In a controversial 5-4 decision, the U.S. Supreme Court ruled in Kelo v. New London on Thursday that a local government may seize private property in facilitating profit-making private re-development as a legitimate form of “public use” under the Constitution. You can review and download the syllabus, majority opinion, the concurrence, and the dissents here.
My first impression of the decision is that it increases markedly the number of bad business deals that local governmental units will be able to consider. From the perspective of a Houstonian, the thought of a Redevelopment Department at the Metropolitan Transit Authority is truly frightening.
At any rate, the most troubling aspect of the majority decision by Justice Stevens is that, even though a local government could not take homeowners’ property “simply to confer a private benefit on a particular private party,” the project involved in this particular case is “a carefully considered development plan.” Therefore, the majority reasoned, the plan is a legitimate form of public use — despite the fact that the the resulting project would not be open for public use — because there is no literal Constitutional requirement of such an outcome. As the Court put it:

“For more than a century, our public use jurisprudence has wisely eschewed rigid formulas and intrusive scrutiny in favor of affording legislatures broad latitude in determining what public needs justify the use of the takigs power.”

“Those who govern the city [of New London] were not confronted with the need to remove blight . . ., but their determination that the area was sufficiently distressed to justify a program of economic rejuvenation is entitled to our deference. . . . Clearly, there is no basis for exempting economic development from our traditionally broad understanding of public purpose.”

Joining Justice Stevens in the majority were Justices Breyer, Ginsburg, Kennedy, and Souter, although Justice Kennedy filed a concurring opinion (see analysis below). Justice O’Connor’s dissenting opinion was joined by Chief Justice Rehnquist and Justices Scalia and Thomas, although Justice Thomas also wrote a dissenting opinion.

The court’s ruling came in a case out of New London, Conn., a city that has long been generally depressed economically. In 1998, the city’s economic prospects were improved when Pfizer Inc. announced plans to open a research facility there. In the excitement of that economic shot-in-the-arm, local city officials proposed to redevelop the adjacent residential Fort Trumbull neighborhood to capitalize on the new Pfizer presence, including a hotel and a pedestrian riverwalk. Most landowners sold their properties voluntarily, but nine refused and the city condemned their property under principles of eminent domain. Inasmuch as the Fifth Amendment of the Constitution prohibits the government from taking private property “for public use without just compensation,” the landowners sued and claimed that the redevelopment plan was not a “public use” because it provided for re-sale of the property to private interests for non-public use. The Connecticut Supreme Court denied the landowners appeal, which prompted the appeal to the U.S. Supreme Court.
In one sense, the decision is consistent with the Supreme Court’s tradition of giving government broad discretion to decide what constitutes public use. In 1954, the Court endorsed postwar urban-renewal efforts that paved over neighborhoods in a bid to eradicate blight. However, the difference in the current case is that no one could argue that the middle-class area in New London had fallen into blight. Accordingly, the homeowners and property-rights activists requested that the Court draw a line in the sand between governmental use of its eminent domain power to eradicate slums, on one hand, and using the eminent domain power to promote a trendy redevelopment plan, on the other. In the end, the Court simply declined to make such a distinction.
In her dissenting opinion, Justice O’Connor aptly summed up the risk of the majority decision:

“[T]he 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.”

“Any property may now be taken for the benefit of another private party, 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, including large corporations and development firms.”

In his dissent, Justice Thomas essentially accuses the majority opinion of endorsing a governmental land grab by replacing the Fifth Amendment’s “Public Use Clause” with a very different “public purpose” test:

“This deferential shift in phraseology enables the Court to hold, against all common sense, that a costly urban-renewal project whose stated purpose is a vague promise of new jobs and increased tax revenue, but which is also suspiciously agreeable to the Pfizer Corporation, is for a ‘public use.'”

Indeed, Justice Thomas’ dissenting opinion is one that folks should remember whenever they hear the common criticism of Justice Thomas that he is a shameless capitalist roader who favors corporate interests against the powerless, including his fellow African-Americans. Hard to square that criticism with his dissent in Kelo.
But the biggest impact of the Kelo decision just may be its erosion of the Constitutional requirement of “just compensation” for the governmental taking of private property. In short, where private developers are investing capital, there really is no need to invoke eminent domain — the developers should be willing to pay what the owners consider just compensation. In that regard, “just compensation” may differ considerably from so-called “fair market value” given the sentimental and other special value that homeowners may attribute to their homes. Indeed, Kelo will affect even willing sellers because developers in cahoots with local governments will have an incentive to lowball their pre-eminent domain bids on property because they now know that they will be able to take advantage of the government’s eminent domain power if the property owner refuses their offer.
In that connection, Justice Kennedy’s separate concurring opinion appears to put local governments on notice not to go too far in using the added power that the majority opinion appears to have given them to seize land for economic development. Although he joined the majority opinion, Justice Kennedy’s concurring opinion clearly reflects that he perceives the prospect of abuse of the eminent domain power was more evident than the majority opinon acknowledges. Inasmuch as his vote was necessary for the City of New London to prevail in the case, Justice Kennedy’s concurring opinion has more clout than a typical concurring opinion. He notes:

“There may be private transfers in which the risk of undetected impermissible favoritism of private parties is so acute that a presumption (rebuttable or otherwise) of invalidity is warranted under the Public Use Clause.”

Thus, if an economic development project favors a private developer “with only incidental or pretextual public benefits,” Justice Kennedy asserts that the Court tolerate such a use of eminent domain power even by applying the minimum standard of “rational basis review.” Nevertheless, he did not elaborate on the heightened standard further by stating that the Kelo decision “is not the occasion for conjecture as to what sort of cases might justify a more demanding standard.”
Despite the concurrence and the dissents, Kelo remains a troubling decision for owners of private property in an area where a savvy developer with local political connections sells a compliant city council on a grandiose redevelopment plan. When local governments make bad decisions such as this, it’s a very small step to making even worse decisions that favor private developers’ interests over those of local property owners.
Update: As usual, Professor Bainbridge nails the right view on Kelo in this (incredibly quick!) TCS op-ed.