James L. Thompson
Joseph P. Suntum
Miller, Miller & Canby, Chtd.

    After the Supreme Court of the United States decided the Kelo case permitting private property to be condemned for economic development, the public reaction was surprisingly swift and overwhelmingly against the decision. Within several months, four states, Alabama, Delaware, Ohio and Texas enacted eminent domain legislation in the 2005 legislative session and Michigan passed a Constitutional amendment to counteract Kelo. This eminent domain reform generally fell into five categories:

• Prohibiting eminent domain for economic development, including for generation of increased tax revenues or for transferring property to another private party;

• Limiting eminent domain to a “stated public purpose”;

• Restricting eminent domain to blighted properties or where an area as a whole is considered blighted;

• Imposing a moratorium on eminent domain use for economic development for a stated period while legislative task forces evaluated the issue; and

• Increasing the compensation amount for condemned property where it is a person’s principal residence.

    In 2006, twenty-one states passed eminent domain reform to limit Kelo, some with Constitutional amendments and most by statutory provisions. These states include Alabama, Alaska, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Massachusetts, Missouri, Nebraska, Pennsylvania, South Dakota, Tennessee, Utah, Vermont, West Virginia, Wisconsin; and five states Florida, Georgia, Louisiana, New Hampshire and South Carolina passed Constitutional amendments. Two additional states, Arizona and New Mexico, passed eminent domain legislation but it was vetoed by the governors. The 2006 eminent domain reform legislation fell into the same categories as it did for 2005, with two additional areas of coverage:

• It imposed greater procedural requirements on eminent domain use, e.g., greater public notice, more public hearings, good-faith negotiations and elected governing body approval; and

• Redefining “public use” as possession, occupation or enjoyment of the property by the public at large, public agencies or public utilities.

Eminent Domain Reform Efforts in Maryland

    You will note that none of the listed states mentioned above include Maryland. Numerous anti economic development bills were introduced in the General Assembly and a constitutional amendment was proposed. In addition, collateral efforts were made to expand the effort and provide for eminent domain reform in other areas of the law. However for a variety of reasons, eminent domain reforms failed in the General Assembly. An article in the Maryland Bar Journal in September, 2006, entitled “Eminent Domain Reform’s Failure in Maryland” provides some important insights into this process. Mr. Fischer, a co-author, points out some of the deficiencies in the existing Maryland eminent domain law in the article and the reforms suggested by the legislature’s “Task Force on Business Owner Compensation in Condemnation Proceedings” which he chaired. Although the Task Force was not formed to address the Kelo situation (having been created in 2004), it gave consideration to the problem as a postscript to its report. As to the Kelo situation, it did not recommend a ban on economic takings or economic development as many other states had done; it made a series of recommendations for procedural safeguards requiring condemning authorities to enter specific findings in economic development takings such as:

(1) That the private market is unable to accomplish the project and, hence, the exercise of eminent domain is necessary to perform the project, and

(2) That the condemnation is based upon an integrated development plan with the government maintaining specific control over the project.

    Other important legislature protections in these cases were introduced into several bills in the Senate. For example, in an economic taking case, the condemning authority would be required to prove public purpose and necessity by clear and convincing evidence. Further, at the option of the owner, the property’s fair market value would be determined without regard to the scope of the project rule. Also, a bill was introduced to permit the property owner to recover his attorney’s fees if the jury award or the final settlement exceeded the condemning authority’s final written offer by 20 percent or more. Finally legislation was introduced to provide business owners with compensation for the loss of business good will if the business could not be relocated, as well as for the loss of income during the period the business was interrupted, not to exceed three years, and relocation assistance provisions of the real property article were revised and updated removing the outdated limits on those benefits.

    Unfortunately, these legislative efforts were unsuccessful. The primary bill which was introduced, Senate Bill 3 and House Bill 1137, were opposed by local government organizations and others and a strong counter-coalition developed. Although Senate Bill 3 received a favorable report from the Senate Judicial Proceedings Committee, it was returned to Committee without a floor vote when the Republican Caucus in the Senate sought to attach a Constitutional ban amendment on the legislation and the President of the Senate sought to avoid that vote by aborting our bill. However, the problems in eminent domain still exist and it’s clear that efforts will be made to reform this matter in the 2007 legislature.

    Cases around the country have arisen since the Kelo case in various state courts which challenge economic development and challenge the definition of “public purpose”
in this type of condemnation. To provide balance, we’ve selected several leading cases in different states on both sides of the issue:

1. Norwood v. Horney, 2006 Ohio 3799, 2006 Ohio Lexis 2170 (2006). In this case the City of Norwood tried to condemn the defendants’ residential properties as a part of the “Norwood Exchange Project,” a redevelopment project that would construct chain stores, condominiums and office space in the area. The condemning authority asserted that this project satisfied the public use requirement in the Ohio Constitution because it would alleviate a “deteriorating area” under the City Code. The defendant challenged the proposed taking as unconstitutional, arguing that the City did not have the right to take private property and transfer it to a private entity for economic redevelopment. The Ohio Supreme Court unanimously agreed with the property owner defendants. The Court pointed out that it was not bound by the United States Supreme Court interpretation of the Federal Constitution’s public use requirement and expressly rejected the Kelo case, choosing instead to adopt the dissenting Opinions of Justices O’Connor and Thomas. It also clarified the Court’s role in reviewing a local government’s “public use determination.” It explained that although it was limited in reviewing legislative determinations and should give them “deference” it is independent of them. It further went on to determine that if an area might in the future become a slum or blighted area, that was not sufficient and that that term was unconstitutional under the void for vagueness doctrine. It determined that the only remaining “public use” for the City’s proposed taking was for economic benefit which, standing alone, was not a “public use” under the Ohio Constitution.

2. Board of County Commissioners of Muskogee County v. Lowery, 136 Pacific 3rd 639 (Okla. 2006). In this case, the county brought condemnation proceedings against the defendant property owners to acquire right-of-way easements for placing three water pipelines, two of which would solely service a private plant proposed for construction and operation in the county. The defendants challenged the taking as unconstitutional under Oklahoma’s eminent domain law, which allows taking property for a “public purpose.” In deciding this case, the Oklahoma Supreme Court cited Justice O’Connor’s dissenting Opinion in Kelo to support a narrow interpretation of the phrase “public purpose” and excluded economic development from that definition. It further restricted the use of the Kelo case in Oklahoma by limiting that decision to the Federal takings clause and interpreting Oklahoma’s takings law more strictly than that.

3. City of Long Branch v. Brower, No. Mon-L-4987-05 (N.J. Super. Ct. Law Division, June 26, 2006). In this case the City of Long Branch sought to condemn the plaintiff’s residential properties as a part of a redevelopment plan. The property owners challenged the City’s condemnations under the New Jersey eminent domain law and the U. S. Constitution’s Takings Clause. The Court upheld the takings finding that taking private property for economic rejuvenation is permissible and asserting that the judiciary should give great deference to the municipality’s public use determination. Here the Court cited Justice Kennedy’s concurring Opinion for support.

4. Talley v. Housing Authority of Columbus, Georgia, 279 Ga. App. 94, 630 S.E. 2d., 550 (2006). In this case the City Housing Authority condemned the plaintiff’s property as a slum under Georgia’s urban renewal law. The property owner argued that the City illegally condemned his property in 1994 and had since abandoned any alleged “public use” of the property by selling it to a private citizen. The Court rejected the property owner’s challenge to the condemnation’s legality under principals of res judicata. It also rejected the property owner’s claim of abandonment of public use because under Georgia’s urban renewal law it allows housing authorities to take slum area property for redevelopment and sell it to private persons. Although the Court noted that Kelo has “ignited a national debate on the subject of government use,” it pointed out that the decision left it to the states to enact more restrictive condemnation laws if they chose to do so. Because Georgia’s urban renewal law and its underlying constitutional authorization remain in place, the Court held that the housing authority had acted properly.

    In Maryland, the Court of Appeals recently heard, on January 8, 2007—Mayor and City Council v. George Valsamaki, Sept. Term 2006, Case No. 00055. In this case, George Valsamaki successfully challenged the quick-take condemnation of the Magnet Bar at 1924 North Charles Street in Baltimore City for urban renewal / economic development. Although the property is located in the Charles North Urban Renewal area, Mr. Valsamaki challenged the quick-take condemnation asserting that the City did not carry its burden to demonstrate a necessity for the immediate possession and title to the property. In addition, he argued that the taking was not for a “public use” and that the quick-take procedures followed in this case denied him due process of law by preventing him from having discovery or permitting him adequate time to prepare for the trial. Public Local Law 21-16 requires trial within fifteen days after filing an answer, and the Court denied a motion to shorten the time for discovery in this two-week window. However, Judge Miller, sitting as the trial judge, denied the City’s quick-take condemnation and stated:

“The plaintiff [City] impassively asserts that the Charles North Project will likely come to a temporary halt unless plaintiff is awarded the property in interest immediately. The Court, based upon all the evidence, is not satisfied that the plaintiff has met its burden. The plaintiff has failed to submit to the Court either a contract, a focused development plan as it pertains to the property in interest, or even a request for proposal (hereinafter “RFP”), supporting its contentions and establishing necessity under Section 21-16.”

    Later in the trial Court’s opinion, the Court ruled that there was no development plan for the property. We have categorized this type of condemnation as “RFP Condemnation” where the condemning authority condemns property in Baltimore City for redevelopment and assemblage without having any plan for its public use or ultimate development. In fact, the City acquires the property then submits and RFP to the real estate development community and, based on their response, determines how the property will be used and to which private developer the property will be conveyed. This does not meet the constitutional requirements of Kelo or the constitutional or statutory requirements in Maryland.

    With this background and the several lessons which are currently being taught in the state legislatures and courts around the country, we offer the following observations about how the Kelo case and post-Kelo developments might impact your case.

    A. In economic taking cases. As we have seen, some states have adopted the view that public use or public purpose does not include economic takings where private property is taken from A and conveyed to B for a greater economic purpose, and “enhancement.” In those cases, one should examine carefully whether or not the condemning authority has a well articulated economic development plan similar to the economic plan in the Kelo case. A red flag should be raised if there’s no plan. Compare what has happened in Baltimore City in the Valsamaki case to the Kelo case. Clearly, the Maryland courts are not bound by the Supreme Court’s interpretation of “public use” as articulated in Kelo since that represents a federal constitutional minimum. Our courts will interpret the Maryland Constitution in reference to economic taking and have done so in Prince George’s County v. Collington Crossroads, 275 Md. 171, 339 A 2d. 278 (1975). Our Court permitted condemnation for economic development in a circumstance where the Court found that the County had adopted a comprehensive plan for the industrial development park which it considered necessary for the economic well being of the County; that the project was too costly for private developers to carry out; and that the County would maintain significant control of the industrial park and commercial land sold to private owners. These are items which a Maryland practitioner should note in examining any economic taking case. Further, some of our sister states have taught us to look for a challenge to the legislative determination to take the property and to insist that the court not pay blind deference to legislative pronouncements since the Court is and should be independent of them.

    B. In evaluating urban renewal plans. There are several factors to consider. Check out the age of the urban renewal plan. In the Valsamaki case, the Charles North Urban Renewal Plan was first established in Baltimore City by Ordinance No. 799 which was adopted October 25, 1982. Although the plan was amended in 2004 authorizing the acquisition of the Valsamaki property, the underlying premise of the plan and its proposed uses of the property were not updated. The plan identifies general land-use categories, such as office-residential, community business, community residential and central commercial, plus industrial. These use districts permit the uses allowed in the zoning districts having the same name. The Valsamaki property is in central commercial, which allows all of the uses by the City’s B-5 Zoning District, the most extensive zoning district in the City. In this case, no witness could state what would even be the generalized use of the property or the area beyond the description of saying a “mixed-use” development. Upon more detailed examination, the City did not have a plan and indicated that this was an RFP condemnation, where the use of the property would be for economic development—nothing more specific. The lesson here is to carefully consider the urban renewal plan and test its logic and validity as applies to your property.

    C. In negotiating with the condemning authority. The condemnor must consider the issues we’ve discussed above and the general public outcry concerning economic development takings. Many of the condemning authorities have bond issues or other financing obligations in which lenders want assurance that the condemning authority has the right to take—an assurance that is difficult to give when the condemnation project appears to take property from A and give it to B. Do these lenders have deadlines? Are there deadlines for the condemnation to be concluded? What happens if the condemnation is not concluded on time? Are there bond consequences? Are there economic penalties imposed, such as those involved in the condemnation for the new DC Nationals’ Stadium in Washington? How strong or compelling is the condemnor’s public use or public purpose argument in connection with the condemnation? In negotiating with any condemning authority, the attorney for the property owner needs to understand the legal underpinnings of the case, the strength of the condemnor’s right to take, the timeline, as well as the valuation questions which are involved in the case.