On July 30, the Michigan Supreme Court stuck a dagger into government's abusive use of eminent domain -- seizing property from one private owner and handing it to a richer owner in the name of economic development. Although California law differs from Michigan's, the case could one day help thwart San Diego's so-called "public/private partnerships" that redistribute property from the poor and powerless to the rich and politically connected.
San Diego attorney Karen Frostrom is fighting in court on behalf of Ahmed Mesdaq, whose Gaslamp Quarter cigar and coffee lounge has been condemned by eminent domain. The Centre City Development Corp. wants a luxury hotel built on Mesdaq's Gran Havana location. The city council as redevelopment agency voted to seize Mesdaq's property in April. With Centre City's full approval, he has spent more than $2 million purchasing and refurbishing it. But Centre City argues that a Marriott four-star hotel on the site would produce more transient occupancy (hotel) and property-tax revenue.
That line of nonreasoning is exactly what the highest Michigan court shot down July 30. Frostrom intends to put the Michigan case to good use. Mesdaq has one suit against the city in federal court, another in superior court. The city is suing him in state court.
The Michigan court's move "was a wonderful decision," says Frostrom, who will argue in federal court that the city cannot go forward with the condemnation because it is unconstitutional. On Friday, she asked the court for a preliminary injunction blocking the city from seizing the property. She reads from the Michigan decision: "To justify the exercise of eminent domain solely on the basis of the fact that the use of that property by a private entity 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."
Says Frostrom, "That is my argument in a nutshell." She has two other clients fighting possible eminent domain actions in Little Italy.
In an August 3 editorial, the Wall Street Journal noted that the "economic development argument has essentially vitiated what the Founders intended by putting property rights in the Constitution in the first place: to prevent the rich and powerful from manipulating the law to take property from those less well connected."
The latest 7-0 Michigan ruling -- knocking down Wayne County's desire to seize private land for an industrial park -- reversed the high court's notorious "Poletown" decision of 1981. Detroit used the power of eminent domain to bulldoze a racially mixed community, largely Polish-American, to make way for a General Motors plant. More than 1300 homes, 140 businesses, six churches, and a hospital vanished. Detroit's mayor promised the factory would produce 6000 jobs. "In reality, the plant employed less than half that many. More jobs were probably lost as a result of the destruction of Poletown than were created by the factory," argued Ilya Somin, a legal scholar, in the Detroit News early this year.
"It was such a horrible case," says Gideon Kanner, emeritus professor of law at Loyola Law School in Los Angeles, who represented Sisters of Mercy Hospital. Government spent "millions and millions of dollars" and turned the land over to General Motors for a fraction of the total cost. "It was supposed to revitalize Detroit and did no such thing."
Worse, Poletown 1981 was used to justify many similar seizures nationwide. Originally, eminent domain was only to be used to make way for such things as highways and bridges. But beginning in 1954, says Kanner, the interpretation was gradually loosened. After Poletown 1981, almost any government could justify theft of private property by claiming it was a "public benefit" -- not "public use." Perhaps the most egregious: the New Jersey Casino Redevelopment Authority decided to condemn an Atlantic City neighborhood so Donald Trump could expand a limousine parking lot at a casino. The Washington, D.C.-based Institute for Justice went to bat for the homeowners and got a favorable court decision. (Incidentally, if you read a best-seller about what a great businessman Trump is or see a TV show touting his business prowess, you should know this: his Trump Hotels and Casino Resorts has never been profitable since going public in 1995 and filed for Chapter 11 bankruptcy late Monday.)
There have been other successes, says Kanner. In 2002, the Illinois Supreme Court knocked down an attempt by a developmental authority to seize private land for racetrack parking.
Kanner won the biggest California victory. Three years ago, the Lancaster Redevelopment Agency tried to seize the property of a 99 Cents Only Store so that a neighboring discounter, Costco, could expand. Lancaster noted that 99 Cents produced only $40,000 a year in sales taxes, while Costco produced $400,000. But the judge pointed out that Costco announced plans to expand almost immediately after 99 Cents opened. Unfortunately, "The city [of Lancaster] gave up, and Costco gave up," says Kanner, so an appellate court did not get a chance to rule. He is hoping a case against New London, Connecticut, which seized well-maintained homes so Pfizer could build a plant, hotel, and condos for its employees, makes it to the U.S. Supreme Court.
"For us, the Lancaster case is even more persuasive than the Michigan case," says Frostrom. "It's in California's Ninth Circuit. The court says you can't condemn someone's property to appease a corporation that just wants to get bigger. That's just what's happening [in the Mesdaq case]." She has material showing Marriott's architect said that Marriott could build the hotel on 35,000 square feet of property next to Mesdaq's cigar shop. "They knew in January of this year they didn't need Ahmed's property. The city knew and didn't tell Ahmed."
Bruce W. Beach, attorney for the city, says this argument was "discussed and rejected" by involved administrative agencies, including Centre City.
"It will be an uphill fight" to get reform cases to the California Supreme Court, says Kanner, noting that California law is stacked in favor of redevelopment agencies. "But at one time, you couldn't get through the courthouse door. Now there are a clutch of these cases."
State redevelopment agencies "have a very good lobbying organization," says San Diego attorney Louis E. Goebel. "But the mentality is changing."
The classic case in San Diego was in the late 1990s, when the Frost family wanted to develop a hotel in the ballpark district. The Frosts had a developer lined up. The hotel could be built without the city having to pay condemnation costs. Nonetheless, Centre City and city council ganged up to award the land by condemnation to John Moores, majority Padres owner. "We argued abuse of eminent domain before the city council," says Douglas Tribble, attorney for the Frosts. The case went to superior court, where a judge upheld the right of the city to grab the land.
While this was going on, the Padres and the city were promising that tax revenue flowing from hotels and retailers in the ballpark district would pay for the ballpark. But mainly condos have been built -- few hotel rooms have come through. Tax revenue generated by housing is eaten up by infrastructure costs. The ballpark is still a major drain.
One reason citizens will vote on a hotel-tax increase this fall is that the Padres didn't live up to promises to construct revenue-generating hotels and other commercial structures, says former councilmember Bruce Henderson.
You can see how it works. The government seizes private land of a cloutless person and gives it at a lowball price to a politically potent nabob promising that tax revenues will pay for the big project. Those tax revenues don't come through. Hurting for revenue, the government then turns around and seizes some other powerless person's property, handing it at a low price to another politically potent person, whose project will theoretically replace the revenue lost when the first promises were broken. The daisy chain of deceit is one reason corporate welfare has burgeoned out of control. At last, there is hope the courts will do something.