• 27 November 2009

Preventing Real Takings for Imaginary Purposes: A Post-Kelo Public Use Proposal

William A. Curran - J.D. '09 New York University School of Law

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By allowing the condemnation of private homes to make way for a “more attractive” private development, the U.S. Supreme Court in Kelo v. City of New London1 roused the fury of the libertarian legal academy and much of the public.  In Kelo, the Court held that a plan for private economic development adequately justified the condemnation of fifteen private parcels.   The focus of the criticism was the private nature of the project that justified the taking.  Indeed, many have called for the elimination of takings for private economic development such as that in Kelo, arguing that these takings are not “public” enough to be permissible under the Public Use Clause of the Fifth Amendment.2 However, a ban on takings for private economic development was explicitly rejected by the Court in Kelo, and it would be overinclusive anyway, as it would prevent some socially beneficial takings.

A more narrowly tailored way to protect property rights in the context of takings for private economic development focuses on the word “use” rather than the word “public” in the Fifth Amendment.3 Instead of requiring that takings be proposed for a purpose more “public” than private economic development, I would require that land taken for private economic development actually be used for the claimed public purpose.

My proposal would address two troubling aspects of current takings law.  First, current law allows for the taking of private land without assurance that a public benefit will ever be realized, such as with a taking justified by a development plan.  When the Court approves such a taking based on the public benefit promised by the plan, the owner has no remedy even if the proponent of the plan abandons the project and the public purpose is never realized.   This possibility has become reality in the aftermath of the takings at issue in Kelo.  Not only has no development occurred on the taken land, but Pfizer Inc. announced on November 9, 2009, that it will close the New London research facility that the development planned for the taken land was internded to complement.4 There is no prospect of public benefit being achieved on the taken land, and the former property owners have no claims.

Second, current law creates incentives that encourage inefficient takings, by which I mean takings where the political and legal costs are greater than the public benefit achieved.  These occur, at least in part, because the Court’s failure to require actual public use of taken land allows for takings based on exaggerated public benefits.  The following stylized analysis illustrates how the interaction between a government and a private developer seeking a taking leads to condemnations based on misinformation.


I.
The Problem of Inefficient Takings: A Simple Model

The process of taking land starts with a proponent, who I assume is a private developer.  After failing to convince a landowner to sell a parcel, the proponent proposes to a government that the land in question be taken via eminent domain.  The government responds by asking what public benefit will justify the use of this power.  The developer is unsure of the public benefit of the project, but she knows she needs the land to proceed and that current law will not force her to provide whatever public benefit she promises.  Additionally, the developer does not know how much benefit the government wants for the taking, and she wants to avoid underbidding.  The developer thus has every incentive to exaggerate her estimate of public benefit.

But why would the government accept these exaggerated claims of public benefit?  First, the government may actually believe the claims made by a private proponent, accepting them based on wishful thinking.  Officials, presumably feeling they have little to lose, may be willing to embrace exaggerated claims in hopes of fostering optimism and change.

Second, government officials may not be pursuing the public interest single-mindedly.  Instead, they may take their self-interest as well as the public interest into account when considering a proposed condemnation.  Government officials reviewing a request for a taking might be willing to embrace an implausible public benefit estimate for a number of self-interested reasons.  For example, officials concerned about their prospects for reelection might encourage development regardless of its likelihood of success so that voters will see them as taking action to address widely publicized problems such as urban blight.  After all, voters will not know the plausibility of the projects in the short term.  Another self-interested reason that government officials might accept inflated public benefit claims would be to garner political support from powerful interest groups, which could provide campaign financing and loyal constituents.


II.
The Solution: An Actual Use Requirement

My proposal solves this inefficient takings problem by focusing on changing the behavior of private actors while also making condemnees whole.  By forcing private developers to substantially deliver on their promises of public benefit or pay damages severe enough to deter, an actual use requirement would make real the imaginary currency of public benefit.  A developer would carefully consider all elements of a proposal that claims to yield a certain public benefit because she would be committed to substantially completing that proposal.  Completing an element of the plan that was supposed to provide a benefit—a hotel that would employ 100, for example—would be extremely expensive if the market could not support the element (for example, if demand for hotel rooms proved inadequate).  Thus, the developer would no longer have an incentive to exaggerate.

With an actual use requirement, the proponent would approach the government with an accurate estimate of the public benefit.  The public-minded government then could compare the condemnation cost with the public benefit using accurate information and make a good-faith takings decision.  The respective roles played by the legislative and judicial branches would not change, but each party would be better able to fulfill its current role because it would have more complete information.  A political branch remains empowered to make the political decision of how to expend public resources by taking land.  This is important not just because the Supreme Court demands it,5 but because the legislature, with its closer ties to the community in question and greater access to expert planners, is better positioned to evaluate a proposed development than the courts.


III.
The Remedy for Inefficient Takings

A fairly simple remedy would serve to deter inefficient takings.  When the public purpose that originally justified a taking is not substantially realized, the land must be returned to the condemnee, if practicable, in exchange for the compensation originally paid for the taking, and the condemnee must get damages to compensate her for the inconvenience of being forced from her property, as well as mental and emotional damages.

Unfortunately, the first part of this remedy—the return of condemned land in exchange for the original just compensation—will often be impracticable.  If the condemnee does not discover the development is falling short of its proclaimed purpose until the site of her former home has become a putting green, she cannot simply seek an injunction ordering the return of her home:  To issue an injunction would be disproportionate or wasteful.  Meanwhile, the condemnee may have moved to another city and no longer desire to return to her home years after being removed from it.  To account for this reality, condemnees would also have the option to keep the just compensation and only sue for the additional damages.

The damages component of this remedy is derived from remedies in tort where the cause of action arises under the Constitution.  Constitutional torts generally are awarded like common law torts, with damages designed to compensate for the injury resulting from the violation of a constitutional right.  Here, damages would total the amount necessary to compensate the condemnee for being forced from her property for a period of years, and they would in many cases include a significant emotional distress element.  Awards would vary case by case.  For example, a large emotional distress award might be appropriate in the case of someone like Wilhelmina Dery, the 91-year-old New London resident forced from the home of her birth by the Kelo taking.  However, a lesser award with no emotional damage component would be appropriate if a vacant lot had been taken.  This flexibility would partially compensate condemnees for subjective value, something not achieved by any current remedies.


IV.
The Trigger for the Actual Use Remedy

The development plan used to justify a taking would determine whether the actual use remedy is triggered.  The development plan already plays a key role in takings law:  When the Supreme Court approves an economic development taking, it does not rule that a certain public benefit justifies taking private land but rather that a development plan promising some benefit does.  To ensure the benefit promised by the plan is realized, an actual use requirement recognizes a condemnee’s continuing interest in her property until the public benefit laid out in the approved development plan is substantially achieved.  If the plan justifies the taking, then it should be the substantial achievement of the benefit promised by the plan within the time frame of the plan that extinguishes a condemnee’s right in the property.  Essentially, an actual use requirement treats a taking for economic development by a private party as contingent upon completion of the justifying development.

Requiring developers to follow through substantially on the justifying development plan is important for several reasons.  First, it provides an affirmative guarantee that a public benefit will be achieved from the taking.  Current statutory and contractual guarantees generally only prevent developers from straying from the plan justifying a taking; they do not require them to actually fulfill the plan.

Second, the plan sets the physical and temporal standards that must be met to prevent a taking from being unconstitutional.  Once the plan is fulfilled in good faith, the Fifth Amendment’s demands are met.  The plan’s success would be measured by the completion of its physical goals, such as building a 350-room hotel within a certain time frame.  The completion of the development plan, in most cases, should serve as an adequate proxy for the public benefits the plan will create.  A rational developer would be unlikely to expend the resources to build a facility with capacity it did not believe it could utilize.

Developers also would be free to sell the property they received by a taking.  However, the sale would be subject to the development plan that justified the taking; the constitutional right of condemnees would run with the land and plan, allowing condemnees to press their claim against the new developer.

Finally, the plan would control the timing of the constitutional right.  Development plans set out time frames for the achievement of the public benefit they promise.  The substantial achievement of this public purpose within the promised time frame would extinguish condemnees’ constitutional interest in the land, in effect ending the contingency of the transfer.  However, it bears emphasizing that actual use calls for substantial and not complete compliance with the development plan.  This is essential to provide courts and developers with the wiggle room to prevent wastefulness when complete compliance becomes impractical for unforeseen reasons despite the good faith efforts of the developer.  Whether a project is substantially complete would be a case-by-case inquiry.


V.
Responses to Possible Objections

The temporal element of my proposal could inspire objection.  A critic could argue that extending the possibility of suit until a public purpose is achieved would lead to uncertainty for governments and developers, waste for society, and headaches for the courts.  Developers and governments seeking only fair profit and the public good could end up having to pay damages if a well-intentioned project fails for reasons beyond their control.  Meanwhile, courts might have to confront the same parties multiple times as condemnees presented new challenges.

Regarding uncertainty, there is no question an actual use requirement would add to the risk faced by proponents and governments.  This risk is not unfair, however, because these parties would be aware of it before taking the land.  Among the many factors a developer would want to consider when proposing a taking would be whether the project would be worthwhile even when discounted by the remote possibility of a catastrophic event.  The proponent would only seek takings with benefits so large that they justify the risk.

In the event that a developer did seek and win approval for a taking, one could argue that forcing the developer to finish a project in the face of more socially advantageous alternatives would be wasteful.  However, an actual use requirement would permit solutions commonly used by businesses to deal with this situation, such as efficient breach.  A developer might very well opt out of her development plan if other opportunities were lucrative enough.  Of course, given the expense of the actual use remedy, breach would be efficient less often than under a standard contract.  But developers engaging in takings under an actual use regime would be well aware of the damages they face and thus would weigh this risk when considering whether to take on a project.

Moreover, an actual use requirement is not intended to provide a business environment on par with one that does not require the government’s coercive power to take land.  Rather, it is intended to protect constitutional property rights by giving developers the incentive to provide governments with accurate information on which to base their takings decisions.dingbat

 

Acknowledgments:

Copyright © 2009 New York University Law Review.

William A. Curran received his J.D. from New York University School of Law in 2009.

This Legal Workshop Editorial is based on Mr. Curran’s Student Note: William A. Curran, Preventing Real Takings for Imaginary Purposes: A Post-Kelo Public Use Proposal, 84 N.Y.U. L. REV. 1656 (2009).

  1. 545 U.S. 469, 474 (2005).
  2. U.S. CONST. amend. V.
  3. Id.
  4. See Eric Gershon, Pfizer Inc. Plans to Vacate its R&D Center in New London, HARTFORD COURANT, Nov. 10, 2009, http://www.courant.com/business/hc-pfizer1110.art0nov10,0,1659147.story (reporting Pfizer announment); Patrick McGeehan, Pfizer to Leave City that Won Land-Use Case, N.Y. TIMES, Nov. 12, 2009, http://www.nytimes.com/2009/11/13/nyregion/13pfizer.html?_r=2&hp (discussing bitterness of former property owners whose land was taken for development intended to complement Pfizer facility).
  5. See Kelo, 545 U.S. at 469, 482-83 (emphasizing deference given to state and local governments to determine local needs in takings jurisprudence).

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