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The Supreme Court’s June 23 ruling in Kelo v. City of New London was surprising — both for its closeness and for the unanswered questions it left for the future. The decision may represent a high water mark for eminent domain, although that remains for other cases to determine. One of the most controversial decisions on the takings clause in decades, Kelo affirmed the use of eminent domain to take private property to promote economic development in a depressed New England town. A bare 5-4 majority opinion by Justice John Paul Stevens held that economic development is the kind of “public purpose” that satisfies the “public use” requirement of the takings clause of the Fifth Amendment — which allows governments to confiscate private property, but only for a “public use,” and even then only upon payment of “just compensation.” A SURPRISING DECISION The decision was unexpectedly close. In both of its two most recent cases before Kelo addressing the public-use requirement, the Supreme Court had unanimously endorsed an expansive application of public use. In 1954, Justice William Douglas’ unanimous opinion in Berman v. Parker upheld a condemnation to help redevelop a blighted slum in Washington, D.C. And in 1987, Justice Sandra Day O’Connor’s unanimous opinion in Hawaii Housing Authority v. Midkiff upheld Hawaii’s use of eminent domain to transfer property from lessors to lessees to reduce the exceedingly heavy concentration of land ownership in the state. In both cases, the Court emphasized its deferential approach to legislative judgments about what constitutes a proper public use. In light of those precedents, the closely divided 5-4 decision in Kelo is unexpected, especially since the urban redevelopment setting in Kelo made the case very similar factually to Berman. The notable difference is that in Kelo, as Stevens observed, there was “no allegation that any of these properties is blighted or otherwise in poor condition.” Kelo thus presented in more pristine form the question of whether the condemnation power can be used solely to advance economic development, as opposed to broader objectives like slum clearance in Berman or elimination of oligopolistic land ownership in Midkiff. O’Connor’s sharply worded dissent in Kelo emphasized this seemingly narrow but obviously crucial difference. Writing for herself and three others (Chief Justice William Rehnquist and Justices Antonin Scalia and Clarence Thomas), O’Connor noted that in both Berman and Midkiff, the “precondemnation use of the targeted property inflicted affirmative harm on society.” But in Kelo, as O’Connor noted dryly, there was no claim that petitioners’ “well-maintained” private residences “are the source of any social harm.” The dissent thus complained that the Court had significantly expanded the reach of the condemnation power. As O’Connor aptly summarized the majority’s ruling (by Justices Stevens, Anthony Kennedy, David Souter, Ruth Bader Ginsburg, and Stephen Breyer), it allows the taking of private property “in ordinary use” to give it over for another private use, so long as the new use is predicted to generate some secondary public benefit. According to the dissent, because nearly any private use of real property can be said to generate some incidental public benefit, henceforth “[t]he specter of condemnation hangs over all property.” The decision has already generated substantial controversy in at least some circles. Several bills have been introduced in Congress to withhold federal funding from state and local projects that use eminent domain solely for economic development purposes. Pending bills include S. 1313 introduced by Sen. John Cornyn (R-Texas) and H.R. 3135 introduced by Rep. F. James Sensenbrenner Jr. (R-Wis.). Even more notably, Kelo made the front pages of newspapers across the country, and the decision was debated on a surprising number of editorial pages. (I was at a conference at Kiawah Island and read about Kelo on the front page of the local newspaper in rural South Carolina). Although the Supreme Court’s takings clause cases are closely followed by property rights enthusiasts, environmentalists, and land use planners, who can remember another takings case that has struck such a chord in the popular imagination? Something is clearly very divisive, and even somewhat threatening, about the use of eminent domain solely for purposes of economic development. Apparently, there is a recognized need for some limiting principle to ensure that governments cannot simply confiscate one person’s property to transfer it to another person for some “better” use. Indeed, even Stevens agreed for the Kelo majority that it is “perfectly clear” that a government “may not take the property of A for the sole purpose of transferring it to another private party B.” Yet that is precisely what O’Connor’s dissent accused the Kelo majority of allowing by authorizing the subsequent use of the land by other private parties after the city development project was completed. What ultimately divided the Court in Kelo was that the majority foresaw limits on the use of eminent domain for economic development purposes, whereas the dissent thought the majority’s rationale was limitless — and thus would allow use of eminent domain simply to transfer private property from A to B. The limits proposed by the Kelo majority were, first, that eminent domain could not be used to confer a private benefit on a “particular” private party, and second, that a condemning authority could not take property under the “mere pretext” of a public purpose “when its actual purpose was to bestow a private benefit.” O’Connor’s dissent viewed these proposed limits as disingenuous at best, and she is probably right. By definition, economic development takings benefit both private and public interests. As the dissent put it, “private benefit and incidental public benefit are . . . merged and mutually reinforcing.” And even if a court could isolate the “primary” motive behind a given taking, so long as the taking conferred some incidental public benefit, it would appear to be a public use under Kelo — regardless of any “particular” private benefit. In other words, Stevens’ proposed limit on economic development takings is seemingly no limit at all. UNANSWERED QUESTIONS Which leads to what is perhaps the most remarkable feature of Kelo. Ultimately, the decision sheds little light on the basic legal question presented: Namely, are there limits on the ability of a government to take private property through eminent domain and put the property to a use that is largely private, but that nevertheless benefits the public in some manner? The most important guidance on that question is set forth in the concurring opinion of Kennedy, who provided the decisive fifth vote for the Kelo outcome. Notably, Kennedy raised even more concerns about limits on the use of eminent domain in this context than O’Connor did. Thus, Kennedy’s concurrence may well hold the key to what Kelo really means. Kennedy agreed with the Kelo majority that deference to condemning authorities with respect to public purpose and public benefit is generally appropriate. But he also noted that there may be categories of takings where “the risk of undetected impermissible favoritism of private parties is so acute” that deference to the condemning authorities is not warranted, and a “presumption of invalidity” may even be appropriate. Kennedy did not wish to engage in “conjecture” about what types of cases this might involve, but lower courts will have to grapple with the issue. Perhaps more important, Kennedy’s concurrence emphasized facts in Kelo that limited the reach of the decision, and likely reflect his thinking about the kinds of limits that should be imposed in future cases: Kelo, he noted, involved a taking “in the context of a comprehensive development plan meant to address a serious city-wide depression”; the economic benefits of the taking “are not de minimus”; the “identity of most of the private beneficiaries were unknown” at the time the city developed its plans; and the city “complied with elaborate procedural requirements that facilitate review of the record and inquiry into the city’s purposes.” In future cases involving economic development takings where one or more of these facts are not present, Kennedy’s vote has to be considered uncertain. And it remains to be seen whether lower courts will read these factors as limits on eminent domain. Thus, although real estate interests are rightly celebrating Kelo‘s sanctioning of economic development takings, there will be other cases in this area, certainly in the lower courts and quite likely in the Supreme Court in the not-too-distant future. The sharp division of the Court in Kelo, the lack of any well-defined test for economic development takings, and Kennedy’s apparent desire to erect real limits on such takings all suggest that this issue is not yet resolved. (And in these future cases, of course, at least one and possibly two Court members will be different, though that might not translate immediately into a different outcome if the new justices agree with O’Connor and Rehnquist in the Kelo dissent.) DEFERENCE TO STATES Another remarkable feature of Kelo is that the liberal justices who formed the majority rested their decision in large measure on deference to the state and local governments that most often exercise the eminent domain power. States’ rights, and related federalism concerns, are generally thought to be the province of the Court’s conservatives. But the Court’s conservatives dissented in Kelo, and thus voted to trump local legislative judgments with a strict judicial interpretation of the public use requirement. As a final surprising feature of Kelo, neither Stevens’ majority opinion nor O’Connor’s dissent mentions the implications of the case for the measure of “just compensation.” At oral argument, several justices, including Stevens, indicated they were “troubled” by the traditional measure of just compensation in the case of an economic development taking. Normally, just compensation in takings cases is measured by the fair-market value of the condemned property before the taking. That is generally a fair measure because when government takes private property to build a road or a school or a post office, the government’s use does not typically increase the commercial value of the property taken. But a taking for purposes of economic development by definition increases the property’s value. The developer or ultimate user of the property therefore reaps an economic benefit at the expense of the former property owner, whose compensation did not reflect this rise in value. This issue was not presented in Kelo, but given the expressions of concern over the issue by several justices, future cases could lead to a measure of just compensation in economic development takings cases that allows the former property owner to share in the economic benefits of the development. On the other hand, requiring condemning authorities to pay something very close to “fully developed” market value for property may deter economic development projects that have substantial public benefits. Because Kelo sought to protect such projects, the Court may be reluctant to discourage them by requiring higher compensation. In sum, Kelo resolves the question of public takings for essentially private use in a way that is profoundly inconclusive. Given the importance of the issue to property owners and to condemning authorities alike, the Court doubtless will, or at least should, revisit this issue again in the not-too-distant future. In the meantime, lower courts will be busy trying to fathom what Kelo really means for economic development takings.
Jerry Stouck is a shareholder in the D.C. office of Greenberg Traurig. He frequently litigates Fifth Amendment takings claims and government contract disputes.

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