The Supreme Court's closely divided decision backing the use of eminent domain for economic development gives state and local governments a qualified boost in what property rights advocates promise to be continuing challenges to the practice in state courts.

The Supreme Court's 5-4 ruling in Kelo v. City of New London refused to prohibit government from taking private property and transferring it to private companies or developers for commercial or industrial projects.

Legislatures have “broad latitude in determining what public needs justify the use of the takings power,” Justice John Paul Stevens wrote for the majority in the June 23 decision.

At the same time, property rights advocates and others saw evidence in all the justices' opinions - including a pivotal concurrence by Justice Anthony Kennedy - that municipalities should be more careful in the future in using government power to benefit private parties.

Courts should block use of eminent domain when a taking benefits “particular, favored or private entities” or produces “only incidental or pretextual benefits,” Kennedy wrote.

Despite Kennedy's caveat, dissenting justices warned that the decision leaves private property rights at the mercy of development-minded state and local governments.

“Today nearly all real property is susceptible to condemnation on the court's theory,” Justice Sandra Day O'Connor wrote.

The ruling in a development controversy from the midsized, economically depressed coastal city of New London, Conn., cheered municipal officials. Washington, D.C., Mayor Anthony Williams, current president of the National League of Cities, said the ruling “reaffirmed the continued use of eminent domain to bolster depressed economic neighborhoods,” which he said is “indispensable for revitalizing local economies, creating much-needed jobs, and generating revenue that enables cities to provide essential services.”

But Columbia University law professor Thomas Merrill, who coauthored a friend-of-the-court brief for the American Planning Association, said the ruling gives municipalities a “flashing amber light.”

“The message to state courts is: go ahead and use eminent domain for economic development, but please try to take property rights more seriously in the future,” Merrill said.

The Institute for Justice, the Washington-based public interest law firm that represented New London homeowners, voiced disappointment, but also saw legal ammunition for future cases in the states.

“The majority and the dissent both recognized that the action now turns to state supreme courts, where the public use battle will be fought out under state constitutions,” Chip Mellor, president of the institute, said. “Today's decision in no way binds those courts.”

Tom Hart, deputy director of the California Redevelopment Association, said the ruling would have little effect in California - partly because a state law, cited in Stevens' majority opinion, prohibits use of eminent domain for economic development except in blighted areas.

“Nothing has changed based upon the ruling,” Hart said. “We certainly agree with it. It will help communities.”

Chris Norby, an Orange County supervisor and state chairman of Municipal Officials for Redevelopment Reform, called the ruling “a horrible decision.” Redevelopment agencies “will believe they can use eminent domain with impunity,” Norby said. But he said public opinion is turning against eminent domain because it has been abused and because it often is ineffective.

In immediate effect, the decision rejected an effort by nine homeowners in a once-busy New London neighborhood to block seizure of their properties as part of a 90-acre tract being eyed for an ambitious waterfront development. City officials and a specially created quasi-governmental corporation say the planned commercial, residential and recreational development will create jobs, draw tourists and boost revenues.

The city acquired most of the 115 parcels to be developed through voluntary sales, some of them after possible use of eminent domain had been publicly reported. Lead plaintiff Susette Kelo and eight other owners of a total of 15 parcels refused to sell - forcing the development corporation to file condemnation actions in November 2000.

A state trial judge issued a mixed ruling upholding some seizures and rejecting others. On appeal, the Connecticut Supreme Court upheld all of the seizures by a 4-3 vote. The U.S. Supreme Court's decision to hear the homeowners' appeal attracted more than two dozen friend-of-the-court briefs on both sides.

In the majority opinion, Stevens said that the court has no power to “second-guess” elected officials in determining what constitutes a “public use” under the constitution's Takings Clause. The clause - the final part of the Fifth Amendment _ states: “Nor shall private property be taken for public use, without just compensation.”

Stevens said that Supreme Court cases dating to the late 19th century had broadly defined “public use” to be any public purpose. He said there was “no basis for exempting economic development” from that broad definition.

In a similar vein, Stevens said the court has no power to second-guess the likely success of a planned development or officials' determinations about what parcels to take for the development. Looking specifically at the New London plan, he said it was “carefully formulated,” authorized by state statute, and adopted after “thorough deliberation.”

Justices David Souter, Ruth Bader Ginsburg, and Stephen Breyer joined Stevens' opinion along with the swing-vote conservative Kennedy. In his concurrence, however, Kennedy qualified his support by urging courts to engage in “meaningful” review to prevent use of eminent domain for “impermissible favoritism.”

Writing for the four dissenters, O'Connor said the effect of the ruling was “to delete the words 'for public use' from the Takings Clause.” She argued that the decision went beyond the court's previous rulings, including the controversial 1954 decision, Berman v. Parker, that upheld redevelopment of Washington, D.C., slums.

Chief Justice William H. Rehnquist and Justices Antonin Scalia and Clarence Thomas joined O'Connor's opinion. Separately, Thomas argued for reconsidering the court's previous rulings and instituting a rule that property could be taken only if the government “actually uses or gives the public a legal right to use the property.”

In their dissents, both O'Connor and Thomas argued that the use of eminent domain for economic development primarily benefits what O'Connor called “large corporations and development firms” at the expense of what Thomas called “powerless groups and individuals.”

Stevens did not respond to those comments, but noted that states can establish stricter rules on use of eminent domain either through legislation or court action.

Tom Hart, California Redevelopment Association, (916) 448-8760.
Chris Norby, Municipal Officials for Redevelopment Reform, (714) 834-3440.
Chip Mellor, Institute for Justice, (202) 955-1300.
Kelo v. City of New London, No. 04-108, 05 C.D.O.S. 5466, 2005 DJDAR 7453.