon which takings can be exercised, notably by mandating that a city may only take land for economic development purposes in blighted areas. (See Health & Saf. Code, §§ 33030-33037)(Emphasis added.)

Accordingly, Kelo makes it clear that when local government takes private land, pursuant to its state eminent domain statutes, and gives it to a private entity as part of a larger economic development plan, such a taking will be found to meet constitutional public use requirements. At the same time, after Kelo, California law will likely remain intact and continue to only allow the use of eminent domain power for economic development reasons if it occurs in blighted areas. Needless to say, challenges to the California statutes based on Kelo-reasoning are in the horizon.

Elias E. Guzman is an associate with Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, environmental and planning issues contact Abbott & Kindermann at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.