Daily Development for Tuesday, August 3, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu
EMINENT DOMAIN; POWER TO CONDEMN; “PUBLIC PURPOSE”; BUSINESS DEVELOPMENT:
Poletown overruled. Michigan cities and counties (even chartered ones) lack the
authority to condemn private property for purposes of transfer to another
private interest in order to spur economic development except under special
circumstances, including continuous control of project by public agency.
County of Wayne v. Hathcock, No. 124070 (Mich. 7/30/04) (No Westlaw or Lexis
cite yet)
Michigan, the state that gave us the original “Poletown” decision Poletown
Neighborhood Council v. City of Detroit, 304 N.W. 2d 655 (Mich. 1983) upholding
use of eminent domain for economic development as consistent with Constitutional
“public purpose” requirements, has now addressed the issue again, this time in
the context of emerging authority in other jurisdictions challenging the
broadest reach of the principle of eminent domain to enhance economic
development.
Here, Wayne County sought to condemn plaintiff’s property in order to establish
a 1300 acre business and technology park. The purpose of the park was to
reinvigorate the economy of a struggling area in the County, to generate new
employment and a higher tax base. These are all good things, of course, and
things that governments typically try to bring about. But can they do it by
transferring private property from one person to a favored other? Based upon the
Poletown decision, the trial court and intermediate appellate court answered, in
Michigan: “yes.” Poletown had upheld the use of the eminent domain power to
acquire private property in Detroit for purposes of facilitating the
construction of a General Motors factory.
But the Supreme Court of Michigan, citing the Michigan Constitutional provision
requiring that the use of eminent domain have a “public purpose,” reversed, and
unanimously overruled Poletown. The condemnation was unconstitutional even
though it had been carried out in full compliance with Michigan statutes
enabling the process.
The court emphasized that the operative question was whether the proposed use of
eminent domain was within the meaning of “public purpose” as that term probably
was understood at the time of the adoption of the Michigan Constitution language
in 1963.
The property in question has an interesting history that highlights the
difficult issues that are arising as the role of government in various kinds of
development gets more and more complex. Pursuant to a massive federal grant, the
County substantially expanded the local airport. This expansion generated
concerns about “noise pollution” of adjacent properties, and therefore the
County obtained more federal money to acquire parcels that might be adversely
affected by noise from the expanded airport. Apparently the emphasis was on
properties that were being put to a use that was sensitive to the noise, so the
acqisition resulted in the city’s ownership of properties in a “checkerboard”
configuration on land near the airport.
The agreement with the federal government was that the properties acquired in
the noise abatement program would be put to an “economically productive use.”
The County determined that the best way to do this was to develop the business
and technology park as described, and embarked on a voluntary acquisition
program to fill in the “checkerboard” to create a viable development parcel.
When this program was completed, there were about 1000 acres in public
ownership, but there were still spots where landowners had refused offers to
sell, and the County needed these properties, in its view, to create a viable
parcel. Thus, it held hearings and made findings that these parcels were vital
to its public purpose of developing an improved economic climate in the area
through the facilitation of a private industrial park, and it then proceeded
with eminent domain procedures on the balance of the properties, including those
at issue here.
The Michigan Supreme court noted that the review of the determination that the
project here did have a satisfactory public purpose was made on the basis of
“fraud, error of law, or abuse of discretion.” But the review is de novo. It
would appear that the ordinary deference given to a local government
determination was not available here. If the court determines that there was a
simple error of law in the interpretation and application of the meaning of the
term “public purpose” in the Michigan Constitution, it can reverse.
The court began its analysis by admitting that the enhancement of the economic
climate was clearly an appropriate public purpose, and that, under the statutory
and “home rule” powers that it possessed, Wayne Coutn could acquire property by
eminent domain for this purpose.
“In this case, Wayne County has condemned the defendants' real properties for
the following purposes: ‘(1) the creation of jobs for its citizens, (2) the
stimulation of private investment and redevelopment in the county to insure a
healthy and growing tax base so that the county can fund and deliver critical
public services, (3) stemming the tide of disinvestment and population loss, and
(4) supporting development opportunities which would otherwise remain
unrealized.’ The analysis provided in this opinion demonstrates that, unless the
pursuit of one or more of these objectives has been assigned to the state by
law, any condemnation in furtherance of these goals is ‘within the scope of
Wayne County's powers,’ Defendants have adduced no constitutional or statutory
support for the proposition that a home rule county such as Wayne County may not
pursue these objectives. Accordingly, the proposed condemnations are- at least
for statutory purposes-within the scope of Wayne County's po wers.”
But the court viewed the question at hand more narrowly than that. Did the
Michigan Constitution permit the acquisition of privately owned land for the
purpose of turning the land over to another private owner when the purpose of
the government was the spurring of economic development as described above? The
court first noted that the statutes vested the original determination, even on
that score, with the public agency.
“For a public corporation to condemn property under [Michigan statutes], a
proposed taking must not only advance one of the three objectives listed in that
statute, but it must also be "necessary" to that end. The Legislature has vested
the authority to determine the necessity . . . in those entities authorized to
condemn private property under that statute. Accordingly, Michigan's courts are
bound by a public corporation's determination that a proposed condemnation
serves a public necessity.”
The court conceded that the County was perfectly within its rights making the
determinations that it made to acquire this property insofar as the statutory
authority was concerned. But the Court then want on to point out that
overrarching Constitutional principles still had to be satisfied. Although the
words “public purpose” are the same in the statutes as in the Constitution, the
court was of the view that the Constitutional meaning of the words was for the
court to decide, rather than the Wayne County political process.
“. . . Michigan's 1963 Constitution provides that "[p]rivate property shall not
be taken for public use without just compensation therefor being first made or
secured in a manner prescribed by law." Plaintiffs contend that the proposed
condemnations are not "for public use," and therefore are not within
constitutional bounds.
. . . The primary objective in interpreting a constitutional provision is to
determine the text's original meaning to the ratifiers, the people, at the time
of ratification.44 This rule of "common understanding" has been described by
Justice Cooley in this way:
‘A constitution is made for the people and by the people. The interpretation
that should be given it is that which reasonable minds, the great mass of the
people themselves, would give it. 'For as the Constitution does not derive its
force from the convention which framed, but from the people who ratified it, the
intent to be arrived at is that of the people, and it is not to be supposed that
they have looked for any dark or abstruse meaning in the words employed, but
rather that they have accepted them in the sense most obvious to the common
understanding, and ratified the instrument in the belief that that was the sense
designed to be conveyed.’ In short, the primary objective of constitutional
interpretation is to realize the intent of the people by whom and for whom the
constitution was ratified. (Footnotes omitted.)
Despite this pronouncement that the common understanding of the people at the
time of the 1963 adoption controls, and despite a concurring opinion that urged
this method of interpretation on the court, the court instead concluded that the
people who voted for the Michigan Constitution in 1963 understood that it was
full of terms of art that could be interpreted only by those steeped in the law,
and that the technical meaning of a term such as “public purpose” might indeed
be distinct from that definition that might have been arrived at by a
sociologist studying the understandings of the voters of 1963.
The court concluded that Michigan precedent before1963 had posited three basic
Constitutional requirements that had to be met for an exercise of eminent domain
for purposes of ultimate private use. It concluded that the voters in 1963
necessarily intended that these requirements be maintained, even though it was
unlikely that the typical voter really understood what they were.
The first requirement was that the exercise of eminent domain for private
corporations would be limited to “those enterprises generating public benefits
whose very existence assembled depends on the use of land that can be only by
the coordination central government alone is capable of achieving.” This, of
course, described the situation in the railroad, water utility and other public
utility line cases.
The second requirement is that the private entity that obtains the property so
condemned must remain accountable to the public in its use of that property.
The third requirement is that the “special public concern test:”
“Condemned land may be transferred to a private entity when the selection of the
land to be condemned is itself based on public concern. . . . [T]he property
must be selected on the basis of "facts of independent public significance,"
meaning that the underlying purposes for resorting to condemnation, rather than
the subsequent use of condemned land, must satisfy the Constitution's public use
requirement.”
Here the court alluded to identification of “blighted areas” for slum clearance
as an appropriate use of eminent domain because the current use of the property
posed a public concern. It did not make clear how this test addressed the
condemnation of land for railroads and public utilities, other than to say that
such lands might be within a planned right of way. But it may be that the
existence of a right of way location is in fact a matter of “independent public
significance” not dictated by private objectives.
Although the editor is uncertain, he believes that the court intended that all
three of these requirements must be satisfied if a condemnation for private use
is carried out. The court here concluded that the proposed development in this
case, the Pinnacle Project, met none of the requirements.
“The Pinnacle Project's business and technology park is certainly not an
enterprise "whose very existence depends on the use of land that can be
assembled only by the coordination central government alone is capable of
achieving." To the contrary, the landscape of our country is flecked with
shopping centers, office parks, clusters of hotels, and centers of entertainment
and commerce. We do not believe, and plaintiff does not contend, that these
constellations required the exercise of eminent domain or any other form of
collective public action for their formation.
Second, the Pinnacle Project is not subject to public oversight to ensure that
the property continues to be used for the commonweal after being sold to private
entities. Rather, plaintiff intends for the private entities purchasing
defendants' properties to pursue their own financial welfare with the
single-mindedness expected of any profit-making enterprise. The public benefit
arising from the Pinnacle Project is an epiphenomenon of the eventual property
owners' collective attempts at profit maximization. No formal mechanisms exist
to ensure that the businesses that would occupy what are now defendants'
properties will continue to contribute to the health of the local economy.
Finally, there is nothing about the act of condemning defendants' properties
that serves the public good in this case. The only public benefits cited by
plaintiff arise after the lands are acquired by the government and put to
private use. Thus, the present case is quite unlike Slum Clearance because there
are no facts of independent public significance (such as the need to promote
health and safety) that might justify the condemnation of defendants' lands.”
The court then devoted the balance of its opinion to the complete trashing of
the Poletown opinion, which is a notable event in light of the thousands of
citations to Poletown over the years, and the enormous influence that decision
has had on the shaping of eminent domain jurisprudence at the state level. The
court stated that Poletown “is most notable for its radical and unabashed
departure from the entirety of this Court's pre-1963 eminent domain
jurisprudence.”
Although the court indicated that the central issue of public purpose may have
been waived procedurally by the plaintiffs in that case, it concluded
nevertheless that the Poletown holding that property could be condemned for a
transfer from one private party to another in the interests of economic
development was wrong, and should be overruled. It went on to make the ruling
retroactive as to any cases involving Poletown issues that are still in the
Michigan courts.
Comment 1: Of course, the big news about this case is the overruling of a hugely
significant precedent. The overruling is timely because it is in the midst of a
movement among other state courts to test the limits of the eminent
domain/economic redevelopment power in their own respective constitutions. DIRT
reported on such a case two years ago: In The Southwestern Illinois Development
Authority v. National City Environmental, 2002 WL 501593 (Ill. 4/04/02) (the
DIRT DD for 4/10/02) the Illinois high court concluded that condemnation of land
for purposes of acquisition of a profit making private auto racing track
violated the federal Due Process Clause, as well as the state restriction on
takings for a “public purpose,” despite compliance with the statutory
"industrial development" process, because of lack of public purpose.
Comment 2: In another recent case, City of Las Vegas Downtown Redevelopment
Agency v. Pappas, 76 P.3d 1 (Nev. 2003) cert. den. 124 S.Ct. 1603 (3/8/04) the
Nevada Supreme Court upheld the condemnation of a private party’s land for
purposes of development of a parking garage that would be privately operated as
part of a grandiose casino area development in downtown Las Vegas, Nevada. The
difference between this case and the Hathcock and Southwestern cases is that
here there had been a preliminary determination of blight. But at the time of
the determination, there was no concrete redevelopment plan in place, and at the
time of the condemnation itself, at least, the condemnee’s property was hardly
blighted in any sense other than that it stood in the way of economic
development. Dissenters raised a very real question as to whether city agency
can draw very loose redevelopment plans as a net in which to attract potential
private investors and then deliver all the privately owned
property to these developers for the sole purpose of economic development.
Comment 3: If we accept the proposition that elimination of blighted areas is an
acceptable grounds for condemnation of private property, as most courts do,
there remain the questions of how and when the determination of blight is made,
and on what basis it is reviewable. In many redevelopment schemes, cities
establish huge redevelopment areas and leave the plan in place for decades,
sometimes, before they ever find a developer with a proposal that they find
acceptable. Of course, the declaration of blight itself may have retarded
development, which is a separate question. But where is hasn’t, is it
appropriate for the City to act on the decades old determination of blight and
to ignore the argument that the current state of the property does not support a
blight determination? It’s a tough call, because the cities argue, properly,
that they need latitude to make an intelligent plan with a reliable development
partner. If they run the risk of having to restart their redevelop ment process,
they may be forced into an improvident deal or may not undertake their project
at all. On the other hand, the landowner interests argue that they are entitled
to a real hearing - one that properly evaluates the propriety of tearing away
their private property when they don’t want to sell. Is an ephemeral and
uncertain redevelopment plan an adequate basis to permanently brand someone’s
property as liable for transfer of interests to another private party? Is that
really due process?
Items reported here and in the ABA publications are for general information
purposes only and should not be relied upon in the course of representation or
in the forming of decisions in legal matters. The same is true of all commentary
provided by contributors to the DIRT list. Accuracy of data and opinions
expressed are the sole responsibility of the DIRT editor and are in no sense the
publication of the ABA.
Parties posting messages to DIRT are posting to a source that is readily
accessible by members of the general public, and should take that fact into
account in evaluating confidentiality issues.
ABOUT DIRT:
DIRT is an internet discussion group for serious real estate professionals.
Message volume varies, but commonly runs 5 15 messages per work day.
Daily Developments are posted every work day. To subscribe, send the message
subscribe Dirt [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription, send the message signoff DIRT to the address:
listserv@listserv.umkc.edu
for information on other commands, send the message Help to the listserv
address.
DIRT has an alternate, more extensive coverage that includes not only commercial
and general real estate matters but also focuses specifically upon residential
real estate matters. Because real estate brokers generally find this service
more valuable, it is named “BrokerDIRT.” But residential specialist attorneys,
title insurers, lenders and others interested in the residential market will
want to subscribe to this alternative list. If you subscribe to BrokerDIRT, it
is not necessary also to subscribe to DIRT, as BrokerDIRT carries all DIRT
traffic in addition to the residential discussions.
To subscribe to BrokerDIRT, send the message
subscribe BrokerDIRT [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription to BrokerDIRT, send the message signoff BrokerDIRT
to the address:
listserv@listserv.umkc.edu
DIRT is a service of the American Bar Association Section on Real Property,
Probate & Trust Law and the University of Missouri, Kansas City, School of Law.
Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of
Law, UMKC School of Law, but Professor Randolph grants permission for copying or
distribution of Daily Developments for educational purposes, including
professional continuing education, provided that no charge is imposed for such
distribution and that appropriate credit is given to Professor Randolph, DIRT,
and its sponsors.
DIRT has a WebPage at:
http://cctr.umkc.edu/dept/dirt/
-----
To be removed from this mailing list, send an email message to
listserv@listserv.umkc.edu with the text SIGNOFF BROKERDIRT.
Please email manager@listserv.umkc.edu if you run into any problems.
See <http://www.umkc.edu/is/cs/listserv/unsubscribing.htm> for more information.