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COVER ARTICLE Property rights vs. public use In the recent controversial eminent domain case, Kelo v. City of New London,[1] Justice John Paul Stevens said that “nothing in our opinion precludes any state from placing further restrictions on its exercise of the takings power.” In response to this invitation from the Supreme Court, the Tennessee General Assembly enacted Public Act 865. The changes to the eminent domain laws in Tennessee can be summarized into four categories: 1) establishing a clear legislative intent concerning when the government is permitted to use eminent domain; 2) defining certain elements of this area of law; 3) changing condemnation procedures, including eliminating the “quick take” procedure; and 4) removing eminent domain power from certain agencies, subdivisions, etc. Moreover, the legislation addressed obsolete areas of the law, such as abolishing provisions for public mills. The undertaking garnered broad partisan support from rural and urban lawmakers, and the result, hopefully, will be a more concise and predictable takings jurisprudence in our state. The Catalyst: Kelo v. City of New London. In June 2005, the United States Supreme Court issued its decision in Kelo v. City of New London. In an effort to reduce the federal military budget, the Department of Defense closed the Naval Undersea Warfare Center, which is located in the Fort Trumbull area of New London, Connecticut, and laid off approximately 1,500 civilians. The center’s closing exacerbated the city’s decade-long economic decline and led state and local leaders to declare this a “distressed area,” targeted for economic revitalization. The city, the New London Development Corporation (NLDC), and the state developed a plan to reinvigorate the area by renovating Fort Trumbull into a state park. Shortly after this plan was announced, the pharmaceutical giant, Pfizer Inc. unveiled its plans to build a new $300 million research and development complex adjacent to the new state park. Unfortunately for Susette Kelo, her quaint pink cottage was situated in an area destined to become a parking lot. The city proposed to seize her cottage through the exercise of the power of eminent domain. The NLDC did not assert that her property was blighted or otherwise in poor condition, and sought it only because “[it] happened to be located in the development area.”[2] In an effort to save her home, Kelo (along with eight of her neighbors) challenged the NLDC’s condemnation and claimed that the proposed taking of her property was a violation of the “public use” clause of the Fifth Amendment to the United States Constitution. While the litigation was pending before the trial court, the NLDC leased the parcels to private developers for long-term leases in exchange for their agreement to develop the land in accordance with the revitalization plan.[3] After a bench trial, the trial court issued a permanent restraining order that prohibited some of the takings, but approved other condemnation plans that directly supported the new state park. On appeal, the Connecticut Supreme Court overturned the trial court’s permanent injunction and found that under existing state law the takings were authorized.[4] The United States Supreme Court granted Ms. Kelo’s petition for certiorari to determine “whether a city’s decision to take property for the purpose of economic development satisfies the ‘public use’ requirement of the Fifth Amendment.”[5] In his majority opinion, Justice Stevens opined that “[w]ithout exception, our cases have defined [public purpose] broadly, reflecting our longstanding policy of deference to legislative judgments in [the takings] field.”[6] Justice Stevens emphasized that the states are free to place additional restrictions on the exercise of the takings power. He noted that some states already have provisions — either from their state constitutions or eminent domain laws — that would prevent a similar taking. As such, the majority asserted that the wisdom of using eminent domain for economic development properly remains within the confines of the state’s elected representatives. Tennessee’s Response: Public Act 865: On June 6, 2006, Tennessee’s Gov. Phil Bredesen signed Public Act 865 into law, thus concluding over a year’s worth of legislative wrangling in this contentious area. The act begins with a preamble that Tennessee’s Constitution, in conjunction with the Fifth Amendment of the Federal Constitution, protects the right of an individual to own property and to be free from capricious and arbitrary takings of that property by the government. The initial statutory addition is the proclamation that the intent of the lawmakers is that “the power of eminent domain shall be used sparingly, and that laws permitting the use of eminent domain shall be narrowly construed so as not to enlarge by inference or inadvertently the power of eminent domain.”[7] One of the primary shortcomings of Tennessee’s prior takings jurisprudence was the lack of a statutory definition of what was “eminent domain” and “public use.” As a result, the legislation defines “eminent domain” and allows the government to delegate its eminent domain power to other entities, such as housing authorities or development corporations.[8] The general assembly also gave a specific meaning to “public use” by creating a negative definition: public use “shall not include either private use or benefit or the indirect public benefits resulting from private economic development and private commercial enterprise, including tax revenue and increased employment opportunity.”[9] Essentially, the general assembly turned takings jurisprudence on its head and attempted to preempt a Kelo condemnation in Tennessee. Under the old and extremely broad grant of power, counties could use eminent domain “for any county purpose.”[10] As a result, it appears now that those vested with condemnation powers in Tennessee can only use them in five discreet areas. First, a government may condemn land for the most obvious purpose of eminent domain: pure public use. The government may seize an interest in real property for the construction of roads, highways, bridges, facilities, or other forms of public transportation.[11] Even the most stalwart strict constitutional constructionists would have a difficult time arguing that building a road was not “for public use.”[12] The second area is comprised of the “common carrier” takings. Here, the government may acquire an interest in land necessary for the functioning of a public or private utility, including a governmental or quasi-governmental utility, a common carrier, or entities holding the eminent domain authority.[13] Generally, these takings are justified on the premise that the public is the primary beneficiary. For illustration, the local power company, generally, has the ability to exact an easement from a property owner in order to run a power cable across the land. Third, housing authorities or community development agencies may invoke condemnation proceedings to cure blighted areas as part of an urban renewal or redevelopment plan as authorized by statute.[14] In addition to defining “eminent domain” and “public use,” the general assembly attempted to clearly delineate what constitutes a “blighted area.” Prior to the changes, Tennessee law defined “blighted areas” as “areas (including slum areas) with buildings or improvements which, by reason of dilapidation, obsolescence, overcrowding, lack of ventilation, light and sanitary facilities, deleterious land use, or any combination of these or other factors, are detrimental to the safety, health, morals, or welfare of the community.”[15] The general assembly defined “welfare of the community” so as to explicitly preclude a decrease in property value or an increase in tax revenues as the sole reasons for condemning land as blighted.[16] Moreover, the legislature empathically stated that land used predominately for agricultural purposes could not be considered as blighted under any circumstances.[17] Fourth, a government can seize property even if a private individual receives an incidental benefit.[18] However, the government cannot invoke condemnation proceedings if the taking is “primarily for the purpose of conveying or permitting such incidental private use[.]”[19] For example, the local airport authority can seize lands to build an airport and inside the airport it can lease space to a private individual to operate a food court. The food court vendor is only an incident beneficiary to the airport being built; whereas, the flier is the primary beneficiary. Lastly, counties, cities, and towns may acquire property through eminent domain for an industrial park, assuming the park is authorized by the Industrial Parks Act (IPA), codified at Tenn. Code Ann. section 13-16-201 et. seq. Generally, the IPA allows municipalities to condemn property to build industrial parks.[20] However, before the government moves forward with the industrial park, it must acquire a certificate of public purpose and necessity. In order to obtain the certificate, the Department of Economic and Community Development must investigate and review the proposed industrial park. The Act adds a new subsection to the IPA that limits the government’s eminent domain powers to the area within its jurisdictional boundaries or within an urban growth boundary.[21] While these changes do add clarity and limitations, it remains to be seen how effective these new definitions will be in protecting property owners. For example, under the new definition of “blighted areas” it is still possible to have a Kelo-type taking in Tennessee because of the vagueness of what exactly is a blighted area. A city could argue that an inner city block, which is riddled with crime and poverty, is “detrimental to the safety, health, morals, or welfare of the community” and, as such, should be condemned and transferred to a developer who can increase the safety of the area by building a new upscale residential village. The developer and city are not relying on decreased property values or increased tax revenues, but merely gains in safety. A similar analogy could be supported under the new “welfare of the community” definition. Considering that poorer neighborhoods are often-times the least politically influential, it is not too far of a stretch to recognize the shortcomings in the act. While the act takes a step in the right direction in addressing some of the deficiencies in this area of the law, until more is done many could view it as nothing more than a “feel good” political ploy that, in reality, does very little to protect property owners in Tennessee. Another primary set of changes was the procedural mechanisms to condemn property. In a new section of the Tennessee Code Annotated, any government entity that holds the power to condemn and seeks to condemn property must provide the property owner at least 30 days’ notice before taking any additional steps.[22] Under the old regime, condemners could effectuate a taking in as little as five days. In this most critical enlargement of rights, the property owner has a significantly longer time-frame to weigh the options and answer the petition. Moreover, if the property owner is unknown, a non-resident, or cannot be found, the government may give notice by publication in the same manner as is customarily done in the chancery court.[23] If the property owner fails to challenge the taking, the government has the right of possession of the property.[24] On the other hand, if the property owner challenges the taking within thirty days, the chancery court must determine, as a threshold matter, whether the government has the right to seize the property.[25] If the government does have the right to possession and the property owner refuses to comply with the condemnation proceedings, the court is empowered to issue a writ of possession to the local sheriff to put the government in possession. The writ of possession can be issued before a trial to fix the amount of compensation due.[26] Other procedural changes include mandating that if a property is completely condemned; the total damages shall not be less than the property assessor’s valuation immediately before the condemnation “less any decrease in value for any changes in such parcel occurring since the valuation was made, such as the removal or destruction of a building, flooding, waste, or removal of trees.”[27] In addition to the immediately past property assessor valuation, the parties must obtain an appraisal of the property.[28] The appraisal report must include the property’s best and highest use, the current value of the property at the time of the proceeding, and a description of any other legal use of the property at the time of the taking. A potential shortcoming of the new laws is that utilities may be forced to acquire a “full blown” appraisal, even when they are merely seeking a partial taking. The new statutory scheme will likely be a boon to appraisers and significantly increase the costs of less than fee simple takings for utilities. Furthermore, under the previous statutory scheme, a government entity seeking condemnation of property had the option of depositing funds with the court clerk that it reasonably believed the property owner was entitled to as a result of the taking.[29] Once these funds were deposited, the property owner could petition to withdraw these funds without prejudice so long as he agreed to refund any shortfall between the amount withdrawn and the amount awarded at a damages hearing.[30] The new statutory provisions require the government to deposit funds equal to the value of the appraisal with the court’s clerk at the time the condemnation petition is filed.[31] Furthermore, the payment made to the clerk shall not limit or fix the amount of damages that could be found in subsequent proceedings.[32] The final area of significant change made to Tennessee’s eminent domain laws was to eliminate that power from certain regional authorities and other political and administrative subdivisions. In addition, the general assembly abolished the provisions creating public mills and their ability to condemn property.[33] Lastly, the general assembly abolished the counties’ ability to seize natural lakes or land to construct lakes[34] and to condemn land for creating ferries.[35] As with most shifts in public policy, there will be disagreements over the scope and interpretation of the act. Property owners and governments will likely ask the courts to ascertain the boundaries of the act and what is “welfare of the community,” “blight,” “for public use,” etc. Moreover, the courts may be asked to decide:
These and an unforeseeable number of questions will present themselves to the courts as Tennessee enjoys unprecedented growth. Conclusion. The General Assembly used the Kelo decision as a catalyst to spur a great many changes in how Tennessee’s governments interact with property owners. As with all legislative undertakings, the new laws are not perfect and the courts will be called upon to settle many upcoming disputes, but in the end these new laws will go a long way in clarifying, limiting and bringing attention to the government’s ability to seize a citizen’s property. • • • Notes
• • • Scott Griswold is a member of the Class of 2007 at the University of Tennessee College of Law. He is a contributing author to Tennessee Zoning and Land Use, an upcoming publication of Transactions: The Tennessee Journal of Business Law and the Clayton Center for Entrepreneurial Law at the University of Tennessee College of Law. Special thanks to Professor George Kuney at the College of Law and James C. Cope of Cope, Hudson, Scarlett, Reed and McCreary PLLC, for their many insightful comments. Tennessee Bar Journal
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