Right of 'eminent domain' challenged — Harvard University Gazette, 11/17/04

Weighing the benefits of economic development

By Ken Gewertz

Susette Kelo is about to get her day in court.

This past September, the U.S. Supreme Court agreed to hear a case brought by Kelo and six of her fellow homeowners in the Fort Trumbull neighborhood of New London, Conn., challenging the right of municipal authorities to take their houses by eminent domain.

The case has attracted much attention because it is the first time such a case has come before the U.S. Supreme Court in 50 years and because it represents an opportunity to re-examine what many regard as a growing trend by state and municipal authorities to abuse the right of eminent domain.

Jerold Kayden, the Frank Backus Williams Professor of Urban Planning and Design at the Graduate School of Design, has been watching this case carefully for what it may presage about the future of property rights in the United States. This past Tuesday (Nov. 16), he gave a talk on the subject sponsored by the Kennedy School of Government's Taubman Center for State and Local Government.

"Can a single-family house and land be taken through eminent domain and turned over to a private developer to generate increased jobs and tax revenue? That is in essence the case that is now coming before the Supreme Court," Kayden said.

Kayden explained that the right of eminent domain is sanctioned through implication by a phrase in the Fifth Amendment to the U.S. Constitution. The phrase rounds out a list of protections against unfair government interference, stating, "nor shall private property be taken for public use, without just compensation." The nature of just compensation is always at issue in such cases, Kayden said, with property owners asking for more and government authorities offering less. What is more significant for Kelo v. New London, however, is the interpretation of the words, "public use."

The issue last came before the Supreme Court in 1954 in the case Berman v. Parker when a department store owner in Washington, D.C., sued to prevent the government from demolishing his store to make way for an urban renewal project. Berman contended that it was unfair to take the property of one private party only to give it to another, the private agency that had been awarded the contract to undertake the redevelopment work. The court ruled against him, saying that if the project was in the interest of the community, it made no difference whether the agency carrying out the reconstruction was public or private.

That case set the stage for other cases in which governments took the property of private individuals not only for traditional public uses like highways, schools, or reservoirs, but also to replace "blighted" areas with new construction expected to create new jobs and bring in higher tax revenues.

For example, in 1981, General Motors approached Coleman Young, then mayor of Detroit, with an offer to build a Cadillac plant in a residential neighborhood known as Poletown. On the one hand, the plant would bring jobs and generate tax revenues, but, on the other, a settled neighborhood would be destroyed.

"It was a terrible choice. How do you even begin to decide a case like this? In the end, Young went along with General Motors, and the Michigan Supreme Court sided with the government."

In deciding this case, the court ruled that the benefits to society that would be introduced by the plant outweighed the suffering and inconvenience of the people who lost their homes. But as Kayden pointed out, the future benefits of a given project are always open to interpretation.

"You can always find justification for economic development. I know people at Price Waterhouse who would be delighted to do an economic impact study to show that a manufacturing plant or a stadium or a convention center would benefit the public. But then you could do another study that would come up with the opposite results."

In fact, this is exactly what happened earlier this year when the Michigan Supreme Court reversed its 1981 decision in the case Wayne County v. Hathcock. The court ruled that the county could not use eminent domain to take the property of people living near an airport to clear the way for a noise-abatement/economic development scheme known as the Pinnacle Project. The court ruled that the land could be taken only if it could be shown to be blighted, which it was not.

Susette Kelo and the other residents of Fort Trumbull also firmly deny that their property is blighted, but what is at issue here is whether property can be declared blighted simply because an alternative use of that property would produce greater economic benefits. In the Fort Trumbull example, the drug company Pfizer, which owns a plant adjoining the neighborhood, wants to expand its facilities into the space occupied by the residential area.

"Single-family land use may not be seen as benign," said Kayden. "It doesn't generate very much revenue compared with other uses. Consequently, it may be seen as blight."

Kayden would not predict how the U.S. Supreme Court would rule on this case, although he did speculate about the many different aspects of the case that the court might weigh in making its decision. The court might reconsider the purpose of the Constitution's "just compensation" clause, perhaps taking into account the value of the individual's identity and history or the "demoralization costs" incurred when people are forced to give up their homes to make way for a hotel or a block of high-priced condos. Or the court may shift the burden of decision back on the state courts.

"It's a very tricky issue," Kayden said.

Harvard University Gazette: www.news.harvard.edu/gazette


Public Power, Private Gain

By Dana Berliner, Institute for Justice

The Despotic Power

As early as 1795, the U.S. Supreme Court described the power of eminent domain—where the government takes someone’s property for a “public use”—as “the despotic power.” Eminent domain has the potential to destroy lives and livelihoods by uprooting people from their homes and businesspeople from their shops. With eminent domain, the government can force a couple in their 80s to move from their home of 50 years. Eminent domain is the power to evict a small family business, even if that means the business will never reopen.

The danger of such an extreme power led the authors of the U.S. Constitution and state constitutions to limit the power of eminent domain in two ways. First, the government had to pay “just compensation.” And second, even with just compensation, the government could take property only for “public use.” To most people, the meaning of “public use” is fairly obvious—things like highways, bridges, prisons, and courts.

No one — at least no one besides lawyers and bureaucrats—would think “public use” means a casino, condominiums or a private office building. Yet these days, that’s exactly how state and local governments use eminent domain—as part of corporate welfare incentive packages and deals for more politically favored businesses.

Public Power, Private Gain is the first report ever to document and quantify the uses and threats of eminent domain for private parties. We have compiled this information from published accounts and court papers covering the five-year period from January 1, 1998 through December 31, 2002. The results are chilling.

Copies can be downloaded, free, from website:
The download can be for the entire report, or on a state-by-state basis.

For a paper-back version of this report, please send a $10, check or money order for shipping and handling, payable to Institute for Justice. Credit cards can not be accepted. You may order up to $5 reports -- cost is $2 for each additional copy. Mail payments to:
Eminent Domain Report
c/o Institute for Justice
1717 Pennsylvania Ave, NW
Suite 200
Washington, DC 20006

Group Says Kansas, Missouri Among Worst Land Grabbers — KMBC-TV (Kansas City MO), 11/17/04

U.S. Supreme Court To Examine Use Of Eminent Domain

You think you own your home or land until a developer comes along and wants it. The watchdog group Institute for Justice says cities in Kansas and Missouri are the worst in the nation when it comes to taking private property for another person's private gain.

"This was our place. That was the family legacy; the family heirloom. I thought it was going to be there forever," said Daryl Penner, who lost his business.

For 70 years, Penner's family ran a business downtown until developers came along and wanted the property, KMBC's Jim Flink reported.

"We just didn't want to sell," Penner said.

Where Penner's shop used to be, is now the future home of Kansas City Live -- a centerpiece of the city's $1-billion plus downtown revival, seized through eminent domain.

"This neighborhood was a health hazard to our community," said Andi Udris, CEO of Economic Development Corp.

The Economic Development Corp. is spearheading the downtown revival, where the city uses something called "blight" to help City Council members determine what stays and what goes.

"There are standards that city inspectors use to determine if properties are blighted or not," Udris said.

Once a property is blighted, Flink said it becomes prime real estate for eminent domain. Some blight seems self-evident, but blight is not black and white.

"Anything is blight if the city legislature says it is," said Sherwin Epstein, an eminent domain attorney.

Epstein said blight, by Kansas City's definition, can be found just about anywhere and is. Flink said the new federal courthouse still sits on blighted land, along with parts of the Country Club Plaza now under development.

"It could be a perfectly sound building that has a business in it that is not prospering," Epstein said.

Roy Kirk's body shop was blighted, too. When his neighbor wanted to expand a parking lot, Kirk knew what was next.

"And I have to fight through legal systems to keep what is already mine," Kirk said.

Because of cases like Kirk's, a group of Washington lawyers, called Institute for Justice, is now fighting for people who claim they are eminent-domain victims.

"Well, if property is being taken for someone else's private benefit, that is not a public use. That not only mangles the words of the Constitution, but it mangles people's basic property rights. And it's outrageous," said Bert Gall, of the Institute for Justice.

For more than 200 years, eminent domain allowed the government to seize a person's land with fair compensation for things like bridges, highways, schools and courthouses.

But 25 years ago, that definition changed when the Michigan Supreme Court ruled that land could be seized for a "public purpose." A purpose that included cities seizing land, giving it to developers who could raise more in tax revenue. Cities started using that definition liberally.

"I plan on running this business my whole life, just like my father has," said Todd Crossley.

Crossley's thriving Ford dealership is blighted, according to the city of Liberty. Crossley said the 30-year-old family business is about to be seized by eminent domain.

"I don't see how it's legal. This is America. You own your own property. Nobody can take it away from you, unless someone has more money than you and then I guess they can take it," Crossley said.

Flink said that it is what more and more cities are doing. Kansas City recently seized Blue Ridge Mall to make way for a Wal-Mart supercenter. Kansas City, Kan., seized land to build the now famous Kansas Speedway. In the process of grand developments, Flink said individual property owners lose their land — a small sacrifice some say.

"And so the question now the public has to decide is: Is one businessman's inconvenience of being relocated to somewhere else in the downtown worth the entire region's economic development future?" Udris asked.

Gall disagrees.

"No one's home is safe if that is the standard — tax dollars and jobs," Gall said.

Penner learned his lesson of eminent domain the hard way.

"You know, you can't fight City Hall. It's unethical, unfair ... it's unconstitutional. It's, like, un-American," Penner said.

Flink said the Penners received $593,000 for their property. That is $17 per square foot. Kirk has been offered $3 per square foot. New construction can easily run $100 per square foot or more.

As for the number of eminent-domain seizures in the metro or nationwide, no one knows for sure because no one organization or clearinghouse keeps a record of all the property seized.

The U.S. Supreme Court will take up the issue of how cities use eminent domain during its next session. The high court will answer the question: Can a city take land from one private owner and give it to another private owner when the only public purpose is to generate more tax revenue?

KMBC-TV: www.thekansascitychannel.com


Pennichuck seeks injunction to halt Nashua eminent domain petition — Pennichuck Corp, 4/8/04

Press release

Contact: Donald L. Correll, President and CEO, 603-882-5191

Pennichuck Corporation (NASDAQ: PNNW) today announced it has filed a motion in Hillsborough County Superior Court that asks for a preliminary injunction to restrain the city of Nashua from pursuing the taking of Pennichuck property outside the city that is not necessary to provide water service within the city.

Pennichuck also asked the court, in an amended petition for declaratory judgment, for a permanent injunction against the city’s pursuit of its petition to the New Hampshire Public Utilities Commission (PUC) on the grounds it is unlawful.

“We have asked the court to prohibit Nashua from proceeding with its PUC petition in order to stop the irreparable harm being done to Pennichuck and its subsidiaries that began fourteen months ago,” said Donald L. Correll, Pennichuck president and chief executive officer. “Given the magnitude of these issues, we have asked the court to expedite its consideration so as not to prolong the time and expense of additional legal proceedings before the PUC.”

In seeking the injunctions, Pennichuck said the city’s attempt to take properties outside of Nashua is illegal under New Hampshire law, and that the continuation of the eminent domain process would result in additional significant loss of business to the company. The motion also noted that it is in the public interest to halt the PUC petition because serious questions of Nashua’s legal authority have been raised.

Pennichuck’s February 4 petition for declaratory judgment seeks judicial review of and equal rights under New Hampshire law governing municipal takeover of utilities by eminent domain.

The petition asks the court to intervene to end the limbo in which Pennichuck finds itself because of the city of Nashua’s failure to act for more than a year after a referendum vote purporting to authorize the city to pursue taking Pennichuck’s assets by eminent domain. The petition also cites the fact that Nashua’s behavior has caused and continues to cause substantial financial damage to Pennichuck, and is hindering the company’s ability to pursue new business opportunities.

In the amended petition filed today, Pennichuck submitted new arguments based on the city’s March 25 petition to the PUC. Specifically, the company asks the court to issue a declaratory judgment that:
  • the city’s petition is unlawful because it seeks to take Pennichuck property not needed to provide water service within Nashua;
  • the city has exceeded its legal and inherent municipal powers by seeking to acquire property by eminent domain on behalf of a regional water district that does not yet exist and would not have eminent domain authority.

About Pennichuck Corporation
Pennichuck Corporation is a holding company located in Nashua, New Hampshire with three wholly owned operating subsidiaries involved in regulated water supply and distribution in Nashua and towns throughout southern and central New Hampshire; non-regulated, water-related services conducted through Pennichuck Water Service Company; and real estate management and development activities conducted through The Southwood Corporation.

Pennichuck Corporation is traded on the NASDAQ Stock Market under the symbol "PNNW."

Pennichuck Corp: www.pennichuck.com


Life After ‘Poletown’: What is the Future of Takings in America?

A Roundtable Discussion, Tuesday, November 16, 4:30 p.m. - 6:30 p.m., Chicago IL
Presented by the National Law Journal
and the
University of Chicago Law School

For 50 years, takings jurisprudence has been expanding toward broader definitions of "public purpose." To some, this has been necessary to eliminate urban blight, while others see it as a threat to home and hearth. The tide may have begun to turn this summer when the Michigan Supreme Court reversed the infamous Poletown decision — in which a town was taken and given to General Motors. Things certainly are coming to a head now that the U.S. Supreme Court has agreed to hear two cases: Kelo v. City of New London (a real property takings case) and Lingle v. Chevron U.S.A. Inc. (a regulatory takings case). But what is the right direction to take in shaping the scope of our government’s power to take private property? How courts answer that question will impact the role of government in the development of land and communities in the 21st century. Your home — or your city — could be at stake.

Alicia Mazur Berg
Vice President of Campus Environment, Columbia College (Former Commissioner of Department of Planning and Development, City of Chicago)

Dana Berliner
Senior Attorney, Institute for Justice

David Dana
Professor of Law and Associate Dean for Faculty Research, Northwestern University School of Law

Richard Epstein
James Parker Hall Distinguished Service Professor of Law, University of Chicago Law School and Senior Fellow, Hoover Institution

Carla T. Main
Associate Editor
The National Law Journal

University of Chicago Law School
Weymouth Kirkland Courtroom
1111 E. 60th St.
Chicago, IL 60637


Important Cases:
Related Articles:
The U.S. Supreme Court has granted certiorari in two controversial takings cases. For more reading on those cases, see the following briefs filed with the high court:

Developer files lawsuit against businessmen — The (Brazoria County TX) Facts, 11/14/04

By Elliott Blackburn

Two Freeport (TX) business owners and Web site operators will not
change or remove a Web site criticizing development plans in the city despite a libel lawsuit filed against them, the men said.

Dallas developer Walker Royall filed the suit against Wright Gore Jr. and
Davis Henderson, both pitched in an eminent domain battle with the city. The lawsuit accuses the men of libeling Royall through two Web sites and with advertising for the Web sites.

Both men stand by their Web site and said they will not remove it.

"The Web site is going to stay up," Gore said. "We look forward to having
our day in court to defend our first amendment rights."

Attorneys representing Royall did not return phone calls seeking comment. No
court date has been set in the case, which was filed in August, and Royall did not specify what damages he intended to claim in the lawsuit.

Royall is the developer behind Freeport Waterfront Properties, a partnership
with the city working to build a marina that city officials believe will be the key to downtown development and revitalization.

The city needs roughly 600 feet of waterfront property owned by TriCo Shrimp
Co. and Western Seafood for slip space in the marina project, City Manager Ron Bottoms said.

Freeport condemned 100 feet of Western Seafood's property through eminent domain, the power of a government to take private land for public use. Gore challenged that in federal court earlier this year, and now both parties await a U.S. Supreme Court ruling on a similar case to determine whether the condemnation will stand.

The city is hopeful it will reach an agreement with TriCo representatives
soon, but efforts at informal talks and mediation for the remaining 300 feet, which belongs to Western Seafood, have been unsuccessful, Bottoms said.

"It doesn't look very favorable at this point, which is disappointing,"
Bottoms said. "It's really hurting our businesses in the heart of the city."

The lawsuit states that the Web site falsely claims Royall instigated the
eminent domain proceedings and that homes would be included in the eminent domain proceedings. The lawsuit also takes issue with statements that Royall is richer than anyone in Freeport and began collecting Porsche sports cars as a teenager, according to court documents.

Royall does not own a Porsche and did not instigate talks about waterfront
development, according to court documents filed by his attorneys. No residences are slotted for eminent domain seizure under the planned development, the documents state.

Though the suit was filed in district court in August, according to court
documents, Web site and Western Seafood owner Wright Gore III said he did not know about the case until after a September meeting with Walker Royall.

"As soon as I finished meeting with him, he had some guys sitting outside
waiting to give that to me," Gore said.

Dennis Henderson, owner of TriCo and codefendant in the lawsuit, said he had
not been served with papers from the suit but stood by the statements on the Web site.

"We never, ever, ever said anything that wasn't true," Henderson said.
"Everything on that Web site is true, so I'll see Mr. Royall in court."

The Facts: www.thefacts.com

Restoration should have first priority — Daytona beach (FL) News Journal, 11/14/04

Almost all of U.S. 1 in northern Volusia County runs through community redevelopment districts. There are good reasons.

The aging east coast route is lined with many structures that housed businesses and motels in an era when families traveled to Florida on two- or three-lane roads. Times have changed, and many of the dated buildings have not. Its structures cry for renewal — more than can be addressed by a coat of paint or two.

That is why the Legislature specifically included "deteriorating and economically distressed" coastal and tourist areas along with general urban renewal in the language of the Community Redevelopment Act of 1969. The statute, which has been enhanced in years since, gives extra powers to cities to clean up decaying and declining neighborhoods.

Under the law, cities can set up a Community Redevelopment Agency [CRA] and define the geographical boundaries of a distressed area. The agency can create a tax-increment financing system that captures a portion of future tax dollars, which can be used only in the redevelopment district.

The law also gives cities the capacity of bonding to assist private development and the use of eminent domain to buy land when owners refuse to sell. Such powers are prone to abuse, but so far have been used responsibly in this region. Eminent domain has been used sparingly — and area government leaders correctly define it as a last-resort device.

Cities need these renewal tools to attract private investors. Without incentives, it is far cheaper and easier for developers to build on urban edges, plunging deeper into Florida's hammocks and agricultural lands.

Daytona Beach's Main Street Redevelopment Area may be the area's best-known CRA project. Since 1982, it has grown the Ocean Center convention conclave, Ocean Walk and Adam's Mark resorts and more — and these developments have clearly spurred investor interest that affects all of northeast Volusia County.

But CRAs are not just about big projects. DeLand and New Smyrna Beach, for examples, have used CRAs successfully for lower-key undertakings, such as renewal of streetscapes and building facades to retain and grow businesses in their downtowns. In yet another example of a CRA benefit, South Daytona plans to use its TIF funds to bury electric utility lines, beginning in January.

More troublesome are cities that set up CRA projects on the edges of cities in wooded lands — such as Palm Coast did this year and Ormond Beach is preparing to do. While legal, such districts are at odds with the aim of reducing sprawl.

Even when they do what they are supposed to do, CRAs are not risk-free. Cities can go too far by creating too many or too large districts, which can tie up tax revenue at the cost of the rest of the city. Still, CRAs are a means, when used wisely and in combination with other tools, to direct investment back into the neglected, antiquated urban areas.


In 1969, the Legislature authorized local governments to set up special renewal districts as separate legal entities. The concept aimed to give counties and cities extra tools to restore business districts and neighborhoods that had seen better days. The acronym can refer to "community redevelopment areas" but usually refers to the local oversight body, which is called a "Community Redevelopment Agency."


Local governments draw geographical boundaries around areas needing rehabilitation. The district, under law, must include one or more of these elements: A slum area, a blighted area, or an area in which there is a shortage of affordable housing for residents of low or moderate income, including the elderly, or a coastal and tourist area that is deteriorating and economically distressed due to outdated buildings, inadequate transportation and parking facilities, faulty lot layout or inadequate street layout.


Either the county or city government, depending on circumstances. Local elected bodies appoint the CRA and an advisory board that reports to the CRA. In many cases, the CRA is the city's or county's elected officers. The appointed advisory board consists of five to nine members who reside or have businesses in the redevelopment district plus others, such as a local architect and planning representative. Advisory board members serve four-year terms and are the chief policy-makers for renewal.

Home-rule charter counties, such as Volusia, have exclusive power under law to establish community redevelopment agencies and may delegate part or all of the power to cities.


A CRA has several tools to encourage private-sector redevelopment. To raise revenue, the CRAs can institute tax increment financing (TIF), issue bonds and apply for grants. The agency's main purpose — often relegated to the advisory boards — is to create and implement a redevelopment plan. To do so, the CRA can buy and sell property, and it has authority to condemn property for public benefit (known as eminent domain). It can construct roads, sewers, water lines, parks, public facilities and improve buildings within the district borders. It cannot build general-use public buildings or use its funds for regular city or county operations, except for community policing within district borders.


In Florida, tax increment funds are derived from property taxes. The first year that a CRA district is designated, a base is set for property-tax revenue and that base is frozen. After the initial year, increases in tax revenue above the base — with some exceptions — are channeled into a special redevelopment trust fund that can be used only in the designated redevelopment area. TIF is not an additional tax on property owners. Ideally, TIF funds encourage private-sector redevelopment, whose new taxes are routed into the redevelopment trust fund. TIF dollars can be used to help fund private projects.

A number of taxing authorities are exempted from the TIF pool. They include school districts, library districts, multi-county authorities (such as water management districts, metropolitan transportation agencies and mosquito-control agencies).


If an owner refuses to sell property needed for a redevelopment project, a local government (not the CRA itself) can condemn the property and buy it at fair market value. Most governments, including those in Volusia and Flagler counties, consider eminent domain a last-resort measure. Eminent domain can be used only for a public purpose. It cannot take place without public hearings and the involvement of the property owner.

— Compiled by Kay Semion

CRAs in Volusia, Flagler counties


(1) Main Street: Established in 1982, it covers the city's beachside business districts and neighborhoods from International Speedway Boulevard to Oakridge Boulevard.

(2) Downtown/Ballough Road: Two districts established in the 1980s are run by one board. The territory covers the Beach Street and Ballough business areas plus neighborhoods from the Halifax River to beyond U.S.1.

(3) Midtown: Formed in 1998, it was first known as the Westside Redevelopment Area. It includes properties near Bethune-Cookman College west to the Daytona Mall.

(4) South Atlantic: Established in 2001, it covers the beachside properties south of International Speedway Boulevard to the Silver Beach area.


(1) Town Center: Formed in the 1990s, the area encompasses both sides of U.S. 1 from the north city limits south to Rogers Avenue, plus both sides of Dunlawton Avenue from Spruce Creek Road east across the Halifax River.

(2) Eastport Business Park: Established in the mid-1990s, the district is south of Oak Street east of Spruce Creek Road across the Halifax Canal.


(1) Granada/Bovard: Established in 1986, the area encompasses properties along the Granada Boulevard corridor from A1A west to Orchard Street.

(2) Ormond Crossings: Still in development stages, the district encompasses nearly 3,000 acres, mostly wooded, near U.S. 1 and I-95.


(1) Downtown: Set up in the 1980s, the redevelopment district runs along the Woodland Boulevard business district, extending into surrounding areas.

(2) Spring Hill: Still under development, a partnership between DeLand and Volusia County was created this year for the unincorporated area, near Woodland Boulevard, Beresford Avenue and Spring Garden Road.

SOUTH DAYTONA: Established in 1998, it covers a corridor along U.S. 1 and the Halifax River and some areas to the west.

HOLLY HILL: Created in 1996, it covers a corridor along U.S. 1 and LPGA Boulevard.

NEW SMYRNA BEACH: Set up in the 1990s, the district runs along Flagler Avenue, Canal Street to areas west of U.S. 1.

MARINELAND: Established in 2002, the area covers the entire town and its handful of residents.

FLAGLER BEACH: Created in 2002, the area includes most of the city's downtown.

PALM COAST: Created in 2004, the area consists of nearly 3,000 acres of mostly undeveloped land along State Road 100 between Belle Terre Parkway and Old Kings Road.

Daytona Beach News Journal: www.news-journalonline.com

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.

Investor's Business Daily: www.investors.com