Eminent Domain and the Rule of Law

By Dennis Bechara

One of the distinguishing features of a free society is its defense of the right of private property. As every individual has the right to his life, so has he the right to those things necessary to sustain life—among them, the private ownership of property and the ability to keep the fruits of his labor. Those rights not only assure that the individual enjoy the life and liberty promised him by a free society, but also assure continued freedom, independence, and security for all.

The institution of private property, however, is not without its critics. Socialists of all types decry private property as plunder and many parts of the world have instituted public ownership of the means of production. In this country, however, criticism about the validity of the institution of private property itself is very limited. Yet, in spite of the consensus regarding the legitimacy of private property, the concept itself has suffered a progressive erosion which is reaching potentially alarming proportions. As massive government intervention and forcible income redistribution has become the order of the day, real estate has come into play as an adequate means for the involuntary transfer of wealth.

In a sense, this development became inevitable once the proposition was accepted that some segments of the population had the right to be forcibly supported by the remainder of society. The redistributionist mentality has legitimatized the taking of one person’s income and its transfer in favor of another. Yet, this process remained somewhat anonymous and detached, because the individual taxpayer has been at a loss to identify the particular beneficiaries who received his share of the taxes.

Since the costs of government programs are dispersed among all taxpayers, coupled with the general anonymity of the specific beneficiaries, taxpayers have had little incentive to arrest the growth of the welfare state. Rather, the opposite has been the case. Groups have formed with the specific goal of receiving subsidies from the government, and the results of these organized special interest groups have been substantial.

Beneficiaries Identified

Recent judicial developments related to the power of eminent domain, however, have somewhat altered this reality. As owners of land become dispossessed as a result of the emergence of the exercise of eminent domain by local and state governments, the anonymity of the redistributive process has been shattered. The identity of the beneficiaries is known and in a sense this fact may pierce the cloak of altruism that has covered all the redistribution of wealth in which the government has been engaged.

The one case which highlights this expansion of government power, and which eloquently introduces its danger is Hawaiian Housing Authority v. Midkiff 1 which was decided on May 30, 1984 by the United States supreme Court.

The facts of the case are relatively simple. Hawaii, because of its Polynesian background, did not have a tradition of encouraging the private ownership of land. Land was held by certain island chiefs and sub-chiefs, and all who occupied it were tenants of the then governmental authorities. Over the years some settlers were able to purchase land but by the decade of the 1960s the government, both Federal and State, owned 49% of the land. In addition, 47% of the State’s land was then owned by 72 landowners. One of the landowners, the Bishop Estate, owned 341,000 acres which belonged to Princess Bernice Pauahi Bishop, the last survivor of Kamehameha the Great, who unified the Hawaiian Islands in the eighteenth century.

Some of the landowners were discouraged from selling their land and leased it instead because of the adverse effect of the income tax laws. In addition, others, like the Bishop Estate, were charitable organizations which were exempt from taxes. Strict land use laws in effect in Hawaii have also interfered with the workings of the land market.

Barriers to Market Transactions

Although the fact that the government owned such a substantial amount of land, coupled with the structural barriers to the land market, inevitably affected the real estate market in Hawaii, the State’s legislators concentrated their attention on the 72 landowners and proceeded to enact the Land Reform Act of 1967.

Under the provisions of this statute, tenants who live in any developed residential tract of land of at least five acres in size may, if they so desire, petition the Hawaii Housing Authority and request the Authority to initiate condemnation proceedings so that the land may be forcibly transferred to them. In the event that the tenants do not have the financial resources to acquire the real estate, the State of Hawaii would lend them up to 90% of the purchase price. The statute provides for a hearing in which the landowner may introduce evidence as to the fair market price of the land, but otherwise the landowner may not object to the validity of the condemnation process.

The case arose because the Bishop Estate challenged the constitutionality of the statute, alleging that the Land Reform Act of 1967 violated the Fifth and Fourteenth Amendments of the Constitution. The thrust of their argument was that the taking of the land, as provided by the statute, was invalid because it was clearly not for public use, since the tenants were to acquire title to the land. The United States supreme Court decided the case and it held that the statute was valid and not repugnant to the Constitution.

Following Precedent

The Court’s approach in determining whether or not the intended use of the condemned land fulfilled the constitutional requirements that the land be publicly used was that since the state legislators had the power of eminent domain, it would be presumed that the use of the land by the tenants was constitutionally valid unless this was shown to be an impossibility. The Court cited a previous case, Berman v Parker, 2 as the authority for reaching its decision. That case contained the following language:

“Subject to specific constitutional limitations, when the legislature has spoken, the public interest has been declared in terms well-nigh conclusive. In such cases the legislature, not the judiciary, is the main guardian of the public needs to be served by social legislation, whether it be Congress legislating concerning the District of Columbia…or the States legislating local affairs…This principle admits of no exception merely because the power of eminent domain is involved.”

Essentially, the Court’s reasoning is that once it is determined that Congress or a state Legislature has the power to condemn land as a result of its power of eminent domain, then the Court will not invalidate the statute, in effect abdicating its responsibility of constitutionally evaluating the legislative scheme. The supreme Court’s position is that it will not substitute its judgment for that of the legislative branch, so long as the statute has a rational connection with the constitutional power enjoyed by the legislature. The implications of this case are very important, because state legislatures now have an additional power which they previously were not aware they had.

The power of eminent domain has existed for many centuries, but perhaps the clearest explanation of its purpose was proffered in 1625 by Grotius, when he said that:

“The property of subjects is under the eminent domain of the State, so that the State, or he who acts for it, may use or even alienate and destroy such property, not only in cases of extreme necessity, in which even private persons have a right over the property of others, but for ends of public utility, to which ends those who founded our society must be supposed to have intended that private ends should give way.” 3

This definition clearly sets forth the very limited function and role that eminent domain must play in society. One can envisage the prototypical example of extreme necessity—a fire in a city—which necessitates the destruction of houses which have not yet caught fire, precisely to avoid the spreading of the fire to the rest of the city. Similarly, whenever national defense is involved, it is reasonable that the government have the power of eminent domain in order to assure all of its citizens of the benefits of peace. The power of eminent domain, however, has expanded from the very limited role assigned to it by such legal scholars as Grotius, to the contemporary role of serving any broadly defined public purpose. In order to understand why the supreme Court ruled the way it did in the Hawaiian Housing Authority case, it is instructive that we analyze the origins and developments of eminent domain in the United States.

British Policies

The right of eminent domain came to America via England, where it had been established for quite some time. In England, there were two varieties of eminent domain, one applicable to the Crown and the other to Parliament. The Crown was entitled to use privately used land in those areas where it was indisputable that the Crown had jurisdiction. For example, for such aspects as foreign defense or law enforcement, the Crown or its representatives were entitled to use any privately owned land so that the exercise of the Crown’s powers would be more efficient. Parliament, on the other hand, could only take private property after payment of a fair compensation. The requirement that compensation be given to the owner was added after 1514.

In the colonies, the Crown faced the seemingly insurmountable problem that a vast unexplored continent needed public roads if it was to be developed. Therefore, the right of eminent domain was imported to America as a road building tool. Prior compensation, however, was granted to the owner of improved land, but it was denied to the owner of unimproved land. The reason for this was that the owner of unimproved land actually benefited from the construction of a road through his property, so there was no need to compensate him for the land actually taken.

In Colonial Days

The understanding throughout colonial days was that a taking of private land would only be justified if it was for the public use. In fact, the Constitutions of Virginia and Pennsylvania, both of 1776, used the phrase “public use” when they both sanctioned the taking of private property. This requirement appears in the Fifth Amendment to the United States Constitution, which states in part that “…nor shall private property be taken for public use, without just compensation.”

The power of eminent domain was also utilized, during this time, for the building of milldams. The reason the Mill Acts were enacted was that it was deemed a public necessity to facilitate the availability of mills to farmers. These statutes, which twenty-nine states had already enacted into law by 1884, provided a mechanism whereby mills were established without unnecessary restraints, the damages caused by the consequent flooding were compensated and the farmers had various mills from which to choose. It is entirely possible that had the Mill Acts not been enacted in the first place, many mills would have nevertheless been established on a voluntary basis as millers would have discovered that it was to their economic self-interest to reach agreement with the owner of the land they were to flood.

The right of eminent domain became an unimportant and uncontroversial footnote in the history and the development of the United States during the eighteenth and early part of the nineteenth century because of the vast territorial expanses of the country. However, with the development of the country there arose a need to improve transportation. Therefore, state legislatures began expanding the role of eminent domain to allow private companies to build private turnpikes, highways and canals. The public was served in the sense that more transportation alternatives were made available to them and they were guaranteed the use of these facilities. Thereafter, with the development of railroads, eminent domain was further utilized to grant some railroad companies the right to build their tracks in spite of the objections of the owners of the land taken by the railroads.

Recent research has demonstrated that although railroad companies were empowered to seize land that stood in the way of certain routes, the landlords who were about to be dispossessed were not without legal recourse. In his article, “Reassessing The Impact Of Eminent Domain In Early American Economic Development,” Dr. Tony Freyer concluded the following:

“…local interests could get what they wanted from, or even obstruct the construction of, transportation facilities. Whatever benefit railroads and canals received from eminent domain law could be offset by localism; and working against such realities, the corporations either struck a bargain or looked elsewhere for a route. Either way, the operational impact of the assessment process was increased costs. Thus, while the right of eminent domain could potentially facilitate development, ironically, it also provided the means to impede development.” 4

Court Rulings

As the use of eminent domain became more prevalent, the landowners who were adversely affected by this development resorted to the courts in an effort to prevent the confiscation of their land. Since the purposes of eminent domain had so vastly expanded, the courts had to analyze whether or not the taking of the land was constitutional.

Essentially, courts were faced with the issue of whether or not these takings satisfied the public use requirement. Over time, courts began developing a distinction in the interpretation of the “public use” requirement of eminent domain statutes. Some courts felt that all that was required was that the general public receive some tangible benefit as a result of the taking. The danger with this interpretation was that it opened the doors to all types of takings, since it is logically conceivable that any type of enterprise will benefit society after it has taken some property. On the other hand, a narrow interpretation also began to take shape, as courts envisioned the possibility of abuse by powerful private interests as they associated themselves with the power of the state to plunder private citizens.

The law of eminent domain remained more or less settled during the latter part of the nineteenth century. In fact, the Federal Government did not exercise the power until 1875. Prior to that date, a state would condemn land and afterward transfer its title to the Federal Government. 5 However, it was rather settled that eminent domain could be exercised only in the limited cases where the public had a right to use the condemned property. That a taking may arguably benefit the public at large was deemed insufficient to justify the exercise of eminent domain. Yet, the United States supreme Court was not altogether consistent in this point, and in the 1916 case of Mt. Vernon-Woodberry Cotton Duck Co. v. Alabama Interstate Power Co., 6 the Court embraced the public benefit analysis.

In that case an electric company attempted to condemn certain land and water rights in order to generate hydroelectric power. The company claimed that the taking was for public use because provision of electricity benefits society at large. Justice Holmes, writing for the Court, agreed, saying that if “…that purpose is not public we should be at a loss to say what is.” 7

New Deal

As the New Deal took hold of America, its effects were felt in the evolution of the law of eminent domain. The United States Housing Act of 1937 was the watershed. This statute created the United States Housing Authority, which in turn was enabled to grant loans to local housing agencies in order to eradicate slums and build public housing projects. Naturally, most states seized upon this opportunity for Federal funding and proceeded to condemn many areas that were described as blighted in order to build public housing projects. If the courts had maintained the narrow interpretation of the public use requirement, these condemnations could not have been effected. Instead, the prevailing interpretation became the broader view that the public benefit or receive some advantage, which permitted the taking of property for limited purposes. The Housing Act of 1949 further enlarged the states’ right of eminent domain, as housing authorities were permitted not only to condemn slum areas but in fact were permitted to resell the land to private developers who in turn would follow a previously approved plan of land development.

A Radical Departure

Finally, the supreme Court in 1954, in the previously mentioned case of Berman v Parker, was faced with the issue of a landlord, whose department store was not “blighted” nor did it constitute a public nuisance. This person nevertheless had his property condemned because the area in which his store was located was classified as undesirable and the Federal Government had declared that it would serve the public interest if that area were sold to private entities who in turn would redevelop the land. Plaintiff lost his case, and the supreme Court in effect granted Congress a blank check upon which to write its own brand of urban redevelopment. Therefore, the next logical step came in the Hawaiian Housing Authority case which upheld the right to condemn private property in order to transfer the land to smaller and fragmented private owners so as to take care of the “market failure” in land in Hawaii. The power of eminent domain is so prevalent and so powerful, that it is literally limited by our imagination. Some of the governmentally subsidized projects that have been the object of eminent domain range from such projects as the Tennessee Valley Authority to the World Trade Center in New York City. But perhaps the case which demonstrates the most callous disregard for the rights of a community is a 1981 Michigan case, in which 3,468 people were displaced in order to allow General Motors to set up an assembly plant.

The Poletown Situation

The case arose when the cities of Detroit and Hamtramck decided that it was a desirable goal to acquire 465 acres which were located between them, at a cost of over $200 million. The cost included such other functions as relocating the residents, demolishing the existing structures and preparing the land so that in turn the corporation would be entitled to purchase it at the price of $8 million. GM would also be entitled to certain tax advantages which made it quite profitable to set up an assembly plant there. In return, GM would provide over 6,000 jobs with all the consequent benefits entailed by such job creation.

When the affected neighbors were apprised of what was in store for them, they filed suit, challenging the validity of this taking, because the use for which the property was ultimately intended was to be private and not public. The affected area, known as “Poletown” because of its predominantly Polish composition, was not a slum, nor was it considered an eyesore or a blighted spot in the city landscape. It just happened to be in the way of industrial development. The Michigan Court rejected plaintiffs’ arguments, and considered that since the creation of jobs was in and of itself an action which benefited the general public, that the exercise of eminent domain was therefore valid in this instance even though a private entity would own the land and operate it for its own profit. In addition, the Court pointed out that the determination of what constitutes a public purpose belongs properly to the legislative branch, and that it would not question this finding without clear objections on constitutional grounds.

No More Dissent

The fact of the matter is that the court in the Poletown case 8 is not atypical of the rest of the courts in the country. The United States supreme Court, in the Hawaiian Housing Authority case simply restated what are now well-settled principles of law. The fact that the Court decided this case with eight Justices in favor of the decision and none dissenting, should give us a clue as to how uncontroversial this interpretation of the law has become. Courts have in effect abdicated their responsibility of determining whether or not a taking is for public use. It is now sufficient that the legislature declare that a taking will be in the public interest if that taking has some rational connection with the evil that the legislature wants to eradicate.

Market Failures

One of the most popular evils that politicians are desirous of eradicating concerns “market failures.” Yet if we were to analyze the root of these failures, whether they are unemployment, inflation, surpluses or shortages, a substantial cause of these failures is directly attributable to prior government intervention in the market. Therefore, in view of the fact that interventionism has taken such a firm hold of the economy, it is not difficult to visualize all the potential market “failures” that exist and that will appear to be ample justification for the exercise of eminent domain. Eminent domain has become yet another tool where special interest groups seek what they would otherwise not be able to obtain voluntarily in the market.

The right of private property has in fact been eroded over the years as a result of this judicial development to the extreme that we hold our property at the pleasure of the government. If the government decides that someone else ought to have our land, whether it is for aesthetic reasons, or for job creation or for any other reason that conceivably benefits society, then we will almost inevitably have to succumb to the state’s desire for our land.

A Hopeful Sign

Courts should limit the widening powers of eminent domain enjoyed by the government. They should undertake an analysis of whether or not a taking is truly for public use, and the conclusion of the legislature that a taking is in the public interest should not be blindly accepted. The victims of eminent domain have mobilized by filing appropriate lawsuits aimed at the prevention of the taking of their land.

Although unsuccessful, the fact that people are actually opposing the arbitrary exercise of eminent domain is a hopeful sign. It is time that we should heed the comments of Justice Van Voorhis in his dissenting opinion in the case that paved the way for the construction of the World Trade Center in New York City:

“Disregard of the constitutional protection of private property and stigmatization of the small or not so small entrepreneur as standing in the way of progress has everywhere characterized the advance of collectivism. To hold a purpose to be public merely for the reason that it is invoked by a public body to serve its ideas of the public good, it seems to me, can be done only on the assumption that we have passed the point of no return, that the trade, commerce and manufacture of our principal cities can be conducted by private enterprise only on a diminishing scale and that private capital should progressively be displaced by public capital which should increasingly take over. The economic and geographical advantages of the City of New York have withstood a great deal of attrition and can probably withstand more, but there is a limit beyond which socialization cannot be carried without destruction of the constitutional basis of private ownership and enterprise.” 9

Property Condemned

The Victims, who in former years might have called upon the court or a policeman for protection, now find the court and the policeman on the side of the aggressor. We may not be able to measure the damaging effect on respect for law and order; but the damage is done, nevertheless.

Barbarism has its earmarks, and the acquisition of property through conquest or superior force is notably one of them. Civilization, too, has its earmarks, and the orderly disposition of property through the medium of deeds, leases, wills, and other contractual arrangements is not only an earmark of civilization but an absolute prerequisite. Leases, deeds, wills, and other contracts will all fall under the stroke of the proposed condemnation. With them will fall the personal security, the hopes, the plans, and—yes—the dreams of the many human beings who have placed their faith in their worth. Here, as always, the failure upon the part of large segments of any given society to understand and respect the rights of ownership can only result in the rise of innumerable pressure groups, all trying to suggest what should be done with other peoples property.

References

  1. 81 L. Ed. 2d 186 (1984).
  2. 348 U.S. 26 (1954).
  3. Grotius, 1 De Jure Belli et Pacis, Ch. 1.
  4. 1981 Wisconsin Law Review 1263, 1284.
  5. Kohl v U.S., 91 U.S. 367 (1875). This case established the Federal Government’s eminent domain power.
  6. 240 U.S. 30 (1916).
  7. Ibid., at 32.
  8. Poletown Neighborhood Council v Detroit, 410 Mich. 616, 304 NW 2d 455 (1981).
  9. Courtesy Sandwich Shop v Port of New York Authority, 12 NY 2d 379, 399, 190 N.E. 2d 402, 411 (1963).

Reprinted from The Freeman, a publication of the Foundation for Economic Education, Inc., May 1985, Vol. 35, No. 5.