A Little Schadenfreude Music, Please.

In German, Schadenfreude, means  a feeling of gratification at the misfortune of another, and  is particularly called for when that “other” gets his just deserts. And so it is with Best Buy, the electronic retailing giant that is in the process of getting its comeuppance for its abuse of the power of eminent domain. You may have caught in recent newspaper business pages the dispatch that Best Buy’s earnings are tanking — 87% down from last year, and its CEO — make that former CEO — is trying to buy the company from its current shareholders.  See Chris Isidore, Best Buy Earnings Plunge, money.com August 21, 2012

So why should that bit of corporate misfortune gratify anybody? Answer: because it is a case of justice writ large. Back around 2000, Best Buy approached the Walser family in Richfield, Minnesota, offering to buy its land (which the Walsers were using as a car dealership). The Walsers wouldn’t sell, at least not at a price agreeable to Best Buy. What now? Need you ask? This is America, man. Before you could say “eminent domain,” the city filed a condemnation action to take the Walser property in order to turn it over to Best Buy as a site for its new headquarters. The Walsers opposed the taking but to no avail. See the Minnesota Court of Appeal opinion in City of Richfield v. Walser Auto Sales, 630 N.W.2d 662 (Minn.App. 2001) rubber-stamping the taking. The Walsers appealed to the Minnesota Supreme Court (641 N.W.885) but lost there too. It turned out that one Justice disqualified himself, and the others were evenly divided, so the court could not render a proper majority opinion, and the lower court decision  was thus left standing.

But that was not the end of the legal story. There was also a challenge to the use of TIF bonds to finance this caper. Under Minnesota law, TIF-financed takings are proper only to provide housing or eliminate blight. And though here the subject property was occupied by a car dealership and homes that were unblighted — at least unblighted to an intelligent English-speaking person untutored in the double-talk of eminent domain law — and the taking was for a humongous office building, not anybody’s idea of housing,  the court managed to stuff these facts into the elastic definition of blight, although it also chastized the city. So quick as a bunny, the city came running with more money — another $9 million, to be exact, which when added to its original offer to the Walsers of $9.4 million came to a total of $18.4 million, thus qualifying this caper  for an entry in our “Lowball Watch” category of cases.

The financial end also included a deal whereby the $2.5 million increase in tax revenues expected to be generated by the subject property in in its “after” condition would go to — who else? — Best Buy, not the city which under the terms of this deal would have to wait 25 years — a quarter of a century — to get its hands on the tax benefits from this deal. Way to go, Best Buy! And by the way, let’s not forget that those are TIF bonds being used here, which means that some (most? all?) of that additional incremental tax revenue would have to be siphoned off somehow to service those TIF bonds. Just how that is to be accomplished if Best Buy gets to keep all those additional tax revenues for a quarter of a century is not altogether clear to your faithful servant. But hey man, what do we know? You can read all about it in Terry Pristin, Eminent Domain Revisited: A Minnesota Case, N.Y. Times, October 5, 2005, Sec. C, p. 9, and tell us. You can find it on Lexis/Nexis.

Bottom line, though Best Buy is not [yet] on the ropes, it is facing some lean days ahead, and its new headquarters building is turning out to be not quite the financial boon to Richfield as projected in those heady days of yore when the Walser propertywas being taken by eminent domain to feather Best Buy’s nest  by kicking out some 82 homes and businesses. We are reminded of the line of California Court of Appeal Justice Macklin Fleming who once observed in one of his opinions that redevelopment project promoters tend to promise to bake a bigger economic pie, with larger slices going to everybody, when all too often what they produce is pie in the sky.

Follow up. The New York Times of August 22, 2012, at p. B2, carries an article entitled Best Buy Reports a 91% Drop in Second-Quarter Profit. “. . .the company continues to face significant callenges,” says its current CEO. Go to http://dealbook.nytimes.com/2012/08/21/best-buys-tough-earnings-may-lift-schulzes-hopes-a-little/?scp=2&sq=Best%20Buy&st=Search

 

Leave a Reply

Your email address will not be published. Required fields are marked *