• 19 March 2009

Not So Private Takings: A Response to Abraham Bell’s Private Takings

Richard A. Epstein - New York University Law School

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Abraham Bell’s instructive article begins with his conscious decision to distance himself from the “popular firestorm” that greeted the Supreme Court’s 2005 decision in Kelo v New London.1 In so doing, however, he reveals a tin ear to the public protests, which contain much good sense. As one author who has stoked that firestorm, I think that it is important to explain why the popular perceptions outpace the ingenious economic arguments that are said to weigh so heavily in support of the Court’s Kelo decision. In order to do so, however, it is critical to set Kelo in its larger context of the history of the Takings Clause. On this point, it is wise to do something that Bell neglected, which is to set out the text of the Takings Clause—it’s short, I promise. This will help to understand which private takings are consistent with its structure, which are not, and which fall in an uneasy land in between. Thereafter, we can turn first to the historical evolution of the public use doctrine, and then to Kelo itself and its implications going forward.

 
I.
Public Use versus Public Ownership

And so we begin:  “[N]or shall private property be taken for public use, without just compensation.”2  Of the boundless interpretive issues that arise, one indisputable point of direct relevance to Bell’s article is that “public use” is not synonymous with “public ownership.”  It follows therefore that there can be takings for public use that result in private ownership. The trick is to identify these cases, and explain why they make sense. To see how this works, it is useful to tie the public use issue in takings law to the general law of common carriers. This general law has been frequently discussed under the elusive rubric, drawn from Sir Matthew Hale, of “property affected with the public interest.”3 Hale’s view, which came to dominate, held that it was proper to subject property affected with the public interest to regulation on the key issues of access and rates.

These two venerable phrases, both of which contain the word “public,” are linked together in an instructive way. The public use for which condemnations are unambiguously allowed are those condemnations, as Bell notes, that are done for the benefit of, or at the instance of, railroads and grist mills. Historically, these institutions typically had an obligation to serve all comers at reasonable and nondiscriminatory rates, precisely because they exercised monopoly power owing to their strategic locations. The condemnations were routinely allowed in large measure because the assembly problem of which Bell speaks is much more acute with respect to these activities over which an entrepreneur has limited locational choice. As the Mill Act cases of the last third of the nineteenth century4 make clear, only so many dams can be spaced along the river, and each of them has to flood farmland owned by many separate parties.5 And the assembly problems faced by the long and skinny railroads that have not received government land grants present the holdout problems to which Bell rightly refers.

Yet there is a second side to this issue. Once the assembly is completed with the eminent domain power, the rules governing property affected with the public interest allow for state regulation to control monopoly power. An essential portion of that program was access to the public at large. The two parts of the picture thus worked hand in hand. The private owner has to make his property available for public use. The Clause is well drafted not to require public ownership, which would have the horrific consequence that all railroads, mills, electricity companies, and so on, which relied on public condemnation, would have to be state-owned. Think what one may of the various systems of regulation; usually they beat total nationalization hands down, if only because they face the risk of erosion through technological changes.

 
II.
The Historical Evolution of Public Use

So far Bell has to be right in insisting that private takings have long been an essential portion of the legal landscape. But it is a giant leap to assume that Kelo and its progeny represent an orderly continuation of a development that has a strong constitutional and historical pedigree. In fact, the historical evolution of the public use doctrine leading up to Kelo shows the poverty of its internal analysis.

As Bell rightly notes, the two related notions that mark this first generation of private-ownership public-use cases are a combination of holdout and necessity. The key question is whether those grounds are sufficient to justify a government taking for private use when the ultimate party is not an industry affected with the public interest, bound by some obligation of universal service. The early twentieth-century cases were grudgingly uneasy about this point, but in the end they relented so that private easements of necessity in difficult terrain could be granted to parties who would otherwise be at the mercy of a few nearby landowners. The owner of scrubland must be forced to surrender an easement so that the owner of a mine—whose assets are not mobile—can reach a railroad track that is built after the mine is put into operation. The doctrine here is in more evident tension with the text, but the outcome is justified on the ground that holdouts and externalities are the two greatest weaknesses of voluntary markets. Thus, the coercive power of the state should be allowed to overcome the former, so long as it does not wipe out the property interests of the servient tenement, who is of course protected by the just compensation requirement.

Putting the problem in this way shows historically that the class of private takings was not infinitely expandable. On the other side of the line would be taking land from one person and giving it to another when no holdout or assembly problem was involved at all. Yet that is precisely the movement that started in the 1930s when the advocates of public housing started insisting that they raze neighborhoods in order to make way for large, forbidding projects that looked more like fortresses than homes. Here it is, to say the least, bad policy to engage in these massive forms of social intervention, especially since there is no reason at all to build huge government housing projects that are destined to become the slums of the next generation. Such large-scale government interventions have largely been abandoned today. Under a sensible public use requirement, it would never have been tried.

The giddy optimism of New Deal judges brushed aside the carefully circumscribed extension of public use congenial to classical liberal judges. So while the public use requirement could not prevent Robert Moses from laying waste to neighborhood after neighborhood for cross-town highways, it could have stopped construction of massive housing projects. Unfortunately, the planning movement reached its zenith in 1954 in Berman v Parker,6 where Justice Douglas, in celebration, signaled that the courts were getting out of the business of superintending local planning authorities,7 to borrow a phrase, “with all deliberate speed.”  He was therefore all too happy to allow the local Washington, DC planners to throw an owner out of his department store on the ground that his neighborhood was blighted, even if his store was fine. What misplaced faith in land use planning!

 The trend accelerated in 1984 with the decision in Hawaiian Housing Authority v Midkiff,8 when Justice O’Connor uttered a word that she came to truly regret (but not entirely repudiate) in holding that any “conceivable” public purpose would do.9  One such purpose was counteracting the supposed oligopolistic tendencies in Hawaiian land law, when the real villain was Hawaii’s insanely restrictive zoning ordinances that kept new housing units from coming online. So in Midkiff the law moves from overcoming the bona fide blockade to blessing a carefully staged play in which a tenant could condemn his landlord’s interest in real property at the end of a short-term lease, so long as he put the money in escrow with public authorities before they pulled the trigger. The public, of course, just shrugged at this version of strong-arm behavior because no one cared about large companies that lost their reversionary interests. If anything, they probably cheered on the state for helping the little guy.

 
III.
At Last Kelo

Kelo is of course worlds apart from Midkiff in the popular eye. Unlike the earlier decisions, the wise elders of New London targeted ordinary people for eviction from their homes for the sake of a real estate project that was misconceived from the start. That is a theme to which populists can easily relate, because it is easy to condemn developers when all the hanky-panky was done by public actors. The key analytical question, however, asks how the facts of Kelo match up with the extended holdout rationale that Bell locates at the core of modern takings laws. Badly in fact: Kelo did not present any holdout question at all. Ms. Kelo was a modern day Greta Garbo: all she wanted was to be left alone, which is why throughout her long ordeal she posted a “not for sale” sign in front of her property.

Ah, the answer may come, this was just a way to play the holdout game at its highest. Not really. To play the holdout game a landowner has to have some leverage over a developer that wants to put up an integrated project. It is for that reason that eminent domain powers are often invoked in order to erect athletic facilities like the approved misbegotten arena at Atlantic Yards in Brooklyn.

Unfortunately, the vaunted planners in New London were, and to this day remain, the gang that could not shoot straight. They had no idea what use they wanted to make of Ms. Kelo’s house on the periphery of their site. Indeed, they had no plans to fill up the empty contiguous lands that they had acquired from abandoned government projects in transactions that had no eminent domain source at all. Justice O’Connor generated lots of hurrahs when she protested that after Kelo,  ”[n]othing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.”10 We should be so lucky. Unfortunately, the Ritz-Carlton was never in play in Kelo. The true disgrace of public governance is that the city replaced a perfectly serviceable home with nothing at all—which is why Ms. Kelo’s site stands vacant to this day. The empty land stands in mute tribute to the fancy efficiency justifications for Kelo. Mark Moeller and I were not proud in the amicus brief we wrote in Kelo. We urged the Supreme Court to take the low visibility road of delaying the taking of the houses until the City of New London could figure out what to do with the vacant land. But it did not work out that way in part because the City must have felt pressure to spend the huge state subsidy it received for running the project. There was no “bargaining flaw” to correct in Kelo—just an ill-conceived bailout.

Nor should we take comfort in thinking that we can actually generate consistent revenue if a local government can gobble up whatever land it wants. Justice O’Connor made clear her distaste of takings executed for revenue enhancement purposes11 (a position that the Michigan Supreme Court took in 2004 in Wayne v Hathcock,12 which reveals a far more prescient attitude on eminent domain). She could have added that the City’s revenue gambit really won’t work. Sure, it may increase the revenue in the short term, but the live specter of strategic condemnations will lead other landowners to hold back on customized improvements that could easily be condemned for a “market” value that is far lower than their customized value to the owner. Who needs to stifle development in all cases to condemn some parcels of land in a few?

 
IV.
Conclusion

In fact, the efficiency case is one that speaks strongly to the stability of property rights, which means that we should go easy on eminent domain even when there is a bona fide public use. Bell makes reference to notion of “pliability rules,” which, in essence, allow local governments to mix and match injunctive relief for landowners with compensation for their losses. No doubt some cases will call for the application of both remedies. But by taking a leaf from the work of Calabresi and Melamed,13 Bell repeats their mistake of thinking that local governments should be free to mix and match these remedies at will. That is not a good idea. In general, the right impulse is to stick with strong ownership rights except when there are real holdout problems for the construction of public projects. Shopping malls and housing projects need not apply, for while individual developers may have grandiose ambitions, others are willing to work on a small canvas that permits voluntary assembly. Some affirmatively want to steer clear of the fancy plans of Michael Heller, Rick Hills, Amnon Lehavi, and Amir Licht, which propose allowing individual developers to file area-wide development plans on whatever scale they see fit, so long as they give public notice to the world so that other bidders can join in the fray.14  This is all too clever by half. There is enough hysteria in the air now. What we need is a set of public reassurances that the adventurism in Kelo will not be repeated so that good people can sleep well at night.dingbat

 

Acknowledgments:

Copyright © 2009 University of Chicago Law Review.

Richard A. Epstein is James Parker Hall Distinguished Service Professor of Law, University of Chicago Law School.

  1. 546 US 469 (2005).
  2. US Const Amend V.
  3. Lord Chief Justice Hale, De Portibus Maris, in Francis Hargrave, ed, A Collection of Tracts Relative to the Law of England 45, 77-78 (T. Wright, et al 1787) (observing that a public utility, such as a seaport crane, should be subject to reasonable rate restrictions).
  4. See generally, for example, Head v Amoskeag Manufacturing Co, 113 US 9 (1885).
  5. See id at 26 (upholding a statute that allowed a private mill owner to flood nearby lands, on the basis that the public has an interest in exploiting the power of running water, and noting that the statute does not allow new mills to be a “detriment” to existing mills).
  6. 348 US 26 (1954).
  7. Id at 35-36 (“Once the question of the public purpose has been decided, the amount and character of land to be taken for the project and the need for a particular tract to complete the integrated plan rests in the discretion of the legislative branch.”).
  8. 467 US 229 (1984).
  9. Id at 241 (“But where the exercise of the eminent domain power is rationally related to a conceivable public purpose, the Court has never held a compensated taking to be proscribed by the Public Use Clause.”).
  10. Kelo, 545 US at 503 (O’Connor dissenting).
  11. Id at 501 (O’Connor dissenting) (expressing concern that allowing takings predicated on revenue enhancement, job growth, or esthetics “realistically” eviscerates the public use requirement).
  12. 684 NW2d 765 (Mich 2004).
  13. See Guido Calabresi and A. Douglas Melamed, Property Rules, Liability Rules and Inalienability: One View of the Cathedral, 85 Harv L Rev 1089 (1972).
  14. See generally Michael Heller and Rick Hills, Land Assembly Districts, 121 Harv L Rev 1467 (2008); Amnon Lehavi and Amir Licht, Eminent Domain, Inc, 107 Colum L Rev 1704 (2007).

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