Daily Development for Tuesday, February 24, 2009
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

CONSTITUTIONAL LAW; POWER TO CONDEMN; “PUBLIC PURPOSE” REQUIREMENT: Where a private company, working with a public utility, has leased land for purposes of constructing a power plant, the utilities subsequent condemnation of the leased land does not serve a public purpose, since the utility already had use of the land through arrangements with the lessee, and the only result of the condemnation was to eliminate the rental obligation of the lessee to the condemnee. 

Steel Los III, LP v. Power Authority of State, 864 N.Y.S.2d (Supp. 2008). 

In the period from 2003-2004, the Long Island Power Authority ("LIPA"), which provides electricity to people in parts of New York State, determined that due to "drastic energy needs" anticipated for the summer of 2005, a fast track project involving the construction of additional power plants was necessary.  Petitioners were the owners of  approximately one million square feet of property in Bethpage, New York.  Calpine Corporation ("Capline"), a developer of power plants and a power producer, was ultimately awarded a contract by LIPA to construct a power plant and Calpine also entered into a 35-year lease for a portion of Petitioners' land.  Under the lease, the lessee was to make annual rent payments to Petitioners starting at $430,000 in 2004.  In order to successfully carry out the fast track project necessary for power production in the summer of 2005,

LIPA sought the assistance of  Respondent, the Power Authority of the State of New York ("NYPA") because NYPA has the ability to supersede all local authority and issue building permits and certificates of occupancy.  From the outset, NYPA planned to acquire fee simple title to Petitioners' land, believing that "ownership of the land was the key to unfettered control" and "landlord/tenant relationships … of the power plant site would not work." 

Despite numerous discussions in which Petitioners tried to explore possible alternatives to acquisition of their land, NYPA exercised its power of eminent domain and ultimately acquired Petitioners' property in April 2003.  Petitioner appealed, and here the Court cited the rule that  a governmental body may only acquire by eminent domain fee title to real property for authorized "public use," and not for the primary purpose of conferring a private benefit onto a particular private party.  Here, NYPA's taking of Petitioners' property did not foster any benefit to the  public beyond that which had not already been obtained by Calpine's leasing of the Petitioners' property.  Because the primary effect of the taking was to eliminate the obligation of Capline, a private party, to pay rent under the lease, the taking was unauthorized.

Comment: Obviously the public utility had very different ideas about whether it is practical to have a two-tier leasing arrangement with the underlying owner a private party not in an ongoing joint relationship with the utility.  It strikes the editor that breaking up this arrangement was a sound enough business decision for a court to accept.  Not so.  Another “kick back” against Kelo?

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