S.E.C. Real Estate Observer

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Editor’s Note: The S.E.C. prides itself on being creative within the confines of the real estate world and we, as S.E.C. members, foster the spirit of real estate ownership within our family, friends and peers. That said, I would like to introduce the son of one of our members who, as part of a school project at Pepperdine University, has written the following paper on the recent and current topic of Eminent Domain. Derek Barker is the son of Steve Barker, S.E.C. and is a law student and MBA graduate from Pepperdine University. We all wish Derek the best in his endeavors and congratulate him on a well written paper.

A Paper on the New Eminent Domain

by Derek Barker, MBA and Gustavo Garza, MBA

The right to acquire and possess private property is one of the founding pillars of the United States of America. That right is something that separates America from much of the world. If property is to be taken from a private individual by the government, the Constitution of the United States defines the proper way in which is to be taken. This is referred to as the “Takings Clause”:

“…nor shall private property be taken for public use, without just compensation.” (Constitution of the United States of America, 5th Amendment)

It is interesting to consider why the Constitution does not expressly say every individual has a right to private property protection. James Madison, the drafter of the Takings Clause, said,

“A government is instituted to protect property of every sort… This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.” (Heritage Guide to the Constitution p.341)

This still begs the question of why, if it was so important, did the founders not place parchment protection of private property inside the Constitution.

“The American Founders viewed the natural right to acquire or possess property as embedded in the common law, which they regarded as the natural law applied to specific facts.” (Heritage Guide to the Constitution p.342)

The founders did not believe they needed to put this protection expressly in the Constitution because they thought it was already written inside the common law of that time period; it is unfortunate they did not.

Until 2005, the process by which private property could be taken, which is commonly referred to as “Eminent Domain,” was fairly strait forward under the Takings Clause. A common example would be when a local government wants to expand a two lane road to a four lane road, a specific “public use,” with private residences presiding on either side. First, the government would draw up the exact dimensions of the road expansion. Second, the government would send officials with Condemnation Notices to all residences with property adjacent to the two lane road to inform them that a portion of their property would be “condemned” for the road expansion and that for their property they would be given “just compensation.” Third, the government would then take possession of the property through their power of Eminent Domain and go forward with the road expansion.

Until 2005, the term by which the government was constrained in taking private property was “public use,” as written in the Takings Clause. This term had come to be defined as roads, highways, schools, bridges, governmental buildings, public parks, public walkways, power lines, and railroads; all of which are used by the entire public. In most cases the government, except for the power and railroad lines, retained one hundred percent ownership of the taken land. However, a recent Supreme Court decision changed the limits to which the government was bound when taking private property.

The Supreme Court case, Kelo vs. New London, involved the City of New London Connecticut’s redevelopment plan for area called Fort Trumball. The area in question inside the Fort Trumball area was composed of,

“Approximately 115 privately owned properties, as well as 32 acres of land formerly occupied by the naval facility (Trumball State park now occupies 18 of those32 acres.” http://www.law.cornell.edu/supct/html/04-108.ZO.html

The City employed a private nonprofit organization, the New London Development Corporation (hereafter to be termed “NLDC”) to do the redevelopment by authorizing,

“The NLDC to purchase property or to acquire property by exercising Eminent Domain in the city’s name.”
http://www.law.cornell.edu/supct/html/04-108.ZO.html

The City wanted to condemn the area inside Fort Trumball to place,

“(a) pedestrian riverwalk…public walkway(s)….a new US Coast Guard Museum….(a) state park…parking…water dependant commercial uses…(a) waterfront conference hotel…restaurants…80 new residences…(and) 90,000 square feet of research and development office space” http://www.law.cornell.edu/supct/html/04-108.ZO.html

Ms. Susette Kelo was amongst the private residence owners being served Commendation Notices by NLDC; she did not want to sell. She, along with six other homeowners in the area, filed a suit against the City of New London in order to stop the government from taking their private residences. Ms. Kelo had been living there,

“Since 1997.” http://www.ij.org/private_property/connecticut/
This case made it all the way to the Supreme Court, which ruled 5-4 in favor of the City of New London.

When examining reasons the City of New London sought to take Ms. Kelo’s private residence, there are consistencies and inconsistencies between what purposes the City wanted to take her land for and what purposes the City was allowed to take her land for under the Takings Clause.

Taking the land for the purposes of,

“Pedestrian riverwalk…public walkway(s)….a new US Coast Guard Museum….state park(s)…parking… (and) water dependant commercial uses,” http://www.law.cornell.edu/supct/html/04-108.ZO.html

are uses consistent with the previously agreed upon meaning of “public use.” All these uses would be for the entire public and the government would retain ownership. If these were the only purposes given by the City of New London as their justifications for taking Ms. Kelo’s residence, she would have had no basis to challenge the City’s plan. However, these were not the only purposes the City was using as a justification for taking her home.

The City also stated that it was taking Ms. Kelo’s land for the purposes of,

“(a) waterfront conference hotel…restaurants…80 new residences… (and) 90,000 square feet of research and development office space” http://www.law.cornell.edu/supct/html/04-108.ZO.html

These uses are inconsistent with the previously agreed upon meaning of “public use.” If the private land was taken for the purposes of building a waterfront hotel and restaurants that would be owned and operated by private companies for private profit, then the public would not own and would be constrained from utilizing that land in the sense that the entire public could not use all the land all the time. It is not clear as to how the government would disperse ownership of the planned 80 new residences; whether ownership would be sold to private citizens or whether those residences would be run as public housing. If they were to be run by the government as public housing, that would fall under the previously agreed upon meaning of “public use.” However, if they were to be given to private citizens, then that would eliminate the public’s ability to use the land. The stated purpose for which the City of New London had for building the 90,000 square feet of research and development office space was to,

“…capitalize on the arrival of the Pfizer facility (immediately adjacent to the property) and the new commerce it was to attract.” http://www.law.cornell.edu/supct/html/04-108.ZO.html

The City of New London admitted it was taking Ms. Kelo’s private land for the express purpose of giving it to private companies, which it thought would be brought in by the existence of the adjacent Pfizer Corporation facility. This purpose for taking Ms. Kelo’s home is in stark contrast to the previously agreed upon meaning of “public use.” If other private companies were to take ownership of the proposed R&D office space, that would severely restrict the public’s ability to use the land. In fact, we put forth this would in fact eliminate the public’s ability to use the land. It is for these reasons that the Supreme Court had to alter the term of public use, as written by the Founders in the Constitution of the United States, to public purpose in order to justify it’s decision.

In June 23, 2005, the Supreme Court’s verdict, in what is now referred to as the “Kelo Decision,” stretched the limits for which purposes the government may take private property. Among the justifications as to why the court ruled in the manner in which it did, Justice Stevens wrote in the Opinion of the Court that the area in question had been deemed a,

“…distressed municipality,” http://www.law.cornell.edu/supct/html/04-108.ZO.html

and that the City of New London’s plan,

” was not adopted to benefit a particular class of identifiable individuals….(it) will provide appreciable benefits to the community, including-but by no means limited to-new jobs and increased tax revenue….(and) the City has invoked a state statue that specifically authorizes the use of Eminent Domain to promote economic development.” http://www.law.cornell.edu/supct/html/04-108.ZO.html

These have become the new boundaries of Eminent Domain. Now, any private entity has the ability to take a private individual’s land as long as the local government (1) deems that the area in question is a distressed municipality (which the media has termed, and will from here be referred to, as “blighted area”), and that the plan for that land (2) ads economic development, (3) is not adopted to benefit any particular class of individuals, and (4) increases the tax base. The government is no longer limited to taking land strictly for the previously accepted “public uses;” now it can take private property for any “public purpose” as long as the stipulations previously discussed are met. It is in the execution of the new Eminent Domain that our case takes place.

In Weare New Hampshire, a man by the name of Logan Darrow Clements (here on referred to as “Mr. Clements”) has asked the local government to lease it’s Eminent Domain power to his company, FreeStar Media LLC, to take a private residence for the “public purpose” of developing a hotel. Mr. Clements has made it clear to the local government that if it agrees, his company’s hotel will add economic development, jobs (he will need people to work in the hotel), and tax revenue (a hotel pays more taxes than a private residence). From Mr. Clements’s statements, it appears that all the criteria, short of the local government deeming the said area as blighted and leasing it’s Eminent Domain power, have been met. However, there is a twist to this story: the private residence,

“assessed at just more than $100,000…(which) brought in $2,895 in property taxes last year(2004),”
http://www.concordmonitor.com/apps/pbcs.dll/article?AID =/20050629/REPOSITORY/506290321/1031

which Mr. Clements’s company wishes to take belongs to Supreme Court Justice David Souter. Justice Souter was one of the five Supreme Court Justices that ruled in the majority of the Kelo Decision previously discussed. The question remains: should the local government in Weare, NH deem the private residence in question a blighted area and lease to Mr. Clement’s company it’s Eminent Domain power to take Justice Souter’s Home?

We believe there are four main issues to consider:

I.) Should the Weare, NH government deem Justice Souter’s house a blighted area which would be first step necessary for the execution of Eminent Domain? Without extensive knowledge as to what is defined as a blighted area, we choose only to refer back to the Kelo Decision. Ms. Kelo had been living peacefully in her home in a nice area for nine years and the Supreme Court ruled in favor of deeming her residence to be a blighted area. Justice Souter has also been living in his home in a nice area for many years. We see no distinction between the two residences other than the fact that Justice Souter’s home was,

“…more than 200-year(s)-old….”
http://www.foxnews.com/story/0,2933,183976,00.html

If anything, this one difference leads us to believe that Justice Souter’s home had a much greater chance of being considered blighted. Therefore, we see no reason why the Weare, NH government would not be justified in deeming Justice Souter’s private residence a blighted area. It could simply point to Justice Souter’s own vote on the matter.

II.) Should the Weare, NH government lease it’s Eminent Domain power to Mr. Clements’s company for the purpose of constructing a hotel? When the Supreme Court ruled in favor of the City of New London in the Kelo Decision, it solidified the president of leasing governmental Eminent Domain power to a private company. Upon further analysis, this issue has already been settled in the past. Power and railroad lines are amongst the previously accepted “public uses” previously discussed. However, the government does not own the power or railroad lines; they are owned and operated by private companies. Therefore, the Supreme Court was correct in endorsing the City of New London’s desire to lease it’s Eminent Domain power over to NLDC. In this same light, the Weare, NH government would also be justified in leasing it’s Eminent Domain power to Mr. Clements’s company.

III.) Can Mr. Clements’s company take Justice Souter’s home even though Mr. Clements has stated his main reason for wanting the property is revenge for the Kelo Decision made in part by Justice Souter?

“(Mr.) Clements indicated that the hotel must be built on this particular piece of land because it is a unique site being the home of someone largely responsible for destroying property rights for all Americans.”
http://nhindymedia.org/newswire/display/2507/index.php

We believe a court may find issue with this point which could lead to this case of Eminent Domain not going through. Mr. Clements stated his primary reason for taking the land is revenge, not economic development as was the reason given by the City of New London in the Kelo Decision. While economic development and the other stipulations of the execution of the new Eminent Domain are present in this case, as they were in Kelo vs. New London, this added factor of stated intent on the part of Mr. Clements may put the brakes on the local government approving the taking. However, we believe if the Weare, NH government looks only at the fulfillment of the new Eminent Domain stipulations, it will agree to his requests. Also, there is nothing written in the Kelo Decision that says revenge would preclude Eminent Domain from taking place.

IV.) The central issue with the answer to our question goes back to the underlying argument of the Kelo Decision; can the government take private land and give it to some other private entity for any economic development purpose? To this, Justice Thomas, in his Dissenting Opinion of the Kelo Decision, wrote,

“If such “economic development” takings are for a “public use,” any taking is, and the Court has erased the Public use clause from our Constitution.”
http://www.law.cornell.edu/supct/html/04-108.ZD1.html

We believe Justice Thomas is correct in his assertion. Now, the government can take any private property for any purpose and give it to some other private entity as long as that purpose fulfills the stipulations previously discussed. Hence, the taking of Justice Souter’s home for the purpose of a hotel is justified according to the voting majority of the Supreme Court in the Kelo Decision, of which Justice Souter is a member.

Conclusion:

Ms. Kelo’s home was no different from Justice Souter’s except for the fact that his was much older. So, the Weare, NH government would be justified in deeming Justice Souter’s private residence a blighted area just as Justice Souter deemed Ms. Kelo’s residence through his vote in the Kelo Decision. Leasing Eminent Domain power to Mr. Clements’s company for the purpose of taking the private residence is justified as this maneuver has been approved for many years and personally endorsed by Justice Souter. If the Weare, NH government strictly applies the Supreme Court president set out in the Kelo Decision, there should be no problem with Mr. Clements revenge reasoning. Justice Souter has personally endorsed the Weare, NH government’s ability to take his private residence for economic development through his vote on the Kelo Decision. The conglomeration of all these issues would lead us to believe that the Weare, NH government will deem the private residence a blighted area and lease it’s Eminent Domain power to Mr. Clements’s company to take Justice Souter’s home.

Outcome of the Case:

February 3, 2006: A group of (Weare, NH) residents…petitioned to get the matter on the town’s March ballot, asking voters to take the justice’s Weare home by eminent domain for the “Lost Liberty Hotel.” http://www.foxnews.com/story/0,2933,183976,00.html

February 4, 2006: Walter Bohlin (a Weare, NH resident) proposed adding the word “not” throughout the proposal to take Souter’s eight acres, including his more than 200-year-old farmhouse. “It was a piece of property targeted for revenge.” http://www.foxnews.com/story/0,2933,183976,00.html

By secret ballot, residents voted 94 to 59 in favor of Bohlin’s addition. Later, by a voice vote, they approved substituting a request that town officials not seize Souter’s home by eminent domain; and urging Gov. John Lynch and the Legislature take action to make sure property can’t be taken through eminent domain and handed over to private developers for economic development purposes.
http://www.foxnews.com/story/0,2933,183976,00.html

When asked about the outcome of the case, Mr. Clements said,

It’s a shame they took away the chance for Weare voters to vote on it…I personally think it seems to violate the First Amendment. If you sign a petition and someone changes what you sign, that doesn’t seem ethical to me…This is just one setback.”
http://www.foxnews.com/story/0,2933,183976,00.html

Mr. Clements has vowed to continue fighting in his pursuit of Justice Souter’s home. We do not know what will be the final outcome. We only hope that the rule of law and justice will be applied fairly to all.