Greenbaum Rowe Smith & Davis Newsletter

Supreme Court Upholds Power of Eminent Domain For Economic Redevelopment Purposes

By Robert Beckelman

 

On June 23, 2005, the United States Supreme Court held that the City of New London, Connecticut (“City”) did not violate the “public use” requirement of the United States Constitution’s Fifth Amendment when it exercised its power of eminent domain in order to advance economic development. In Kelo v. The City of New London, 2005 WL 1469529, the Supreme Court determined that unlike a taking to benefit a sole party or a specified group, the takings at issue in this case were to be carried out pursuant to a comprehensive development plan which had been adopted to benefit the City at-large. Thus, according to the Court, the well-planned redevelopment project served a constitutionally valid public purpose.

 

Further, the Court found that economic development is a valid public use. In so doing, the Court reaffirmed its broad interpretation of “public use” whereby, although the property may not actually be used by the general public, private property may be taken via eminent domain when the intended effect is a benefit to the public. The Kelo decision also reiterates the Court’s longstanding deference to legislative determinations in the redevelopment arena.

 

Similar to many areas slated for redevelopment, economic problems plagued New London for decades. The City’s economy, employment and tax revenue were spiraling downward. New London, with a population of about 24,000, was hit hard by the 1996 closing of the Naval Undersea Warfare Center, which had employed more than 1,500 people. Adding to, and further demonstrating, its economic distress, the City’s population at the time the redevelopment plan was approved was the lowest it had been in over seventy (70) years.

 

In 1998 a major pharmaceutical company, Pfizer, chose to construct a large research facility in New London. Pfizer’s new research facility was to be built in the waterfront area, also known as Fort Trumbull. Having recognized its declining economy and the possibilities for growth which would emanate from the new research facility, the municipality, upon careful consideration, determined that much of the Fort Trumbull area required redevelopment. The express purpose of the redevelopment plan was to revitalize New London’s declining economy.

 

The redevelopment program at issue was expected to generate hundreds of jobs and up to $680,000 in property tax revenue. New London, via its redevelopment agent, was able to purchase most of the subject properties. However, fifteen property owners objected and condemnation of the subject properties ensued.

 

The objectors filed suit to stop the condemnation process. The objectors asserted that, regardless of whether just compensation would be paid to the property owners, takings for the purpose of economic development were in violation of the Fifth Amendment’s Takings Clause. The Connecticut Supreme Court disagreed with the objectors’ argument and upheld the earlier dismissal of the suit. The United States Supreme Court agreed to hear the matter.

 

In accord with its earlier decisions, the United States Supreme Court held that the Legislature of each state, within the confines of that state’s constitution and the Federal Constitution, has the power to determine under what circumstances eminent domain is appropriate. Here, it was Connecticut’s approval of the taking of land for the express purpose of economic development that was challenged before the United States Supreme Court. Importantly, New Jersey does not define economic development, in and of itself, as a valid public use for purposes of triggering the power of eminent domain. Unlike New Jersey, Connecticut municipalities are not required to make a blight determination prior to declaring an area in need of redevelopment.

 

However, the fact that the Supreme Court’s ruling in Kelo made no bold statement relative to New Jersey law does not mean that it will have no impact whatsoever. Essentially, Connecticut’s approval of economic development as a valid public use is less stringent than New Jersey’s determination of “‘blight’” requirement. Further, the United States Supreme Court decided that the use of eminent domain to advance economic development, which arguably is a more aggressive approach than that taken by the New Jersey Legislature, is a valid public use. Thus, it would seem that the Kelo decision is good news for New Jersey municipalities in that it sets the tone for the acceptance of properly adopted redevelopment plans.

 

However, lawmakers in more than twenty (20) states have introduced, or announced plans to introduce, legislation that would limit the use of eminent domain. New Jersey State Senators Gill (D.) and Allen (R.) have introduced legislation which would ban the condemnation of any property “that is legally occupied as a residential property” and maintained according to the current housing standards. The “bill would prevent the taking of private homes ... to accomplish economic development objectives” including “the construction of non-public office buildings, mega-stores, and shopping centers.”

 

There has also been a negative response to the Kelo decision on the Federal level. In a 365 to 33 vote, the House passed a resolution expressing “grave disapproval regarding the majority opinion” in Kelo. The resolution states that Kelo “renders the public use provision of the Takings Clause ... without meaning.” Thus, although the precise impact of the Kelo decision remains to be seen, the use of eminent domain will continue to be a hotly debated topic both in the courtroom and in the court of public opinion.