High Court Supports Condemnation for Private Development, St. Louis Construction News & Review, July-August 2005

by James R. Keller

This article appeared in St. Louis Construction News & Review, p. 20, July/August 2005.

The United States Supreme Court recently decided that private development of land acquired through condemnation is constitutionally permissible, even though the construction project is for commercial purposes. The controversial case is Kelo v. City of New London, Conn., 2005 WL 1469529 (U.S. Conn.).

This highly anticipated decision has sparked as much debate as any case in the past several years. At its core, the dispute revolves around whether a city can vest in a private developer the power to take property from home owners and other land owners for the purpose of building shopping centers, a hotel, and residential units.

The decision's impact should reverberate for years. Hardly any sizable private development in St. Louis or across the country can occur without acquiring from the controlling municipality the power of eminent domain. Most multi-use construction projects tend to involve large tracts of land, spanning several acres or more. The area typically must be large enough to accommodate several uses for the land, including commercial, retail and multi-family housing, such as condominiums and apartments.

Assembling the required land can occur in part through voluntary sales. But there almost always are holdouts without whose property the project is not feasible or as commercially viable as is possible through assemblage of all the targeted tracts.

That is where cooperation between the developer and the city results in an agreement for the developer to build large construction projects, not otherwise possible, and for the city to receive new, desirable developments, create additional jobs and an increased tax base, if not immediately (because of tax increment financing) at least at some point, for years to come.

The ambitious project comprised a 90-acre development located within the City of New London in Connecticut in the Fort Trumbull area on a peninsula jutting into the Thames River. It included a waterfront conference hotel, restaurants, shopping, a marina, a pedestrian river walk, 80 new residences, a U.S. Coast Guard Museum and office space. Pfizer Inc. planned to build a $300 million research facility on an adjacent site.

None of the properties subject to the dispute was blighted or otherwise in poor condition. Rather, they were condemned solely because they were located in the development area. The "holdouts" included a woman who made extensive improvements to her waterfront home, and another woman who was born in her house in 1918 and has lived there her entire life. They did not want to sell or move.

Connecticut has a municipal development statute that expressly states that the taking of land, even developed land, that is part of an economic development project for a particular city is a "public use" and in the "public interest." The United States Constitution requires that the taking of land by a city (or in this case, its appointed developer) must be for a public use and thus in the interest of the public

Missouri does not have this exact same statute on a statewide basis but individual municipalities may have their own development plans at the local level, which may be the functional equivalent. Also, urban redevelopment corporations with the power to condemn can be established pursuant to state law by an individual city.

The Supreme Court reaffirmed its deference to the power of a state and its cities to define what development plans serve a public purpose. The Court acknowledged that it defines that concept broadly.

The Court further noted that the City of New London "is endeavoring to coordinate a variety of commercial, residential, and recreational uses of land, with the hope that they will form a whole greater than the sum of its parts." Thus, the taking of the homes from these two women and others is a public use under the Fifth Amendment to the U.S. Constitution.

In reaching this result, the high court rejected a request to adopt a new "bright-line rule" that economic development does not qualify as a public use. Instead, the Court ruled: "Promoting economic development is a traditional and long accepted function of government."

In fact, the Court noted that the government's pursuit of a public purpose will often benefit individual private parties, in this case developers and their construction companies. The Court also rejected the argument that there needs to be a "reasonable certainty" that the expected public benefits actually come to fruition.

The Supreme Court flatly deferred to the wisdom of a city to determine what development plan is proper for its citizens and its future. The Court also declined "to second-guess the City's determinations as to what lands it needs to acquire in order to effectuate the project." This decision reaffirmed the considerable power at the local level to decide what will be built, and where, how much land is needed, and whose land will be acquired for the construction project.

This opinion does not offer an open license for private development in St. Louis; but it does send a strong message that the decisions of a city about what land should be condemned and for what purpose will be supported by this country's highest court and pass constitutional muster.

This result will be a powerful tool for developers and contractors to continue to find, acquire and build on large tracts of land where development would not be possible without the power of eminent domain.

James R. Keller is a partner at Herzog Crebs LLP, where he concentrates his practice on complex business litigation, construction law and ADR. He also is an arbitrator and mediator with the American Arbitration Association.