Archive for March, 2010
The Los Angeles Times informs us that, although the voters of California approved the sale of $714 million in bonds that were to finance housing, and the bonds have been sold, none of the projects that were to be financed by them have gotten off the ground. Shane Goldmacher, Logjam Stalls Housing Projects, Los Angeles Times, March 30, 2010, at p. AA1.
What caught our eye in particular is the dispatch that one of those projects that haven’t been started is a $32.29 million, 535 unit housing development located at Hollywood Boulevard and Vine Street, which, if memory serves us, is the site of a controversial redevelopment project for which land was taken by eminent domain not too long ago, and — if we are right on that one – has been just sitting there.
The Connecticut Supreme Court opinion in Town of Branford v. Santa Barbara, 988 A.2d 209 (Conn. 2010) relates how the Town of Branford filed a condemnation action in which it deposited $1,167,800, for land for which the owner paid $2.11 million in the early 1990s. But in the ensuing valuation trial the town put on appraisal testimony opining to a value of $770,000, based on an opinion of highest and best use of having “the land remain vacant and undeveloped.” The trial judge (Connecticut does not allow juries in eminent domain cases) awarded $4.6 million, or about four times the amount of the deposit, and about six times the condemnor’s evidence of value.
Afterthought. This may be a sign of advancing old age, but we almost forgot to mention that in a parallel 42 U.S.C. Sec. 1983 action, the court awarded $340,000 to the owners as compensation for the town’s “bad faith in in exercising its power of eminent domain.” Read all about it in New England Estates v. Town of Branford, 988 A.2d 229 (Conn. 2010). The trial court had also awarded $12,435,914 to an optionee, but the Connecticut Supreme Court reversed that award on the grounds that in Connecticut an option is not a compensable property interest. We’ll have more to say about that.
The blogs are abuzz with the news that Utah Governor Gary Herbert has signed state legislation authorizing state use of eminent domain to take federal land, and transfer its ownership to the state. Evidently, the state folks are bent out of shape because half of Utah land is owned by the feds, so they want some of it so they can tax it.
So far, we have not seen any economic projections as to the cost of this caper. There is much talk out there about taking that federal land, but we haven’t seen much mention of the fact that when you exercise the power of eminent domain you have to pay just compensation for what you take, and so far, no one seems to be assuring the Utah electorate that a taking of federal land on so large a scale scale will be affordable to the state. Where have we seen that before?
So stay tuned and see what happens. If nothing else, this legal fight should prove to be entertaining to watch since the smart money has it that a state may not condemn federal property.
Follow up. For a good article about this affair, see Jim Carlton, Utah Sets Its Sights On Seizing U.S. Land, Wall St. Jour., March 30, 2010, at p. A5, from which we learn that a major factor in the Utah legislature’s decision was the fact that last month the feds cancelled 77 drilling leases in Utah, that the locals expected to yield revenues to be used for schools.
Follow up. For the New York Times’ take on this item see http://www.nytimes.com/gwire/2010/04/01/01greenwire-utah-eminent-domain-law-more-than-a-message-bi-25839.html?pagewanted=2
There’s a new book out: Evicted! Property Rights and Eminent Domain, by David Schultz (ABC-CLIO 2010). It purports to tell the story of eminent domain, starting with a primer on property rights, through an occasionally flawed description of how the eminent domain process operates, to a final startling conclusion that to solve the problems of eminent domain abuse, this country need not refrain from reforming the law of eminent domain, and instead should enact “campaign finance reforms,” as well as adopt “tax policies that discourage concentrated wealth, along with renewed antitrust regulation aimed at addressing the political power that flows from economic monopolies.”
We have trouble understanding what all that has to do with the use and abuse of eminent domain and the ethical and economic problems it engenders, particularly at the local level where the action is and where redeveloper-influenced municipal politics, not principle, rule. Schultz is a credentialed gent and he may even be serious about all that, but it seems to us that if he is sincere, he is woefully detached from the daily reality of taking law and associated practices.
Schultz’s core problem is that he never explains why liberals like himself – people who ostensibly champion the cause of the “little guy” as against big corporations – come down on the side of the “corporate thugs,” as he is fond of putting it, cheering on the Supreme Court’s Kelo majority decision that allowed the destruction of an unoffending modest New London neighborhood in order to feather the nest of Pfizer, a multibillion-dollar pharmaceutical manufacturer. Why would professed liberals be arrayed against the vital interests of the likes of Suzette Kelo, a lower-middle-class single nurse who was evicted from her now iconic little pink house on the New London waterfront, in order to increase the cash flow to the city, and to benefit Pfizer, to say nothing of Pfizer’s well-paid employees who – according to New London’s plans – would have been be the beneficiaries of upscale condos, shops and hotels that the city’s redeveloper was supposed to build for them before the redevelopment project ended in dismal failure, consuming some $100 million in public funds to no purpose?
Schultz is thus trapped in cognitive dissonance – or if you’re a fan of Georger Orwell, in a mode of doublethink. On the one hand he is enamored of eminent domain in general and of its use for redevelopment in particular, but on the other hand he deplores its historical mistreatment of the poor and of people of color. But he does not seem to realize that at best his weltanschauung only gives rise to the proverbial problem of the irresistible force meeting an immovable object: if you are going to use eminent domain for redevelopment, it will perforce impact on downscale neighborhoods that need it – where poor folks live.
In spite of his credentials, Schultz does not seem to understand that the history of eminent domain in America is a history of undercompensation of condemnees, starting with the abusive practices of 19th century railroads, to today’s municipal largesse being lavished on the likes of General Motors, Chrysler, Nissan, AM General, Otis Elevators, the New York Times, the New York Stock Exchange, megabuck owners of professional athletic teams, and mass merchandisers like Costco, Target and Best Buy, to say nothing of countless large automobile dealers, shopping center builders, and gambling casinos.
Nor does he mention the dismal track record of urban redevelopment in America that though used repeatedly in places like Detroit, Cleveland, Philadelphia, Bridgeport, St. Louis, Kansas City, et al., failed to revive these cities as their populations fled (and are still fleeing) to the suburbs.
Then there is the matter of the supposedly “just” compensation. All commentators agree that the prevailing law of compensability is deeply flawed. Even an eminent domain hawk like Professor Thomas W. Merrill acknowledges that “just compensation” in American eminent domain law means undercompensation. Strangely enough, compensation is not really discussed in this book. Schultz notes in passing that condemnees are paid “fair market value,” and that buisness owners are paid nothing for the value of their busines goodwill destroyed by condemnation. But he ignores completely the reams of commentaries criticizing the state of American “just compensation” law.
Over the years, studies have repeatedly demonstrated that undercompensation is indeed rampant, the proof of the pudding being that property owners who challenge condemnors’ valuation in court consistently recover substantially higher verdicts in the majority of contested cases, irrespective of whether their cases are tried before judges or juries.
Nor does Schultz mention the concession of the U.S. Supreme Court that the nominally “just” compensation isn’t just but harsh. Or that market value fails as full compensation, because it does not take into account various incidental economic losses proximately caused by condemnation. In the legal context, the word “compensation” means that deserving persons have suffered some harm or detriment, and the law now requires that those who transgressed legal norms in causing the harm recompense the victims by making them whole. But is that what the law of eminent domain does? Don’t be ridiculous. It does no such thing. Your faithful servant once got slammed by the California Supreme Court for voicing the heretical idea that the judicial bromides about fairness, justice, and indemnity, should actually mean what they say, rather than being “idealistic” judicial window dressing.
Don’t take our word for any of this. The U.S. Supreme Court has repeatedly conceded that though in theory “just compensation” must put condemnees in the same position pecuniarily they would be in had their property not been taken, in reality, said the court, this is true only to the extent the owners receive fair market value. Not only is that circular reasoning, but fair market value, conceded the court, is so artfully defined that it excludes factors that buyers and sellers would consider in arriving at the price in voluntary market transactions.
So what does Schultz have to say about all that? Nothing, nada, zip, bobkes. He only worries about the cost to taxpayers who by his lights are entitled to feast on the proverbial “free lunch,” i.e., the hoped-for nominally public gain at the expense of undercompensated condemnees. But in the context of eminent domain, keeping compensation down is not only ethically and economically unsound, it also conceals the fact that in most eminent domain cases involving a total take of a condemnee’s land, the cost to the condemnor (apart from transactional costs) is zero. That’s right – zero. Why? Because unlike in tort cases where the liable party has to pay damages but receives no quid pro quo, in eminent domain the condemnor only exchanges one asset (money) for another asset (land) which it acquires at its judicially determined fair market value, so the condemnor’s balance sheet remains unchanged.
Adding insult to injury, once the land is in the condemnor’s or a redeveloper’s hands, it is often put to a commercial, more productive use, resulting in a profit to the redeveloper and increased tax revenues to the condemnor. The classic example of that phenomenon is the TVA which condemned much land and put it to hydroelectric power generating uses that provided a windfall to industry in the form of dirt-cheap electricity, which led to the TVA becoming the largest utility in the country, at the expense of the people whose land it took.
But in spite of Schultz’s professed concern for the downtrodden, do you see him worrying about any of that? No, you don’t and we suggest that you not hold your breath waiting for him to do so. He may talk a good game about the ill-used poor folks, and he may rail against “corporate thuggery,” but when push comes to shove, he comes down on the side of Big Brother’s bulldozers.
Finally, Schultz seems to be oblivious to the fact that lavish government spending, often on projects of dubious value, has brought the country face to face with bankruptcy. In that context, the continued profligate government spending to subsidize “corporate thugs,” to borrow Schultz’s phrase, would seem to be utter folly. In our book it’s time to put them on a leash, but if they are permitted to go on, let them fully compensate their victims and let them spend their own money, not yours.
When contacted for comment on this development, Kermit responded with a hearty “Ribbet!”
This is one for the books. The Roanoke, Virginia, redevelopment authority is condemning a three-acre parcel for . . .Well, it’s sort of hard to say for what. According to the Roanoke Times, it began as one of those deals where Carilion, a local private hospital, would eventually receive the subject property after its taking. But, in spite of the fact that this was the legal scenario in the right-to-take trial (that ended with a ruling in favor of the condemnor) sometime later Carilion decided that it doesn’t want this property after all. So was the condemnation case abandoned? Don’t be silly. Get this:
“Even though Carilion has no interest in the land, it will likely purchase the property from the housing authority to honor a contract with the city that was part of a plan to redevelop the area, . . .“
“Mark Loftis, an attorney for the housing authority, said the land is being taken as part of a master redevelopment plan for the area, which doesn’t necessarily have to involve Carilion. One possibility is that Carilion would acquire the land and then sell it to a developer, as it did with a hotel being built in the area.”
So says the Roanoke Times (http://www.roanoke.com/news/roanoke/wb/228303 )
In the meantime, the case has gone to a valuation trial. The redevelopment authority had offered $1,200,000, but at trial it was born again and upped its evidence to $1,530,000. The owners countered with testimony of two appraisers opining to $4,500,000 and $4,830,000 respectively. The jury verdict was $2,200,000, close to twice the agency’s pretrial offer, thus qualifying for inclusion in one of our Lowball Watch dispatches. See http://www.roanoke.com/news/roanoke/wb/240397 )
So the bottom line of all this appears to be that the city wanted to get this land for Carilion, but lacking the authority to condemn it, it turned to the redevelopment authority to do the job. So far, so bad. But now that Carilion doesn’t want the property, what’s to be done with it? Joe Waldo, the owners’ lawyer, allows how this property (which was ostensibly taken in order to eliminate blight) will actually create blight by just sitting there. The Roanoke Times quotes the authority’s lawyer as de facto agreeing by saying “It would be fair to say there is no firm plan that’s been approved for what’s to be done with that property.” And here we thought that the U.S. Supreme Court has held in Cincinnati v. Vester, 281 U.S. 439 (1930), that taking property by eminent domain without any plan on how it is to be used is a no-no.
So the bottom line of this caper appears to be that over $2 million in public funds (not counting the cost of litigation and other transactional costs) has been blown on . . . What? Even assuming a valid “elimination of blight” scenario (which appears to be a strech here), it does not appear likely that this property is going to be redeveloped for a while, given the ongoing recession.
The owners plan to appeal the right to take. Rightly so. We await the eventual ruling of the Virginia Supreme Court, although given the frequent performance of the judiciary in such matters, we aren’t holding our breath. Why? The trial judge who ruled in favor of the right to condemn, has allowed as how, had he known that Carilion was no longer interested in the subject property, it would not have made any difference. Maybe the Virginia Supreme Court can do better that that.
Follow up. For a local newspaper editorial deploring the city’s conduct see Eminent Insanity, Roanoke Times, March 24, 2010 http://www.roanoke.com/editorials/wb/240799
We knew this was going to happen — come to think of it, it already did happen in the past once or twice — but our fellow blogger Robert Thomas brings the news on his blog www.Inversecondemnation.com that an appellate court — where else? — in California ruled that the owner’s inverse condemnation taking claim was simultaneously too early and too late — too early for an as-applied challenge to the regulation, and too late for a facial challenge. See MHC Financing Ltd. P’ship v. City of Santee, Calif. Ct. App. 4th Dist., No. D053345 (Mar. 15, 2010).
Reminds us of the Queen of Hearts informing Alice that she could have had jam on her toast yesterday and will be able to have it tomorrow, but never today.
Though it has not received the same amount of publicity, Mississippi went through the same sort of political kerfuffle as Texas. The legislature passed a bill reforming the state eminent domain laws to provide geater protection to property owners whose land is coveted for private economic development, but Governor Hailey Barbour vetoed it. Now, the Y’all Politics blog reports as follows:
“For three years, Farm Bureau has urged legislators to protect homeowners and landowners from confiscation of their private property by eminent domain, but to no avail,” said MFBF President David Waide. “The 2009 Legislature passed H.B. 803, which prohibited the taking of private property under the guise of economic development for private development or business. Both House and Senate passed the bill, but the Governor vetoed it.”
Now, Farm Bureau has launched a petition drive to put this initiative on the November 2011 ballot. If this initiative passes, it will greatly discourage government entities from taking private property for economic development purposes by prohibiting its use for those purposes for ten years.
Follow up. For a progress report on how the Mississippi initiative is coming along, see Elizabeth Crisp, Petitions Push Land Rights, Clarionledger.com, April 4, 2010. It appears that the Mississippi Farm Bureau Federation has taken a strong leadership role in promoting this initiative. See http://www.clarionledger.com/article/20100404/NEWS/4040352/1001/Petitions-push-land-rights
There is an old Charles Addams cartoon in the New Yorker magazine. It indicates that a horrible thing is occurring, though the cartoon does not actually depict the event itself. All it shows is the horrified faces of the people watching it. But standing in the crowd is one of Addams’ stock characters, a bald little guy clad in a black robe, and judging from the grin on his face, he is hugely enjoying the sight of the disaster. We were reminded of that cartoon as we read a recent article seeking to justify, indeed praise, the Kelo case, even though somewhere around 90% of the people think it was a wretched blunder on the part of the Supreme Court’s majority.
If you haven’t checked it out yet, do take a look at Book Review: Jeff Benedict’s Little Pink House: The Back Story of the Kelo Case, 42 Conn. L.Rev. 925 (2010). In it, Professor George Lefcoe of the U.S.C. Law School offers his benign view of the wretched Kelo case, by basically quibbling with the contents of Benedict’s book. Nice try, George. We could go through Professor Lefcoe’s entire apologia, but we won’t. Those of our readers with a serious interest in eminent domain in general and the Kelo case in particular, will check it out for themselves, and as for the others, you can save yourselves the time and trouble.
Two items, however, bear mention. First, while Professor Lefcoe goes through the familiar lamentations about new London’s dire condition as part of a historical trend and particularly after the U.S. Navy’s closing of its New London submarine base, he fails to note that as all these calamities were said to unfold, the Fitch bond rating service gave New London’s general obligation bonds a rating of AA- a solid investment grade rating, that is higher than the rating of California state GO bonds. One is left to wonder if New London advised the buyers of those bonds that it was in as parlous a condition as depicted to the Supreme Court.
Second, he fails to note the extent of the failure of the New London redevelopment project. The city took some 91 acres of land, razed all structures on it (except for the local Italian Dramatic Club building – a hangout of local politicians), but was unable to do anything with that land. As reported time and again by the New York Times and The Day (a local newspaper), and as noted here from time to time, the city’s chosen redeveloper was unable to obtain financing even before the crash (remember that the U.S. Supreme Court gave the city a green light in 2005), so the project went nowhere, as duly noted by the New York Times as early as 2007.
As Professor Lefcoe sees it, “Residents and visitors can now enjoy the stunning waterfront from the newly refurbished Fort Trumbull and Fort Trumbull State park.” Id. at p. 934. Nothing about the “stunning” site being a garbage-strewn, weed-overgrown wilderness of interest only to birds and feral cats. Was that worth over $100 million in public funds?
And so it goes. Your tax money at work.
Note: This is a revised version of the post originally posted on March 15, 2010.