Has the Eminent Domain Law Kept Up with the Times?

The power of eminent domain is rooted deeply in our constitutional history. Even before the Bill of Rights, the power was recognized at common law and in state constitutions. The power is often spoken of in connection with “property rights,” but one might ask if this is an understatement: Isn’t a person’s home, property and business an essential aspect of personal liberty? Is personal liberty anything other than abstract if a person may be deprived of the home, property and business through which personal liberty is exercised? Isn’t the notion of personal liberty almost empty if one lacks the means to enjoy it?

The exercise of the power of eminent domain is limited by the concepts of “public use” and “just compensation.” Private property may not be taken except for public use and upon payment of just compensation.

Historically, the public use limitation has been broadly interpreted. The recent United States Supreme Court decision in the Kelo case demonstrates this: the court ruled that a local government could acquire a person’s property simply to increase public revenue, and even though the property was not blighted and the government intended to let private real estate developers redevelop the land.

Historically, however, the just compensation limitation has been more narrowly construed. Just compensation, with few exceptions, is interpreted to mean fair market value, not replacement cost. Federal courts do not require payment of lost or damaged business goodwill when business property is taken through eminent domain. California law requires payment of goodwill loss or damage as a matter of statutory law, not constitutional law. In other words, both the state and federal constitutions do not require payment of goodwill loss or damage, but permit it if the legislature passes laws permitting it. Those laws may be revoked or repealed without violating the constitution.

Furthermore, just compensation does not recognize the current expense of litigation to protect one’s interests when the government exercises the power of eminent domain. With few exceptions, the condemning governmental agency is not required to pay the owner’s attorney’s fees or appraisal expenses. Furthermore, often ancillary damages, such as lost income, relocation expenses and the like, are not compensated in whole or in part.

The original reasons for these developments are obvious: eminent domain was perceived as an economic engine, benefitting the economy and the growth of the nation, and the goal was to encourage eminent domain and keep its costs low. Eminent domain was used to acquire land for schools, libraries, streets and utilities, needed for a growing economy. As a result, the courts routinely upheld the exercise of the power and rejected efforts by impacted owners to increase the limitations on it. Kelo was perhaps the entirely predictable result of this way of thinking, with the Supreme Court recognizing perhaps the broadest possible definition of “public use.” The court’s deferential approach is often described as a “conservative” one; i.e. the unelected courts should not second guess the reasoning of the popularly elected legislatures.

In fact, eminent domain law has transformed our country for the better. Without the broad power of eminent domain, under the reasoning that culminated in Kelo, we perhaps would not have had a nation on a continental basis because our railroads needed the power of eminent domain to construct a rail system that bound the continent together. Without this broad power of eminent domain, construed deferentially by friendly courts, would we have had the elimination of blight and the business growth in many downtown areas that we experience today?

In light of these obvious benefits, why the almost violent reaction to Kelo? Are those who advocate change to the law of eminent domain in light of Kelo too blind to see these benefits? Or is there something that is being missed by those who are satisfied with the law as it is?

Perhaps it is just simply that the times have changed.

It was one thing for eminent domain principles to work in a world where there was ample and cheap land and where it was relatively easy for an owner to pick up stakes and move west.

It was one thing for eminent domain principles to work in the post World War II world, where replacement property was also relatively cheap and one could find a replacement home right around the corner at a comparable price.

It is entirely another thing for these same principles to operate in a world or volatile housing and land prices, where replacements at comparable cost often cannot be located except at great distance, where often replacements cost more than the compensation paid for the taken land, and where the expense of litigating to protect your rights is sky high.

In this day and age, the loss of a home can be devastating, not just inconvenient. In this day and age, the loss of a business may mean the loss of a livelihood. Even if the business can be saved, it may have to move far from its existing roots and customers.

In this day and age, eminent domain is a bomb that detonates, changing ordinary people’s lives forever. It forces some homeowners to move to new homes far away from the neighborhoods where they have roots. It forces some business owners to move their businesses far away from the customers served. It forces some business owner’s to move after they have invested their life savings, but before they have had any opportunity to show a profit. It forces some seniors who have invested in income producing property as a means of support to lose that income while searching for a difficult to find replacement.

Redevelopment itself is a changed condition. A modern innovation in eminent domain law, redevelopment allows the government to deprive some private property, home and business owners of what they have in order to potentially benefit private commercial developers who promise higher tax revenues. However, the property at issue in Kelo still has not been redeveloped, though millions have been spent by the public on the hope and prayer that someday it and adjacent properties would be redeveloped. Should the rules be the same in this situation as they are when the government seeks to take property for a school or a street?

The law, however, continues to live in a world that no longer exists. In the meantime, ordinary property, home and business owners are left largely on their own to deal with the effects of the detonation of the bomb, while the courts stand up forthrightly in defense of principles that were forged in earlier and different times. One can only wish that a few more judges, perhaps, had their own property, homes or businesses taken in eminent domain. No doubt many would join the ranks of those opposing or concerned about Kelo?

What do these new times require? While the balance in the past has been weighted in favor of the government and not the impacted owners, we should not shift the balance entirely to the other side. Nevertheless, the balance needs to be adjusted to recognize both the public need and the private devastation. Among many possibilities, the following should be considered:

  1. Changing just compensation principles to recognize replacement cost, rather than fair market value, as the measure of the compensation to be paid.
  2. Expanding relocation benefits to recognize the true cost of forcing owners to move, a cost entirely brought on by the taking in eminent domain, and not at all due to any fault on the owners’ part. For example, currently reimbursement for the costs of modifying a replacement site to make it suitable to receive a relocated business (so-called “reestablishment expenses”) are limited to $10,000.
  3. Awards of appraisal expenses when the government’s offers and appraisals (both in the early stages of the eminent domain process, and before and at trial) show that the government did not fairly appraise the property, and, instead, used the process as leverage against the impacted owners. Use of court-appointed experts, at government expense, upon request of the owners. Payment of appraisal stipends at early stages so that the property owners are not put at a disadvantage by being unable to afford, until after a lawsuit has already been filed, appraisal help that the government easily obtains for itself.
  4. Awards of attorney’s fees when the owner is able to establish good faith and reasonable basis for contesting the offer made by the government.
  5. Awards of ancillary damage for items of damage that would not have been incurred by the owner but for the taking in eminent domain. If an owner loses both arms, but is compensated for only one, how can it be said that the compensation was just?
  6. Recognition that, in certain instances (such as redevelopment), the possible “benefits” to the public weigh less heavily in the balance than the detriment to the impacted owners. If private property, business and home owners are displaced and left to fend for themselves in this volatile market, simply to allow the condemning agency to collect more sales tax from a Wal-Mart, should the rules be the same and should the same deference by the courts be given?
  7. Recognition that, in certain instances, sales are forced, while in others the government does no more than buy what others could also have bought on the open market. The rules in each case should perhaps be as different as apples and oranges.
    The initiatives and legislation post Kelo has tried to address these issues, but has failed by either shifting the balance too much in one direction, or by including pork barrel provisions on matters (such as rent control) that are really part of a different discussion. In any event, the issues remain to be addressed and resolved. The post Kelo dialog is important. The rules and principles of eminent domain must be reexamined in light of changing conditions. If we adhere to the past with a blind eye to changes of conditions, we reduce a law, designed to protect personal liberty, to an anomaly that the unscrupulous can exploit for their own benefit rather than the public’s.

Posted: 04/11/13 Joseph Dzida

Categories: CRD Attorneys