September 2007Volume 3, Number 2
Table of Contents

Before You Grab That Property …

By Francesca Jarosz

The timing just wasn't right for Sarah and Robert Hudson.

In November 2003, village officials from Lake Zurich, Ill., met with the Hudsons to tell them the town was interested in purchasing their gray stucco house with a scenic view of the lake and sunset.

The home had been in Sarah Hudson's family for three generations. In 1979, she purchased it from her dad, who had grown up there. She and Robert lived in the house right after they were married. Though at the time they were renting its two apartments, the Hudsons had given thought to retiring there.

"It had been in the family and we wanted to keep it in the family," Sarah Hudson said. "Price was not an issue."

The Hudsons told the village they weren't interested in selling. In response, village officials mentioned their power to file a condemnation for the property under eminent domain, but they didn't think it would come to that.

More than two years later, it did. Today, the lot is only an expanse of light brown dirt covered in rocks and rubble and a sign depicting what will be built there: A five-story retail and condominium complex. After a 15-month legal battle, the Hudsons began to crumble under the costs, which amounted to about $75,000 out of their own pockets. They became the last of the five property owners in the area to give in and settled with the village for $390,000.

"It was like a slow death," Hudson said. "I'd wake up in the middle of the night and I'd just be thinking about this stuff."

The village took possession of their property this past May. It had to be evacuated by the end of June, a month before Illinois Gov. Rod Blagojevich signed a bill enacting legislation to reform the state's eminent domain laws.

Prior to the new legislation, Illinois dealt with eminent domain by case law since there were no statutes in place to regulate it. State Sen. Susan Garrett, who helped sponsor the legislation, said that under the previous system, eminent domain laws were lopsided in favor of condemning authorities.

The new statutes, which go into effect in January, give property owners greater rights by measures such as requiring that land be proven blighted before it is condemned and compensating owners for relocation.

Garrett said the decision to take action came after hearing stories like that of the Hudsons. "For a lot of people, it's just too late," Garrett said. "We acted as fast as we could."

Illinois politicians aren't alone in their haste to act. Since the U.S. Supreme Court issued its decision in the June 2005 eminent domain case Kelo v. New London, legislatures in 31 states have passed bills that range from organizing committees to study their states' eminent domain practices to banning eminent domain for economic development. The legislation has been enacted in 26 states, according to the National Conference of State Legislatures (NCSL). In two states, legislation was vetoed by the governor.

"It's a remarkable response so quickly," said Larry Morandi, director of state policy research for the NCSL.

In Kelo, the court ruled 5-4 that New London, Conn., could use eminent domain to condemn five nonblighted investment properties and 10 nonblighted homes for a waterfront development project designed to bring jobs and revenue to the distressed town.

The Fifth Amendment states that land condemned by eminent domain must be for public use. Under a strict interpretation, that means projects such as parks, roads and hospitals. In Kelo, it means private economic development intended to financially boost a community.

More than a year later, as the gush of legislative action calms to a trickle, activists and more neutral experts on both sides of the eminent domain battle are stepping back to assess how the new measures are affecting each side's chance for victory. Many are calling what's happened post- Kelo a gain for property rights advocates. Others say that despite the tighter restrictions, landowners remain susceptible to eminent domain abuse.

What's clear at this point is that states have taken the Supreme Court up on the invitation issued in the decision to examine and, in many cases, change their eminent domain policies.

"The Kelo court suggested that states could have power as they saw fit. That's what's happening," said Dwight Merriam, a Hartford, Conn.-based land use lawyer who co-edited the ABA publication Eminent Domain Use and Abuse: Kelo in Context.

Many say the measures taking place are an outpouring of the post- Kelo backlash. Alan Weinstein, associate professor of law and urban studies at Cleveland State University in Cleveland, compared the negative response to Kelo to that of Roe v. Wade in 1973.

Cincinnati lawyer Timothy Burke said he's experienced it firsthand. He represented the city of Norwood, Ohio, in Norwood v. Horney, the first major eminent domain case in a state supreme court since Kelo. In the June 2006 decision, the Ohio Supreme Court unanimously ruled that the municipality could not take property for an economic development project. The court also specified that classifying an area as "deteriorating" does not justify condemnation.

Burke said that without the attention Kelo drew to eminent domain, he doubts that Norwood even would have made it to Ohio's Supreme Court. " Kelo hit and the political firestorm erupted," he said. " Norwood's timing couldn't have been worse."

After Kelo was issued, media outlets posted nonscientific online polls allowing readers to share their opinions on eminent domain. One conducted by MSNBC showed 97 percent of about 130,000 respondents said cities should not be allowed to seize homes and buildings for private economic development projects designed to benefit the public. A similar CNN poll showed 66 percent of about 180,000 respondents said the government should never be able to seize private land; another 33 percent said it should only be able to do so for traditional public use.

"Eminent domain is a gut issue that affects everybody," said Morandi of the NCSL. "You're concerned if you think local government can take your property to put up a big box."

Such concern runs high among property rights advocates, who say the Supreme Court went further in its interpretation of Kelo than it had before. Steven Anderson, a lawyer at the Institute for Justice, which represented property owner Susette Kelo in the Kelo decision, said the court had never justified eminent domain use on the basis of "pure, naked economic development" without the condition of blight.

"Everyone's homes and businesses are up for grabs," Anderson said.

But others say the anti- Kelo frenzy is unwarranted in light of the decision's effect. Michael Allan Wolf, who teaches local government and land-use planning at the University of Florida's Levin College of Law in Gainesville, Fla., said the court began expanding its definition of public use 100 years before Kelo.

Wolf and others who argue that Kelo followed precedent point to two decisions in which public use was broadly interpreted.

In the 1954 Berman v. Parker, the Supreme Court ruled against Washington, D.C., department store owners who argued that their store, which wasn't considered blighted, should not be overtaken by a government-commissioned redevelopment project designed to improve the run-down area where the store was located. The court upheld the redevelopment on the basis that it served a public purpose.

In a 1984 case, Hawaii Housing Authority v. Midkiff, the court ruled that it could use eminent domain to take away land from the 72 people who owned 47 percent of the land and redistribute it to other private owners. Through the decision, the court defined public purpose as bringing overall benefit to the market by breaking up an oligopoly.

Merriam, who represents both condemners and the condemned in land use cases, said Kelo caused a stir because of its emotional effect, which was amplified by several well-publicized accounts of eminent domain abuse leading up to the decision. Among them was the Lancaster, Calif., City Council's decision in 2000 to expand the local Costco by ousting a smaller retailer, a 99 Cents Only store.

When Kelo came around, it was the first Supreme Court eminent domain case in which "little people were getting displaced from their little houses so that the government could do a project that was a little selfish," as Merriam put it.

"Because it drew the attention of the average citizen to the eminent domain power of government, it did draw some measurable change," Merriam said.

The change is particularly striking in states like South Dakota, where eminent domain use is now limited to traditional public use projects. No economic development venture will qualify.

The new legislation's sponsors, Rep. Larry Rhoden, majority leader in the South Dakota House, and state Sen. Jim Lintz, said it passed unanimously with support from the state's municipal leagues.

Rhoden said Kelo struck a nerve in South Dakota, where property rights are closely held. "There were a lot of people that were pretty upset," he said. "Legislation was a reassurance to citizens that the same thing wouldn't be allowed to happen in South Dakota that happened in Connecticut."

Other states also are seeking reassurance, though few go as far as South Dakota. Most legislation tackles issues such as limiting eminent domain to "blighted" areas, which, in the strictest sense, are zones that pose a detriment to public health or safety. Other states deal with matters not addressed in Kelo, such as how much a property owner is compensated and how much public notice is given when a property is to be condemned.

Experts on both sides of the eminent domain debate say the legislation will bring about some positive change.

In Connecticut, where Kelo happened, legislation was enacted this past spring to establish a system where landowners have a means of mediating with local governments and can avoid facing the expenses of litigation.

Utah, the only state to use the system currently, has had it in place since 1997, and Craig Call, lead lawyer at the state's Office of Property Rights Ombudsmen, said it's been successful. The Utah Department of Transportation, which acquires more property than any single agency in the state, has seen the percentage of property it has to acquire through court drop from 23 percent in 2002 to 7 percent this year, Call said

David Parkhurst, principal legislative counsel for the National League of Cities, which represents 18,000 municipalities across the country, said it's good that Kelo has brought eminent domain under the light of state examination.

"As a state-derived power, eminent domain is best handled at the state and local level," Parkhurst said. The projected benefits of change are accompanied by more concerns, though.

Merriam said one issue that's been neglected in legislative discussions is the social equity effect of eminent domain. Low-income tenants often suffer serious blows when where they live is taken, since landlords are the ones compensated. "The people most likely to lose their homes are the ones that can't afford it," Merriam said.

Compensation for small businesses also has been neglected. Call said the federal government caps the amount that businesses can be compensated at $10,000, plus moving expenses. That's often not enough to cover hidden costs of relocation, such as re-establishing business reputation.

At the same time, some say states have acted too quickly in their haste to ease constituents' concerns about Kelo. Patricia Salkin, associate dean and director of the Government Law Center at Albany Law School in Albany, N.Y., is heading up the New York State Bar Association's task force on eminent domain. The group examined the definition of public use under New York's constitution as well as bills proposed in New York's state legislature before suggesting policies that should be adopted in the state.

Salkin said legislators need to carefully examine their states' practices before creating new laws. No comprehensive, scientific research has been done to determine how eminent domain is used state by state, Salkin said. These quick reactions can lead to ineffective policy.

"Most (legislators) throw the baby out with the bathwater, and I don't think most of them know exactly what they've done," Salkin said. "They just want to be able to tell voters on Election Day, 'I did something.'"

A big fear even among those who express neutrality on the eminent domain question is that fast-enacted legislation will be overly restrictive.

Merriam said that the most successful redevelopment happens under partnerships between the government and a private developer. Laws that prohibit private development leave the government as the sole developer, which might not be the most effective method. "It's a matter of expertise," he said. "The government may be very good at policing and fire protection but may not be good at providing a development project."

Banning eminent domain for economic development has other damaging effects, some say.

David Barron, a professor at Harvard Law School, who has researched local government and property law, believes that without the ability to use eminent domain for economic development, cities would be forced to pay buyers exorbitant amounts to acquire property.

Economic development projects are necessary, he said, citing the success of ventures such as Baltimore's Inner Harbor and the Dudley Street Neighborhood Initiative in Roxbury, Mass. "Cities don't want to build a lot of highways that lead only to post offices," Barron said.

Burke said the power is particularly important for revitalizing urban centers and inner-ring suburbs. If governments don't have the power to take chunks of land for redevelopment, development projects will take place on tracts of land further from the city, which leads to urban sprawl.

"Developers are not going to look at putting together a lot of different lots," Burke said. "They're going to look up the Interstate at the next vacant farm."

David Snyder, a Philadelphia-based litigator for Fox Rothschild who represents both those condemning property and those whose property is condemned in eminent domain cases, said that, since Kelo, he's seen a general reluctance among federal, state and local governments to use eminent domain unless it's as a last resort. Even a transportation agency, which uses eminent domain for traditional public uses, told Snyder they were concerned about the reaction to Kelo inhibiting their ability to use it.

But experts say that the extent of change that will come as a result of legislation remains to be seen. Morandi of the NCSL said that even in states like Georgia, where some of the toughest legislation has been passed, the statutes might not make much of a difference because eminent domain hasn't been used for economic development to a great extent there.

"Some of the legislation looks very sweeping," Morandi said. "But until you know how eminent domain has been used in that state, you don't know if you're going to get up to that threshold."

Other legislation leaves room for flexibility in dealing with eminent domain, and that has some property rights advocates concerned.

In Oklahoma, a bill written by Rep. Mark Liotta to tighten ambiguity about eminent domain use in the constitution's language failed to pass the legislature. The final vote came after the state's Supreme Court ruled in May 2006 in Board of County Commissioners of Muskogee County v. Lowery that economic development is not a valid reason to use eminent domain in Oklahoma. As a result, many of Liotta's fellow legislators thought stronger constitutional language was unnecessary.

Liotta disagrees. "They closed the door but they didn't lock it — the amendment would have locked it," he said. "There will always be folks that want to take advantage of broadening the public use definition even further. You're always going to have someone pushing the envelope."

Anderson, of the Institute for Justice, said his main concern with much of the legislation is that the definition of "blighted" will be interpreted loosely to justify economic development.

Since Kelo, the Institute's grassroots advocacy group, the Castle Coalition, has tracked both the number of eminent domain condemnations filed for private use and the number of preliminary actions taken to file condemnations for private use. These include steps such as examining an area for blight or stating that eminent domain can be used in an area.

The group gathered information from news stories, public documents and court decisions. Their report, which was released in June 2006, shows that local governments filed 354 condemnations for private use in the year after Kelo, compared with about 3,700 filed between 1998 and 2002, the last period in which they conducted such a study. In the same year, about 5,400 preliminary actions were taken, compared with about 6,600 from 1998 to 2002.

Another survey of about 1,600 local officials drawn from the National League of Cities' database, conducted in March 2006, showed that 76 percent of about 500 respondents reported that they have not used eminent domain in the past three years in connection with an economic redevelopment project. However, 87 percent of the same group said they would not delay an eminent domain project because of the Kelo outcry.

For property-rights advocates, that 87 percent helps drive home a fear of what they consider misuse of eminent domain. Regardless of legislation, they say that fear has been amplified since Kelo.

"As a rule, governments tend to look out for themselves," said Rhoden, the South Dakota representative. "If it's in the best interest of governments to use eminent domain for economic development, then I'm afraid they might use it to the abuse of citizens."

That's a big concern in Lake Zurich, where Illinois' new legislation has done little to curb some residents' fears that the Hudsons' property may not be the last one condemned under eminent domain. In house after house on the two streets near the sparkling waterfront, residents display signs in their windows that say, "Eminent domain abuse," with the words circled and slashed through.

These homes are in the three-block area that the town in 2002 made into a Tax Increment Financing (TIF) district, in which redevelopment is funded by the future tax revenues it will generate. In Illinois, an area must have a set of blight factors, which range from excessive vacancies to inadequate utilities — such as storm sewers — to become a TIF district. The Hudsons' home, also part of the TIF district, was eligible because of concerns with the structure of a stairway, blocked exits and its use for two apartments even though it was a single-family home, said John Dixon, Lake Zurich's village administrator.

Dixon said because the three-block area qualifies as a TIF district, village officials believe it would meet the new blight standards required to use eminent domain under Illinois legislation. And the village might need to use that power to carry out its redevelopment plan expanding the number of retail outlets and condos in the area, though Dixon said he doesn't anticipate it. He added that the village board decided it will not use eminent domain to take property occupied by its owners.

But that decision didn't help Sarah Hudson, who compared the July 9 demolition of her rental property to an "execution in the public square." She owns another property on a stretch of lakefront land that the village has agreed not to condemn, but she's still fearful. She's been distrustful of the village since her first struggle.

"Eminent domain was a threat, but I never thought it would come down to that," Hudson said. "I was wrong."

Francesca Jarosz is a senior at Northwestern University's Medill School of Journalism in Evanston, Ill.

Originally appeared in Business Law Today, Volume 16, Number 3, January/February 2007. Reprinted with permission.

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