How Not To Lose Your Land — Investor's Business Daily, 11/15/04

By Doug Tsuruoka
You've probably heard the horror stories: Home and business owners are forced to sell their property because a government — either federal, state or local — wants to use that site for something else.

Ed Hathcock is a property owner who fought the law. Unlike the guy in the famous song, Hathcock won.

Under a law called eminent domain, a government has the right to take private property for public use. The Fifth Amendment of the Constitution also holds that "just compensation" be made in such cases.

Attorney Alan Ackerman says anywhere from 20,000 to 30,000 eminent domain cases surface every year in the U.S.

Ackerman is managing partner of Troy, Mich.-based law firm Ackerman & Ackerman. His office handles about 250 eminent domain cases a year.

Hathcock, one of Ackerman's clients, owns Gem Products, a cabinet-making business in Romulus, Mich. Hathcock was among business owners in the area who refused the county government's compensation offer because they said it sharply undervalued their companies.

When they refused, the government invoked eminent domain.

Hathcock and the others filed suit in 2001 against the county's move. The case wound its way through the courts for three years, until the business owners won in July.

Not all eminent domain cases involve small businesses. Some involve bigger firms that must move because of roads or other projects.

The issue pops up often these days as local governments use eminent domain powers to kick-start area economies.

Shopping, Police, Whatever

In principle, says Ackerman, there's nothing wrong with governments doing that.

But, he says, governments often blur the line between public and private use. Taking land to build a new shopping development that will benefit a town is sometimes viewed on a par with building a new police station, he says.

Ackerman contends that's an abuse. But he says businesses now have more ability to protect their rights in such cases.

For example, in Hathcock's case, the Michigan Supreme Court reversed a 1981 decision about the government's right to take property under eminent domain.

The decision let Detroit clear a residential area known as Poletown so General Motors (GM) could build a plant.

The city, suffering high unemployment and a depleted treasury at the time, argued that the economic benefits of the plant — increased jobs and tax receipts — were a proper "public use" of the property.

Until this year, that Michigan case had been used to justify similar government actions in eminent domain cases in states across the U.S.

But in its July ruling, the state Supreme Court ruled that it's unconstitutional under Michigan law for the government to seize property for economic development projects.

Ackerman says the reversal sets another legal precedent that can be cited to affect eminent domain cases in other states.

Hathcock, a Massachusetts Institute of Technology graduate whose business is in a town 20 miles west of Detroit, employs 12 workers.

His case arose because Wayne County had been buying up business properties to make room for a runway extension at a regional airport.

Ackerman says the county compelled purchase of 500 acres from local owners citing "noise mitigation," or the need to remove people who are in unhealthy earshot of the runway.

The county bought another 500 acres from owners willing to sell.

The county then decided to use some of the land not for a runway extension, but for an office park. The project was financed by a private developer.

The offices were slated for construction on 100 acres of land owned by Hathcock and eight others.

When they refused to sell, the government invoked eminent domain.

The legal victory for Hathcock and others means the county can't force business owners to move if the property is earmarked for commercial use.

The county can't appeal the decision to the U.S. courts because federal eminent domain rights weren't involved.

Ackerman says the Michigan court's decision deters government from fostering development through a common eminent domain option. This is where property is condemned due to blight or an environmental cause, but then turned over to a private developer.

"The government can still take property for blight clearance and environmental condemnations. But you're not going to have a Wal-Mart coming into a city (using this legal reason)," Ackerman said.

Five Simple Rules

"The decision drew a line in the sand," Hathcock said. "It said municipal, county and state organizations don't have the right to separate people from their property just because they say they have a better use for (the property)."

Ackerman says small business owners should remember a few basic rules when dealing with eminent domain cases — especially if they've received a written notice or heard a rumor that their property may be taken in such an action:

• Do not discuss any issue pertaining to the value of your property with anyone without first consulting a lawyer. This could affect the compensation you get under eminent domain.
  
• Don't attempt to value your property without the advice of a competent real estate appraiser. Get a lawyer's advice before retaining an appraiser.
  
• Don't attempt to get building permits, variances, zone changes, subdivision approvals, curb cuts or reductions in tax assessments without consulting your lawyer. These permits may affect how your property is valued or rated in an eminent domain proceeding.
  
• Don't permit anyone to conduct tests, such as explorations for hazardous waste or checking wells for water supply, unless your lawyer gets written agreement that all test results will be supplied to you. The results of such tests may bolster the government's case to condemn your property on environmental grounds.
  
• Don't supply copies of leases, expense records, profit and loss statements or similar documents to the government or its representatives without referring such requests to your lawyers. These records can affect how your property is valued in an eminent domain case.

Though many business owners don't like shelling out legal fees, sometimes it's in their best interest, says Hathcock.

"Consulting a lawyer like Ackerman was fundamental to the success of this case," he said.

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