Recent Decisions Affirm Use of Eminent Domain
for Economic Development

Kimberly J. Brown
Bricker & Eckler LLP
August 2005

See July 2007 update to this article

Introduction

Many public construction projects depend on eminent domain - the “power to take private property for public use by the state, municipalities, and private persons or corporations authorized to exercise functions of public character,” according to Black’s Law Dictionary, 5th Edition - to procure suitable property for a planned use. But how “public” must that use be in order to justify the taking of private property under either the federal or state constitutions? In the last two months, both the Ohio Court of Appeals and the United States Supreme Court have ruled on that question, with results that have been questioned and analyzed by the legal media, public owners, and those interested in private property in recent weeks.

Eminent Domain for Economic Development

Whether a municipality can use eminent domain for the sole purpose of economic development has recently been an area of much debate. While the authority to use eminent domain to eliminate or prevent the spread of blight has long been accepted, the authority to use eminent domain to revitalize nonblighted, economically depressed neighborhoods has been unclear. However, two much-awaited recent decisions affirm that a municipality can use eminent domain for economic development in areas that are not actually blighted.

City of Norwood v. Horney

In the first of these decisions, City of Norwood v. Horney, 161 Ohio App.3d 316, 2005-Ohio-2448, the Court of Appeals for the First District (Hamilton County) upheld the City of Norwood’s authority to use eminent domain to force property owners to sell property that was not blighted, but instead was in danger of “deteriorating” into blight.

Norwood is a municipality surrounded by the City of Cincinnati. Large employers such as General Motors and LeBlond Machine Tool Company once had plants in Norwood but left the area long ago. The construction of Interstate 71, which runs through the community, further changed the neighborhood some 30 years ago.

Rookwood Partners, Ltd., a private firm, approached Norwood’s City Council proposing a redevelopment project to include construction of stores and offices in the place of existing residences. Rookwood attempted to acquire the needed property on its own. When it became clear that the property owners of five necessary parcels would not sell, Norwood agreed to use its eminent domain power to acquire the property.

Under the Norwood City Code, Norwood could use its eminent domain power only if the renewal area was found to be “slum, blighted, or deteriorated” or “deteriorating.” Was this the case? Norwood hired an independent consulting firm to conduct an urban renewal study. Based upon the results of that study, Norwood City Council ultimately authorized the “taking,” using the City’s power of eminent domain.

The issue faced by the First District Court of Appeals was “whether Norwood abused its discretion in finding that the area was in danger of deteriorating into a blighted area.” The trial court had found no abuse of discretion, and the Court of Appeals agreed. Based upon a review of the Norwood City Code, the Court of Appeals, in a decision written by Judge Mark Painter, found that Norwood’s City Council could use eminent domain in an area that falls under the definition of either a “slum, blighted or deteriorated area” or a “deteriorating area.” Furthermore, the inquiry for the Court was not whether individual structures or houses met the definition of “deteriorating,” but whether the renewal area as a whole was “deteriorating.”

In determining that the renewal area was in danger of deteriorating, the Norwood City Council considered increasing traffic congestion and noise, the high diversity of ownership of small parcels of land in the renewal area, safety issues relating to inadequate street layout, and quality of residential living resulting from lighting of adjacent developments. In light of these considerations, both the trial and appellate courts found that the Norwood City Council had acted within its discretion in determining that the renewal area “[would] deteriorate, or [was] in danger of deteriorating, into a blighted area.”

In support of its decision, the Court of Appeals cited decisions from two other Ohio Courts of Appeals, Dayton v. Kuntz (Mar. 3, 1988), 2d Dist. No. 10513, 1988 WL 2104, and Toledo v. Kim’s Auto & Trust Service, Inc., 6th Dist. No. L-02-1318, 2003-Ohio-5604, 2003 WL 22390102. Both cases dealt with property acquired under an urban renewal plan. In Kuntz, the Second District Court of Appeals upheld Dayton’s conclusion that the area in question was “deteriorating.” In Kim’s Auto, the Sixth District Court of Appeals stated that “factors such as inadequate street layouts, unsanitary and unsafe conditions . . . substantially decreased tax or fair market values, and the improvement of the economic welfare of the people of the community are also factors to be considered” in determining if an area is blighted.

The Norwood court also refused to find that by entering into a redevelopment contract with Rookwood, the City of Norwood had wrongfully delegated its eminent domain power to Rookwood. Even though the property was being transferred to a private party, the court said, the City retained control, as the redevelopment project had to be built in accordance with City-approved plans, and “Rookwood remained accountable to the public.”

When this decision was issued on May 20, the Ohio Supreme Court had already agreed to consider an earlier appellate decision on a narrower issue in a related case, City of Norwood v. Gamble. Within five days of this latest Court of Appeals’ decision, the Ohio Supreme Court also agreed to hear this latest eminent domain ruling and to consolidate the two appeals. So at some point in the next year or so, the Ohio Supreme Court will probably have its say in this case. What it says will, in all likelihood, be influenced by what the United States Supreme Court said recently in this next case.

Kelo v. New London

In Kelo v. New London, 125 S. Ct. 2655 (June 23, 2005), the United States Supreme Court in a 5-to-4 decision went even further than the Ohio Court of Appeals had gone and found that proposed takings designed solely to revitalize a municipality’s ailing economy are a constitutionally permissible use of the eminent domain power.

New London sits at the junction of the Thames River and the Long Island Sound in southeastern Connecticut and has reportedly experienced decades of economic decline. In 1990, a state agency designated New London as a “distressed municipality.” In 1996, New London lost the Naval Undersea Warfare Center, an employer of more than 1,500 people. In 1998, New London’s unemployment rate was almost double that of the State of Connecticut. Not surprisingly, New London suffered from a decreasing population.

In 2000, New London approved a development plan projected to create more than 1,000 additional jobs, increase tax and other revenues, and revitalize the economically distressed city’s downtown and riverfront. The proposed development was to include a waterfront conference hotel, 80 new residences organized into an urban neighborhood, a new U.S. Coast Guard Museum, at least 90,000 square feet of research and development office space, parking or retail support for an adjacent state park, a renovated marina, and other office and retail space.

New London’s development agent, a private, nonprofit entity, purchased properties from willing sellers and proposed that New London use its eminent domain authority to obtain the remaining property needed for the project. When the private entity began condemnation proceedings, it met with objections from the owners of some 15 properties, who argued that their properties were not “blighted” and that the condemnation of their properties would violate the constitutional restriction of eminent domain to properties to be taken for “public use.”

The homeowners’ protest worked its way up through the Connecticut court system, culminating in a Connecticut Supreme Court opinion that validated all of the takings. So the homeowners turned to the United States Supreme Court, which agreed to hear the case “to determine whether a city’s decision to take property for the purpose of economic development satisfies the ‘public use’ requirement of the Fifth Amendment.”

The split decision, written by Justice Stevens, began by noting that there was “no allegation that any of these properties is blighted or otherwise in poor condition; rather, they were condemned only because they happen to be located in the development area.” Accordingly, the question presented to the Supreme Court was whether a municipality’s decision to take property for the sole purpose of economic development passes constitutional scrutiny. Specifically, does proposed condemnation for development by a private entity or entities to revitalize a municipality’s economy constitute a taking for a “public use”?

Justice Stevens discussed prior cases interpreting the public use clause of the Fifth Amendment to the United States Constitution. In these prior cases, the Supreme Court had endorsed as “public uses” the use of eminent domain to redevelop blighted neighborhoods, to break up land ownership in Hawaii, to assist in a gold-mining company, and to eliminate a “significant barrier in the pesticide market.” Justice Stevens found that such precedent gave legislatures “broad latitude in determining what public needs justify the use of the takings power.”

“Promoting economic development is a traditional and long accepted function of government,” according to Justice Stevens. In this case, “those who govern the City were not confronted with the need to remove blight . . . , but their determination that the area was sufficiently distressed to justify a program of economic rejuvenation is entitled to our deference,” the Justice said. The opinion dismissed petitioners’ argument that economic development does not qualify as a public use and in the end declined to second-guess either New London’s judgment regarding its development plan or its judgment regarding the area to be included in that plan.

Four Justices - O’Connor, Thomas, Rehnquist and Scalia - dissented, and the first two wrote opinions. In her dissent, Justice O’Connor warned that “under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded - i.e. given to an owner who will use it in a way that the legislature deems more beneficial to the public - in the process.”

“Nothing is to prevent the state from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory,” Justice O’Connor noted, in an illustration already much quoted in the press.

While these recent decisions give the green light to municipalities to use eminent domain to revitalize non-blighted, economically depressed areas, whether we will see an increase in municipalities doing so is unknown. As anyone in local government is aware, despite the blessing of the judicial system, the use of eminent domain for pure economic development remains politically unpopular. The negative publicity borne by Norwood as well as New London is an excellent example of the voter reaction that is likely to occur. vAlso, a state can set limitations on such municipal power, as the Supreme Court noted. As stated by Justice Stevens, “Many States already impose “public use” requirements that are stricter than the federal base line.” For instance, California has restricted eminent domain for economic development to blighted areas.

In fact, several states are reportedly rushing to respond to the Kelo decision. For instance, Texas and California legislators are already proposing constitutional amendments to bar the taking of private property for economic development. Following this trend, Ohio lawmakers have already begun a series of hearings to determine Ohio’s response to the decision. Options up for discussion reportedly range from doing nothing, to redefining just compensation, to amending Ohio’s constitution.

So, although the courts have given the green light, it remains to be seen if there could still be roadblocks ahead for municipalities wishing to use eminent domain to revitalize non-blighted areas.