Eminent Domain and the Rule of Law; D. Bechara

The institution ofprivate property, however, is not without its critics. Socialists of all types decry private property as plunder and many parts of the world have instituted public ownership of the means of produc tion. In this country, however, criti cism about the validity of the insti tution of private property itself is very limited. Yet, in spite of the con sensus regarding the legitimacy of Mr. Bechara Is an attomey In Washington, D.C. private property, the concept itself has suffered a progressive erosion which is reaching potentially alarm ing proportions. As massive govern ment intervention and forcible in come redistribution has become the order ofthe day, real estate has come into playas an adequate means for the involuntary transfer of wealth. In a sense, this development be came inevitable once the proposition was accepted that some segments of the population had the right to be forcibly supported by the remainder of society. The redistributionist men tality has legitimatized the taking of one person's income and its transfer in favor of another. Yet, this process remained somewhat anonymous and detached, because the individual taxpayer has been at a loss to iden tify the particular beneficiaries who received his share of the taxes.

Since the costs of government pro grams are dispersed among all tax payers, coupled with the general an273 274 THE FREEMAN May onymity of the specific beneficiaries, taxpayers have had little incentive to arrest the growth of the welfare state. Rather, the opposite has been the case. Groups have formed with the specific goal of receiving subsi dies from the government, and the results of these organized special in terest groups have been substantial. Beneficiaries Identified Recent judicial developments re lated to the power of eminent do main, however, have somewhat al tered this reality. As owners of land become dispossessed as a result of the emergence of the exercise of em inent domain by local and state gov ernments, the anonymity of the re distributive process has been shattered. The identity of the bene ficiaries is known and in a sense this fact may pierce the cloak of altruism that has covered all the redistribu tion of wealth in which the govern ment has been engaged.

The one case which highlights this expansion of government power, and which eloquently introduces its dan ger is Hawaiian Housing Authority v. Midkiff/ which was decided on May 30, 1984 by the United States Supreme Court. The facts of the case are relatively simple. Hawaii, because of its Poly nesian background, did not have a tradition of encouraging the private ownership of land. Land was held by certain island chiefs and subchiefs, and all who occupied it were tenants of the then governmental authori ties. Over the years some settlers were able to purchase land but by the decade of the 1960s the government, both Federal and State, owned 49% of the land. In addition, 47% of the State's land was then owned by 72 landowners. One of the landowners, the Bishop Estate, owned 341,000 acres which belonged to Princess Bernice Pauahi Bishop, the last sur vivor of Kamehameha the Great, who unified the Hawaiian Islands in the eighteenth century.

Some of the landowners were dis couraged from selling their land and leased it instead because of the ad verse effect of the income tax laws. In addition, others, like the Bishop Estate, were charitable organiza tions which were exempt from taxes. Strict land use laws in, effect in Ha waii have also interfered with the workings of the land market. Barriers to Market Transactions Although the fact that the govern ment owned such a substantial amount of land, coupled with the structural barriers to the land mar ket, inevitably affected the real es tate market in Hawaii, the State's legislators concentrated their atten tion on the 72 landowners and pro ceeded to enact the Land Reform Act of 1967. Under the provisions of this stat1985 EMINENT DOMAIN AND THE RULE OF LAW 275 ute, tenants who live in any devel oped residential tract of land of at least five acres in size may, if they so desire, petition the Hawaii Hous ing Authority and request the Au thority to initiate condemnation pro ceedings so that the land may be forcibly transferred to them. In the event that the tenants do not have the financial resources to acquire the real estate, the State of Hawaii would lend them up to 90% of the purchase price. The statute provides for a hearing in which the land owner may introduce evidence as to the fair market price of the land, but otherwise the landowner may not object to the validity of the condeIn nation process.

The case arose because the Bishop Estate challenged the constitution ality of the statute, alleging that the Land Reform Act of 1967 violated the Fifth and Fourteenth Amendments of the Constitution. The thrust of their argument was that the takin.g of the land, as provided by the stat ute, was invalid because it was clearly not for public use, since the tenants were to acquire title to the land. The United States Supreme Court decided the case and it heJld that the statute was valid and not repugnant to the Constitution. FollowingPrecedent The Court's approach in determin ing whether or not the intended use of the condemned land fulfilled the constitutional requirements that the land be publicly used was that since the state legislators had the power of eminent domain, it would be pre sumed that the use ofthe land by the tenants was constitutionally valid unless this was shown to be an im possibility. The Court cited a pre vious case, Berman v. Parker,2 as the authority for reaching its' decision.

That case contained the following language: Subject to specific constitutionallimita tions, when the legislature has spoken, the public interest has been declared in terms well-nigh conclusive. In such cases the legislature, not the judiciary, is the main guardian of the public needs to be served by social legislation, whether it be Congress legislating concerning the Dis trict of Columbia ... or the States leg islating local affairs . . . . This principle admits of no exception merely because the power of eminent domain is involved. Essentially, the Court's reasoning is that once it is determined that Congress or a state Legislature has the power to condemn land as a re sult of its power of eminent domain, then the Court will not invali<;late the statute, in effect abdicating its responsibility of constitutionally evaluating the legislative scheme. The Supreme Court's position is that it will not substitute its judgment for that ofthe legislative branch, so long as the statute has a rational connec tion with the constitutional power enjoyed by the legislature. The im276 THE FREEMAN May plications of this case are very im portant, because state legislatures now have an additional power which they previously were not aware they had.

The power of eminent domain has existed for many centuries, but per haps the clearest explanation of its purpose was proffered in 1625 by Grotius, when he said that: The property of subjects is under the em inent domain of the State, so that the State, or he who acts for it, may use or even alienate and destroy such property, not only in cases of extreme necessity, in which even private persons have a right over the property of others, but for ends of public utility, to which ends those who founded our society must be supposed to have intended that private ends should give way.3 This definition clearly sets forth the very limited function and role that eminent domain must play in society. One can envisage the pro totypical example of extreme neces sity-a fire in a city-which neces sitates the destruction of houses which have not yet caught fire, pre cisely to avoid the spreading of the fire to the rest of the city. Similarly, whenever national defense is in volved, it is reasonable that the gov ernment have the power of eminent domain in order to assure all of its citizens of the benefits of peace. The power of eminent domain, however, has expanded from the very limited role assigned to it by such legal scholars as Grotius, to the contem porary role of serving any broadly defined public purpose. In order to understand why the Supreme Court ruled the way it did in the Hawaiian Housing Authority case, it is instruc tive that we analyze the origins and developments of eminent domain in the United States.

British Policies The right of eminent domain came to America via England, where it had been established for quite some time. In England, there were two va rieties of eminent domain, one ap plicable to the Crown and the other to Parliament. The Crown was en titled to use privately used land in those areas where it was indisputa ble that the Crown had jurisdiction. For example, for such aspects as for eign defense or law enforcement, the Crown or its represen~atives were entitled to use any privately owned land so that the exercise of the Crown's powers would be more effi cient. Parliament, on the other hand, could only take private property af ter payment of a fair compensation. The requirement that compensation be given to the owner was added af ter 1514. In the colonies~ the Crown faced the seemingly insurmountable prob lem that a vast unexplored conti nent needed public roads if it was to be developed. Therefore, the right of eminent domain was imported to 1985 EMINENT DOMAIN AND THE RULE OF LAW 277 America as a road building tool.

Prior compensation, however, was granted to the owner of improved land, but it was denied to the owner of unimproved land. The reason for this was that the owner of unim proved land actually benefited from the construction of a road through his property, so there was no need to compensate him for the land ac tually taken. In Colonial Days The understanding throughout co lonial days was that a taking ofpri vate land would only be justified if it was for the public use. In fact, the Constitutions of Virginia and Penn sylvania, both of 1776, used the phrase "public use" when they both sanctioned the taking of private property. This requirement appears in the Fifth Amendment to the United States Constitution, which states in part that" ... nor shall pri vate property be taken for public use, without just compensation." The power of eminent domain was also utilized, during this time, for the building ofmilldams. The reason the Mill Acts were enacted was that it was deemed a public necessity to fa cilitate the availability of mills to farmers. These statutes, which twenty-nine states had already en acted into law by 1884, provided a.

mechanism whereby mills were es·, tablished without unnecessary re·, straints, the damages caused by the consequent flooding were compen sated and the farmers had various mills from which to choose. It is en tirely possible that had the Mill Acts not been enacted in the first place, many mills would have nevertheless been established on a voluntary ba sis as millers would have discovered that it was to their economic self-in terest to reach agreement with the owner of the land they were to flood. The right of eminent domain be came an unimportant and uncon troversial footnote in the history and the development ofthe United States during the eighteenth and early part of the nineteenth century because of the vast territorial expanses of the country. However, with the devel opment of the country there arose a need to improve transportation. Therefore, state legislatures began expanding the role of eminent do main to allow private companies to build private turnpikes, highways and canals. The public was served in the sense that more transportation alternatives were made available to them and they were guaranteed the use of these facilities. Thereafter, with the development of railroads, eminent domain was further utilized to grant some railroad companies the right to build their tracks in spite of the objections of the owners of the land taken by t'h;e railroads.

Recent research has demonstrated that although railroad companies were empowered to seize land that 278 THE FREEMAN May stood in the way of certain routes, the landlords who were about to be dispossessed were not without legal recourse. In his article, "Reassess ing The Impact Of Eminent Domain In Early American Economic Devel opment," Dr. Tony Freyer concluded the following: . . . local interests could get what they wanted from, or even obstruct the con struction of, transportation facilities. Whatever benefit railroads and canals received from eminent domain law could be offset by localism; and working against such realities, the corporations either struck a bargain or looked elsewhere for a route. Either way, the operational im pact of the assessment process was in creased costs. Thus, while the right of eminent domain could potentially facili tate development, ironically, it also pro vided the means to impede development. 4 Court Rulings As the use of eminent domain be came more prevalent, the landown ers who were adversely affected by this development resorted to the courts in an effort to prevent the con fiscation of their land. Since the pur poses of eminent domain had so vastly expanded, the courts had to analyze whether or not the taking of the land was constitutional.

Essentially, courts were faced with the issue of whether or not these tak ings satisfied the public use require ment. Over time, courts began de veloping a distinction in the interpretation of the "public use" re quirement of. eminent domain stat utes. Some courts felt that all that was required was that the general public receive some tangible benefit as a result of the taking. The danger with this interpretation was that it opened the doors to all types of tak ings' since it is logically conceivable that any type of enterprise will ben efit society after it has taken some property. On the other hand, a nar row interpretation also began to take shape, as courts envisioned the pos sibility of abuse by powerful private interests as they associated them selves with the power of the state to plunder private citizens. The law of eminent domain re mained more or less settled during the latter part of the nineteenth cen tury. In fact, the Federal Govern ment did not exercise the power un til 1875. Prior to that date, a state would condemn land and afterward transfer its title to the Federal Gov ernment. 5 However, it was rather settled that eminent domain could be exercised only in the limited cases where the public had a right to use the condemned property. That a tak ing may arguably benefit the public at large was deemed insufficient to justify the exercise of eminent do main. Yet, the United States Su preme Court was not altogether con sistent in this point, and in the 1916 case of Mt. Vernon-Woodberry Cotton Duck Co. v. Alabama Interstate 1985 EMINENT DOMAIN AND THE RULE OF LAW 279 Power CO.,6 the Court embraced the public benefit analysis.

In that case an electric company attempted to condemn certain land and water rights in order to generate hydroelectric power. The company claimed that the taking was for pub lic use because provision of electric ity benefits society at large. Justice Holmes, writing for the Court, agreed, saying that if "... that pur pose is not public we should be at a loss to say what is."7 New Deal As the New Deal took hold of America, its effects were felt in the evolution of the law of eminent do main. The United States Housing Act of 1937 was the watershed. This statute created the United States Housing Authority, which in turn was enabled to grant loans to local housing agencies in order to eradi cate slums and build public housing projects. Naturally, most states seized upon this opportunity for Fed eral funding and proceeded to con demn many areas that were de·, scribed as blighted in order to build.

public housing projects. If the courts: had maintained the narrow inter·, pretation of the public use require·, ment, these condemnations could not have been effected. Instead, the pre·· vailing interpretation became th€~ broader view that the public benefit or receive some advantage, which permitted the taking of property for limited purposes. The Housing Act of 1949 further enlarged the states' right of eminent domain, as housing authorities were permitted not only to condemn slum areas but in fact were permitted to resell the land to private developers who in turn would follow a previously approved plan of land development. A Radical Departure Finally, the Supreme Court in 1954, in the previously mentioned case of Berman v. Parker, was faced with the issue of a landlord, whose department store was not "blighted" nor did it constitute a public nuis ance. Tlt,is person nevertheless had his property condemned because the area in which his store was located was classified as undesirable and the Federal Government had declared that it would serve the public inter est if that area were sold to private entities who in turn would redevelop the land. Plaintiff lost his case, and the Supreme Court in effect granted Congress a blank check upon which to write its own brand of urban re development. Therefore, the next logical step came in the Hawaiian Housing Authority case which up held the right to condemn private_ property in order to transfer the land to smaller and fragmented private owners so as to take care of the "market failure" in land in Hawaii.

The power of eminent domain is so prevalent and so powerful, that it is 280 THE FREEMAN May literally limited by our imagination. Some of the governmentally sub sidized projects that have been the object of eminent domain range from such projects as the Tennessee Val ley Authority to the World Trade Center in New York City. But per haps the case which demonstrates the most callous disregard for the rights of a community is a 1981 Michigan case, in which 3,468 peo ple were displaced in order to allow General Motors to set up an assem bly plant. The Poletown Situation The case arose when the cities of Detroit and Hamtramck decided that it was a desirable goal to acquire 465 acres which were located between them, at a cost of over $200 million. The cost included such other func tions as relocating the residents, de molishing the existing structures and preparing the land so that in turn the corporation would be enti tled to purchase it at the price of $8 million. GM would also be entitled to certain tax advantages which made it quite profitable to set up an assembly plant there. In return, GM would provide over 6,000 jobs with all the consequent benefits entailed by such job creation.

When the affected neighbors were apprised of what was in store for them, they filed suit, challenging the validity of this taking, because the use for which the property was ultimately intended was to be private and not public. The affected area, known as "Poletown" because of its predominantly Polish composition, was not a slum, nor was it consid ered an eyesore or a blighted spot in the city landscape. It just happened to be in the way of industrial devel opment. The Michigan Court re jected plaintiffs' arguments, and considered that since the creation of jobs was in and of itself an action which benefited· the general public, that the exercise of eminent domain was therefore valid in this instance even though a private entity would own the land and operate it for its own profit. In addition, the Court pointed out that the determination of what constitutes a public purpose belongs properly to the legislative branch, and that it would not ques tion this finding without clear objec tions on constitutional grounds.

No More Dissent The fact of the matter is that the court in the Poletown caseS is not atypical of the rest of the courts in the country. The United States Su preme Court, in the Hawaiian Hous ing Authority case simply restated what are now well-settled principles of law. The fact that the Court de cided this case with eight Justices in favor of the decision and none dis senting, should give us a clue as to how uncontroversial this interpre tation of the law has become. Courts 1985 EMINENT DOMAIN AND THE RULE OF LAW 281 have in effect abdicated their re sponsibility of determining whether or not a taking is for public use. It is now sufficient that the legislature declare that a taking will be in the public interest if that taking has some rational connection with the evil that the legislature wants to eradicate. Market Failures One of the most popular evils tha.t politicians are desirous of eradicat ing concerns "market failures." Yet if we were to analyze the root ofthese failures, whether they are unenl ployment, inflation, surpluses or shortages, a substantial cause of these failures is directly attribut able to prior government interven tion in the market. Therefore, in view of the fact that interventionism has taken such a firm hold of the economy, it is not difficult to visu alize all the potential market "fail ures" that exist and that will appear to be ample justification· for the ex ercise of eminent domain. Eminent domain has become yet another tool where special interest groups seek what they would otherwise not be able to obtain voluntarily in the market. The right of private prop erty has in fact been eroded over the years as a result of this judicial de velopment to the extreme that we hold our property at the pleasure of the government. If the government decides that someone else ought to have our land, whether it is for aes thetic reasons, or for job creation or for any other reason that conceiva bly benefits society, then we will al most inevitably have to succumb to the state's desire for our land.

A Hopeful Sign Courts should limit the widening powers of eminent domain enjoyed by the government. They should un dertake an analysis ofwhether or not a taking is truly for public use, and the conclusion ofthe legislature that a taking is in the public interest should not be blindly accepted. The victims of eminent domain have mo bilized by filing appropriate law suits aimed at the prevention of the taking of their land. Although un successful, the fact that people are actually opposing the arbitrary ex ercise of eminent domain is a hope ful sign. It is time that we should heed the comments of Justice Van Voorhis in his dissenting opinion in the case that paved the way for the construction of the World Trade Cen ter in New York City: Disregard of the constitutional protec tion of private property and stigmatiza tion of the small or not so small entre preneur as standing in the way of progress has everywhere characterized the advance of collectivism. To hold a purpose to be public merely for the rea son that it is invoked by a public body to serve its ideas ofthe public good, it seems to me, can be done only on the assump282 THE FREEMAN tion that we have passed the point of no return, that the trade, commerce and manufacture of our principal cities can be conducted by private enterprise only on a diminishing scale and that private capital should progressively be displaced by public capital which should increas ingly take over. The economic and geo graphical advantages of the City of New York have withstood a great deal of at trition and can probably withstand more, but there is a limit beyond which social ization cannot be carried without de struction of the constitutional basis of private ownership and enterprise.' .~ Property Condemned -FOOTNOTES181 L. Ed. 2d 186 (1984).

2 348 U.S. 26 (1954). 3 Grotius, 1 De Jure Belli et Pacis, Ch. 1. 4 1981 Wisconsin Law Review 1263, 1284. 5 Kohl u U.S. 91 U.S. 367 (1875). This case established the Federal Government's eminent domain power. 8 240 U.S. 30 (1916). 7 Ibid., at 32. 8 Poletown Neighborhood Council u Detroit 410 Mich. 616, 304 NW 2d 455 (1981). 9 Courtesy Sandwich Shop u Port ofNew York Authority 12 NY 2d 379, 399, 190 N.E. 2d 402, 411 (1963). IDEAS ON LIBERTY THE VICTIMS, who in former years might have called upon the court or a policeman for protection, now find the court and the policeman on the side of the aggressor. We may not be able to measure the damaging effect on respect for law and order; but the damage is done, nevertheless. Barbarism has its earmarks, and the acquisition of property through conquest or superior force is notably one of them. Civilization, too, has its earmarks, and the orderly disposition of property through the me dium of deeds, leases, wills, and other contractual arrangements is not only an earmark of civilization but an absolute prerequisite. Leases, deeds, wills, and other contracts will all fall under the stroke of the proposed condemnation. With them will fall the personal security, the hopes, the plans, and-yes-the dreams of the many human beings who have placed their faith in their worth. Here, as always, the failure upon the part of large segments of any given society to understand and respect the rights of ownership can only result in the rise of innumerable pres sure groups, all trying to suggest what should be done with other peo ple's property.

EDWARD P. SCHARFENBERGER Hans F. Sennholz Some Evilsof Inflation To BE IGNORANT of inflation is to suf fer its evil effects. Most people define inflation as a period of generally ris ing prices and wages. They echo of ficial pronouncements and news re ports by the public media that interpret all price rises as inflation ary. Quick to indict anyone who raises prices, they accusingly point to the lust and greed of other men, especially businessmen, as the root cause of inflation. This popular interpretation of in flation contains all the futile means and remedies commonly used to fight inflation: the price constraints and controls designed to keep pricc~s lower than they otherwise would be, the public condemnation of busi nessmen who raise prices and their prosecution for violating price con trol edicts, the imposition of income tax surcharges, and so forth. It obDr. Hans Sennholz is Chairman of the Economics I)e partment at Grove City College. He.has written end spoken extensively on all aspects of the American financial and economic dilemma.