Marching Up the Hill, and Marching Down Again in Mississippi

It’s hard for us to keep up with the sinuous ways of politicians. It was only yesterday that the Mississippi legislature passed legislation curbing eminent domain takings of private property for “economic redevelopment” – a not-so-thinly disguised way of taking land from one private party and transferring it to another private, more favored party for the latter’s economic gain. But Mississippi Governor Hailey Barbour vetoed that legislation because, as he explained it, it would have interfered with the state’s ability to provide land taken from its citizens to foreign car manufacturers like Nissan. Besides, said the Guv, in Mississippi the courts have the final say on what is “public use,” so that legislation was unnecessary. 

Now, all of a sudden, Governor Barbour has had some sort of change of heart, we think, and has called for a special session of the Mississippi legislature to enact – ta,da! – eminent domain reform legislation. Why the Governor chose not to work with the legislature during the past year and work out some sort of compromise that would have been acceptable to his constituency and would have obviated a need for that veto, must be one of those unfathomable mysteries accessible only to those mavens with an insight into how a politician’s mind works. Being untutored in such matters, we suspect that the Governor realized in the wake of that veto that he succeeded in getting the people of Mississippi pissed off, so he decided to do some fence mending. But then again, what do we know about such things? 

So stay tuned and see how this up-and-down drama plays out.

The Foggy Groves of Academe

         First of all, our thanks to the Volokh Conspiracy for letting us know that there is a new blog that publishes on line short summaries of law review articles. Good idea. There used to be a print publication like that in the 1970s. You can thus read the nub of what each author has to say, without slogging through all the academic fog that so often afflicts law review articles. Just Google the phrase LegalWorkshop.org and you got it. 

         When we visited that site, our attention was attracted to an exchange in the University of Chicago Law Review, between Professors Abraham Bell and Richard Epstein, on the subject of private takings. We recommend you take a look at it.

           What we found astonishing in reading that exchange is that Professor Bell does not seem to understand the difference between public use and public ownership. In other words, the Constitution does not say anything, one way or another, whether the taker-user of the property that is taken by eminent domain must be public. The Constitution speaks of public use, not public ownership. And privately owned entities like public utilities, railroads etc. that dedicate their facilities to public use and accept severe government regulation as part of the deal, provide a perfect example of public use being provided by privately owned entities. That is something that goes way back to grist mills that had to mill grain for all comers even though they were privately owned.

          The power of eminent domain is a dormant legislative power that may not be exercised without legislative authorization. And the legislature can authorize any person or entity to exercise it, subject to the constitutional limitation of “public use.” The legislature is thus free to delegate the taking power to any party it chooses, not necessarily a public entity.

           So we hope that this won’t come as too much of a shock to Professor Bell, but in all likelihood he personally holds the power of eminent domain. Most, if not all, states have statutes that authorize all persons to condemn access to their dwellings when they own landlocked land. Honest, Professor. We wouldn’t make that up, but if you doubt us, see California Civil Code § 1001. And if you want to have real fun, take a look at the pre-1976 version of that Code section. While you are at it, also see Linggi v. Garovotti, 45 Cal.2d 20, 286 P.2d 15 (1955) (condemnation of a sewer  easement by a private owner of an apartment house is OK because sewers are a public use). 

Stadiums – Once More With Feeling

         Atlantic magazine brings us the dispatch that Kansas City has blown $222 million for a new stadium, hoping to attract a basketball team — actually, any team that will come — but so far without success. For the whole article see Nate Berg, Stadium to Nowhere, April 17, 2009, click here

          And so it goes

Follow up. From the New York Times, Ken Belson, Is This Seat Taken? In Front Rows of New Ballparks, Not Yet, April 22, 2009, p. A1. We offer a quote without comment:

“After spending $2.3 billion on new stadiums packed with suites, restaurants and the latest technology, the Mets and the Yankees expected fans to embrace their new homes and pay top dollar for the privilege. Almost every team that has built a new stadium in the recent past has seen an immediate surge in attendance.

“Instead, the Mets and the Yankees face a public relations nightmare and posssibly millions of dollars in lost revenue after failing to sell about 5000 tickets — including some of the priciest seats — to each of their  first few games.”

“The empty seats are a fresh sign that the teams might have miscalculated how much fans and corporations were willing to spend, particularly during a deep recession.” 

WTC – The Reconstruction Disaster

         For the latest misadventures in the reconstruction of the buildings planned for the site of the lamented World Trade Center, see http://news.yahoo.com/s/ap/20090416/ap_on_re_us/attacks_redevelopment

        Bottom line: the prognostications of the mavens suggest that the complete reconstruction of the WTC will not take place for perhaps as long as another 30 years. Mayor Bloomberg hopes it will be less than that. So do we, though this may be a triumph of hope over reality. As of now, somebody up there woke up to the realization that, apart from the problems of financing the reconstruction, and an “exodus of major financial firms like Merrill Lynch and AIG from downtown Manhattan,” it may not be the world’s swiftest idea to “flood the market with 10 million square feet of office space at the same time.” 

         And so it goes.

At long Last, The New York Times Reveals a Secret

            One of the fascinating aspects of the ongoing eminent domain controversy, at least fascinating to us, is that after the enormous amount of news coverage, publicity and commentary that appeared in the printed press right after the Kelo case was decided, the subject of what actually happened in New London after the Supreme Court’s decision became taboo as far as the mainstream press is concerned. Save for a 2005 article noting the lack of progress on the Fort Trumbull redevelopment site – the ground zero of the Kelo controversy – there has been nary a peep in the New York Times (at least none that we know of or can find) about the dismal failure of the redevelopment project that was the cause of it all. Until now. Readers of this blog are by now aware that this project turned out to be a fiasco – an utter, total failure. Save for the renovation of one Coast Guard building (as public a use as can be imagined) nothing has been built on the site where Suzette Kelo’s and her neighbors’ homes once stood, in spite of the city’s representations to the U.S. Supreme Court that this project was the product of careful and thorough planning. But that failure, strangely enough, has not been of interest to the Times.

          Now, it looks like the Times has let it slip that the Fort Trumbul project has been a nonstarter. But how that bit of news was revealed is fascinating. It comes to us buried at the end of a sort of a human interest story by Larry Bloom, Spotlight Finds Eminent Domain Crusader, NY Times, April 17, 2009 (Connecticut Section). While it purports to tell how Suzette Kelo was propelled into the journalistic big time by appearing on the Sean Hannity show, it devotes as much space to Ann Coulter’s – yes, Ann Coulter’s — appearance and grooming as it does to the Kelo case. And talk about burying a story, it is only in the penultimate sentence — yes, the next to last sentence – of this story that the Times tells us that “The tract of land on which it [Kelo's house] sat and which Ms. Kelo defended so staunchly is now empty. No buildings, no enterprise, no jobs.” 

         So it looks like we won’t be able to complain from now on that the New York Times has been ignoring the failure of the Fort Trumbull project. After all, they have now devoted an entire sentence to it. Buried in a human interest story. In the Connecticut section, yet. 

For the whole Times article go to

 http://www.nytimes.com/2009/04/19/nyregion/connecticut/19colct.html?_r=1 

The “Price of Progress” — It Was Piffle Then, and It’s Piffle Now

          For a moment, as we beheld the headline in the April 20, 2009, issue of the Wisconsin Law Journal – The Price of Progress: WisDOT Proposes Changes in Eminent Domain Laws – we were transported back in time to the bad old days. Back in the 1960s, when we started practicing condemnation law, when California condemnees had even fewer rights than they do now, it was a familiar condemnors’ mantra, intoned whenever a property owner complained about procedural mistreatment, or the prevailing unfair compensability rules, that this was “The price of progress.” We thought that slogan was bullshit. It still is. Why? Doesn’t progress, like everything else, have a price? It sure does, but the way these folks raise the issue tries to fob off the price on the victims, not the beneficiaries of that progress.

          Progress does exact a price, but that price should be paid by those who benefit from progress as a quid pro quo for benefits received. That’s not only basic morality and common sense, but also the law. It was in 1926, in Pennsylvania Coal Co. v. Mahon, that Justice Holmes observed that the public is entitled only to what it pays for. Sounds reasonable to us. But in the case of condemnation of private property, even for genuine public uses, the benefits of public projects inure to society at large, or to the population of the area served by a particular project. If property owners are displaced from their land when it is taken, they cannot enjoy the benefit of the projects. In the case of redevelopment, the “progress” goes primarily to private redevelopers, their vendees and tenants. As Justice Kennedy observed during the Kelo oral argument, condemnees do not participate in any benefits that derive from putting their condemned property to a higher and better use – the redevelopers reap those benefits. 

          So what this linguistic caper boils down to is a not-so-thinly-disguised plea by condemnors that they be permitted to feast on the “free lunch,” by acquiring private property but not paying the full price of the acquisition process. And it’s no answer to say, as these folks so often do, that they are only trying to lower the cost of public works. Not so. The cost is the same whether the condemnees are fully compensated, partially compensated, or not compensated at all. The only question is who pays that cost, i.e., on whom does the true cost of public works fall? Should it fall on the public that benefits from a public project, or disproportionately on the condemnees who fortuitously find themselves in the path of that project and are thus called upon to surrender their property for less than the full amount necessary to indemnify them, and thus have to contribute more than their proper share to the cost of public works? Remember that those condemnees do pay their proper share for public works when they pay their taxes, fees, assessments and exactions, the same as all others. 

          So what are the Wisconsin DOT folks trying to pull by reviving that old chestnut? They are bent out of shape because the present Wisconsin law interferes with their efforts to lowball condemnees. That law provides that when condemnees recover compensation that is 15% or more than the condemnor’s offer, they become entitled to recovery of their reasonable attorneys’ fees. That law was enacted to discourage condemnors from trying to lowball unsophisticated condemnees by offering them less than fair market value. What WisDOT wants to accomplish now is to have that law amended so the attorneys’ fees would be limited to ⅓ of the spread between condemnor’s offer and the court award.

          Such a rule, if adopted, would impact most severely and most unfairly on those who own smaller or less expensive parcels of property, where the spread is modest. This would enable the condemnor to make these owners “offers they can’t refuse,” because the cost of litigation necessary to demonstrate the inadequacy of the condemnor’s offer would consume all or most of the overage, leaving the condemnees as badly off as they were in the first place when the condemnor made them its lowball offer. 

          We can see why condemnors are unhappy with the present Wisconsin statutory scheme and want to change things. But unless Wisconsin is different than other places (which we doubt) it’s likely, if not certain, that local condemnors  make lowball offers. If they weren’t, they would not be called upon to pay the condemnees’ attorneys’ fees, and there would be no problem even by their own lights. While we cannot put our finger on pertinent studies of this matter made in Wisconsin, studies performed over the years in New York, Minnesota, Utah, Georgia and California, all paint the same picture. Property owners who decline condemnors’ offers and insist on a proper valuation trial in court, consistently recover significantly more than the condemnors’ offers, regardless of whether these cases are tried before judges or juries. That is why condemnors like WisDOT  are trying to limit condemnees’ attorneys’ fees to such an extent that it won’t be worth their while to fight for just compensation in court, because the expense of litigation would consume the gain. Oh sure, in large cases, where the stakes are high and the fight worthwhile, the well-off condemnees will pay their lawyers what they have to and recover large verdicts as compensation. It’s the small fry who will get screwed. And there are a lot more of those folks than of the big boys, so the condemnors can make up for the few large verdicts that they have to pay, with a multitude of small land acquisitions they can accomplish through the many lowball offers that small condemnees have to accept.

Update. After we went to the trouble of reportng this donnybrook, word has come from Wisconsin that WisDOT has withdrawn this proposed legislation. It was originally proposed as a part of another legislative package, but after opposition to it developed, it was dropped and reintroduced now as a stand-alone bill. It would be nice if that were the end of it, but life being what it is, we wouldn’t be surprised if this particular legislative critter raises its ugly head again.

Shopping Malls – Part Deux

         No sooner has the ink dried on the preceding post, that we learn that General Growth Properties, the second largest shopping mall owner in the United States, has filed for bankruptcy under Chapter 11. The official explanation is that it carried a heavy short-term debt that it intended to refinance, but it turned out that refinancing is not available in the current recession, what with the big banks teetering on the edge and all that stuff. It’s the biggest bankruptcy of a real estate business in history.

         This story is of special significance to us for two reasons. First, because one of the many malls owned by GGP is the Glendale Galleria in Glendale, California. We recall how it was built on land acquired by the local redevelopment agency, some of it by eminent domain. And while over the years the Glendale Galleria became a spiffy shopping place, the people whose land was taken for it were often underpaid, and it wreaked havoc on small businesses located along Brand Boulevard, Glendale’s main drag. Once the Galleria opened for business, it swamped the small businesses competing with it. For a long time, Brand Boulevard was dotted with empty storefronts sporting FOR LEASE signs, and it took years to recover. Second, here is a vivid reminder of the wisdom of Justice Macklin Fleming whom we quoted in the preceding post, that whether under the banner of redevelopment or not, the creation of malls is risky business.

         To compound things, one of the problems that mall owners have to face, is a growing pressure from their tenants to lower rents in light of the ongoing recession. But it’s that phenomenon that makes lenders reeluctant to lend to malls because they see a diminishing flow of rent revenues in the offing.

         So stay tuned. It looks like we haven’t heard the last of it.

Shopping Malls — An Elephant Graveyard?

            The news has it that shopping malls, which over the years have become centers of social life are going under in large numbers. There is even a website called Deadmalls.com if you’re into mall postmortems, compleat with pictures of huge, vacant malls just sitting there. This is of interest to us because for many years construction of malls has been commonly advanced as the “public use” of land takings for redevelopment, some of which resulted in business problems. If you want to read an informative book on the subject of urban mall construction in modern America, check out Bernard Frieden and Lynn Sagalyn, Downtown, Inc. – How America Rebuilds Cities.

         So what happened? Oh sure, the current recession has played a role in this decline and fall of malls, but that is not the whole story because that decline started before the crash. This phenomenon apparently has to do with slow but sure decline in the fortunes of department stores, and changing styles of mall design – from the enclosed, air conditioned mall, to the open style with an inner plaza and store fronts lining the streets rather than facing inward and displaying their backsides to the street. Also, the rise of “big box” stores has had an inevitable impact on traditional malls.  

          What is of interest to this blog is that many malls have been constructed over the years as redevelopment projects. Here, on our turf in Southern California, we can think of several large malls like that. We can also think of some that have run into trouble (see, e.g. Community Redevelopment Agency v. Force Electronics (1997) 64 Cal. Rptr. 2d 209 — redevelopment agency unable to pay a condemnation judgment). What intrigues us is that news of these economic reverses are usually buried in back of the Business section of the local news paper, but even there we don’t see coverage of what happens to the redevelopment bonds that were issued to acquire land (usually by eminent domain) and construct those malls. This is no small matter, being as bonded indebtedness for redevelopment in California has gone up from $5 billion in 1985 to over 60 billion by 2004, and counting.

           The problem was foreseen years ago in the opinion of Justice Macklin Fleming of the California Court of Appeal, in Regus v. City of Baldwin Park, 139 Cal.Rptr. 196 (Cal.App. 1977), where he presciently warned: 

“[U]nrestricted use of redevelopment powers fosters speculative competition between municipalities in their attempts to attract private enterprise, speculation which they can finance in part with other people’s money. When the extraordinary powers of legislation designed to combat blight and renew decayed urban areas are used as a fiscal device to promote industrial, commercial, and business development in a project area that is merely underdeveloped rather than blighted, competitive speculation may be turned loose. 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.”

           Justice Fleming warned particularly against the use of public indebtedness to facilitate the construction of business enterprises that, as he put it, “are primarily those of consumption [like shopping centers] rather than production 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,” said Justice Fleming, “assumes the absence of effective counter-measures by rival communities targeted for displacement.” 

        So it looks like those chickens are now coming home to roost, demonstrating that Justice Fleming was right when he concluded his Regus opinion by admonishing that private enterprises may embark on such speculative competitive enterprises, but public entities that would spend public funds, may not.

Dumb Move In Connecticut

         Those wonderful folks in Connecticutr, the ones who gave us the Kelo case, are at it again. In 2006, evidently acting in an outburst of common sense, Connecticut emulated Utah and created the office of a Property Rights Ombudsman, a government official who can mediate disputes between property owners and the government. The program worked well in Utah and gave every indication of working well in Connecticut. But it was evidently an idea that was too sensible, so now Connecticut wants to eliminate that office to — need you ask? — save money. But as the Connecticut Law Tribune points out, the Property Rights Ombudsman does not cost the State money. On the contrary, his activities save money by avoiding needless contentious and expensive litigation. To see that Tribune editorial, click here. http://www.ctlawtribune.com/getarticle.aspx?ID=33415

And They’re Off!

          

         If it isn’t one thing, it’s another. No sooner did the ink dry on our celebration of the 25th anniversary of the erstwhile Baltimore Colts’ midnight departure to Indianapolis (How the Baltimore Colts Became the Indianapolis Colts, April 1, 2008), when those wonderful folks in Maryland have provided us with more material. It seems that horse racing isn’t what it used to be, and Magna Entertainment Corporation, the owner of the Preakness horse race has filed for bankruptcy, so it’s only natural that its assets, including not only Pimlico where the Preakness is run, but also the intellectual property in the Preakness name will have to be disposed off by the bankruptcy court. But the Marylanders are concerned that these iconic assets may thus fall into the hands of another horse racing promoter who may decide to run the Preakness in another state. Bummer. Evidently, though the Preakness hasn’t done much for Magna, it does attract many free-spending visitors to Maryland and is thus highly valued by the state, to say nothing of the PR and emotional attachment that tends to go with these things. So Maryland, understandably, wants to keep those visitors coming for the Preakness. Not only that, but there are some folks in Maryland, who would like to buy the Pimlico race track from the trustee in bankruptcy, tear it down and develop it into a shopping center or something like that, and that is not a happy prospect. 

          And so, the locals (who are evidently still smarting from the Colts’ long ago midnight departure for Indianapolis) have decided that they mustn’t let the rights to the Preakness and the right to the Pimlico name leave the state, and have come up with the brilliant idea that these assets should be taken by eminent domain. So would the State of Maryland go into the horse racing business? Of course not. It would only act to gain title to these properties, thus preventing Magna or its vendee from spiriting these horsy crown jewels out of the state, and make sure that whoever buys them stays put in Maryland. Pimlico would thus be sold or otherwise turned over to another race track operator who would presumably be committed to staying in Maryland. So the purpose of it all would be to prevent Magna or its vendee from leaving the state. 

          Whether or not this sort of taking would comply with the Public Use constitutional limitation remains an open question. True enough, the California Supreme Court held back in 1981 that it could be a public use for the city of Oakland to condemn the Oakland Raiders’ NFL franchise to keep them from moving to Los Angeles, and that court decision constitutes a precedent of sorts, albeit one that is not binding on the courts of Maryland. On the other hand, that Oakland Raiders ruling was greeted with widespread ridicule, and eventually California courts backed down, though they saved face by denying Oakland the right to condemn the Raiders’ franchise on a different legal theory. 

          After the Kelo case, this controversy would be an interesting spectacle. On the one hand the U.S. Supreme Court has held that when it comes to interpreting the Fifth Amendment’s “public use” limitation on takings, anything goes and indeed, that “public use” doesn’t mean “public use,“ but rather “public purpose.” But on the other hand, Kelo also made clear that the states are free to construe their own constitutions in ways that are more respectful of property owners’ rights. In fact, in the past decade, some half-dozen state supreme courts, give or take, have construed their own “public use” taking limitations in a more restrained fashion than the U.S. Supreme Court did in the Kelo case. 

           So what happens now? We are disinclined to assume the role of an Etruscan haruspex and predict the future. If nothing else, a haruspex had something to work with, to wit, the entrails of sacrificial sheep. But what do we have to aid our predictions? True enough, the Maryland supreme court (which those folks call the Court of Appeals) has been a reasonable tribunal as far as eminent domain law is concerned. Unlike in some other jurisdictions, members of that court do not stand up and salute when a condemnor walks into their courtroom – they have a good track record of impartiality. 

            And so, instead of speculating on Maryland’s judicial interpretation of the by now sorely mangled phrase “public use,” we propose to take a look at another obstacle to this proposed taking that has not received the judicial attention that it deserves.

           One of the constitutionally protected freedoms is that Americans may freely travel from state to state. Back in the days of the Great Depression, California tried to stem the flow of poverty-stricken Oakies fleeing the Dust Bowl, and to keep them from entering California in search of work, but the Supreme Court made it clear that this was a constitutional no-no. That being the case, how can the state of Maryland forbid local property owners from traveling to another state, on pain of being penalized by the loss of their property?  This doesn’t sound right to us. 

          So stay tuned and see how this one turns out. You may also want to do some field studies by going to Maryland and sampling some of their superb crabs. After all, if a haruspex could work with sheep’s entrails to ascertain the future, why can’t we do the same by using lump crab meat?

Update: AnnapolisHome.com reports that:

“The [Maryland] state Senate passed a bill from Gov. Martin O’Malley 32-14 yesterday to purchase or exercise eminent domain to acquire the Maryland assets of Magna, which declared bankruptcy in March. Those properties include Laurel Park in west county, the Bowie Race Course Training Center, Pimlico Race Course in Baltimore and all rights and events associated with the Preakness Stakes.”

Second update. The Maryland House of Delegates has now passed the bill authorizing condemnation of the Preakness, etc. by a vote of 93 to 43. And by the way, that “etc.” now also includes the Laurel Park race track and the Bowie Race Course Training Center, as well at the Woodlawn Vase, the Preakness trophy. The bill is now going to the governor for his signature.

Correction. It turns out that the part of the story about a developer wanting to raze Pimlico and build a shopping mall is not true. The New York Times reports that the developer in question, Carl Verstandig only wants to develop the excess land surrounding Pimlico. As the Times put it:

“Mr. Verstandig, . . . insisted that he had been misunderstood, and that he had never planned to raze Pimlico. He said he wanted only to develop excess land there, and had been talking with companies interested in running the track.” Theo Emery, NY Times, April 14, 2009,  Bankruptcy Fuels Fear Over Preakness.

Third Update: The pertinent text of the new Maryland legislation (Chapter 3 of the 2009 Legislative Session) effective April 14, 2009. SB 1072 authorizes “the State to acquire by purchase or condemnation the private property rights relating to the Pimlico Race Course, the track known as Laurel Park, the Bowie Race Course Training Center, the name, copyrights, service marks, trademarks, trade names, contract rights, business entities, stocks and horse racing events that are associated with the Preakness Stakes and its trophy, the Woodlawn Vase, and certain other private property.” Wonder what that “certain other property” could be. 

For our published comment on this case, see Gideon Kanner, Maryland’s Bad Track Record, Los Angeles Daily Journal, April 17, 2009, at p. 6. It also discusses the implications of the constitutional right to travel, and its application to this controversy in which Maryland wishes to prevent owners of the Preakness from moving out of state, or would permitt them to do so on condition that they surrender their property before crossing the state line.

Fourth Update. A Washington Post Editorial (Maryland Ponies Up, April 21, 2009) has come out against the Maryland eminent domain legislation authorizing the condemnation of the Preakness-Pimlico assets, calling it “pointless and possibly unhelpful.”