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?

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