The Court Can Reverse Kelo's Injustice

Without doubt, Kelo v. City of New London (2005) will live in infamy as the most reviled decision of the Supreme Court of the twenty-first century.  But now there is a good chance to undo its error of allowing the government to condemn “for public use” small homes and businesses as part of a comprehensive plan for large economic development projects.  The Institute for Justice, which represented Ms. Susette Kelo and her neighbors in Kelo, is now seeking to undo its damage with yet another case: Bowers Development LLC v. Oneida County Industrial Development Agency. Kelo was played out on a grand stage. Bowers is a local miniature but whose facts are even more egregious than Kelo.  Bowers does not contain even the hint of some ersatz comprehensive public plan but is a prosaic case where one developer is making an outright effort to bypass the market to take land from his competitor—a straight case of using the government to take from A to give it to B.  The public use language unambiguously forbids this practice.

By way of background, the Takings Clause of the Fifth Amendment provides “nor shall private property be taken for public use, without just compensation.” Twenty years ago, the Supreme Court allowed the city of New London to force Ms. Kelo and her friends and neighbors out of their homes because New London’s own studies predicted huge collateral benefits to the struggling city of New London. When the decision came down, an enraged public was having none of this. Moreover, the wooly promise of future greatness tied to the new Pfizer plant (which was planned to be built on the taken property and constructed with fat public subsidies) never panned out. By 2011, Pfizer bailed out of town after its tax benefits had elapsed. What was taken there was a private home, not for a road or fort.

To the public, the payment of any compensation was just a detail. First, that compensation did not include a dime for the costs of moving out or the psychological trauma of doing so. Second, the case assumed that condemnation of land today for unspecified uses tomorrow was permissible, even though that dangerous overclaiming cost Ms. Kelo and her friends their homes for a grandiose project that never came to pass. And third, the judicial blessing of this broad definition of public use held out the prospect that any well-heeled entity could persuade the state to do its dirty work of condemnation. Kelo thus crossed a profound psychological barrier Justice John Paul Stevens only came to understand years later. Deep dissatisfaction with Kelo has stimulated multiple hostile legislative and judicial responses.

Which is why Bowers is now closely watched. Bowers had a contract to buy land to build its own medical clinic, which directly competed with Central Utica Building, LLC, the codefendant operating next door.  But the deal tanked when the Oneida County Industrial Development Agency condemned the land and gave it to Central Utica to build a new parking lot. Every reason the defendants gave in Kelo why the land grab served a public use was equally true in Bowers, such as improving health care, creating jobs, reducing unemployment, eliminating blight, and promoting urban renewal and community betterment for Oneida. This was a two-party deal, but ironically, even if the two parties had agreed to the transfer, removing Bowers from the local market could have triggered an antitrust inquiry because of the reduction in competition that offset the supposed benefits of the transaction.

The Institute for Justice took the case to the New York Appellate Division, which held that this acquisition was “rationally related to a conceivable public purpose,” namely “mitigating parking and traffic congestion,” without considering any alternative ways to deal with this neighborhood problem. The word “conceivable,” of course, is not found in the constitutional text, but was added into the mix by the most unfortunate decision of then-Supreme Court Justice Sandra Day O’Connor in Hawaii Housing Authority v. Midkiff (1984).  That case had dubiously found that there was a permissible taking of the landlord’s interest in leased property so long as the tenant paid the HHA in advance the money needed to purchase the landlord’s interest (at, ironically, below market value) to reduce the so-called land oligopoly, without even attempting to establish any antitrust violation. Under the lax rational basis test, the role for judicial review was “extremely narrow” according to the Supreme Court’s decision in Berman v. Parker (1954), a case where the public use doctrine was used to allow major urban renewal and slum clearance, which again failed.

So, at this point, the real challenge is to develop a coherent account of public use that recognizes its necessity on the one hand but limits its abuse on the other. Here, it is best to proceed in increments.  It is hard to object to constructing any facility like the Pentagon, which is a public use even if ordinary citizens are not allowed to enter. The same is true of public roads, even if users must pay tolls.  Nor does a public use require that the government maintain the property after it is acquired by eminent domain, which would be a disaster if all railroads and bus companies had to operate under government ownership.  But so long as a private firm keeps its facilities open to the public, as is the case with all common carriers, then the use is public even if the ownership is not.  Grist mills in the nineteenth century were public in that sense; mills that operated to power manufacturing sites were not.

That instructive pairing hints at the proper reading of the public use language.  To operate a grist mill often requires that private land be flooded, and the Supreme Court in Head v. Amoskeog (1885) held that it was also permissible under New Hampshire’s mill act to build a facility that flooded nearby farmland in order to run that mill for manufacturing. Without this power the mill could never be erected because even if most landowners would consent, a single holdout could block a useful project. So Head extended the public use language public to these holdout cases, which in practice were easily identified.

The other early Supreme Court cases were scrupulous in responding to significant holdouts.  In Strickley v. Highland Boy Gold Mining Co. (1906), Justice Oliver Wendell Holmes allowed the corporation to condemn air rights to build an aerial bucket line to carry ore from its hilltop ore operations down to the railroad line.  In Clark v. Nash (1905), Judge Rufus Peckham held the same logic allowed for the construction of a large ditch to carry waters to the plaintiff’s operations over a third party’s land.

The decisive change came 15 years later, when Justice Holmes in Block v. Hirsh (1921)used these early precedents to justify a three-year rent control statute in the District of Columbia on public use grounds even though there was not the slightest hint that the District’s residential market was faced with any holdout potential.  After all, every lease renewal may require some deft negotiation, but none is close to the significant holdout found in both Strickley and Clark.      By forgetting this difference, Holmes did not understand that want of an entry in the mining cases did not apply in these dense rental markets.  A famous 1946 article by the young Milton Friedman and George Stigler, Roofs or Ceilings, showed just how quickly the San Francisco real estate market bounced back after the 1906 earthquake, precisely because of the want of any entry barriers to new construction.  But once Holmes made the fatal confusion between external shifts in available goods and bona fide holdout questions, the misuse of the public use doctrine became entrenched in American law, which Holmes promoted by treating the mining cases as if they only stood for such banal propositions as “the inadequacy of use by the general public as a universal test” and the “importance of those industries to the welfare of the States in question.”

By omitting any reference to the holdout question, Kelo followed a long line of progressive New Deal legislation such that the Supreme Court took the consistent line that all rent control statutes satisfied the public use standard by letting a sitting tenant renew time after time his lease on hugely favorable terms without fear of eviction.

Against this sorry backdrop, the Supreme Court should take Bowers to achieve one of two objectives. First, it should never let the state indulge in the false premise that all indirect effects are positive when the disruptions imposed are also negative. Kelo would lose much of its bite with that one move. It would, for example, require reversal of Brinkmann v. Town of Southold (2024), where the town bought land to create a “passive public park” solely to prevent the construction of a hardware store even after a thorough traffic study proved that the new facility posed no difficulty.  Paying public taxes for putting land toward a mindless use does not begin to cover the indirect benefits to the community from an abandoned hardware store.  Second, speaking more generally, any use of the rational basis test allows for too much play in the joints—which means that it would be fine to overrule Kelo on the grounds that government hubris does not justify destructive social behavior.

Richard A. Epstein is a senior research fellow at the Civitas Institute. He is also the inaugural Laurence A. Tisch Professor of Law at NYU School of Law, where he serves as a Director of the Classical Liberal Institute, which he helped found in 2013. Epstein is also the James Parker Hall Distinguished Service Professor of Law Emeritus and a senior lecturer at the University of Chicago.