Cities Often Misapply
Eminent-Domain Rule
By DEAN STARKMAN
Staff Reporter of The Wall Street Journal
From The Wall Street Journal Online
In the clash of eminent domain and private property, courts are sending
cities a message: Enough.
Under the right of eminent domain, a government can take private
property for "a public use," the U.S. Constitution's standard for all
takings. Cities, however, have increasingly used their power of eminent
domain to transfer property from one business to another in the name of
redevelopment, and they have done this by stretching the definition of a
public use to include everything from bridges and highways to speedways,
casinos and BMW dealers.
For years, courts deferred to municipal judgment in such matters. But in
more than a half-dozen recent rulings, state and federal courts have taken
a harder look at what exactly constitutes a public use and begun to set new
limits on cities' power. Among the cases in which courts found that cities
had gone too far:
A Pennsylvania appeals court in February
blocked the condemnation of a steel-fabrication plant for a hotel-office
developer on the ground that a local redevelopment authority had improperly
delegated its public powers to the developer. A federal judge in Manhattan issued a
temporary order in February blocking Port Chester, N.Y., from condemning
rental property in favor of a grocery-store parking lot under a state law
that allows a newspaper ad to serve as notice to owners that their property
could be taken. The Mississippi Supreme Court in May
issued a stay blocking condemnation of a huge tract to make way for a
Nissan Motor Co. plant, saying
that redevelopment authorities may be taking land "substantially in excess
of the immediate needs of the public use."
"What you're seeing is courts finally setting some limits to the
exercise of eminent domain," says David L. Callies, a professor of property
and land-use law at the University of Hawaii law school. Mr. Callies, who
as a lawyer has represented both government agencies and property owners,
adds: "They're saying, 'OK, if you've got a redevelopment scheme, we'll
probably buy that. But we're not going to buy your virtually turning over
the power of eminent domain to the private sector.' "
The recent rulings may amount to just the beginnings of a backlash, but
they mean that what was once an unquestioned power is now in doubt -- a
change that could affect the thousands of takings cases filed around the
country each year, particularly those related to redevelopment. In
California alone, for instance, cities and redevelopment authorities filed
1,090 eminent-domain cases last year.
A recent case in Lancaster, Calif., a city of 130,000 about 45 miles
from Los Angeles, offers a closer look at the new judicial scrutiny.
The City Council there voted last year to condemn space in a shopping
center occupied by 99 Cents Only Stores to make way for the expansion of
the discounter's bitter rival, Costco
Wholesale Corp., the mall's anchor. Costco had operated in the
mall for almost a decade before 99 Cents Only opened a store there in
1998.
"Almost immediately" after its rival opened, Costco told the city it
needed to expand, according to the ruling in the case by U.S. District
Court Judge Stephen V. Wilson, in Los Angeles. Costco, based in Issaquah,
Wash., demanded the 99 Cents Only space and threatened to move to nearby
Palmdale if it didn't get it, the judge wrote. Ultimately, City Manager
James C. Gilley informed 99 Cents Only officials they would have to leave.
In June 2000, city officials voted to condemn the 99 Cents Only site.
Costco officials couldn't be reached Friday. Last month, Joel Benoliel,
the company's chief legal officer, said the company wasn't a party to the
case and had no "continuing interest" in it.
99 Cents Only, a 110-store discounter based in City of Commerce, Calif.,
sued in Los Angeles federal court last July, arguing the city had sought
the property merely for Costco's private benefit and thereby violated 99
Cents Only's Fifth Amendment rights.
In December, two months before a scheduled trial, the city voted to
rescind the condemnation votes, saying other tenants had opposed Costco's
expansion plans. But 99 Cents Only, concerned the retreat was merely a
ploy, pressed ahead, seeking a permanent order barring the city from taking
its property to convey it to Costco.
In court papers, the city argued that the case was moot. In any case,
the city said, it had the right to the property because the site had been
declared "blighted" back in 1983, before the center was developed, and
could become blighted again if Costco left. "The possibility of losing
Costco was of real concern," the city argued.
Last month, Judge Wilson permanently blocked any future attempt to take
the 99 Cents store for Costco. In a 17-page ruling, he dismissed the city's
contention that "future blight" could be a ground for a taking. He then
directly addressed the thorny public-use issue.
"The evidence is clear beyond dispute that Lancaster's condemnation
efforts rest on nothing more than the desire to achieve the naked transfer
from one private party to another," he wrote. "Such conduct amounts to an
unconstitutional taking purely for private purposes."
Lancaster has given notice that it will appeal. "The court has gone way
beyond what the law permits," David McEwan, the Lancaster city attorney,
said in an interview in June. "It's a troubling trend. I don't know where
the courts are going with it." He added last week, "99 Cents produces less
than $40,000 [a year] in sales taxes, and Costco was producing more than
$400,000. You tell me which was more important."
Gideon Kanner, one of 99 Cents Only's attorneys and a longtime critic of
redevelopment agencies, says: "Finally, courts are beginning to treat the
subject seriously."
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