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Just Compensation

Just Compensation

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BeFunky_Screen Shot 2014-11-10 at 8.jpg“Lots and lots of people said to me, why would you want to move there? It’s ugly,” said Columbia University President Lee Bollinger, unveiling the University’s plan to build a 17-acre expansion in the West Harlem neighborhood of Manhattanville. “Nobody else thought it was beautiful.” But as he spoke, neighborhood property owners were fighting against the New York City government’s use of eminent domain to force the sale of their homes to the University. On July 24, 2010, the New York State Court of Appeals reached a decision allowing the use of this particular government power to seize private property for Columbia’s expansion. As Nicholas Sprayregen, one of the property owners forced to sell as a result of the decision, told The New York Times, “It is a terrible signal to other immigrants who look at America as a golden beacon when someone can lose everything they’ve worked for because someone more powerful covets their property.”

Four years later and three thousand miles away, Gayle McLaughlin, the mayor of Richmond, in the bay area of California, proposed a plan to use eminent domain to assist troubled property owners, stemming the tide of foreclosures in the community. The local government would buy the mortgage—forcibly, using eminent domain if necessary—then bring down the homeowners debt, permit refinancing, and pocket the difference when repaid. Opponents, including the American Bankers Association and the National Association of Realtors, used claims of unconstitutionality to stop lending, threatening a “significant contraction of credit availability, particularly in eminent domain communities.”

These cases are two of many that highlight the changing standard for eminent domain in the United States. The power of eminent domain, the authority of local, state, and federal governments to forcibly seize private property, is not today the same power it was one hundred years ago. It is not, in fact, the power it was 20 or even ten years ago. The acceptable uses of eminent domain are now much broader and, therefore, its power much greater—a direct result of the expansion of the standard of “public use,” the most important benchmark for a government’s use of the legal maneuver. The term is derived from the language of the Fifth Amendment, which states that no private property shall “be taken for public use, without just compensation.” The latter has long been interpreted to mean that while a government can force the sale of land, it must compensate the owner at market price. The former, “public use,” is vastly more complicated, and its evolving interpretation is one of the most influential factors in the expansion of eminent domain. In the fertile ground of legal ambiguity, eminent domain has expanded gradually to become the immense power it is today – wielded, by figures like Mayor McLaughlin in Richmond, and President Bollinger at Columbia, in ever more creative and risky ways.

Origins

The power of eminent domain is the authority to acquire private property through forced seizure—albeit with important limitations—as opposed to a voluntary exchange. It is set forth in the Fifth Amendment: “no person shall… be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” This section, called the takings clause, renders the power of eminent domain indubitable, but each individual case—that is, the powers’ limitations—may be called into question. As cities, however, New York and Richmond did not always have the right to use this power. Until the passage of the Fourteenth Amendment in 1868, eminent domain applied only to the federal government. However, in Chicago, Burlington, & Quincy Railroad Co. v. City of Chicago (1897), the Supreme Court held that the due process clause in the Fourteenth Amendment gave this power, among others, to the states.

justcompquote.jpgBut that power came with limitations. The first is “just compensation,” which is considered in most cases the equivalent of “fair market price.” This price may or may not equal the value of the property to the actual owner—a point of great contention in many eminent domain cases. There is, however, general agreement in legal literature that “just compensation” undercompensates the homeowner. In theory, “just compensation” should render the homeowner indifferent to the sale, but by definition eminent domain is only invoked when the owner has refused to sell. As Susette Kelo said when forced to sell her home to the city of New London in 2002, “[it has been] home to my parents and my family for a hundred years. Simply put, there is nowhere else I would rather be.” Our inability to calculate personal meaning alludes to the most important factor we must acknowledge: An eminent domain transaction is a forced seizure, and it must be limited to situations in which the public need for the property warrants such an action.

The requirement of “public use” is the second important limitation on the use of eminent domain, preventing a government from confiscating land with no clear benefit to the community. However, the Fifth Amendment does not describe precisely what is meant by “public use.” It is this ambiguity that has been the fertile ground for eminent domain’s growth over the last hundred years. The most basic public uses are those that can literally be used by the public. In Chicago, Burlington, & Quincy Railroad Co. v. City of Chicago (1897), the city government of Chicago successfully widened a public street, appropriating private land and property owned by the Chicago, Burlington, & Quincy Railroad Company. In Kohl v. United States (1875), the federal government seized land to build a post office, customs building, and other government offices.

As the roles of government expanded during the first half of the twentieth century, this simplistic understanding of “public use” gradually began to grow. In 1954, the Supreme Court decided in Berman v. Parker (1954) that “public use” could be interpreted as “public purpose,” meaning that the actual institution or property created need not be used by the public, so long as its creation served the public interest. In Berman, the District of Columbia Redevelopment Land Agency had used the power of eminent domain to take a blighted neighborhood area. One aspect of the case would later become immensely important: the commission’s decision to transfer the property to a private company to assist in the redevelopment plans. This became precedent in the seminal Kelo v. City of New London case in 2005, arguably the most radical expansion of eminent domain to date.

In 2000, the city of New London, Connecticut sought to condemn a property privately owned by Susette Kelo as part of a “comprehensive redevelopment plan,” intending to sell the property to a developer for the sole purpose of generating municipal revenue. In a historic 5-4 ruling, the Supreme Court sided with the city of New London, with a slim majority opinion solidifying the view that “public use” could simply be economic development for the local government or direct community. Justice John Paul Stevens wrote the majority opinion on behalf of the Court’s liberal wing, while Justice Kennedy wrote a concurring opinion that, while not binding on lower courts, outlined a more exacting and nuanced approach. A court considering an eminent domain case, Kennedy argued, should inquire whether the development in question is “of primary benefit to the developer and private business which may eventually locate in the plan area… and in that regard, only of incidental benefit to the city.” The court should consider whether the parties “show awareness of depressed economic condition and evidence corroborating the validity of this concern,” he said, as well as the “substantial commitment of public funds.” Furthermore, the government must have considered a variety of development options and have chosen a private developer from a group of applicants, to avoid preferential treatment and pressure.

The problem, in the view of the opposing four Justices, is one of precedent. In her dissenting opinion, Justice Sandra Day O’Connor describes the issues associated with confusing “public use” with vague “public benefit.” She writes: “under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded.” By this she means all private property may be given to a new — also private — owner at the discretion of the government.

While the tectonic plates of eminent domain have been moving for a long time, Kelo v. New London radically sped up the process, spawning legislative actions and reactions across the country. Many states have since passed laws forbidding local governments from taking land for “economic development” purposes, but states and local governments continue to use eminent domain in creative ways to serve the public interest, even if not for strictly “public use.”

Manhattanville

In 2003, Columbia University began an immense expansion project into the Manhattanville neighborhood, north of the university’s Morningside Heights campus. To do so, the University involved itself in a lengthy and complex series of legal maneuvers, utilizing the City of New York’s power of eminent domain. In many ways, Columbia’s efforts fall in line with the legacy of Kelo v. New London, playing the role of a traditional private entity and justifying its expansion by facilitating economic growth and development in the area: Columbia University, private developer. In the post-Kelo world of eminent domain limitations—or lack thereof—the institution’s development goals themselves fall under the umbrella of “public use” in the sense that many would find the economic development inherent in Columbia’s expansion to be in the public interest. In other ways, however, the University goes further, arguing that it offers additional community benefits as an institution of higher education—a public interest beyond mere economic development and thus another basis for claiming its actions represent “public use.” Columbia’s most compelling claim is the educational and civic good it provides to the community, rather than any assertion of economic benefit to the neighborhood—to which, in fact, it may be a detriment.

BeFunky_Screen Shot 2014-11-10 at 9.jpgWhen the University announced its plans, it owned only 60 percent of the land required, but it successfully petitioned the Empire State Development Corporation (ESDC) of New York State to use the power of eminent domain on its behalf. Justification for this decision fell into two categories: economic benefits and civic good. The ESDC found Columbia’s plans were likely to reduce blight and inspire investment in the area. In an internal presentation, Columbia claimed that the Manhattanville development would create up to 14,000 temporary and 6,000 permanent jobs. In addition to the economic benefits, the ESDC looked particularly fondly on the civic good brought to a community by an institution of higher education. In addition to the secondary school, Columbia intends to create academic services for the community including “a one stop center for social services that is central, workshops for young people on employability skills, potential business development aid, [and a] hospitality training institute.” The University’s proposed financial contributions to the community are immense: in the West Harlem Benefits Agreement, signed by President Bollinger and the West Harlem Local Development Corporation (LDC) on May 18, 2009, Columbia committed to $76 million for a Benefits Fund over 16 years, $20 million for affordable housing, $4 million toward housing-related legal services, $30 million for a demonstration school affiliated with the University’s Teachers College, and $20 million for access to Columbia facilities and “in kind services.”

Responding to both the claim of economic benefit and civic good, the New York State Court of Appeals considered the question of whether the Manhattanville development met the conditions for public use and “answered in the affirmative.” Furthermore, the court concluded, “the Empire State Development Corporation’s (ESDC) findings of blight and determination that the condemnation of petitioners’ property qualified as a ‘land use improvement project’ were rationally based and entitled to deference… [and] the alternative finding of ‘civic purpose,’ likewise, had a rational basis.”

However, there are those who refute the claim that the area was blighted in the first place, which, if true, would undermine the university’s argument and the court’s finding. In response to an article by the Columbia Daily Spectator editorial board, in which they asserted that the neighborhood “once consisted mostly of vacant warehouses and manufacturing facilities, and where long blocks with few residences made for unsafe streets,” community activist Tom Kappner questioned Columbia’s assertion that the area was vacant, pointing out that vacancies became much more prevalent after Columbia threatened property owners with eminent domain.

Despite this resistance, Columbia acquired all but two properties through voluntary negotiation; for the two in question, though, the legal struggles were seen as a personal affront. Gurnam Singh, owner of two gas stations on 125th Street, and Nicholas Sprayregen, owner of four buildings used for his “Tuck-It-Away” moving and storage business, had no desire to move their businesses nor sell them to the University. Speaking to The New York Times in September of 2008, Singh’s wife, Parminder Kaur, vocalized the emotional element of the family’s argument: “I don’t want to sell [the stations] for any amount of money. This business is like part of my family. Money is not everything. You don’t sell your children.” With emotions running high, negative feelings came to the surface. “[Philip Silverman, a Columbia official,] is treating me like, ‘this Indian family – we don’t know anything,’” Singh told the Times. Columbia rejected the characterization.

According to Singh, Columbia offered more than $1 million for the property and a plan to find a site in Jamaica, Queens. The family felt the sum far too low and the potential location not busy enough. Amar Kaur, Singh’s daughter, spoke on the family’s finances in a way that betrayed the emotionality present even in this part of the argument. “These properties are the bread and butter for our family,” she said in the same article. “If we lose this, it would be equivalent to losing everything we have in our lives. My parents have put blood, sweat, tears and time for the past 25-plus years to be where we are at in society today.”

Suing together, Singh and Sprayregen claimed that Columbia failed to meet the standard of public use. The New York State Supreme Court found in favor of the property owners, but the decision was decidedly reversed by the Court of Appeals. The appeals court not only found ameliorating blight a public use, but also determined that the civic good of supporting education and research could be in turn supported by the use of eminent domain. In this case, the justification fell into two bins, the first economic development and the second civic good. Columbia argued—and the court held—that each bin could independently have satisfied the standard of public use.

In 2002, University President Lee Bollinger gave his inauguration speech, saying “To fulfill our responsibility and our aspirations, Columbia must expand significantly over the next decade.” Expand it did. But former Columbia Daily Spectator Manhattanville beat chief, Theodora Raymond-Sidel, has a different perspective on the relationship of Manhattanville to what President Bollinger called Columbia’s “responsibility and aspirations.” “There’s an obvious moral quandary here,” she said. “In doing this, Columbia is shirking its responsibility to the community; President Bollinger is referring instead to the responsibility of Columbia to serve its own interests.” Raymond-Sidel emphasized, “with Manhattanville, Columbia is acting against the ideals we espouse as a university.” The question then is: What responsibility does Columbia serve through the Manhattanville development? Who is served by way of this development? A different answer to these questions came to the fore in Richmond, California.

Oakland and Richmond

Given these new and evolving legislative constraints, as well as the ever-tenuous financial situation of many small towns and their residents post-2008, some governments began to get creative, pushing the limits set by Kelo in other ways. Among the most notable are Richmond and Oakland, California. On July 30, 2013, Richmond became the first city in the United States to use eminent domain in an effort to stop foreclosures, a move closely watched by bankers, politicians, and homeowners across the country.

The program itself involves a significant amount of legal and financial maneuvering. Consider the hypothetical: a home mortgaged at $500,000 is now worth only $200,000, and the tenant, a resident of Richmond also fallen on hard times, is woefully behind on mortgage payments. The city would buy the mortgage—forcibly, using eminent domain and offering just compensation—from the bank for $160,000, or about 80 percent of the home’s current value. The city would then bring down the homeowner’s debt to a more manageable $190,000, and permit the homeowner to refinance through a city-sponsored government program. Once the mortgage is repaid—hopefully within a reasonable and agreed-upon amount of time—the city receives the difference.

Banks and other financial institutions claim such a move would be “unprecedented and unconstitutional.” Opponents include big players like the Securities Industry and Financial Markets Association, the American Bankers Association, the National Association of Realtors, and other large investors. Together, this group submitted an opposition paper in which they wrote, “Such a novel use of the eminent domain powers is unprecedented and would, in our view, not survive the multiple legal challenges that would ensue.” Other threats follow: “it will be much harder to get a loan.” With the banks’ legal rain looming, Richmond officials stood their ground. “We’re not willing to back down on this,” Richmond mayor Gayle McLaughlin told The New York Times. “They can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods.” The name the council chose for the program illuminates the idea behind it: Richmond Cares. When Mayor McLaughlin’s city began its program, it set a controversial and uncertain example for other cities experiencing similar economic issues.

Mayor McLaughlin speaks to the desperation of her city. According to the first of several New York Times articles written on the subject, roughly half of all homeowners with mortgages in Richmond are “underwater, meaning they owe more — in some cases three or four times as much more — than their home is currently worth.” Furthermore, there is little incentive for many of these homeowners to continue trying to keep up with their payments, since the value on their house has dropped precipitously over the last decade. In similar positions — and considering similar solutions — are cities such as Irvington, New Jersey, which passed a resolution in support of the method in July 2013; North Las Vegas, which heard debate on the subject in August 2013; El Monte, California, and Seattle, Washington; Oakland, California.

On November 5, 2013, Oakland residents Rebecca Kaplan and Desley Brooks put forward two resolutions that praised Richmond. Margaretta Lin, special projects director in the Oakland Community and Economic Development Department, gave a report on extant programs in Oakland to help homeowners at risk of foreclosure. At the same meeting, Mayor Jean Quan cited Oakland’s history of helping residents remain in their homes. But in our telephone interview, Lin described Oakland’s actions as only “support and solidarity for the city of Richmond” and that it was primarily for the acknowledgement of the difficulties of foreclosure; “there was no council action that endorsed the use of eminent domain itself.” She further emphasized that the Oakland Council had “not seriously considered” the measure.

Seriously or not, and although neither plan has yet come to fruition, both Richmond and Oakland have considered uses of eminent domain that would have been wildly untenable pre-Kelo. The definition of “public use” has moved from that which could be literally used by the public, to a “public purpose,” to, in the words of Justice O’Connor, “any way that the legislature deems beneficial to the public.” This case, using eminent domain to buy mortgages, necessitates the understanding that eminent domain applies to non-tangible property and the assertion that “public use” extends to the prevention of foreclosures and keeping residents in their homes.

These two case studies — Manhattanville, New York, and Oakland, California — each demonstrate creative interpretations of eminent domain. Set forth in the Fifth Amendment and limited by the standards of “public use” and “just compensation,” the power of eminent domain has grown to encompass much more than was originally established—what was once used for public parks and spaces is now experimented with for mortgages. In Manhattanville, New York, the city used the power of eminent domain to forcibly purchase two properties in order to sell them to Columbia University. Here, “public use” was considered by the court to be both economic development and the educational and community benefits that come with the expansion of an institution of higher education. In Oakland, California, the town weighed using the power of eminent domain to purchase mortgages on houses in foreclosure. Here, “public use” would be keeping people in their homes who would otherwise suffer significant financial damage. In each, the term refers to a different community benefit—and both are not uncontroversial. These cases are based on the expansion that became most pronounced in Kelo v. New London, but the evolution had begun long before and will likely continue long into the future.

Judging the Judges

Judging the Judges

Digging With China

Digging With China