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Washington-Landowners, businesses and governments around the country are watching closely a trio of cases in the U.S. Supreme Court with the potential to make this term the most important property rights term in nearly two decades. The justices will hear back-to-back arguments next month in two of the three cases- Kelo v. New London, Conn., No. 04-108, and Lingle v. Chevron USA, No. 04-163-and in the third, San Remo Hotel v. San Francisco, No. 04-340, sometime in March or April. Each case, say government officials, if decided in favor of the property owners, poses the threat of countless and costly lawsuits by businesses, such as Chevron, or private homeowners, such as Susette Kelo, who will claim that federal, state or local governments have “taken” their property in violation of the Fifth Amendment. And each case, they argue, could re-involve federal courts in second-guessing legislative policy choices to a degree not seen since the discredited Lochner era, named for the 1905 case, Lochner v. New York (a period when the Supreme Court struck down numerous state and federal laws designed to improve working conditions and an economy devastated by the Great Depression). But each case, counter property rights advocates, offers the opportunity for the high court to give meaning and effect to the limits in the takings clause of the Fifth Amendment-limits on governmental power largely read out of the clause in recent years by courts giving carte blanche to government takings of all stripes. The three cases are important because the issues “go down to fundamentals,” said land-use scholar Daniel Mandelker of Washington University School of Law in St. Louis. In Kelo, he noted, the justices will examine two old precedents that have been “leading guideposts for years” to determine whether the government’s use of eminent domain for private economic development is a “public use” under the Fifth Amendment. In Chevron, he added, the justices will go back to one of their original definitions of a regulatory taking to decide if there is actually a taking when a law-here a cap on rent that an oil company can charge dealers who lease its service stations-fails to achieve its goal-here to protect Hawaii’s retail market for gasoline. And finally, in San Remo Hotel, the high court will decide whether property owners can bring their takings claims to federal court after suing and losing in state court. A ‘despotic power’ The New London city council in 1998 gave approval to the New London Development Corp.-a nonprofit corporation formed in 1978 to help the city plan economic development-to prepare a development plan for the city’s Fort Trumbull area that would complement a new research facility to be built by Pfizer Inc. The city estimated that the plan will create jobs and as much as $1.2 million in property tax revenue. Susette Kelo and other families represented by the Washington-based Institute for Justice (IJ) own 15 homes located on two parcels in the development plan, which constitute 1.54 acres of the 90-acre plan. The homeowners challenged in state court-and lost-condemnation actions filed by the development corporation. The takings clause of the Fifth Amendment states that private property shall not “be taken for public use, without just compensation.” In the high court, the homeowners’ counsel, IJ’s Scott Bullock, contends that the Connecticut Supreme Court, and an increasing number of courts around the country, are equating “public use,” traditionally considered a road or a public building and even the clearance of blight, with “public” benefits, such as taxes and jobs, that typically flow from private business. Bullock is asking the justices for a bright-line rule that economic development is not a public use. If that argument fails, he said, the court should hold, “at a minimum,” that there must be a reasonable certainty that the public benefits used to justify the takings will actually be realized. Courts’ views of public use have expanded over the years. In Kelo, the justices will look at two key precedents: Berman v. Parker, 348 U.S. 26 (1954), which upheld the taking of private property for transfer to a private development corporation as part of an urban renewal plan, and Hawaii Housing Auth. v. Midkiff, 467 U.S. 229 (1984), which upheld a taking of private property for redistribution in order to reduce the concentration of land ownership in Hawaii. Bullock contends that what is happening in New London and other cities goes well beyond the public uses approved by the Supreme Court. “The whole concept here is transfer of land to a private party, and if this private business succeeds, hopefully the city will get trickle-down benefits,” he said. “The sweep of that justification is really breathtaking. Economic development condemnations can happen anywhere under that justification. It could be in Newport or in the Bronx.” But New London’s counsel, Daniel Kirsch of Hartford, Conn.’s Horton, Shields & Knox, whose partner Wesley W. Horton will argue the case, said Bullock’s position would have a “devastating impact” on the ability of cities to revitalize economies. Economic revitalization as a public use, he said, is a natural outgrowth of the core principle underlying Berman and Midkiff: deference to legislative judgments on public use. Local governments have created many safeguards for citizens in eminent domain situations, he added, including the most important one-the ballot box. “The concern ought to be whether courts should become micro-managers of economic decisions by local governments,” said Kirsch. “Courts are very bad at economic planning.” Micromanaging Micromanaging or second-guessing legislative judgments is also much on the mind of government officials-federal, state and local-supporting Hawaii in the Chevron case, a regulatory takings case. Under high court rulings, a regulatory taking occurs when government action denies all economically viable use of the property, or fails substantially to advance a legitimate state interest. The second prong of that test can be traced to Agins v. City of Tiburon, 444 U.S. 1011 (1980), a high court zoning case. But it has only been recently that takings claims have been filed alone under that prong, according to some takings scholars, and that is what Chevron did to challenge the state rent cap. The 9th U.S. Circuit Court of Appeals ultimately agreed with the trial court that the state law would actually discourage investment and reduce the number of independent dealers and thus did not substantially advance the state’s interest in protecting the gasoline retail market. The substantially-advance prong has been a “stepchild” in takings law, said John Echeverria of Georgetown University Law Center, who has been assisting Hawaii in the case. Lower courts, he added, have largely ignored it because it has no place in takings doctrine. Hawaii and its amici ask the court to reject the prong. If it does not, they argue, government economic actions should be reviewed under a highly deferential standard as they are in the due process context. If there is a rational basis for the regulation, they say, it is constitutional. “What’s at stake in Chevron is whether it’s permissible to invent a new kind of searching judicial review of economic legislation under the takings clause that is clearly out of bounds under the due process clause,” said Echeverria. San Francisco Deputy City Attorney Andrew W. Schwartz, who filed an amicus supporting Hawaii on behalf of the League of California Cities, agreed, adding, “ Chevron will determine who makes economic and social policy in this country-unelected, lifetime tenured judges or democratically elected representatives. There is no way to distinguish this from Lochner-era substantive due process cases.” But Chevron’s high court counsel, Craig Stewart of Jones Day, noted in his opposition to certiorari brief that the high court has applied the test to invalidate land-use restrictions in two cases in recent years. The test, he said, may be invoked by property owners only when legislation is so arbitrary that it achieves no substantial advancement of a state interest. And its stringency is why there has been little litigation under that prong. Michael Berger of Los Angeles’ Manatt, Phelps & Phillips, who will file an amicus supporting Chevron, said, “Government doesn’t believe anybody ought to be looking over its shoulder and second-guessing its decisions. I think that’s wrong. We need some real standard of scrutiny. Under the due process standard, government will virtually always win. I don’t think Lochner will be resurrected. The court is sufficiently conscious of Lochner lurking in the background that it’s not going to allow it to get to that point.” “A Chevron victory would be an absolute bonanza for takings claimants,” said takings litigator Jerry Stouck of Washington’s Spriggs & Hollingsworth. “There has to be some deference to the judgments of public officials and not so much deference to the vagaries of litigation,” he added. “Who knows what the truth is about the rent-control law? The trial court believed one particular expert’s opinion that gas prices went up. Is that any more valid than the findings of the Hawaii Legislature?” In the trio’s final case, San Remo Hotel challenged as an unconstitutional taking a $567,000 fee charged by San Francisco for converting its residential rooms into tourist rooms. A federal court dismissed the takings claim after finding it was not ripe because San Remo had not sought compensation under state law. After San Remo filed and lost its state suit, it returned to federal court. The 9th Circuit ultimately held that the federal claims were closely analogous to the state claims and were issue-precluded because of the state court ruling. Berger, who also plans to file an amicus brief supporting San Remo Hotel, called the situation a “Catch 22″ for landowners who, besides habeas corpus petitioners, he said, are the only civil rights plaintiffs required to go to state court first. “A handful of circuit court decisions have agonized over this and said, ‘Boy, does this feel wrong,’ ” he said. “ The 2d Circuit has taken a position directly contrary to the 9th.” But Schwartz, who handled the case in the lower courts, said, “If a government agency must defend a taking claim first in state court and then start over in federal court, the cost of defending taking claims would be colossal. It would be a hammer for property owners and those subject to government regulation that would be devastating to public agencies.”

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