Daily Development for Friday, February 11, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

EMINENT DOMAIN; PUBLIC PURPOSE: Regardless of the rationale for a condemnation, if its effect is to benefit a single developer's specific project, it may be set aside as lacking a sufficient public purpose.

Casino Reinvestment Development Authority v. Banin, 320 N.J. Super. 342, 727 A.2d 102 (Law Div. 1998).

Case law is clear that property can be condemned by a public authority and transferred to a private entity if the condemnation is in furtherance of a valid public purpose. Where, however, a condemnation is commenced for an apparently valid purpose, but the real purpose is otherwise, the condemnation may be set aside. Generally, when the exercise of eminent domain powers results in a substantial benefit to specific and identifiable private parties, "a court must inspect with heightened scrutiny a claim that the public interest is the predominant interest being advanced."

In this case, the parties objecting to a condemnation as invalid argued that the underlying purpose of the condemnation was not to support a casino hotel development project which was authorized by applicable statutes and regulations, but that the condemning authority's primary intent was to benefit a particular developer by using the hotel development project as a pretext to that end. The Court found that although the objectors referred extensively to benefits received by a particular developer from the condemnations, those benefits did not necessarily lead to the conclusion that the condemning authority acted in bad faith or used the hotel development project rationale as a pretext. The Court found that the very nature of such a project necessarily would result in a casino hotel operator receiving substantial benefits.

In support of the validity of its condemnation proceeding, the condemning authority asserted that the following public benefits identified by the Legislature were consequences of the project: (1) the development of additional hotel rooms in Atlantic City dedicated to housing conventioneers using the new Convention Center: (2) redevelopment of a portion of the "Corridor Area"; (3) the construction of additional parking; (4) the alleviation of traffic congestion in the Corridor Area; (5) establishment of green space; (6) creation of a new permanent hospitality industry jobs and shortterm construction industry jobs; and (7) promotion of the tourist and convention industries.

The objectors, however, asserted that the consequences and effects of the condemnations were quite different. They stated: (1) the developer maintained discretion to determine how the property would be used once title was transferred to it; and (2) the vague language in the transfer documents only stated that the developer must maintain the intended use for a "reasonable time." In essence, its argument was that if the condemning authority acquired the properties in question by condemnation and then conveyed them to the developer, there would be insufficient assurances that the developer would be bound to use the properties for the public purposes for which they were acquired. This was important, because the failure of such assurances would result in a primarily private rather than public benefit which could not justify the condemnation actions.

The Court was satisfied that there were no disputed issues as to material facts. Although the Court had previously been concerned as to what the parties considered to be a "reasonable period of time," it was satisfied that the "reasonable period of time" could be determined by the condemning authority if necessary at some future date, subject to challenge only if the condemning party was not reasonable in its determination.

Nonetheless, the Court was dissatisfied with the condemning authority's explanation. It found the condemning authority's rationale to be overbroad. To it, the properties were being acquired for a specific hotel development project. In fact, the condemnation project did not begin as many redevelopment projects do, with the public agency identifying and putting together an assemblage of land in order to attract a developer. The project was proposed by a specific developer who already owned or controlled most of the land. All of the significant construction was to be done on land already owned or controlled by the developer.

In the Court's view, although the condemning authority did not suggest that the reason for acquiring these properties was to facilitate an assemblage of real estate by the developer for future hotel expansion, that was exactly the consequence and effect of the condemning authority's actions. Also, although the funding legislation passed by the Legislature emphasized the immediate development of hotel rooms because of the anticipated opening of a new convention center, the condemnation actually was designed to allow the developer to use the land to expand its casino hotel at a future time of its choosing. In the Court's view, this would achieve a result not sanctioned by the Legislature. Therefore, the Court rejected the condemnation.

Comment 1: That's right, you just read about a case where a court actually concluded that a proposed "public purpose" condemnation went to far in that the condemning did not adequately insure that a public benefit was being pursued. This in a state that has already concluded that the building of a private, forprofit, hotel is a "public purpose!"

Comment 2: Cases such as this are few and far between, and usually result from clumsiness on the part of the agency in laying the proper foundation of findings and declarations preliminary to the project. In this case, it appears that the agency was under some pressure to build its findings around an already existing private project, which of course makes the situation a little more difficult. But most redevelopment projects are built around failed efforts at nonsubsidized development.

Comment 3: Except when they are helping their own developer clients dip into the trough, most real estate lawyers likely would admit to some bewilderment about the distinction between "private" and "public" in today's era of "partnerships" with local government. Everyone can agree that some public assistance is necessary in outdated downtown neighborhoods to sweep out the detritus of years of failed public planning policy and competitive out of town development. But there is a line to be drawn here, and perhaps it is wise to permit the courts some discretion (read in "vagueness of policy") to beat down really egregious abuses designed to benefit favored parties when they think they see em.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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 ‑ 10 messages per workday.

Daily Developments are posted every workday.

To subscribe to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Dirt [your name]

To cancel your subscription to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Dirt

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 an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Brokerdirt [your name]

To cancel your subscription to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Brokerdirt

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://www.umkc.edu/dirt/