Property owners in southwest Ohio won a major victory Wednesday, when the Ohio Supreme Court overruled an appellate court and declared that a portion of the state's eminent domain statute is unconstitutional.
In a unanimous decision, the seven justices of the state's highest court ruled the city of Norwood didn't have the right to take two houses in its Edwards Road corridor to make way for a high-end commercial and residential development.
The decision overturned the 1st District Court of Appeals ruling that granted the suburban Cincinnati city the right to take the residence of Carl and Joy Gamble and the home of Joseph Horney and his wife Carol Gooch.
Norwood and developer Rookwood Partners Ltd. have plans to redevelop the 10-acre Edwards Road corridor into an apartment, retail and office complex.
Rookwood Partners arranged sale agreements with 66 of 71 property owners. As part of the development, two city-owned parking garages were planned. The rest of the development would have been privately owned and was intended to create jobs and increase local tax revenue.
Three of the five remaining owners settled their fight or were paid an amount determined by a Hamilton County jury. The Gambles and Horney were the holdouts.
Justice Maureen O'Connor wrote in the opinion that the court's decision balances "two competing interests of great import in American democracy: the individual's rights in the possession and security of property, and the sovereign's power to the private property for the benefit of the community."
The high court found that while economic factors may be considered when determining whether private property can be appropriate, those factors alone don't justify the taking of property.
The court also ruled that use of the term "deteriorating area" as a standard for determining whether private property is subject to appropriation, is unconstitutional because it inherently incorporates speculation as to the future condition of a property.
Norwood had hired a consultant that determined the Edwards Road corridor was deteriorating because of its growing isolation from residential areas, its traffic dangers and susceptibility to "piecemeal" conversion from residential to commercial uses.
The Supreme Court also found a section of Ohio's eminent domain law that prohibits a court from enjoining the taking of property after compensation has been deposited with the court but prior to appellate review, is also unconstitutional because it violates the separation of powers doctrine.
Reaction to the decision from around the country was swift.
The Washington D.C.-based National Federation of Independent Businesses praised the ruling.
"We are thrilled with the court's decision," said Karen Harned, executive director of the group's Legal Foundation. "The takings clause in the Ohio constitution was never intended to allow governments to take properties from private owners just to turn and sell these properties to other private entities."
The federation filed a friend-of-the-court brief in the case on behalf of small-business owners who feared losing their property to eminent domain.
It's still unclear what effect the ruling will have on how government and private developers do business, said Bruce Ingram, a partner at Vorys Sater Seymour and Pease LLP in Columbus.
"At a minimum, challenges as to whether a development is for a public use are going to increase," he said.
Ingram noted that before the ruling, it was the burden of the land owner to prove an eminent domain taking wasn't for public use.
"The burden is now on the government," he said.
Ingram also thinks redevelopment of blighted areas may slow.
The case is similar to the controversial Kelo v. New London, taken up last year by the U.S. Supreme Court. In that case, the Supreme Court ruled the city of New London could use eminent domain to make way for an upscale redevelopment of the Connecticut city's waterfront.
That decision dealt strictly with federal law and had no effect on the Ohio case. Nevertheless, the decision sent more than a dozen states into action to change their eminent domain laws.
In Ohio, the legislature enacted a moratorium on the use of eminent domain for non-blighted properties until Dec. 31.
"In addressing these important matters, we have benefited from the wisdom of other courts, which, by the masterly design of our government, are at the forefront of these critical constitutional questions," O'Connor wrote. "Although the judiciary and legislature define the limits of state powers, such as eminent domain, the ultimate guardians of the people's rights, as evidenced by the appellants in these cases, are the people themselves."
Business First of Columbus: http://www.bizjournals.com/columbus