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Archive for March, 2008

No Pretextual Takings Allowed in Pennsylvania

Wednesday, March 26th, 2008

Ever since the Kelo case came down in 2005 there has been much talk about pretextual takings, but no one had ever sighted this rara avis. Until now. The Pennsylvania Supreme Court just shot one down in Middletown Township v. Lands of Stone, 939 A.2d 3311 (Pa. 2007). 

The township set out to take Stone’s 175-acre farm ostensibly for recreation and open space. But the problem was that the actual purpose of the taking was to prevent the farm’s owner from developing it or selling it to a developer. The township had the chutzpa to take the position that after the taking, the [former] farmer-owner of the subject property could continue farming it, except that now it would not be his.

The court went through a lengthy analysis of the pertinent Pennsylvania statutes, and in the end concluded that the statutory scheme permitted the township to take property for recreational uses. But in this case the record showed nothing by way of township planning for such a use. To meet the recreational use requirement, said the court, it is not sufficient that some part of the record supports such uses. The required trial court finding has to be that the proposed recreational use is “real and fundamental, not post-hoc or pretextual.” But the township’s plans identified farms (including this one) only as “potential preservation” and not recreation. 

So there you have it, folks. Sometimes the law works the way it is supposed to, even in the field of eminent domain.

The Perils of Pauline — Take Three

Tuesday, March 25th, 2008

When we started this blog on eminent domain, our first dispatch reported that the Connecticut Supreme Court had revived the litigation by New London environmentalists who challenged the Fort Trumbull redevelopment project on environmental law grounds – see Is the Kelo Litigation Over? July 8, 2007. It wasn’t then and it still isn’t. The Connecticut Supreme Court has just reversed the trial court’s dismissal of this action. Fort Trumbull Conservancy LLP v. Alves, Conn. Supr. Ct., Docket No. SC17826. April 1, 2008) 

The opinion is procedural and deals with standing and sufficiency of pleadings. It does not tell us much about the substantive merits of the controversy.  But the holding is clear: the trial court erred when it eliminated some of the plaintiff-environmentalists’ allegations from their complaint and dismissed their action. Said the court: 

 “In granting the development corporation’s requested deletions, the trial court effectively stripped the plaintiff’s complaint—which we previously had held to besufficient in Alves I—of the exact type of allegation that it then declared was fatally missing from the second amended complaint. This error was further compounded, not only by the trial court’s refusal to articulate its reasoning, but ultimately by its granting of the defendants’ renewed motions to dismiss for lack of standing.” 

So it’s back to the drawing board. Stay tuned.

Oh yes, we almost forgot. The opinion was ordered released on April 1, 2008. State supreme courts are not renowned for their sense of humor, but we just can’t help wondering if this was the Connecticut Supreme Court’s way of saying “April fool!’ to the City of New London. 

“Reforms” that Are Worse than the Problem

Sunday, March 23rd, 2008

In the March/April 2008 issue of PROBATE & PROPERTY, a publication of the Real Property, Trust and Estate Section of the American Bar Association, Christopher W. Smart, a Florida lawyer, purports to tell us what’s wrong with Kelo-style eminent domain and how to fix it. But a reading of his article, entitled Legislative and Judicial Reactions to Kelo: Eminent Domain’s Continuing Role in Redevelopment, discloses something entirely different. First, Smart tells us that because of its manifold problems and rampant abuses “America Cannot Afford Kelo Style Redevelopment.“ So far, so good. But then he concludes that  “America Can Learn to Live With Kelo-style Redevelopment.” Interesting. It reminds us of George Orwell’s novel “1984” whose protagonist embraced the art of doublethink and learned to love Big Brother.  

And how does Smart propose we learn to live with Kelo-style redevelopment? He expends one whole paragraph outlining three types of reform (at least he says it’s reform): (a) communication, (b) compensation, and (c) participation. There, that should do it, says Smart. 

But these proposals not only fail to solve the problem, they are counterproductive. Communicating “early and often” with owners of properties targeted for acquisition, says Smart, “can put a human face on what can be seen as an otherwise arbitrary and alienating system.” By “creating ombudsman positions staffed by people who understand the process and can help guide the property owner through much of the process’s frustration will be removed.” Oh really? Would that perchance mean having a city functionary call on the targeted condemnees early and often, and tell them “I’m from the government, and I’m here to help you.”? Gimme a break. 

The problem with the “early” part of Smart’s nostrum is that the delay between the announcement and implementation of a redevelopment project can take years or even decades, whereas tenants located in the targeted properties, upon hearing of the condemnation plans, split, leaving the property’s owner without the rents that are ncessary for the building’s upkeep. Thus, early announcements of contemplated government acquisition of specific areas result in condemnation blight as tenants move out, leaving behind underoccupied or vacant buildings, and as businesses depart to new locations (if they can find them) since staying put will only mean a destruction or damaging of the business when the condemnation comes, with no compensation provided by law for business losses. In short, even assuming good faith on the part of would-be condemnors, early announcements of government acquisition plans results in a decline of the targeted neighborhood, often driving the property owners within it to the wall, and causing them to lose their properties by foreclosure or tax sale. And those owners who can hang in there awaiting the planned acquisition, can find themselves in dire economic straits and thereby become fair game for bargain-seeking municipal right-of-way agents. For a discussion of these problems see Gideon Kanner, Condemnation Blight: Just How Just Is Just Compensation? 48 Notre Dame Lawyer 765, 768-770 (1973). As an Ohio court put it: “The central issue here is not the willful or intentional acts of the city, it is the natural and probable consequence of the acts or the failure to act on the part of the city. It is the cumulative result of many things, each in itself that might not have been totally harmful, but when impacted all together have the full force of destruction of the property . . .” City of Cleveland v. Hurwitz, 269 N.E.2d 562, 567 ((1969). So much for the early and often part. 

Which brings us to compensation. The Constitution provides for “just compensation” to condemnees, but as everyone connected with the process knows and as the courts have conceded, the actual compensation is not just but “harsh” and at best partial. In fact, the courts make no effort to provide true compensation, but award instead “fair market value” that may or may not be adequate to compensate the condemnees for all losses suffered by them. Not only that, but in most jurisdictions the condemnees have to use a part of their limited compensation to pay their lawyers, appraisers and other experts whose services are essential to proving even the limited compensation to which they are entitled under law. Thus, their net recovery is inherently less than even the limited compensation ostensibly awarded by the courts. 

So you’d think that serious revision of the law of compensability should be of high priority to Smart. But according to him, it’s only something that “should be considered.” Oh yeah? Have you ever seen what happens when a serious proposal is made to “consider” improvement in the law of compensation? We have. Repeatedly. What happens in such cases is that the apologists for eminent domain business as usual come alive and fight like tigers to defeat any genuine reform no matter how objectively desirable. How do they do it? Their standard ploy is to wave the proverbial bloody shirt on which they emblazon the false assertion that genuinely just compensation will bankrupt the government or at least will bring about a stoppage in the construction of public works. And it works. The California Supreme Court has actually stated that if compensation were awarded “too liberally,” i.e., for all losses actually suffered by condemnees, that would lead to “an embargo” on public works. No evidence has ever been presented in support of that absurdity.

That leaves participation, or as Smart puts it “the opportunity for an owner whose property has been taken for a redevelopment project to share in the fruits of that project, perhaps through equity participation.”  First of all, in many cases that would be absurd – it would mean requiring a lower middle-class person (like Suzette Kelo, a nurse, to take an obvious, current example) to become an investor in a risky real estate venture. Some compensation. And what happens when the project goes nowhere or fails (see the above blogs on the aftermath of Kelo and the just-announced failure of the giant Brooklyn Atlantic Yards redevelopment project to proceed in accordance with its widely announced plans)? Would the condemnees be paid then? Smart doesn’t say.  Any bets? 

Under the Constitution – which remarkably, Smart never discusses in his article – owners of property that is taken for public use are supposed to receive just compensation – not partial compensation, not “harsh” compensation, and not merely the fair market value of their land, so adroitly defined by the courts as to be less than what the market would pay in a voluntary transaction. The Supreme Court has said that the owner should be placed in the same position pecuniarily that he would have been in had his property not been taken. It’s time to implement that principle and to make it reality rather than the insincere judicial window dressing that it is at this time. If Smart is sincere about his desire to reform eminent domain, that’s what he should be striving for.

Another Big Redevelopment Project Down in Flames?

Saturday, March 22nd, 2008

As we have had occasion to observe repeatedly (see Gideon Kanner, We Don’t Have to Follow Any Stinkin’ Planning — Sorry About that, Justice Stevens, 39 Urban Lawyer 529 (2007)), grandiose prognostications of redevelopment projects can be so much hot air. The Kelo case, to take the most recent egregious example, was sold to the Supreme Court on the basis of city “planning” that was supposedly so thorough and reliable as to justify the court’s loosy-goosy interpretation of the Constitution’s “public use” Clause, so as to allow the taking of lower middle class homes for an upscale project that so far – almost a decade after it was proposed – hasn’t built anything, and hasn’t even been able to secure financing for the construction. See our blog, The Perils of Pauline – Take Two, March 14, 2008, as well as The Perils of Pauline, December 11, 2007. 

Now, it appears that another high profile redevelopment project may be going down in flames. Close on the heels of Goldstein v. Pataki, 2008 Lexis 254 (2008), that approved the giant Atlantic Yards redevelopment project in Brooklyn, comes the dispatch from the New York Times that Slowdown Is Likely to Delay $4 Billion Project in Brooklyn, N.Y. Times, Mar. 21, 2008, at p. A1. Surprise, surprise. After all the huffing and puffing and promises to revitalize Brooklyn, it turns out that there is no financing for the project solemnly approved in the Goldstein case, and no anchor tenant has been secured for “Miss Brooklyn” – the flagship high rise building for the project, without which the project isn’t going ahead. As The Times sums it up: 

“[The redeveloper] faces the same stiff challenges that are suddenly hobbling other developers after a 10-year boom: an economy teetering on the edge of a recession, a credit market that has all but closed for large-scale real estate projects and lack of tax-exempt financing for housing.”

 

The state of New York and the city have agreed to provide $300 million in subsidies and tens of millions in tax breaks for this project, of which some $58 million has already been spent, though the Times does not indicate exactly what this money was spent for.

 

The Times article also reminds us that this is no isolated incident when it notes the collapse of the $3.9 billion Cosmopolitan Resort

Casino project in Las Vegas, and observes that: 

 

“The once high-flying developer Cameron Kuhn has defaulted on loans related to its projects in Orlando and Jacksonville, Fla. And in Los Angeles, a number of residential projects have been delayed or abandoned.”

And so it goes.

The bottom line of it all is that redevelopment is nothing more than private development with the prefix “re-“ attached to its name. It is a private venture that is subject to the usual market risks of failure. It is no more ”public” than any other private, profit-seeking construction project, and judges should be ashamed of themselves for pretending otherwise. As California’s Court of Appeal Justice Macklin Fleming once put it in an all too rare display of judicial intellectual integrity:

 “By misemploying the extraordinary powers of urban renewal a redevelopment agency captures pending tax revenues which it can then use as a grubstake to subsidize commercial development within the project area in the hope of striking it rich. Such schemes contemplate borrowing money by issuing bonds on the strength of assured future tax revenues, money which is then used to acquire, improve, and resell property within the project area at a loss as an inducement to business enterprises . . . to locate within the project area rather than in neighboring communities. In essence, tax revenues are used as subsidies to attract new business. The immediate gainers are the subsidized businesses. The immediate losers are the taxpayers and government entities outside the project area, who are required to pay the normal running expenses of government operation without the assistance of new tax revenues from the project area.

                              * * *

“The promoters of such projects promise that in time everyone will benefit, taxpayers, government entities, other property owners, bondholders; all will profit from increased development of property and increased future assessments on the tax rolls, for with the baking of a bigger pie bigger shares will come to all. But the landscape is littered with speculative real estate developments whose profits turned into pie in the sky; particularly where a number of communities have competed with one another to attract the same regional businesses. . . . “

“At bench, City’s projected redevelopment plan possesses a particularly speculative cast in that the businesses it hopes to attract through redevelopment are primarily those of consumption rather than production, businesses such as hotels and shopping centers whose acquisition does not increase the total wealth of a region as a whole but merely redistributes the existing supply by capturing business from rival communities. The success of such strategy assumes the absence of effective counter-measures by rival communities targeted for displacement. Private enterprises may embark on such speculative competitive enterprises. Under present laws, public entities may not.Regus v . City of Baldwin Park, 139 Cal.Rptr. 196 (Cal.App. 1977) Emphasis added. 

So there it is in a nutshell: if the redevelopers want to make millions building major urban projects, let them do it on their own nickel and at their own risk, not the taxpayers’ and certainly not on the backs of condemness who are displaced by eminent domain for these “public” projects and paid “just” compensation that in reality is not just and avowedly does

not fully compensate them for the losses inflicted on them.

Even if eminent domain is to be used to get the land that is necessary for redevelopment, the redevelopers should be required to reimburse the public for the full cost of its acquisition and not gorge on “land write downs” and TIF proceeds. It’s an old maxim of jurisprudence that he who gets the benefit, should bear the burden, and this situation fits it like the proverbial glove.

What’s Wrong With This Picture?

Friday, March 21st, 2008

    “It is estimated that, on an annual basis, between 60,000 and 80,000 more housing units are needed every year than are currently being built.” Cecily Talbert, California’s Response to Its Affordable Housing Crisis, 2007 Institute on Planning, Zoning and Eminent Domain, Center for American & International Law, 8-1

L.A. City Council Rejects Massive Las Lomas Development. In a split vote, the panel halts its review of the 5,553-home project near the 5 and 14 freeways. Some council members see a lawsuit.” David Zahniser, Los Angeles Times, 3/20/08, at A1

         

             

Can Something Good Come From the Spitzer Affair?

Friday, March 14th, 2008

By now you may be getting tired of the Eliott Spitzer affair, and if so, who could blame you? But even if so, bear with us a bit longer. It turns out that this saga isn’t all about fancy interstate shtupping and political scandal. It may have an eminent domain angle to it. Doesn’t everything?

It turns out that David Paterson, the New York Lieutenant Governor who replaces Spitzer on Monday, is not what you might call a cheerleader for the use of eminent domain. He has a track record of opposing its indiscriminate use. According to the New York Sun (Peter Kiefer, Paterson Could Derail Development — Opposes the Use of Eminent Domain, March 14, 2008), Paterson opposes the use of eminent domain for redevelopment. Back in 2005 when the Kelo case came down, Paterson, then a state senator,  led a rally on the steps of New York City Hall, protesting that decision and favoring the imposition of a moratorium on the use of eminent domain in New York.

Needless to say, this development has sent shivers down the spines of New York redevelopers, and Columbia University has announced that when it comes to land acquisition, it has the soul of a pussy cat, hoping to reach an agreement with the owners of the properties included within the area of Columbia’s proposed expansion. As for Paterson, he  ain’t talkin’ — according to The Sun, his spokesman was “unavailable for comment.”

Much as we would love to see some political rain fall on New York’s redevelopment parade, we aren’t popping any champagne corks just yet. Many a time we have seen politicians talk a good game about issues of the day, only to be born again once they wound up in a position in which they were able to do something. Still, this one would be too delicious for words. The courts never tire of telling us that the decision to condemn is political, so it would be only proper under the law if New York’s love affair with eminent domain pursued in the name of redevlopment, were to cool off for political reasons.

The Perils of Pauline — Take Two

Friday, March 14th, 2008

When last we blogged on the wretched topic of the Kelo controversy (New London Update — The Perils of Pauline, December 11, 2007) nothing was going on on the site of the taking, the redeveloper had duly ‘fessed up that it lacked financing for the project, and that it would need an extension of time past its contractual deadline to obtain it. The city agreed to an extension of time until May 29, 2008.

Now we learn from the March 14, 2008, issue of The Day (the New London newspaper) that the redeveloper has just asked the Federal Housing Authority to finance it to the tune of $11.5 million to fund construction of an apartment project. According to the The Day story, the redeveloper’s HUD applicatioon envisions “an upscale rental property that will be positioned to compete at the top of the market.”

So what it boils down to is that the feds are forever yammering about the shortage of affordable housing and the urgent need to preserve and construct more of it. But it turns out that they are in the business of subsidizing people who kick out inhabitants of lower middle-class housing, then destroy it and replace it with  “top of the market” stuff.  Yessiree, Bob — those deserving folks at “the top of the market” surely need a federal subsidy, don’t they?

In the meantime, Connecticut has blown well over $70 million on the New London redevelopment project with nothing to show for it. Your tax money at work. 

It All Depends on Whose Ox Is Getting Gored

Wednesday, March 12th, 2008

The New York Times carries an interesting column by Adam Liptak, on how influential are the opinions of state courts beyond the boundaries of their own states (Around the Country, High Courts Follow California’s Lead, 3/11/08, at A12). The leader turns out to be the California Supreme Court, and its decision that tops them all in being cited and followed by courts in other states is Dillon v. Legg, 68 Cal.2d 728 (1968). Dillon was a tort case holding that a mother who witnessed her daughter’s injury by a negligently driven car was entitled to recover damages in her own right, irrespective of whether she was physically injured herself or even touched in the accident. So what does that bit of old tort law have to do with this blog that deals with eminent domain? As it turns out, quite a bit. Read on. 

One of the arguments facing the court in Dillon was that allowing recovery in cases of that type would open the floodgates to costly but unverifiable claims of personal harm, and would allow unscrupulous plaintiffs to fleece defendants. But the California Supreme Court firmly rejected this contention, pointing out that even though the courts may be fallible at times in distinguishing the substantial from the frivolous, that does not justify “an abdication of judicial responsibility to award damages for sound claims.” Doing that, said the court, would destroy the public’s confidence in the courts. That sounds pretty good. But does the California Supreme Court follow this approach in eminent domain cases? Answer: hell, no. 

In condemnation cases the Court sings an altogether different tune. When it comes to awarding “just compensation” the Court takes the position that it is its duty, no less, to limit the extent of condemnees’ recovery for economic harms actually suffered by them but deemed to be noncompensable. In condemnation cases, says the Court, the courts have assumed the burden and responsibility of limiting the extent of “just” compensation because they need to see to it “that the cost of public improvements involving the taking and damaging of private property for public use be not unduly enhanced.” People v. Ricciardi, 23 Cal.2d 390, 396. To do otherwise, said the Court in People v. Symons, 54Cal.2d 728, 737 (1960), would impose “a severe burden on the public treasury and, in effect, place ‘an embargo upon the creation of new and desirable roads.’ ” No court, to the best of our knowledge, has ever substantiated the imminence of such an “embargo” – it’s all judicial talk of the “parade of horribles” variety. When freeway construction was curtailed in California, it was not because the owners of the land taken for them were fully compensated (they weren’t), but because of community resistance and because of former Governor Jerry Brown’s misbegotten notion that allowing traffic conditions to worsen would force Californians to use public transit instead of their cars. So the state stopped or sharply curtailed the construction of highways with predictable results.

Mind you, the Court has never said that such losses are not real. On the contrary, the decisional law acknowledges that these noncompensable damages, though suffered are, well, noncompensable. So why this disparity of treatment of tort claimants as opposed to condemnees who are ostensibly protected by the “just compensation” clause of the Constitution? After all, in eminent domain cases the government doesn’t just pay damages — it gets a quid pro quo for its money, so that it only exchanges one asset (money) for another one (land at its judicially determined fair market value), so that except for transactional costs, it winds up as well or better off than it was before the taking, so it effectively pays nothing. 

In partial taking cases, the Court says that damages for personal inconvenience and annoyance are noncompensable even where they translate into lowered property values which in theory are compensable. But it’s another story in cases of private torts against property. In those cases “There seems to be no sound reason to refuse an award of damages for discomfort and annoyance where the only injury is to the real property since it is obvious that such an injury may cause discomfort and annoyance without also causing an actual physical injury to the person.” Kornoff v. Kingsburg Cotton Oil Co., 288 P.2d 507, 513 (Cal. 1955), emphasis added. So why the disparity of treatment?  We have trouble understanding this judicial attitude because the Court’s justification is that its rule denying such damages to condemnees is based on the principle that damages are noncompensable in eminent domain when they are also noncompensanble in cases of privately caused harm, i.e., “where there would be no recovery for damages caused by the construction of an improvement if undertaken by a private citizen on adjoining property.” People v. Symons, 54 Cal.2d 855 (1960). But Kornoff makes clear that in private tort cases, damages for personal annoyance are recoverable when inflicted by a private party, even in the absence of harm to the person.

So how come the Court isn’t worried that its denial of just compensation fully compensating condemnees for economic harms inflicted on them by the taking of their property will destroy public confidence in the courts? 


The purpose of this blog is to provide a forum for people, whether eminent domain professionals or not, for exchange of ideas and a discussion of eminent domain news and issues. It does not provide legal advice. Questions concerning actual cases should be directed to the readers' own legal, appraisal and real estate advisers.

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