▪ Kelo Pretext vs. Public Use: Eminent Domain Improper When the Sole Purpose to Assist Private Entities

"Courts are required to be more than 'rubber stamps' in determining whether a taking furthers a public use."

In a must-read opinion for eminent domain practitioners, the Appellate Division of the New York Supreme Court invalidated an attempted taking on public use grounds. 

In In the Matter of 49 Wb, LLC v. Village of Haverstraw, 2007 NY Slip Op 05506 (Jun. 19, 2007), the court held that a taking of private property for affordable house was an improper use of eminent domain since the "evidentiary record [is] that the Village invoked its power of condemnation for the sole purpose of benefitting private, and not public, interests."  Slip op. at 22.  The court found that the "Village's sole purpose [was] assisting private entities by means of condemnation."  Slip op. at 22. 

This case follows the roadmap set out by the Court in Kelo v. City of New London, 545 U.S. 469 (2005), where the Court -- as clarified in the concurring opinion by Justice Kennedy -- reminded that "pretextual" takings would not withstand judicial scrutiny:

A court applying rational-basis review under the Public Use Clause should strike down a taking that, by a clear showing, is intended to favor a particular private party, with only incidental or pretextual public benefits, just as a court applying rational-basis review under the Equal Protection Clause must strike down a government classification that is clearly intended to injure a particular class of private parties, with only incidental or pretextual public justifications.

Kelo, 545 U.S. at 491 (Kennedy, J., concurring).  Justice Kennedy added:

A court confronted with a plausible accusation of impermissible favoritism to private parties should treat the objection as a serious one and review the record to see if it has merit, though with the presumption that the government’s actions were reasonable and intended to serve a public purpose.

In the 49 Wb case, the Village attempted to take a building to provide a "centrally-located healthcare center and affordable housing, as well as suitable office space" for a non-profit housing and preservation organization.  Slip op. at 5. The court acknowledged that "public use" and "public purpose" are broadly defined, and encompass "virtually any project that may confer upon the public a benefit, utility, or advantage."  Slip op. at 10.  However, this is not the end of the public use analysis, as judges are not, in this court's words, "rubber stamps" for the government's proffered reasons for a taking.  Even under narrow judicial review, "eminent domain cannot be used as a mere pretext for conferring benefits upon purely private entities and persons."  Slip op. at 15. 

The Village argued that the taking had a public justification on three grounds: the suitability of the building for a community health center, that the building could be used for the non-profit's offices, and that the site could host up to 16 affordable housing units.  49 Wb alleged that the sole beneficiaries of the attempted taking was the non-profit organization and a development company that wanted to undertake a downtown public/private redevelopment project.  The non-profit had previously attempted to purchase the building without success, and the development company would have received affordable housing credits for any such units built by the non-profit. 

The court rejected the first reason, the community health center.  49 Wb had concrete plans for its own redevelopment of the building which included a community health center.  In contrast, the non-profit's plan lacked detail.  The court held that the Village did not "articulate how or in what manner" the condemnation of the Graziosi Building fosters any benefit to the public that would not be obtained absent the condemnation.  Condemnation on this basis is without foundation in the evidence and must be rejected."  Slip op. at 18. 

The court held that the second reason advanced by the Village to support the taking was similarly "illusory," because the non-profit was already a tenant of the building, and 49 Wb had offered to extend its lease.  The condemnation would gain nothing, since the non-profit already had office space, and there is no public benefit to the non-profit owning its office space versus renting it.

The Village's third justification for the taking, affordable housing, was also rejected.  The Village had conditioned the developer's waterfront project on the developer's agreeing to provide affordable housing within the Village.  The Village claimed that the taking of the building, to be credited in part to the developer's affordable obligation, would increase affordable housing within the Village, and therefore supporting the taking.  The court held that the linkage was insufficient, and the two were not related.  The court was persuaded that 49 Wb's plans to also devote a portion of its building to affordable housing would have resulted in a net increase in the Village's affordable housing stock, something that would not have occurred under the condemnation plan.  Thus, the condemnation was not rationally related to the advanced public purpose.

The court concluded "[t]he Village's justification for the condemnation, that it serves a public use, benefit , or purpose, is merely pretextual, and hence, improper."  Slip op. at 21-22.  "The only rational conclusion that can be drawn is that the Village's true purpose for condemnation was to assist its waterfront developer in meeting the developer's private scattered-site affordable housing obligation and to reduce costs to the developer."  The court looked to the Village's own words in the resolution of taking, which tied the taking to the developer's affordable housing requirement.  The court also placed great weight in the fact that the taking was attempted shortly after 49 Wb purchased the property, and after the non-profits attempts to purchase the property failed.  The fact that the condemnation scheme would have resulted in fewer affordable housing units than if the Village had simply left 49 Wb alone also factored in. 

What this case teaches is that there is room after Kelo for property owners to object on public use grounds to an attempt to take their properties.  That inquiry is fact-intensive:

Instead, our opinion rests upon the evidentiary record that the Village invoked its power of condemnation for the sole purpose of benefitting private, and not public, interests.

Slip op. at 22.  Courts defer to legislative determinations that property is needed and must be taken by eminent domain because the process is supposed to be transparent and public.  When that process breaks down, and the decision to take property is made in back rooms with no accountability and for reasons that are less than forthcoming, courts owe no deference to the result.  Kelo left that door open, and 49 Wb shows that when circumstances warrant, that opening is wide:

Eminent domain may now represent a growth industry for litigation over the purported public uses which have formed the basis for takings of private property.

As this case (currently being litigated) shows, the court may be right.