Master of Eminent Domain

CAN A GOVERNMENTAL AGENCY use the power of eminent domain for private economic development? How that fundamental question resonates for the waste industry is illustrated by a situation that arose a few years ago in Illinois.

A regional development authority attempted to condemn the property of an automobile recycling facility and transfer it to the operator of an auto racetrack so that he could expand his parking lot. When the recycler objected, the circuit court of St. Clair County ruled that the authority had the power to take the land in question.

Later, an intermediate appellate court found that the authority had exceeded its constitutional powers by taking the land for a private use, and overturned the trial court's ruling. The Illinois Supreme Court initially reversed the appeals court, but later reconsidered the matter and, by a 5-2 majority, affirmed the appellate decision. “[T]his taking bestows a purely private benefit,” the court said. Southwestern Illinois Development Authority v. National City Environmental, LLC, 768 N.E.2d 1 (2002).

The question may be resolved on a national level in three cases that the U.S. Supreme Court will consider this term. Landowners, businesses and governments across the country are nervously watching what are likely to emerge as the most significant property rights decisions in decades.

On Feb. 22, the high court heard oral arguments in two of the cases: Kelo v. City of New London, No. 04-108 and Lingle v. Chevron USA, No. 04-163. The remaining case, San Remo Hotel v. San Francisco, No. 04-340, is scheduled to be argued on March 28. The decisions likely will be handed down this spring.

The Kelo case involves a city redevelopment plan to complement a new drug research facility. The city expects the project to create new jobs and boost property tax revenue. The plaintiffs own houses that will be torn down as the area is re-built.

Chevron deals with a Hawaii law capping the rent an oil company can charge a dealer who leases a service station. The law, which is designed to help gasoline retailers, allegedly failed to achieve its goal. The issue in San Remo Hotel is somewhat more technical: Can a property owner go to federal court after challenging a property “taking” and losing in a state court?

If the U.S. Supreme Court decides these cases in favor of property owners, government officials at all levels can expect to be dragged into court, where aggrieved parties will charge that local, state or federal agencies have unlawfully taken their homes, farms or businesses in violation of the Fifth Amendment to the U.S. Constitution.

Under Supreme Court precedents, a “taking” occurs when a law, regulation or other government action denies a property owner any economically viable use of his property. However, the right of government to condemn private property is limited to takings for a public use.

The Fifth Amendment, which applies to the states through the 14th Amendment, provides that such property shall not be taken without just compensation. Thus, courts could end up engaging in a review of legislative determinations on “public” use even before considering how much money must be paid.

Although state and federal decisions on the meaning and effect of the takings clause of the Fifth Amendment vary from place to place, the trend over the past several decades has been to allow governments great leeway in defining public use. Indeed, many years ago (obviously, in the pre-word processing era) the preeminent municipal lawyer in Illinois confidently declared that public use is determined by “the stroke of a pen.”

Property rights advocates are hoping for a change in direction — a limit on governmental power. The Illinois Supreme Court surmised “it may be impossible to clearly delineate the boundary between what constitutes a legitimate public purpose and a private benefit with no sufficient, legitimate public purpose to support it.” (768 N.E.2d at 8.) Nevertheless, lawyers representing the Kelo plaintiffs want the high court to establish a bright-line test: economic development does not equal public use. Alternatively, they argue, the likelihood of the development's anticipated benefits should be reasonably certain.

Attorneys for state and local governments are worried that a restrictive ruling will impede the ability of communities to reinvigorate their economies. They want a “rational basis” test that would be respectfully deferential to a governmental program, initiative or regulation that promotes a legitimate local interest.

The issue is “who makes economic and social policy in this country — unelected, lifetime tenured judges or democratically elected representatives,” San Francisco Deputy City Attorney Andrew W. Schwartz told The National Law Journal. Schwartz filed an amicus brief on behalf of the League of California Cities that supports Hawaii in the Chevron case.