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Kelo: state law to play greater role now

Readers of the Mississippi Business Journal were alerted last fall to the significant case of Kelo v. City of New London, which the United States Supreme Court announced it would hear, addressing the authority of local governments to take land from one private business or individual through the power of eminent domain to give it to another private business. (“Eminent domain case important to property owners in state,” October 25-31, 2004).

On June 23, 2005, in a split 5-4 decision, the U.S. Supreme Court held that a city’s decision to forcibly take private property solely for the purpose of “economic development” satisfies the requirements of the Constitution even where the economic development benefit is to be obtained by transferring the property to other private entities.

Expanding government’s reach

The decision in Kelo v. City of New London significantly expands the power of local elected governmental officials over private property rights. The Fifth Amendment to the Constitution imposes two distinct conditions on the right of the government to take private property: (1) it can be taken only for a “public use,” and (2) it “shall not be taken without just compensation.”

The issue of first impression in Kelo was whether “economic development” alone was a “public use” such as to authorize a local governmental body to seize private property from one business or individual in order to give it to another. Over the stringent opposition of four of the nine justices, the United States Supreme Court held it was.

In the Kelo case, the city council of the City of New London, Conn., approved a development plan for a multi-use private development including restaurants and shopping facilities, residences, a hotel and office and retail space, in connection with a global research facility for multi-national pharmaceutical manufacturer, Pfizer Inc. The plan hinged on acquisition by the city through eminent domain of private property previously owned by local individuals for use by the new owners.

The desired property was not “blighted,” but the council determined it was “sufficiently distressed to justify a program of economic rejuvenation” by seizing it from its current owners and transferring it to new owners as part of the new development. The sole “public purpose” for which it was taken was “economic development” in the form of “benefits to the community, including new jobs and increased tax revenue.”

Deferring to the “legislative judgment” of the city council, the United States Supreme Court held that city governments have the authority under the Constitution to exercise the power of eminent domain for such purposes.

The ensuing uproar

The Kelo v. City of New London decision caused a firestorm of protest beginning with the dissenting opinion by Justice O’Connor.

Joined by Justice Scalia, Justice Thomas, and Chief Justice Rehnquist, Justice O’Connor wrote: “The Court today significantly expands the meaning of public use. It holds that the sovereign may take private property currently put to ordinary private use, and give it over for new, ordinary private use, so long as the new use is predicted to generate some secondary benefit for the public — such as increased tax revenue, more jobs, maybe even aesthetic pleasure.” Under this new approach, the dissenting justices pointed out, “nearly all real property is susceptible to condemnation” and “the specter of condemnation hangs over all property.”

“Any property may now be taken for the benefit of another private party,” says Justice O’Connor. “But the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process… The government now has license to transfer property from those with fewer resources to those with more.”

“Under the banner of economic development,” Justice O’Connor wrote, “all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded, i.e., given to an owner who will use it in a way that the legislature deems more beneficial to the public.”

Even justices in the majority noted that the ruling gives rise to “important” questions about fairness of the measure of compensation and “the risk of undetected impermissible favoritism of private parties” in such takings (Justice Kennedy, concurring).

Economists reviewing the decision have been more direct in their criticism.

William F. Shughart II, Barnard Professor of Economics and holder of the Robert M. Hearin Chair at the University of Mississippi, notes that by deferring to the local public officials, the Court has opened the door to powerful local interests.

“The goals of re-election or reappointment to public office,” Shughart writes in an editorial in the Memphis Commercial Appeal, “heighten local government officials’ responsiveness to lobbying by politically well-organized groups seeking to exploit eminent domain processes for their own gain.”

Law professor Richard Epstein noted: “You get frequent corruption as people pressure city halls to seize land on the cheap.”

As Justice O’Connor noted in her dissenting opinion in Kelo: “An external judicial check on how the public use requirement is interpreted, however limited, is necessary if this constraint on government power is to retain any meaning.”

Fortunately for Mississippi businesses and individual landowners, Mississippi state law affords the protection to which Justice O’Connor refers.

Overlooked aspect

Largely overlooked in the Kelo decision is the following language of importance to local Mississippi businesses and landowners: “We emphasize that nothing in our opinion precludes any State from placing further restrictions on its exercise of the takings power.” As the Court points out, “many States already impose ‘public use’ requirements that are stricter than the federal baseline. Some of these requirements have been established as a matter of state constitutional law.” (majority opinion).

Fortunately for Mississippi businesses and landowners, Mississippi law, and the Mississippi Constitution, provide just such protections.

In several important respects, the Mississippi Constitution provides greater protection than the federal provisions interpreted in Kelo. Section 17 of the Mississippi Constitution that includes the Mississippi “public use clause” goes a step further than the Fifth Amendment, providing specifically “….the question of whether the contemplated use be public shall be a judicial question, and, as such, determined without regard to legislative assertion that the use is public.”

In 1994, the Mississippi Supreme Court addressed a similar issue when the City of Vicksburg sought to take a parcel of property to turn it over to Harrah’s for use in a casino development.

The court pointed out that public use under Mississippi law is a judicial question, and that in cases where there is doubt as to the right to exercise the power of eminent domain, the law is to be strictly construed most favorably to the landowner. More recently, the issue arose in relation to the acquisition of private property for the Nissan plant in Canton.

Resolution of that case by settlement prior to a ruling by the Mississippi Supreme Court may indicate the importance the governmental taking entities attributed to our Court’s view of individual property rights.

A critical issue is this: In the long run, who knows best how to promote economic development, private business and land owners with their own money at stake, or elected officials with public funds. The issue is of great importance.

As Professor Shughart points out, “economic theory tells us that secure private rights are one of the essential foundations of a free society and an important engine of growth.” By raising the odds that eminent domain powers will be exercised expansively, the Kelo decision undermines those rights.

Mississippi property owners can take comfort in the fact that they enjoy protections under state law that are much greater than those provided under the Fifth Amendment. As Mississippi landowners they have a right to have the issue of public use determined by the courts and not simply by the agency taking their property. Hopefully, when the Mississippi Supreme Court is next called on to make this determination under the Mississippi Constitution, it will continue to recognize and protect the rights of private owners.

Paul R. Scott is the managing partner of the Hernando office of Smith Phillips Mitchell & Scott, Attorneys. He practices primarily in eminent domain and land use litigation and is the Mississippi representative of Owners Counsel of America. For more information see www.smithphillips.com or www.ownerscounsel.com.

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