More on DC Decision on Evidence of Pretext in Public Use Challenges

More on Franco v. National Capital Revitalization Corp., No. 06-CV-645 (July 12, 2007), a decision from the District of Columbia Court of Appeals about the level of proof needed to show a "pretextual" -- and therefore prohibited -- taking. 

I.  Kelo and Pretextual Takings

In Kelo v. City of New London, 545 U.S. 469 (2005), a bare majority of the US Supreme Court held that takings supported by claims of "economic development" were governed by rational basis review and are not, in every case, devoid of public purpose.  The Court, however, reserved judicial oversight, holding that in certain circumstances, a court could strike down a taking for lack of public use.  This result was consistent with the Court's established Public Use jurisprudence, most notably Berman v. Parker, 348 U.S. 26 (1954), in which the Court held that eminent domain in the redevelopment context would be reviewed as social legislation, and Hawaii Hous. Auth. v. Midkiff, 467 U.S. 229 (1984), in which the Court held that a legislature's decision to redistribute property with compensation would be subject to the same minimal judicial scrutiny reserved for economic legislation.

To deal with the question of what types of condemnations would fall short, the Kelo majority held that a "pretextual" public purpose would not support a taking:

Two polar propositions are perfectly clear. On the one hand, it has long been accepted that the sovereign may not take the property of A for the sole purpose of transferring it to another private party B, even though A is paid just compensation. On the other hand, it is equally clear that a State may transfer property from one private party to another if future "use by the public" is the purpose of the taking; the condemnation of land for a railroad with common-carrier duties is a familiar example. Neither of these propositions, however, determines the disposition of this case.

As for the first proposition, the City would no doubt be forbidden from taking petitioners' land for the purpose of conferring a private benefit on a particular private party. See Midkiff, 467 U. S., at 245 ("A purely private taking could not withstand the scrutiny of the public use requirement; it would serve no legitimate purpose of government and would thus be void"); Missouri Pacific R. Co. v. Nebraska, 164 U. S. 403 (1896). Nor would the City be allowed to take property under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit. The takings before us, however, would be executed pursuant to a "carefully considered" development plan. 268 Conn., at 54, 843 A. 2d, at 536. The trial judge and all the members of the Supreme Court of Connecticut agreed that there was no evidence of an illegitimate purpose in this case. Therefore, as was true of the statute challenged in Midkiff, 467 U. S., at 245, the City's development plan was not adopted "to benefit a particular class of identifiable individuals."

Kelo, 545 U.S. at 477-78 (footnotes omitted).  The concurring opinion by Justice Kennedy provided the roadmap for how a court should deal with a claim of pretext:

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.

Id.  After Kelo, property owners and property takers were left with the question of what would qualify as a "pretext" sufficient to overcome a claim by government that a condemnation was supported by a public purpose.

II.  Post-Kelo Decisions

Several post-Kelo cases addressed the pretext issue, with varying results, and methods of analysis.  In 49 Wb, LLC v. Village of Haverstraw, 2007 NY Slip Op 05506 (Jun. 19, 2007), a New York state court invalidated a taking because the evidentiary record in the case demonstrated the government was attempting to take property for the sole purpose of benefiting private, not public, interests.  In Goldstein v. Pataki, however, a New York federal court dismissed a property owner challenge to a taking because the property owner's complaint did not allege enough facts to show a private benefit (Goldstein was appealed to the Second Circuit where it awaits a ruling).  Didden v. Village of Port Chester, 173 Fed. Appx. 931, 2006 WL 898093 (2d Cir. Apr. 5, 2006) held the property owner's claim that a private developer demanded cash in return for not exercising eminent domain was not actionable under the Public Use Clause.

In MiPro Homes, LLC v. Mount Laurel Township, 878 A.2d 38 (N.J. Super. 2005), aff'd 910 A.2d 617 (N.J.) (per curiam), cert. denied, ___ U.S. ___ (2007), the New Jersey state courts held that evidence the government was taking property to stop development and preserve open space was a public use and not pretextual.  In Western Seafood Co. v. United States, No 04-41196 (5th Cir., Oct. 11, 2006), the court held that a private-to-private transfer for economic development that was accomplished as part of a "carefully considered development plan" passed muster. 

III.  Franco

Now, along comes the District of Columbia Court of Appeals to tackle the same issue in  Franco v. National Capital Revitalization Corp., No. 06-CV-645 (July 12, 2007).  The decision deals with the proof of "pretext" in post-Kelo challenges to the claimed public use supporting a taking of private property by eminent domain. The facts of the case are similar to a case decided by a federal appeals court, Rumber v. District of Columbia (No. 06-7004, D.C. Cir. May 25, 2007), and involve the same Skyland Shopping Center in Washington, D.C., which was alleged to be a "blighting factor" to the surrounding area.  The D.C. Council had enacted a series of laws which authorized the National Capital Revitalization Corporation, a redeveloper, to take Skyland for redevelopment.  NCRC instituted an eminent domain complaint against Franco who owned a store within the shopping center, and Franco objected, claiming the site was not blighted, denying that NCRC had a carefully considered development plan, and asserting that the reasons advanced by NRCR to support the taking were pretextual.  The trial court held that the legislation had an overriding public purpose and will provide substantial public benefits, so once the Council had declared its public purpose, it could not be "second-guessed" in court; the court struck the defenses as legally insufficient. 

The DC Court of Appeals reversed:

The trial court did not undertake any factual inquiry to determine that the legislation had "an overriding public purpose" and "will provide substantial benefits to the public."  Thus, its discussion suggests that, once the legislature has declared that there is a public purpose for a condemnation, an owner is foreclosed as a matter of law from demonstrating that the stated reason is a pretext.  We do not interpret Kelo so broadly.

Slip op. at 13-14.  The court noted that "Kelo recognized that there may be situations where a court should not take at face value what the legislature has said."  Id. at 16.  The court held that the merits of a property owner's defenses should not be made in the pleadings.  This holding is in direct conflict with the New York federal court's decision in Goldstein v. Pataki, 488 F. Supp. 2d 254 (E.D.N.Y. 2007), which held that such claims must be "plausible" (as determined by the court) and held pretext claims to higher pleading standards that apply to every other civil case except certain antitrust claims and claims of fraud.

The court also provided guidance on how a claim of pretext is litigated, referencing the decision in 99 Cents Only Stores v. Lancaster Redev. Agency, 237 F. Supp. 2d 1123 (C.D. Cal. 2001) (a case also cited by the Kelo majority as an example of a bad taking).  The ultimate focus, according to the DC Court, should be on public benefits, not the motivation of the legislature:

We conclude that a reviewing court must focus primarily on benefits the public hopes to realize from the proposed taking.  If the property is being transferred to another private party, and the benefits to the public are only "incidental" or "pretextual," a "pretext" defense may well succeed.  On the other hand, if the record discloses (in the words of the trial court) that the taking will serve "an overriding public purpose" and that the proposed development "will provide substantial benefits to the public," the courts must defer to the judgment of the legislature.  Harder cases will lie between these extremes.

Slip op. at 26-27 (footnote omitted).  Hard cases indeed.  Ignoring the motivations that drive a taking, however, is not sufficient.  Yes, a court should examine the public benefits to see if they are incidental, and whether private benefit overwhelms any claims of public benefit.  But that should not be the end of the inquiry, and a court also has an obligation to examine "plausible" claims that the taking is the result of an intent to provide private benefits, and examine evidence of that intent beyond the ratio of public benefit to private.

IV.  Proving "Pretext" After Kelo

A recent case from the US Court of Appeals for the Second Circuit illustrates the issue.  In Cine SK8, Inc. v. Town of Henrietta (No. 06-1718-cv) (Nov. 8, 2007), the Second Circuit held that the motivations of local officials could be questioned in a case where a permit holder alleged that the Town revoked his permit because of racial animus, not based upon legitimate land use planning goals.  That case does not, strictly speaking, involve eminent domain or the public use clause, and is a "substantive due process" case. 

But since Kelo and Lingle v. Chevron, U.S.A., Inc., 544 U.S. 528 (2005), the line separating public use challenges and substantive due process challenges has been decidedly blurry.  For example, the due process clause bars "certain arbitrary, wrongful government actions 'regardless of the fairness of the procedures used to implement them.'"  Daniels v. Williams, 474 U.S. 327 (1986), quoted in Zinermon v. Burch, 494 U.S. 113 (1990), just as the public use clause should bar certain pretextual takings, even if the public may benefit.  Legitimate goals, after all, cannot be achieved by illegitimate means.

The Cine SK8 court expressed a concern that "public officials motivated by racial animus or other unconstitutional purposes can hide their true intentions and thereby prevent injured parties from obtaining the redress to which they are entitled."  Slip op. at 14.  The court held "a plaintiff seeking to hold a municipality or public officials liable based on the actions of a public body may prevail . . . should be permitted to take his case to trial if he proffers evidence that strongly indicates that discrimination was a significant reason for a public body’s actions and the defendant body, or its members, fails to counter that evidence with its own clear evidence that a majority acted with permissible motives."  Slip op. at 15.  The same should hold true for evidence of "pretext" in public use claims.