This is a longer post, but since we think this case may be going further and is worth watching, we're going to hit it up in some detail.
In City of Chicago v. Eychaner, No. 05L050792 (Jan. 21, 2015), the Illinois Appellate Court upheld the taking of private vacant land near the Chicago Loop (Eychaner's Land on the map below) so that it could be transferred to the owners of a nearby chocolate factory (Blommer's Factory).
The court viewed this "A-to-B" taking as merely a part of an area redevelopment and tax increment finance plan, which would keep the chocolate factory from moving out as the area gentrified.
The opinion contains a long recitation of the reasons for the taking, how the Planned Manufacturing District (PMD) was designed to "protect the 2,800 industrial jobs located in the area, [to] prevent residential encroachment on the existing manufacturing facilities, and [to] encourag[e] manufactureres to invest in their facilities," and how the process ultimately resulted in Eychaner's land being transferred to Blommer. Slip op. at 3-4. In addition to the chocolate factory, the PMD area included 8 other "industrial firms" besides Blommer. But the opinion (and, apparently, the plan) focused on Blommer's chocolate factory. Ironically, Blommer didn't want to be included in the PMD either, because a property to its south was already scheduled for a "massive residential development," which meant there would be no buffer between Blommer's heavy industrial use and these future new residents, who would be sure to find "intolerable," the smell, noise, and traffic generated by the chocolate factory.
Because it wanted to avoid these future troubles, Blommer suggested that the city exclude it from the PMD, or prohibit the residential development. Otherwise, it might have to leave Chicago and convert its property to some other use.
Or ... maybe we could spread our campus north, suggested Blommer. Initially, these plans did not include Eychaner's land, but the very next month the city wrote to Blommer:
expressing "[w]e are committed to keeping quality manufacturing firms, such as [Blommer] in the City. To that end, we are very interested in helping your create a larger 'industrial campus' as a means to internalize your loading operations, limit traffic impacts on adjacent streets, and provide room to expand." The commissioner wrote that the Plan Commission would: (i) work on the possibility of closing parts of Hubbard Street and Jefferson Street; (ii) pursue the creation of a tax-increment finance district to finance public infrastructure improvements and "any potential acquisitions," which now included Eychaner's land; and (iii) defer approval of residential development south of Blommer's plant "to explore design, use and density issues." The PMD, the commissioner noted, would "ensure that properties to the north and east of [Blommer's] factory are not developed for residential use," and also made clear that Blommer's "public support for this action [was] crucial in getting this measure through the legislative process."
Slip op. at 8-9 (emphasis added). By the following month the plan was even more concrete, and "Blommer commissioned an architect to draw up a site plan for its expanded campus. That plan included Eychaner's land[,]" and proposed using the city's eminent domain power to take it and transfer it to Blommer for $1. Slip op. at 9.
Amazing how things just happen, isn't it? And who said San Francisco is "the city that knows how?"
The city complained that "Blommers seems to be negotiating as if they have us over [a] barrel," but ultimately a few months later, the city adopted the PMD, and began the tax increment financing scheme that would fund the thing. [Sidebar: for a very good primer on TIFs, you can't do better than the ABA book "Tax Increment Financing" (2012) by our ABA State and Local Government Law Section colleagues David Callies and Andy Gowder.] The city commissioned studies, and produced a 68-page report which concluded:
that tax-increment financing would induce private investment and arrest blighting factors in the area. Because the area had not been subject to growth and reinvestment, the study reasoned that property owners would not invest in their properties without tax-increment financing. The study anticipated benefits, including: (i) stronger economic vitality; (ii) increased construction and long-term employment opportunities; (iii) replacement of inappropriate uses, blight, and vacant properties with viable, high-quality developments; (iv) the elimination of physical impediments, such as roads in poor condition; (v) the construction of public improvements to attract private investment; (vi) job-training services to make the area more attractive to investors and employers; and (vii) opportunities for minority- and women-owned businesses to share in the redevelopment.
Slip op. at 13. Eychaner's land was not blighted, but there was some blight in the area, so Eychaner's land was soon placed into a "conservation area" because in the future it "may become a blighted area." Id. at 14. A few months later, Blommer submitted its proposal to redevelop the area around the factory, which included Eychaner's land, for all of the usual reasons that support an economic development taking: creating and retaining jobs, increased tax revenue, and to ensure that the plant stayed in the city.
When Eychaner refused to sell to Blommer, down came the city's eminent domain hammer.
The appellate court distinguished Southwest Illinois Dev. Auth. v. National City Environmental, LLC, 768 N.E.2d 1 (Ill. 2002), the case in which the Illinois Supreme Court invalidated a taking for private benefit, concluding that an A-to-B taking with "minimal public benefit" which "principally benefitted" a private party could not withstand public use scrutiny. See id. at 9 (citing Limits Industrial R.R. Co. v. American Spiral Pipe Works, 151 N.E. 567 (Ill. 1926)). Concluding that the taking of private property for an adjacent racetrack's parking lot was a "purely private benefit and lacks a showing of a supporting legislative purpose," the SWIDA court held that the "true beneficiaries of this taking are private businesses and not the public." SWIDA, 768 N.E.2d at 10.
The Eychaner court held SWIDA was different because they didn't have plans. In SWIDA the condemnor produced no studies, and thus the court was able to see through the pretext to the "sweetheart deal" to understand that the taking was not intended to benefit the public. Slip op. at 21. It didn't matter whether the public was allowed to access the property under its new ownership, because the key issue is the motive of the condemnor. Relying on Kelo, the Eychaner court concluded that the city had adequately documented that its motives were pure because it showed the taking of Eychaner's land was just part of a plan. A "carefully formulated" economic development plan, not a sweetheart deal. Thus, the court held the taking "unquestionably serves a public purpose of preventing blight, promoting economic revitalization, and protecting existing industry." Slip op. at 25.
The court rejected Eychaner's pretext arguments after acknowledging that "[r]ecognizing the difference between a valid public use and a sham can be challenging." Slip op. at 28. Boy howdy. But the existence of the plans made it much less challenging, indeed a foregone conclusion:
Recognizing the difference between a valid public use and a sham can be challenging. But a telling feature of sound public use in the context of economic redevelopment is the existence of a well-developed, publicly vetted, and thoughtful economic development plan. Such a plan was present in Kelo, 545 U.S. at 483-84, and Gutknecht, 3 Ill. 2d at 542-43, but absent in SWIDA, 199 Ill. 2d at 240 ("SWIDA did not conduct or commission a thorough study of the parking situation at [the racetrack]. Nor did it formulate any economic plan requiring additional parking at the racetrack."). A taking will likely pass constitutional muster where done in furtherance of a sound economic development plan, rather than the plan retroactively justifying the taking. Cf. Romeo v. Cranston Redevelopment Agency, 254 A.2d 426, 433 (R.I. 1969) ("governing bodies must either plan for the development or redevelopment of urban areas or permit them to become more congested, deteriorated, obsolescent, unhealthy, stagnant, inefficient and costly" (internal quotation marks omitted)).
Slip op. at 28. This was no "sham to take [Eychaner's] property." Slip op. at 30. The city had an economic revitalization plan, and the taking was but a part of it because it "aligned" with the city's stated goals to retaining existing industry (Blommer), prevents conflict beteween residential and industrial use (Blommer), and promotes investment and revitalization (Blommer's) in a conservation area. Id. at. 31.
Having found the taking constitutional, the court did have problems with the way the trial court handled the just compensation issue, concluding that the "scope of the project" rule should have resulted in the trial court excluding evidence of the PMD zoning. The court held that the "public improvement" (the project) "is Blommer's expanded industrial campus, the ultimate use of Eychaner's property."
The record indicates that the creation of the PMD, the River West TIF, and the taking of Eychaner's land were all a single project. The City began the process of creating the PMD in late 1999 with the goal of protecting industrial users like Blommer. The City's study regarding the River West TIF indicated that it was a "financial mechanism necessary to implement the goals and objectives of" the PMD. The taking of Eychaner's land was not only an integral part of creating the PMD, but also served to carry out the goals of PMD and River West TIF. Namely, the preservation of the City's industry, prevention of conflicts between industrial and residential uses, job creation, and increased tax revenue.
Slip op. at 34-35. Ah, the plan again. Note the irony in the city's argument: the "project" for purposes of the scope of the project rule -- supposedly the property owner's expectations of why its property was taken -- was not to give it to its neighbor, when that was exactly the city's argument supporting its claims of public use. The court rejected as "speculative" the city's argument that "Eychaner's land would have been included in the PMD even if it was not taken for Blommer's expansion." Id. at 35.
Points to the court for including several maps of the properties and the plans. We wish more opinions did this.
More on the story from Chicago Real Estate Daily: "Eychaner wins new trial on value of River West land."
There may be more on this case, so stay tuned.