e-Bulletin: Supreme Court Upholds Right of Public Agencies to Use Eminent Domain for Economic Development

The United States Supreme Court in a trio of recent decisions upholds the longstanding policy for courts to concede deference to state and local public decision makers in discerning local public needs.  The three cases of Kelo v. City of New London, San Remo Hotel v. City and County of San Francisco, and Lingle v. Chevron U.S.A. Inc, all decided by the Supreme Court within the last thirty days, refine ‘takings’ jurisprudence and represent a major blow to property rights advocacy movements that seek to limit the authority of local governments.

In the anxiously awaited decision of Kelo v. City of New London 2005 U.S. LEXIS 5011 (June 23, 2005), the Supreme Court upheld the City of New London’s integrated development plan which was designed to revitalize its ailing economy.  Previously the center of a whaling industry and later a manufacturing hub, the City began to suffer substantial economic woes with losses of residents and jobs during the mid-to-late 1990’s eventually leading to its designation by the State of Connecticut as a “distressed municipality.”

In response to these significant problems, state and local officials targeted the City for economic revitalization.  Among many other actions, the City adopted a development plan for a portion of the City and authorized its economic development arm to purchase property in the designated area or proceed by eminent domain to acquire the same.  The designated area would then be used for, among other things, private office space, hotels and retail establishments.  The properties within the project area were not blighted or otherwise in a poor condition.

Although the City successfully negotiated purchases of most of the properties earmarked for the project, Susette Kelo and a few other property owners refused to sell their property.  The City then initiated condemnation proceedings.  The property owners argued that the City had no right to take their land except for projects with a clear public use, such as roads or schools, or to revitalize blighted areas.  The property owners claimed that the City was taking their property not for public use, but rather to confer a benefit not upon the public but upon private parties. 

The Supreme Court, in a five to four decision, upheld the City’s development plan as serving a public purpose even if individual private parties also share in the benefit.  According to the Court, “The City has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community, including – but by no means limited to – new jobs and increased tax revenue….Promoting economic development is a traditional and long accepted function of government.”  In upholding the policy of deference, the Court stated, “Just as we decline to second-guess the City’s considered judgments about the efficacy of its development plan, we also decline to second-guess the City’s determination as to what lands it needs to acquire in order to effectuate the project.  It is not for the courts to oversee the choice of the boundary line nor sit in review on the size of a particular project area.”  At least for now, it appears to leave intact California law on eminent domain.

In the unanimous decision of Lingle v. Chevron U.S.A. Inc., 2005 U.S. LEXIS 4342 (May 23, 2005), the Supreme Court further limited the role of courts in determining when legislation constitutes a taking of private property.  In Lingle, the State of Hawaii enacted a statute which limited the rent that oil companies could charge to dealers which lease service stations owned by the companies.  Chevron filed suit claiming the rent cap provision constituted a taking of its property.  Previously, in considering whether a government regulation constituted a taking, courts often applied the “substantially advances” test, which asked whether a government regulation of private property substantially advances a legitimate state interest.  If the regulation did not, the regulation was struck down as an unconstitutional taking.  The Supreme Court, however, held that such an inquiry is not a valid takings test, that it has no place in takings law and is reserved for due process challenges.  In addition, the Court further reiterated that courts are to give great deference to legislative judgments about the need for and likely effectiveness of a regulation.

In San Remo Hotel v. City and County of San Francisco 2005 U.S. LEXIS 4848 (June 20, 2005), the owners of the San Remo Hotel challenged an ordinance which required owners of long-term residential hotels to pay a city fee or provide replacement housing before switching their property to short-term tourist use.  The Hotel owners argued the ordinance, adopted as one way of preserving affordable housing, an issue of grave concern in the City of San Francisco, constituted a taking.  Although the Court did not decide the Hotel owners’ challenge substantively, but rather denied relief based upon procedural grounds, its effect upheld the California Supreme Court’s decision of San Remo Hotel v. City and County of San Francisco (2002) 27 Cal.4th 643, which upheld the development impact ordinance and reiterated that courts should not interfere with a local legislature’s judgment assessing an impact fee where the fee is applied in a nondiscriminatory fashion to a class of property owners.

These three United States Supreme Court decisions will have further implications on how to conduct local planning and condemnation proceedings. We will keep our clients fully apprised as these implications unfold.