Amicus Curiae Brief — Kelo v. New London

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OP NOV 3 0 2004

No. 04-108 OFFICE OF THE CLERK

IN THE

Supreme Court of the Anited States

SUSETTE KELO, ET AL.,

Petitioners,

CITY OF NEW LONDON, CONNECTICUT, ET AL.,

Respondents.

On Writ of Certiorari

to the Supreme Court of Connecticut

BRIEF OF AMICI CURIAE

AMERICA’S FUTURE INC. AND SOMERSET

TRANSMISSION & REPAIR CENTER

IN SUPPORT OF PETITIONERS

ANDREW L. SCHLAFLY

939 OLD CHESTER ROAD

FAR HILLS, NJ 07931

(908) 719-8608

Counsel for Amici

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D. C. 20001

QUESTION PRESENTED

What protection does the Fifth Amendment’s public

use requirement provide for individuals whose property

is being condemned, not to eliminate slums or blight, but

for the sole purpose of “economic development” that

will perhaps increase tax revenues and improve the local

economy?

**

TABLE OF CONTENTS

Pages

ae ii

Tone cccnapennonencncenccnevccsccccsecssossees ili

INTEREST OF AAGICT CURIA ......10.:00csserrerscsesesesssesessssseeees l

SUMMARY OF ARGUMENT ...............cccccccccssseeseeseceeeseenenees 3

STITT irtiacirercntceeecennsncennncnsececszcnezescbensecsseocescese 5

1. PRIVATE PROPERTY RIGHTS, AS SECURED BY THE

FIFTH AMENDMENT, MUST WITHSTAND THE

TAKING FROM ONE BUSINESS TO GIVE TO

Il. THE FIFTH AMENDMENT PROTECTS SMALL

BUSINESSES AGAINST ECONOMIC LOSS IN TAKINGS

Ill. TAKING THE PROPERTY OF SMALL BUSINESSES FOR

PRIVATE DEVELOPMENT Is ARBITRARY,

IRRATIONAL AND ECONOMICALLY WASTEFUL............ 16

ae 21

TABLE OF AUTHORITIES

Pages

Cases

Arkansas State Highway Commission v. Highfill,

248 Ark. 541, 452 S.W.2d 846 (1970) ................ 14

Arkansas State Highway Commission v. Wallace,

247 Ark. 157, 444 S.W.2d 685 (1969) ..000000 14

Berman v. Parker, 348 U.S. 26 (1954) ........ccccccccccceeeeeees 8

Boston Chamber of Commerce v. Boston, 217 U.S.

ei casromsensnsnnmnnteiennnnmnensanenintentnniasibineninininatas 12

Brown v. Legal Found, 538 U.S. 216 (2003).... 11, 12, 13

Cincinnati v. Vester, 281 U.S. 439 (1930).......... 5,6, 7,8

Community Devel opment Com. v. Asaro, 212 Cal.

App. 3d 1297 (4 App. Dist. 1989) ..000........e eens 13

County of Wayne v. Hathcock, 471 Mich. 445

(GEIEII Ta nsassnsnasneresanesentingemnnenmmenmnanmnsemenennineiinsti 9

Dept. of Highways v. Silver, 487 S.W.2d 926 (Ct.

a 14

Hawaii Housing Authority v. Midkiff, 467 U.S. 229

TE 6

Housing Authority of City of Bridgeport v. Lustig,

139 Conn. 73, 90 A.2d 169 (1952) .0......cccccceccceeeeeees 15

Huckabee v. State, 431 S.W.2d 927 (Tex. Civ. App.

en. teen 14

Kelo v. New London, 268 Conn. 1 (2004) ...............000000. 7

Kimball Laundry Co. v. United States, 338 U.S. |

(GPU nenesnsensenmeninnmmnnntenieniiisiaimepiesinatiatmaeienin 12, 14

iv

Madisonville Traction Co. v. St. Bernard Mining

MS ee 6-7

Missouri Pacific R. Co. v. Nebraska, 164 U.S. 403

ee 6,7

Mitchell v. United States, 267 U.S. 341 (1925)............ 15

Olcott v. The Supervisors, 16 Wall. 678 (1873) ...........- 5

Olson v. United States, 292 U.S. 246 (1934) .........ccccee0- 3

People ex rel. Department of Transportation v.

George H. Muller, 36 Cal. 3d 263 (1984) ...........000+« 13

Plessy v. Ferguson, 163 U.S. 537 (1896) ..........cccceeeseees 5

Poletown Neighborhood Council v. Detroit, 410

RE, GR Ge crrceceentetemnnes 9,10

Redevelopment Agency v. Thrifty Oil Co.,

i. ll ee 13

Redevelopment Authority of Philadelphia v. Lieberman,

Re 14

Rindge Co. v. Los Angeles, 262 U.S. 700 (1923) ........... 9

Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) ...... 8

State v. Ouzounian, 26 Utah 2d 442, 491 P.2d 1093

a 15

State v. Saugen, 283 Minn. 402 (1969).............cc0ccceeees 14

State v. Zaruba, 418 S.W.2d 499 (Tex. 1967).......... 14-15

State Highway Commissioner v. Peters, 416 P.2d

ee 15

Thompson v. Consolidated Gas Corp., 300 U.S. 55

a 6,7

United States v. James Daniel Good Real Property,

FROGS, BS Geren 3

Vv

Constitution and Statute

I aia ai iiiaaarieidaiell 5

California Code of Civil Procedure § 1263.510(b)....... 14

Articles, Books and Other Authorities

Ronald H. Coase, “The Problem of Social Cost,”

MS ee 19-20

John P. Elwood, “Focus on: Urban America: Re-

thinking Government Participation in Urban Re-

newal: Neighborhood Revitalization in New Ha-

ven,” 12 Yale L. & Pol’y Rev. 138 (1994)............... 16

Franklin Township Public Hearing Minutes, Nov.

Oe 16

Matthew P. Harrington, “*Public Use’ and the

Original Understanding of the So-Called *Tak-

ings’ Clause,” 53 Hastings L.J. 1245 (2002).............. 7

Sridhar Krishnaswami, “K-Mart to Merge with

Sears, Roebuck & Co.” Business Line,

SE, Gait AED exisnnnsccctninstenneneiiemmmmmastnemeemanienenn 20

George Lefcoe, “Finding the Blight That’s Right for

California Redevelopment,” 52 Hastings L.J. 991

C.S. Lewis, The Screwtape Letters (rev. ed. 1982) ........ 4

James Madison, Replies to Patrick Henry, Defend-

ing Taxing Power and Explaining Federalism

(Virginia Convention, June 6, 1788), in 2 The

Debate on the Constitution 611 (Bernard Bailyn

ed., The Library of America 1993) ...000.0.0......ccccc00s 10

Thomas W. Merrill, “The Economics of Public

Use,” 72 Cornell L. Rev. 61 (1986).................0000000 17

Nicholas Mercuro and Michael D. Kaplowitz,

“Performance Indicators for Natural Resource

vi

and Environmental Policy: Contributions from

American Institutional Law and Economics,” ! 1

Duke Env L & Pol’y J 139 (Fall 2000)..................... 19

Robert D. Putnam, Bowling Alone: the Collapse and

Revival of Community (2000) ..............cccscceeceeeeeeeee 21

“SEC Tells Congress It Hopes to Minimize Sar-

banes-Oxley Impact on Small Business,” Finan-

SS 16

Karla D. Shores, “Target Halts Holiday Soliciting;

Decision Pulls Key Location for Salvation

Army,” Sun-Sentinel (Fort Lauderdale, Florida),

SEU, GER, Be ccnnsennecstestemeemmmies 21

Derek Werner, “The Public Use Clause, Common

Sense and Takings,” B.U. Pub. Int. L.J. 335

“Xenia Wal-Mart Gives $680 Check to Dayton

Hospice,” Dayton Daily News, Jan. 2, 2003 ...........-21-

No. 04-108

IN THE

Supreme Court of the Anited States

SUSETTE KELO, ET AL.,

Petitioners,

CITY OF NEW LONDON, CONNECTICUT, ET AL.,

Respondents.

On Writ of Certiorari

to the Supreme Court of Connecticut

INTEREST OF AMICI CURIAE'

America’s Future Inc. (AF) is a nonprofit educational or-

ganization founded in 1946. Its mission includes the preser-

vation of our free enterprise system and our constitutional

form of government. For 58 years it has supported our Re-

public in protection of economic freedom and capitalism.

Towards these goals, AF has defended the constitutional

safeguards for private property. AF has consistently main-

' No counsel for a party has written this brief in whole or in

part and no person or entity, other than the amici curiae, their em-

ployees or members, or their counsel, has made a monetary contri-

bution to the preparation or submission of this brief. The parties

have consented to the timely filing of all amicus curiae briefs in

this matter and copies of their letters of consent have been lodged

with the Clerk of the Court.

2

tained that the Constitution is the most profoundly important

instrument ever devised by man for the protection of freedom,

and it must be preserved against erosion caused by overreach-

ing governmental policies. AF distributes a newsletter and

radio program in furtherance of these objectives. Amicus AF

has a direct and vital interest in the issues presented to this

Court based on its active participation 'n promoting economic

freedom for nearly sixty years.

Amicus Somerset Transmission & Repair Center is a sole

proprietorship that has operated since 1978 at 591 Somerset

Street in Franklin Township, New Jersey. At that time this

small business stepped into a decrepit building featuring bro-

ken windows and a lack of functioning heat. The structure’s

block walls were cracked horizontally throughout, and its

beams had sagged and were pulling the walls inward. Plastic

sheets hung from the ceiling to catch leaking rainwater.

Though an eyesore to the community, it presented an oppor-

tunity to a nineteen-year-old aspiring mechanic named Court

Throckmorton. With his older sister co-signing on a loan, he

acquired the property in order to develop it into his own busi-

ness. Mr. Throckmorton proceeded to rebuild the facility and

develop his service business, and in the subsequent 26 years

employed a dozen or so workers. He taught his employees

the skills to run a business, many of whom went on to suc-

cessfully operate small businesses of their own. In one ex-

ample, Mr. Throckmorton charitably took in a disaffected six-

teen year-old as an employee, picking him up at 6:30 am each

day; now that former employee successfully manages a car

dealership. In contrast to Fortune 500 corporations, Somerset

Transmission & Repair Center has never laid off an em-

ployee, and no employee has ever quit in anger.

Since September 1999, Amicus Somerset Transmission &

Repair Center has faced a possible eminent domain action to

take its property for the benefit of a new business. This

planned condemnation has disrupted Mr. Throckmorton’s fu-

ture plans for his business and interfered with investment in

it. Amicus Somerset Transmission & Repair Center has a di-

3

rect and vital interest in the action at bar due to its likely im-

pact on the eminent domain threatened against it.

SUMMARY OF ARGUMENT

“Individual freedom finds tangible expression in property

rights.” United States v. James Daniel Good Real Property,

510 U.S. 43, 61 (1993). This “essential principle,” id., enjoys

its fullest protection in the Fifth Amendment requirement lim-

iting governmental takings to “public use.” Simply put, the

Constitution prohibits taking private property from one busi-

ness to give to another. The free market is far better suited to

allocating scarce resources to their most efficient uses than

government is. But whether efficient or not, the Fifth

Amendment flatly protects businesses and individuals against

the infringement at bar on the rights of private property. The

Constitution plainly does not allow municipalities to take

property from one for the benefit of another.

Yet municipalities nationwide are attempting to bypass

the “public use” requirement of eminent domain, and are

snuffing out a lifetime of effort by thousands of small busi-

nessmen, including Amicus Somerset Transmission & Repair

Center. Small businesses plant their roots in communities

based on personal relationships with their customers, and

forced relocations disrupt and destroy those ties that bind.

The small businesses are the ones that create the vast majority

of jobs and also sponsor the countless local causes that cry

out for support, ranging from the Boys and Girls Club and

Little League sports teams for youths to the fundraising drives

to pay medicai costs for a particularly sick neighbor. The de-

struction of these small businesses simply to transfer their

property to other businesses is as wasteful as it is unconstitu-

tional.

In these governmental takings, the condemned business

owner can typically claim only an appraised value for the hol-

4

low building and land that he actually owns, receiving $0 for

the goodwill and revenue stream from customers he has nour-

ished over the years. A business leasing its property usually

receives no compensation, and the employees get nothing.

The denigration of “public use” to mean almost anything, in-

cluding unproven claims of increasing tax revenue, is con-

trary to the plain meaning of the Fifth Amendment and nu-

merous precedents of this Court.

It was unconstitutional for the court below to authorize

the town of New London to take the properties of Susette

Kelo and many others for the benefit of a private companies

that could include the wealthy pharmaceutical corporation

Pfizer Inc. Manufacturing Viagra surely is not the “public

use” that our Founders had in mind when they wrote eminent

domain into the Constitution. With the exception of protect-

ing the health and safety of its citizens, government has no

legitimate interest in taking property from one business to

give to another. It is not a proper governmental function to be

robbing from Peter to give his land to Paul.

“The greatest evil is not done now in those sordid ‘dens of

crime’ that Dickens loved to paint ... [but] in clear, carpeted,

warmed and well-lighted offices, by quiet men with white

collars and cut fingernails and smooth-shaven cheeks who do

not need to raise their voice.” C.S. Lewis, The Screwtape

Letters 6 (rev. ed. 1982). This observation by C.S. Lewis is

particularly apropos to the taking of the property of small

businesses to hand over to other businesses. The Fifth

Amendment forbids this growing, pernicious practice, and it

is long overdue to enforce the Fifth Amendment by reversing

the decision below.

5

ARGUMENT

I. PRIVATE PROPERTY RIGHTS, AS SECURED BY

THE FIFTH AMENDMENT, MUST WITHSTAND THE

TAKING FROM ONE BUSINESS TO GIVE TO

ANOTHER.

Taking property from one business to give to another is

not a “public use” within the meaning of the Fifth Amend-

ment. U.S. Const. amend. V (mandating that property may

not be “taken for public use, without just compensation”)

(emphasis added). Government has neither the power nor the

expertise to prefer one business over another, except perhaps

in areas of health, safety or morals not at issue here. The

right of private property, if it is to have any meaning at all,

surely includes the right of a longstanding sole proprietorship

such as Amicus Somerset Transmission & Repair Center to

withstand seizure of its location to hand it over to another

business.

As Justice Harlan restated in his prescient dissent in

Plessy v. Ferguson:

“Very early the question arose whether a State’s right of

eminent domain could be exercised by a private corpora-

tion created for the purpose of constructing a railroad.

Clearly it could not, unless taking land for such a purpose

by such an agency is taking land for public use. The

right of eminent domain nowhere justifies taking

property for a private use.”

163 U.S. 537, 554 (1896) (Harlan, J., dissenting) (quoting Ol-

cott v. The Supervisors, 16 Wall. 678, 694 (1873), emphasis

added). The decision below contravenes this basic principle,

and must be reversed.

“It is well established that in considering the application

of the Fourteenth Amendmeat to cases of expropriation of

private property, the question what is a public use is a judicial

one.” Cincinnati v. Vester, 281 U.S. 439, 446 (1930). There

6

this Court found a lack of the requisite “public use” in the

excessive widening of a street proposed by the City of Cin-

cinnati. Specifically, the City sought to resell land exces-

sively taken in order to fund the expense of the necessary

street widening. “[T]he excess condemnation was in viola-

tion of the constitutional rights of the plaintiffs upon the

ground that it was not a taking for a public use within the

meaning of that term as it heretofore has been held to justify

the taking of private property.” /d. at 444 (quotations omit-

ted).

This Court expressly affirmed the principle that taking

private property “for the purpose of selling it at a profit and

paying for the improvement ... is clearly invalid.” Jd. (quota-

tions omitted). While this Court ultimately rested its decision

on a failure by the City to “strictly follow[]” its requirements

to justify the excessive condemnation, the holding leaves little

doubt that “public use” does not extend to financial needs of

government. /d. at 448 (“[T]he power conferred upon a mu-

nicipal corporation to take private property for public use

must be strictly followed.”).

The Cincinnati ruling and its precedential authority have

been consistently affirmed. “To be sure, the Court’s cases

have repeatedly stated that ‘one person’s property may not be

taken for the benefit of another private person without a justi-

fying public purpose, even though compensation be paid.’”

Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 241

(1984) (quoting Thompson v. Consolidated Gas Corp., 300

U.S. 55, 80 (1937)). Where the essential “public use” is lack-

ing, the taking of one by government to give to another must

be rejected. See Missouri Pacific R. Co. v. Nebraska, 164

U.S. 403 (1896) (invalidating a taking due to a lack of public

use). “The taking by a State of the private property of one

person or corporation, without the owner’s consent, for the

private use of another, is not due process of law, and is a vio-

lation of the Fourteenth Article of Amendment of the Consti-

tution of the United States.” /d. at 417. See also Madison-

7

ville Traction Co. v. St. Bernard Mining Co., 196 U.S. 239,

251-52 (1905) (“It is fundamental in American jurisprudence

that private property cannot be taken by the Government, Na-

tional or state, except for purposes which are of a public char-

acter, although such taking be accompanied by compensation

to the owner. That principle, this court has said, grows out of

the essential nature of all free governments.”) (emphasis

added).

The rulings of Missouri Pacific R. Co. and Cincinnati, and

their progeny, prohibit the taking from one business to give to

another as sought here by the City of New London, Connecti-

cut, against condemnees that include investment properties.

“Missouri Pacific R. Co. rejected a taking from a private rail-

road company for the benefit of another business seeking to

build an additional grain elevator at a railway station. In

words applicable here, this Court rejected such condemnation

as “a taking of private property for a public use under the

right of eminent domain. The petitioners were merely private

individuals, voluntarily associated together for their own

benefit.” 164 U.S. at 416. See also Consolidated Gas Corp.,

300 U.S. at 80. It was reversible error for the court below to

embrace an academic view that “‘the term ‘public use’ as

used in the Fifth Amendment was meant to be descriptive,

rather than proscriptive.’” Kelo v. New London, 268 Conn. 1,

54 n.49 (2004) (quoting Matthew P. Harrington, “‘Public

Use’ and the Original Understanding of the So-Called *Tak-

ings’ Clause,” 53 Hastings L.J. 1245, 1249 (2002)).

The private beneficiaries of the taking at bar are profit-

maximizing entities. They remain free to make purchases of

real property on the open market just as any other company

can. But the Constitution-does not permit forced transfer

from small businesses, such as rental apartments, to private

beneficiaries. Even though government asserts a financial

benefit for itself from this compelled transaction, such wind-

fall does not satisfy the requirements of the Fifth Amendment.

In Cincinnati, this Court implicitly rejected alleged financial

8

benefit to a municipality as a legitimate “public use.” See 281

U.S. at 443 (“In what way the excess condemnation of these

properties was in furtherance of the widening of the street,

and why it was necessary for the complete enjoyment and

preservation of the public use of the widened street are not

stated and are thus left to surmise.”’).

This Court did not hold otherwise in Ruckelshaus v. Mon-

santo Co., where business intellectual property was taken for

public_and potentially private benefit within a statutory

framework that provided full remedy for all business loss to

the condemnee. 467 U.S. 986, 1019 (1984) (“Because we

hold that the Tucker Act is available as a remedy for any un-

compensated taking Monsanto may suffer as a result of the

operation of the challenged provisions of [federal law], we

conclude that Monsanto’s challenges to the constitutionality

of the arbitration and compensation scheme are not ripe for

our resolution.”). In contrast, such remedy for lost business is

utterly lacking in most eminent domain actions.

The aberrational ruling of this Court in favor of taking

real property from one to give to another in Berman v. Parker

is readily distinguishable from the action at bar. 348 U.S. 26

(1954). In Berman, this Court upheld a taking of a slum but

justified it based on bona fide interests in “[p]ublic safety,

public health, morality, peace and quiet, law and order.” Jd.

at 32. The unquenchable thirst for taxes presented here was

not one of the acceptable rationales. Increasing tax revenues

and allegedly promoting economic development are not le-

gitimate reasons for taking from one party to give to another.

In contrast, the Berman ruling relied on its observation that:

Miserable and disreputable housing conditions may do

more than spread disease and crime and immorality. They

may also suffocate the spirit by reducing the people who

live there to the status of cattle. They may indeed make

living an almost insufferable burden. They may also be

an ugly sore, a blight on the community which rvbs it of

charm, which makes it a place from which men turn. The

9

misery of housing may despoil a community as an open

sewer may ruin a river.

Id. at 32-33. Nothing of the sort justifies the taking at issue

here. See also Rindge Co. v. Los Angeles, 262 U.S. 700

(1923) (approving eminent domain for two highways having

an obvious “public use,” in contrast to the private benefit con-

templated here).

“To justify the exercise of eminent domain solely on the

basis of the fact that the use of that property by a private en-

tity seeking its own profit might contribute to the economy's

health is to render impotent our constitutional limitations on

the government’s power of eminent domain.” County of

Wayne v. Hathcock, 471 Mich. 445, 482 (2004). There the

Supreme Court of Michigan properly overturned its own

precedent in Poletown Neighborhood Council v. Detroit, 410

Mich. 616 (1981), which had unleashed eminent domain ac-

tions nationwide to take property from one private entity to

give to another without satisfying the traditional “public use”

limitation. The notorious Poletown ruling authorized the

demolition of hundreds of businesses, more than a thousand

homes, and even several churches in a Polish community near

Detroit in order to build a new General Motors plant. In July

the Michigan Supreme Court repudiated that ruling and re-

turned to the original intent of the “public use” limitation, de-

claring the Poletown decision to be a “radical departure from

fundamental constitutional principles.” County of Wayne,

471 Mich. at 483. “The primary objective in interpreting a

constitutional pmvision is to determine the text's original

meaning to the ratifiers, the people, at the time of ratifica-

tion.” Jd. at 468.

The decision below relied heavily on the now-discredited

Poletown decision, twice heralding it as a “landmark case.”

268 Conn. at 41, 45 n.39. The court below even insisted on

going beyond the Poletown ruling, eschewing its heightened

scrutiny of takings for private use. “Indeed, we conclude that

the application of a ‘heightened scrutiny’ standard [of Pole-

10

town] is inconsistent with our well established approach of

deference to legislative determinations of public use.” /d. at

45 1.39 (citation omitted). The dissent below foreshadowed

the subsequent overturning of Poletown by declaring that “the

majority reaches the wrong result with respect to the plain-

tiffs’ properties, in part because it overlooks the fact that pri-

vate economic development differs in many important re-

spects from how we previ usly have defined a public use.”

Id. at 122 (Zarella, J., dissenting).

Without the “public use” limitation, there is every incen-

tive for factions with political clout to exploit defenseless mi-

norities lacking political clout. This is precisely the sort of

economic factionalism and majority domination that James

Madison sought to prevent:

Since the general civilization of mankind, | believe there

are more instances of the abridgment of the freedom of

the people, by gradual and silent encroachments of those

in power, than by violent and sudden usurpations: But on

a candid examination of history, we shall find that turbu-

lence, violence, and abuse of power, by the majority tram-

pling on the rights of the minority, have produced factions

and commotions, which, in republics, have more fre-

quently than any other cause, produced despotism.

James Madison, Replies to Patrick Henry, Defending the Tax-

ing Power and Explaining Federalism (Virginia Convention,

June 6, 1788), in 2 The Debate on the Constitution 611, 612

(Bernard Bailyn ed., The Library of America 1993). See gen-

erally Derek Werner, “The Public Use Clause, Common

Sense and Takings,” B.U. Pub. Int. L.J. 335, 346-48 (2001)

(descnibing how the majorities buddy up with government

officials to make political deals to expand “public use”).

The right to own private property, without the fear of hav-

ing it taken for another private entity, is essential in a free na-

tion. The scope of “public use” must be limited to its plain

meaning, such as the construction of municipal buildings,

highways or public parks. There is no end to the mischief in

redefining “public purpose” by economic factions manipulat-

ing the political process, and the Fifth Amendment safeguards

against such invasion of economic rights.

Il. THE FIFTH AMENDMENT PROTECTS SMALL

BUSINESSES AGAINST ECONOMIC LOSS _ IN

TAKINGS FOR ECONOMIC DEVELOPMENT.

This Court recently affirmed that the Fifth Amendment

applies to protect income against complete takings by gov-

ernment. See Brown v. Legal Found., 538 U.S. 216 (2003).

There this Court was unanimous in holding that a “law that

requires that the interest on [client] funds be transferred to a

different owner for a legitimate public use, however, could be

a per se taking requiring the payment of ‘just compensation’

to the client.” /d. at 240. At issue in Brown was the constitu-

tionality of a Washington law requiring attorneys to deposit

client trust funds in a common account for the benefit of a

legal aid program if the individual interest amounts to less

than individual administrative costs. Though this Court split

5-4 against compensating the client for the taken interest

based on the likely excess of administrative costs over in-

come, all Justices agreed that seizure of this interest did con-

stitute a taking for purposes of the Fifth Amendment.

A similar taking occurs when a business owner is de-

prived of all of his income derived from his property in order

to transfer the land to another in a condemnation proceeding.

In such an exercise of eminent domain, revenue is effectively

transferred by force from one property owner to another, who

then exploits the property for his own business purposes.

This is indistinguishable from the taking of interest from one

client to assist a poorer one pursuant to the legal aid program

reviewed in the Brown case. Under the reasoning embraced

in Brown, this is a taking protected by the Fifth Amendment

and the original business owner should be entitled to compen-

sation for his lost income.

12

In the case at bar, one plaintiff is being deprived of his

business property of seventeen years, while another is losing

his business property of eight years:

[T}wo of the plaintiffs own their property as business in-

vestments--the rental of apartments. These two people

have put much time, money and effort into renovating

their properties, one has owned his property for seventeen

years, the other for about eight years.

268 Conn. at 11.

It is no consolation to the condemnee that his lost income

is not directly realized by the transferee business. Like Ami-

cus Somerset Transmission & Repair Center, the original

business may have garnered income from fixing automobile

transmissions while the transferee business may be a massive

Home Depot store that sells building materials. This Court

has been clear, even unanimous, in declaring that the “just

compensation” in such scenario “is measured by the owner's

pecuniary loss.” not by the transferee’s gain. Brown, 538

U.S. at 240. “Most frequently cited is Justice Holmes’ char-

acteristically terse statement that ‘the question is what has the

owner lost, not what has the taker gained.”” /d. at 236 (quot-

ing Boston Chamber of Commerce v. Boston, 217 U.S. 189,

195 (1910)). The owner is clearly “entitled to be put in as

good a position pecuniarily as if his property had not been

taken. He must be made whole but is not entitled to more.”

Olson v. United States, 292 U.S. 246, 255 (1934). See also

Kimball Laundry Co. v. United States, 338 U.S. 1, 5 (1949)

(noting the duty of the public to compensate an owner for “his

unique need for property or idiosyncratic attachment to it”);

id. at 23 (Douglas, J., dissenting) (the government's obliga-

tion is “not for what it gets but for what the owner loses”).

The goodwill developed by a small businessman over

years, and often decades, is partially or completely lost in a

taking. It is not reflected in the appraised value of the prop-

erty. The Fifth Amendment should be construed to ensure

13

that takings compensate the owner for his loss, not what was

gained by the new business. Full application of the Fifth

Amendment would render many of these takings for eco-

nomic development unattractive by imposing the real eco-

nomic costs of the condemnation on the acquirers. It is only

by avoiding payment for these real economic losses that these

abusive condemnations for private benefit have flourished

The difficulties in measuring the lost revenue to the small

businessman are no greater than the obstacles in obtaining an

accurate appraisal of the real property itself. Both are based

on future expectations of earnings, and the market prices for

the property interests. Experts are widely available to provide

estimates. Both lost revenue and lost land value depend

equally on anticipated future usage and demand. Moreover,

this Court’s decision in Brown implicitly rejected any distinc-

tion between taking income already earned and future in-

come. This Court deemed it a taking to deprive clients of fu-

ture interest income by depositing their funds into commin-

gled accounts before any such interest could be earned.

Adherence to the principle of full compensation to busi-

nesses for takings has worked for nearly thirty years in the

State of California, which has awarded lost goodwill to busi-

nesses in condemnation proceedings. See, e.g., Community

Development Com. v. Asaro, 212 Cal. App. 3d 1297, 1301-02

(4" App. Dist. 1989) (“In 1975, the Legislature enacted a

comprehensive revision of California’s eminent domain law,

which, among other things, authorizes compensation for the

loss of business goodwill.”). When Dr. George H. Muller’s

veterinary hospital of nearly 30 years was condemned by the

California Department of Transportation, forcing him to relo-

cate his business, he successfully sued for an award of

$96,000 in lost goodwill. See People ex rel. Department of

Transportation v. Muller, 36 Cal. 3d 263 (1984). Similarly,

in Redevelopment Agency v. Thrifty Oil Co., the California

Court of Appeals ruled that the defendant was entitled to

14

$67,500 for the loss of goodwill when the government ac-

quired his property through eminent domain action. 4 Cal.

App. 4" 469, 475 n.10 (1992) (compensable goodwill “‘con-

sists of the benefits that accrue to a business as a result of its

location, reputation for dependability, skill or quality, and any

other circumstances resulting in probable retention of old or

acquisition of new patronage’) (quoting California Code of

Civil Procedure § 1263.510(b)).

A few other states have also recognized the need to com-

pensate an owner for the loss of business inherent in a taking.

Condemnations in Michigan, Minnesota and Pennsylvania

sometimes do allow compensation for the “going concern”

value of the taken business, at least where relocation is not

possible. See, e.g., Lansing v. Wery, 68 Mich. App. 158

(1976) (affirming inclusion of the value of a going concern in

a condemnation award in favor of a 50-year-old restaurant);

State v. Saugen, 283 Minn. 402 (1969) (holding that the going

concern value was part of the property right taken by the con-

demnor); Redevelopment Authority of Philadelphia v. Lie-

berman, 461 Pa. 208 (1975) (“As early as 1909, this Court

held that the value of a condemned waterworks property was

to be determined by considering the physical property as a

going concern; to do so the value of intangibles such as a

franchise, market price of stock, and income based on reason-

able tolls were to be considered.”) (citing Kimball Laundry

Co., supra, emphasis omitted).

But most states deny such compensation, thereby leading

to rampant takings of property from one business to give to

another. For example, compensation for goodwill in the tak-

ings of business is denied in Arkansas, Kentucky, Texas,

Wyoming and Utah. See Arkansas State Highway Commis-

sion v Highfill, 248 Ark. 541, 452 S.W.2d 846 (1970); Arkan-

sas State Highway Commission v Wallace, 247 Ark. 157, 444

S.W.2d 685 (1969); Dept. of Highways v. Silver, 487 S.W.2d

926 (Ct. App. Ky. 1972); Huckabee v. State, 431 S.W.2d 927

(Tex. Civ. App. Beaumont 1968); State v. Zaruba, 418

15

S.W.2d 499 (Tex. 1967); State v. Ouzounian, 26 Utah 2d 442,

491 P.2d 1093 (1971); State Highway Commissioner v. Pe-

ters, 416 P.2d 390, 396 (Wyo. 1966). In Connecticut, the

value of the business is not compensable except to the extent

it is reflected in the value of the property itself. See Housing

Authority of City of Bridgeport v. Lustig, 139 Conn. 73, 76-

77, 90 A.2d 169 (1952). A taking of the property of Amicus

Somerset Transmissions and Repair Center would cause it an

economic loss for its variances for automotive sales and in-

spections, which cannot be relocated.

Clarification of the small business owner’s right to full re-

covery in a condemnation proceeding is overdue. This Court

has previously left this issue unresolved. “The special value

of land due to its adaptability for use in a particular business

is an element which the owner of land is entitled, under the

Fifth Amendment, to have considered in determining the

amount to be paid as the just compensation upon a taking by

eminent domain. Doubtless such special value of the plain-

tiffs’ land was duly considered by the President in fixing the

amount to be paid therefor.” Mitchell v. United States, 267

U.S. 341, 344-45 (1925) (citations omitted). But see id. at

345 (“The settled rules of law, however, precluded his con-

sidering in that determination consequential damages for

losses to their business, or for its destruction.”’).

If taking from one business to give to another qualifies as

“public use,” then the Fifth Amendment requires full com-

pensation for economic loss by the condemned business. Af-

firming this requirement alone would end most of the abusive

takings of one business to give to another.

16

Ill. TAKING THE PROPERTY OF SMALL BUSINESSES

FOR PRIVATE DEVELOPMENT IS ARBITRARY,

IRRATIONAL AND ECONOMICALLY WASTEFUL.

The epitome of arbitrary government action is when it

forcibly replaces one business with another. Government

cannot properly feed more and more small businesses to giant

corporations as though they all constituted an economic food

chain, with a view that bigger is better. Increasing taxes by

encouraging large over small corporations is not a legal justi-

fication for government to rob from the latter to give to the

former. The progressive system of taxation has a built-in in-

centive for government to prefer big business over small

business, but that bias does not create a rational basis for de-

stroying small businesses by taking their property to hand

over to larger ones. Aside from protecting the health and

safety of its citizens, government has no legitimate interest in

taking land from one business to give it to another.

Economic studies show that small businesses are far more

effective at creating jobs than large counterparts. Small busi-

nesses annually create 60 to 80 percent of all new jobs in the

United States, and employ at-least half of all private sector

workers. “SEC Tells Congress It Hopes to Minimize Sar-

banes-Oxley Impact on Small Business,” Financial Wire, Sept.

27, 2004. But the creation of these jobs requires investment

in small business, in order to increase the customer base and

goodwill. If the government can close down a business at any

time for the benefit of another business, then this arbitrariness

deters badly needed investment. When summed up with re-

spect to the many small businesses affected by an eminent

domain for development purposes, the lost investment in job

creation is enormous. “Nationally, between twenty-five and

forty percent of businesses forced to relocate by renewal pro-

jects fail.” John P. Elwood, “Focus on: Urban America: Re-

thinking Government Participation in Urban Renewal:

Neighborhood Revitalization in New Haven,” 12 Yale L. &

17

Pol’y Rev. 138, 180 (1994). Amicus Somerset Transmission

& Repair Center has suffered the threat of a condemnation for

over a year, as have many businesses in its area and hundreds

of thousands of small businesses nationwide.

Often the condemnations are announced long before they

are realized, apparently with the purpose of deterring invest-

ment in order to depress the property value to be paid to the

condemnee. In the eminent domain threatening Amicus Som-

erset Transmission & Repair Center, the town announced an

enormous redevelopment plan years before it could even be

possible to execute, thereby reducing as much as possible

what the town will ultimately have to pay. The former mayor

of Franklin Township declared that one intent of the redevel-

opment plan was to discourage speculators from buying and

improving the properties in the redevelopment area and thus

increasing the cost of those properties should the Township

need to acquire them through eminent domain. Franklin

Township Public Hearing Minutes 9 9, Nov. 26, 2002. The

decision below implicitly allows this type of value-depressing

delay, and must be reversed. 268 Conn. at 119-20 (allowing

“a town’s condemnation [despite] the town’s lack of a de-

tailed plan designating exactly what part of the defendants’

land it needed for what purpose” and approving it without “a

development commitment or formal site plan in place for par-

~cel”).

In the context of eminent domain for private development,

the distorting incentives for economically harmful behavior

are magnified. Specifically, there is a “rent-seeking” incen-

tive that magnifies the overall waste and injustice. “[A] re-

source’s value after condemnation is almost always higher

than before [and t]he present compensation formula allocates

100% of this surplus to the condemnor, and none to the con-

demnee.” Thomas W. Merrill, “The Economics of Public

Use,” 72 Cornell L. Rev. 61, 85 (1986). When the use is truly

for the public, that surplus inures to the benefit of all. More-

over, the limitation of “public use” serves to minimize the

18

occurrence of this disruption: a town can only build a small

number of municipal buildings or power plants. But when the

door is opened to takings for private purposes, rent-seeking

behavior incites an unlimited number of attempts to capture

that surplus. The private beneficiaries of the takings have

every incentive to lobby for as much as they possibly can.

The surplus, however, comes at the uncompensated ex-

pense of the small business being condemned. The years

leading up to the condemnation extract further costs in lost

investment. Is government endowed with the power and wis-

dom to choose one business over another for economic rea-

sons? Certainly not. The Fifth Amendment prohibits this

rent-seeking behavior in destroying one business for the bene-

fit of another. When the constitutional protection is unen-

forced, however, towns have every incentive to increase the

economic rent and share it with the developer benefiting from

the taking. This economic rent is maximized by scaring away

as much investment as possible from the condemnees, typi-

cally by publicizing the eminent domain as early and fre-

quently as possible. That depresses property values, scares

away improvements, and lowers the appraised value, thereby

reducing the price the town eventually pays.

The familiar argument that eminent domain for private

development is somehow necessary for slum clearance or

blighted areas is unsupported. For starters, neither this case

nor most uses of eminent domain today concern truly blighted

areas. And even when areas are blighted, free enterprise is

the answer rather than eminent domain. For example, in Oli-

vette, Missouri, the developer made generous offers funded

by tax rebates to acquire 150 old homes near a freeway, in

order to make way for “big box” retailers including Wal-Mart

and Home Depot. A premium of up to 2.5 times market value

was negotiated, but for truly blighted areas such markups are

modest relative to the contemplated gain. After all, blighted

property is by definition worth very little. This project ulti-

mately failed not due to any obstacles in acquiring the prop-

19

erty, but because neighbors opposed to the increased traffic

flow narrowly voted it down. George Lefcoe, “Finding the

Blight That’s Right for California Redevelopment,” 52 Hast-

ings L.J. 991, 1028-30 (2001). Successful examples of free

market-based city planning abound, such as Columbia, Mary-

land, an entire city of 90,000 developed by one planner with-

out eminent domain. As to alleged problems of clouds over

titles, they can be addressed by state property laws other than

unlimited eminent domain, such as requiring owners to assert

their rights within a certain time period to avoid condemna-

tion. If blighted properties were so prevalent, then developers

could target multiple sites and bargain with different groups

of property owners to solve the obstacle of the holdout. The

solution is for the state to facilitate the free market, not frus-

trate it.

Arbitrary governmental interference with private property,

typified by taking from one business to give to another, is

loathsome to the efficient operation of free enterprise. The

Nobel-prize winning Coase Theorem teaches that market effi-

ciency will occur regardless of how legal entitlements are

drawn, but they must be drawn somewhere lest economic ac-

tivity dry up amid the uncertainty:

As Ronald H. Coase has reminded us ... ‘uncertainty

about the legal position itself must be taken into account.

The underlying rationale for the stated concern is that a

society needs a system of law (including natural resource

and environmental law) that provides them a stable pattern

of expectations. So structured, this allows people to plan

their economic affairs with reasonable confidence so that

they can know in advance the consequences of their

choices.

Nicholas Mercuro and Michael D. Kaplowitz, “Performance

Indicators for Natural Resource and Environmental Policy:

Contributions from American Institutional Law and Econom-

ics,” 11 Duke Env L & Pol’y J 139 (Fall 2000) (quoting

Ronald H. Coase, “The Problem of Social Cost,” 3 J.L. &

29

Econ. 1, 19 (1960)). The specter of condemnation for private

uses thoroughly disrupts “a stable pattern of expectations”

essential to efficient bargaining and investment. Economic

activity is greatly hindered by the growing practice of gov-

ernmental taking from one business to give to another.

The most “blighted” sight of all is a huge retail store that

is vacant and inevitably vandalized. A collection of small

businesses is much better suited to handling the economic cy-

cles and competitive upheavals than are their lumbering coun-

terparts. The real property of a small business that goes bank-

rupt can be easily adapted to many other types of businesses.

But what is to be done with the buildings left behind with the

massive bankruptcies and downsizings of Fortune 500 com-

panies? All too often, they become inefficient eyesores that

scar the landscape long afterwards. For example, after K-

Mart opened over 2,000 bor-like stores, it subsequently col-

lapsed financially. It then proceeded to close about 600 of its

stores, blighting the landscape and leaving local communities

helpless to pick up the slack. Sridhar Krishnaswami, “K-Mart

to Merge with Sears, Roebuck & Co.,” Business Line, Nov.

18, 2004. K-Mart laid off 55,000 employees in the process,

leaving most without the skills necessary to survive by start-

ing their own business. /d. Small businesses and their em-

ployees are far more resilient in handling economic down-

turns or shifts in buying tastes than “mega stores” surrounded

by enormous parking lots.

Finally, it is worth debunking the unsupported claim that

replacing small businesses with “big box” retailers, or with a

corporate complex in this case, is somehow good public pol-

icy. All indications are to the contrary. Small businesses are

essential to supporting the youth sports teams, the adult soft-

ball and bowling leagues, the local fire departments, the Ki-

wanis and Lions clubs, and all the sundry local charitable

events that bind a community together. In a seminal work,

Professor Robert Putnam demonstrated that a rise in social ills

is correlated to a decline in these community activities.

—

21

Robert D. Putnam, Bowling Alone: the Collapse and Revival

of Community (2000). It surely is not good policy forcibly to

rip out the engine that drives these essential aspects of a pro-

ductive community: small business.

The replacement of small businesses with the big boxes

has a devastating effect on local charities. For example, the

large retailer Target has banned the local Salvation Army

chapters from soliciting donations outside its doors, a decision

expected to cost charities in Broward and Palm Beach coun-

ties $70,000 each. Karla D. Shores, “Target Halts Holiday

Soliciting; Decision Pulls Key Location for Salvation Army,”

Sun-Sentinel (Fort Lauderdale, Florida), Nov. 10, 2004. This

contrasts sharply with local businesses that generously donate

to the community. A Wal-Mart store in Ohio, which probably

displaced a hundred small businesses, expressed its support of

the local community with a paltry check of only $680 to its

single selected charity, a hospice. “Xenia Wal-Mart Gives

$680 Check to Dayton Hospice,” Dayton Daily News, Z4-8,

Jan. 2, 2003. While disdain for community activities is surely

within the rights of large retailers, it is also within the Fifth

Amendment rights of small businesses to say “no” to the tak-

ing of their property for the benefit of out-of-state corpora-

tions.

CONCLUSION

The decision below should be reversed.

ANDREW L. SCHLAFLY

939 OLD CHESTER ROAD

FAR HILLS, NJ 07931

(908) 719-8608

Counsel for Amici

Dated: November 30, 2004