Next big test of power to seize property?

The US Supreme Court will examine whether a private company can demand payment in exchange for not seizing private property.

Bart Didden wanted to put a CVS pharmacy on his property in Port Chester, N.Y. He even obtained approvals from the local planning board.

But because a portion of the CVS site was in a blighted redevelopment zone, Mr. Didden was told that planning board approval wasn't enough. He'd have to reach an understanding with a private company that had been selected by Port Chester officials to control all construction inside the renewal zone.

The developer, Gregg Wasser of G&S Port Chester, told Didden he'd have to pay $800,000 or give G&S a 50 percent stake in the CVS business. If Didden refused, Mr. Wasser said, he would have Port Chester condemn and seize his property and instead of a CVS he'd put a Walgreens drugstore on the site.

Didden refused. The next day, the Village of Port Chester began legal proceedings to seize Didden's land by eminent domain.

Lawyers for Didden took the matter to federal court. They even went to the FBI – all to no avail. Now they are asking the US Supreme Court to examine whether a private company can demand payment in exchange for refraining to seize private property in an urban renewal zone.

Property rights activists are hoping that a majority of the justices view Didden's case as an opportunity to clarify a portion of the high court's controversial decision in its last big eminent domain case, Kelo v. New London. In that June 2005 opinion, the court ruled 5-to-4 that local governments could seize private property and turn it over to a private developer when the action was part of an economic development project of benefit to the public.

Rebellion in the states

The decision sparked a national backlash. Since then, 34 states passed laws restricting the use of eminent domain for private development. New York is not among them.

The US Constitution forbids government officials from taking the property of one person and giving it to another. But if the overall purpose is a public benefit, such as economic transformation or urban renewal, transfers of private property to a private developer are permissible, the high court has said.

At issue in the Didden case is whether a developer selected to carry out an urban renewal project in the public interest can use the government's eminent domain power in a way that maximizes the developer's profit.

"The 'public use' clause may encompass a lot of public purposes after [the high court's decision in] Kelo, but it does not mean that eminent domain can be used to make the most money possible for one particular person," says Dana Berliner, an attorney with the Institute for Justice, which is asking the high court to take up Didden's case.

Lawyers for G&S and the Village of Port Chester hold a different perspective.

For taking the risk, a reward

For decades Port Chester tried to persuade various developers to launch urban renewal projects in the village. None did. Then in 1999, G&S agreed to undertake the challenge – and risk. The company proposed a 27-acre, $100 million project to replace run-down buildings with new retail stores, new roads, utilities, and a multiplex movie theater.

In exchange, the village agreed to give the developer exclusive power to decide which properties within the redevelopment zone would be acquired through negotiation and which would be seized by eminent domain. It also gave the developer the exclusive right to build – and profit from – the project.

"The thing that got [G&S] to spend over $100 million in the village is that at the end of the day he is going to make money," says Mark Tulis, a lawyer for the village. "He is going to make money by building a Costco and renting a Costco, building a Stop & Shop and renting a Stop & Shop, and building a Walgreens."

In effect, there is an economic value to the G&S agreement with the village. It equals the potential amount of profit G&S might extract by developing the property.

From this perspective, Didden's proposal to build a CVS on a portion of the redevelopment site cut into G&S's anticipated profit from its plan to develop a Walgreens in the same area.

Mr. Tulis says control over the redevelopment zone and the resulting profit is the benefit of the bargain struck between G&S and the village in 1999. "It would be inappropriate for the village to change the bargain after G&S has been successful," says Tulis. "A contract is a contract."

Rather than extortion, as some suggest, G&S was seeking compensation from Didden in exchange for freeing up a portion of redevelopment land controlled by G&S to allow Didden's CVS project to go forward, says Mark Weingarten, an attorney for G&S.

The discussion over the $800,000 was a settlement negotiation undertaken at the request of village officials, Mr. Weingarten says. "We have the right to go forward with this project and keep it all to ourselves," the attorney says. "We were offering this as a way to give him a share."

Didden has a different view of the case. "In 1999 when they acquired the rights to condemn my property, if they [had] offered me fair compensation I would have taken the money and been on my way," he says. "But they let me keep my property for four years. They let me maintain it and pay taxes and make repairs, and only when I showed up looking for approval for a redevelopment that would have substantially increased the value of the property did they condemn it."

Didden says he's not opposed to redevelopment – only to the methods used in Port Chester. "The whole process has been outsourced to the developer without any checks or balances by the village," he says.

The village and the developer are named as codefendants in Didden's suit. Their lawyers say the case was properly dismissed by a federal judge and a federal appeals court panel because Didden failed to file his suit in 1999, when the redevelopment contract was debated and approved. He missed the 30-day deadline, they say.

Ms. Berliner says if the lower court rulings in this case stand, "it would mean that every redevelopment area in the country would be a Constitution-free zone. Any taking [of property], no matter how private, would be OK as long as it was in those areas."

The lower courts were wrong to throw out Didden's suit because he allegedly missed the deadline, Berliner says. The action against Didden didn't occur until 2003, and there was no way to know in 1999 what might happen to Didden's property, she says. The Constitution mandates that a remedy be available, the attorney says. "This issue is one of real national significance," Berliner says. "There are so many redevelopment areas in the country, and giving immunity to any kind of misbehavior in those areas will have huge effects."

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