Land Use, Zoning and Condemnation

February 2006

U.S. Supreme Court Gives Local Governments Broad Discretion In Determining What Justifies A 5th Amendment Taking Of Private Property

In a decision that will likely change the way developers and local governmental authorities work together to promote economic redevelopment projects, the United States Supreme Court in Kelo v. City of New London reaffirmed its traditional stance of “affording [state] legislatures broad latitude in determining what public needs justify the use of the [5th Amendment] takings power.” 545 U.S., No. 04-108, 2005 LEXIS 5011 (2005).

The dispute in Kelo centered on a local government’s decision to pursue an economic development plan by condemning private property, exercising eminent domain, and then transferring the property to private developers for economic revitalization. The city of New London, Connecticut has been experiencing a long period of economic decline for decades. As a result, the New London Development Corporation (NLDC), a private, non-profit organization, presented a plan to redevelop 90-acres within the depressed area to members of city council. Impressed by the plan’s apparent ability to create jobs and generate tax revenue, the council members authorized the NLDC’s purchase of the planned property by exercising eminent domain in the city’s name.

The NLDC was able to purchase much of the required land without resorting to eminent domain tactics. Some property owners, however, refused to negotiate a sale. As a result, NLDC initiated condemnation proceedings, and the Kelo litigation ensued.

Even though none of the properties at issue were “blighted”, the Supreme Court of Connecticut reversed a New London Superior Court decision and held that all of the City’s takings were valid. Relying on a Connecticut development statute, which suggests that the taking of property to advance economic development is a “public use” taking, the Court gave deference to city council’s redevelopment plan and accepted its assessment.

At the Supreme Court, the dissenters strongly suggested that using eminent domain in such a manner constitutes an unconstitutional taking. The majority, however, held that economic development satisfies the “public use” requirement stipulated under the 5th Amendment. The Court acknowledged that “promoting economic development is a traditional long accepted function of governments.” Id. at 14. More importantly, it held that a private enterprise may assist a government agency in the redevelopment process, and even benefit from the relationship, so long as the plan benefits the community. Id. at 15. As for New London specifically, the majority determined that the City of New London acquired the property in question pursuant to a carefully considered development plan, not in an effort to benefit a particular class of private individuals. Thus, the taking was justified under the 5th Amendment.

The controversial decision greatly increases the likelihood that developers and local governments can successfully utilize eminent domain, where appropriate, to further public/private economic development projects. In light of Kelo, when a local government determines that the use of eminent domain will promote development and will serve a public purpose, the courts will likely defer and uphold the plan as constitutional.

The landmark Kelo decision set off a firestorm of political debate in both the state and federal legislatures. According to the National Law Journal1, as many as 28-states have considered legislation to curb eminent domain in light of Kelo. In several states, including Michigan, legislators are pushing for state constitutional amendments prohibiting eminent domain for private development. In several others, proposed bills would simply limit the use of eminent domain by implementing stringent procedures requisite to acquiring land.

On November 16, 2005, Ohio Governor Bob Taft signed an eminent domain moratorium into law that will last until December 31, 2006. The moratorium, which was effective immediately, prevents government officials from “taking” private property in Ohio’s non-blighted areas for the purpose of economic development. Furthermore, the moratorium establishes a task force that is charged with thoroughly examining Ohio’s eminent domain laws over the course of the next year. Ohio’s moratorium does not affect ongoing eminent domain proceedings that were initiated prior to its passing.

The federal government has also been pro-active in its response. On June 24, the House passed a resolution that summarized its distaste with the Kelo decision. Furthermore, several bills introduced in both branches of Congress seek to suspend federal development assistance to states that acquire land for private development through the use of eminent domain. On September 20, the Senate Judiciary Committee held a hearing to discuss these issues. All signs point to the enactment of federal law in the near future.

Thus, while municipalities and developers across the country continue to take advantage of Kelo’s holding, a rapid political movement could ultimately diminish the effect of eminent domain takings.

1 Tresa Baldas, States ride post-‘Kelo’ wave of legislation; Eminent domain curbs in 28 states, The National Law Journal, August 1, 2005, P1 Vol. 27, No. 46

U.S. Supreme Court Separates Due Process Analysis From Federal Takings Claims

The 5th Amendment Takings Clause provides that private property shall not “be taken for public use…without just compensation.” The Takings Clause does not prohibit the government from acquiring property – it merely “places a condition on the exercise of that power.” Lingle v. Chevron U.S.A., 125 S. Ct. 2074 (May 23, 2005). Incorporation of the language “for public use” presupposes that the government “has acted in pursuit of a valid public purpose.” Id. Thus, an invalid government action, one that is not pursuing a legitimate public purpose, never arrives at a takings analysis – no amount of compensation could authorize such an unjustified and unconstitutional action. Id.

This elementary analysis of a takings claim seems overly simplistic. Until the Court decided Lingle, however, that was not the case. Lingle overturned the rule instituted by Agins v. City of Tiburon, an unfortunate holding that commingled two distinct theories of Constitutional law. In Agins, the Court held that an unconstitutional taking results if a government regulation “does not substantially advance [a] legitimate state interest.” 447 U.S. 255, 260. As a result, for the past 25-years, courts have been forced to analyze a regulatory takings case by first conducting a due process inquiry. As Lingle makes clear, however, a due process analysis “has no proper place in…takings jurisprudence.” 125 S. Ct. at 2083.

Lingle involved an oil company’s challenge of a Hawaiian law that regulated the amount of rent the company could charge its retail fuel dealers. Id. at 2077. The regulation was an attempt to drive down the price of gasoline for the State’s consumers. Id. The district court, however, concluding that the regulation would not reduce the retail price of gasoline, determined that the statute did not substantially advance the government’s interest. Id. Therefore, under the Agins analysis, the court ruled that the State’s law resulted in a regulatory taking. Id. at 2080. The Ninth Circuit affirmed on the same grounds. Id.

The Lingle holding reversed the Agins decision and, in doing so, separated due process analysis from takings jurisprudence. The Court stated that the Agins test was improperly focused on the effectiveness of a government regulation. Instead, the Court held, takings law should be concerned with the “magnitude or character of the burden a particular regulation imposes upon private property rights.” Id. at 2084. The Court denounced the Agins test as an invalid method for identifying regulatory takings. Id. at 2085.

Furthermore, to clarify the appropriate takings analysis under a variety of circumstances, the Court reaffirmed the following takings decisions: per se physical invasions of land should be analyzed in accordance with Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982); regulatory takings when a government action completely deprives an owner of all economic benefit of his land should be analyzed in accordance with Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992); other regulatory takings should be analyzed in accordance with Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978); and finally, land-use exactions should be analyzed in accordance with Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994).

The Lingle decision was long overdue. Its influence, however, is likely minimal. Plaintiffs will simply be forced to separate their due process claims from their takings claims. The validity of a government action should be litigated first; then, if the regulation survives due process analysis, the issue of whether or not the regulation amounts to a taking is ripe for consideration. If a taking has occurred, the property owner is entitled to compensation in accordance with the 5th Amendment Takings Clause.

Consideration Of Federal Takings Claims To Remain In State Courts – for now….

In a peculiar decision handed down 20-years ago, the Supreme Court held that private plaintiffs alleging a 5th Amendment takings violation against a state agency must fully litigate their claims in state court before proceeding at the federal level. Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985). According to the Court, takings claims are not ripe until a state fails “to provide adequate compensation for the taking.” Id. at 195. This unusual and often criticized rule of law was the subject of argument in San Remo Hotel v. San Francisco, 125 S. Ct. 2491 (June 20, 2005).

In San Remo Hotel, the plaintiff hotel owners sought to challenge a city ordinance that required them to pay a steep penalty for converting their residential hotel units to tourist units. Id. at 2495. The plaintiffs originally filed their takings claims in Federal District Court. The District Court granted the city’s summary judgment motion, however, because the facial challenge to the regulation was time barred by the statute of limitations, and the as-applied challenge was deemed unripe pursuant to the holding in Williamson.Id. at 2497. According to the Court, the hotel owners would have to receive a final judgment from the state courts before their claims would be fit for federal review. On appeal, the Ninth Circuit agreed that the takings claims were unripe for resolution, and the case was sent back to state court.

At the state level, the hotel owners were unable to prevail on their takings claims. As a result, they once again raised a series of takings claims in Federal District Court. Id. The claims, however, were identical to those that had just been resolved in state court. Id. The District Court dismissed the case based on principles of claim preclusion (res judicata) and issue preclusion (collateral estoppel). See 28 U.S.C. § 1738. The Court held that it was required to give full faith and credit to the state courts’ decisions. On appeal, the Ninth Circuit agreed, and the case was dismissed.

In their appeal to the Supreme Court, the plaintiffs argued that the rule established in Williamson is flawed because plaintiffs alleging federal takings claims are required to proceed in state court “without any realistic possibility of ever obtaining review in a federal forum.” Id. Therefore, in light of Williamson, the plaintiffs were asking the Court to implement an exception to the full faith and credit clause as it pertains to takings claims. They were asking for a rule that would allow federal courts to review such claims de novo following the corresponding state court’s final disposition, “regardless of what issues the state court may have decided or how it may have decided them.” Id.

The Supreme Court affirmed the decision of the lower appellate courts. In accordance with Williamson, the Court held that parties should not relitigate issues that have already been resolved by courts of competent jurisdiction. Id. at 2505. Furthermore, the Court reminded the plaintiffs that an exception to the traditional rules of preclusion could only be justified if plainly stated by Congress. Id. Therefore, it is not within the Court’s power to implement an exception to the full faith and credit clause. Id.

In a concurring opinion by Chief Justice Rehnquist, however, the legitimacy of the Williamson decision was questioned. Id. at 2507 (concurring opinion; Justice O’Connor, Justice Kennedy, and Justice Thomas joined in concurring). More specifically, Justice Rehnquist questioned the Court’s decision two-decades ago to “hand authority over federal takings claims to state courts” simply because they are familiar with local land-use decisions. Id. at 2509. Furthermore, he clearly stated that a challenge to the Williamson holding is ripe for consideration. Id. Unfortunately for the plaintiffs in San Remo, they did not address the correctness of Williamson. Instead, they focused their arguments on potential exceptions to the full faith and credit clause.

The immediate effect of San Remo will likely be minimal. It does suggest that “litigants who go to state court to seek compensation will likely be unable later to assert their federal takings claims in federal court.” Id. What the opinion does accomplish, however, is it brings the anomalies created by Williamson back to the attention of the Court. As a result of Justice Rehnquist’s concurring opinion, a new challenge to the 20-year-old holding is likely to surface in the near future.

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