Tag: Fifth Amendment

Connecticut, Drunk on Power, Uses Bottle Bill to Steal Money

For nearly 30 years, Connecticut beverage distributors received the unclaimed refund value of recycled bottles as part of the state’s Bottle Bill, which set up a refund system for used bottles as an attempt to encourage recycling. As in other states, the law requires beverage dealers to pay refunds for every bottle turned in.

Fiscal troubles in 2008 prompted Connecticut to amend the law, however, to require a “deposit account” from which distributors were to pay the refunds. This requirement was intended to aid the state environmental agency to study the rates of deposit payments and returns. The following year, the fiscal situation worsened, and the Bottle Bill was again amended, this time to require the remaining funds in the deposit accounts (after returns were paid out) to be paid to the state—retroactively including any unpaid remainder funds since the accounts went into effect in 2008.

A. Gallo & Co. and other beverage distributors in Connecticut saw this as an uncompensated taking of their property and sued the state. They took their case through the state court system, but even the Connecticut Supreme Court turned a blind eye, holding that beverage distributors never had a property right in the remainder funds in the first place. The distributors have now asked the U.S. Supreme Court to hear their case, and Cato joined the New England Legal Foundation, the Southeastern Legal Foundation, and the National Federation of Independent Business on a brief supporting their petition.

We argue that Connecticut’s budgetary troubles are no excuse for violating a longstanding property right without compensation. Moreover, by twisting its statutory interpretation to satisfy political pressures, the Connecticut Supreme Court has made itself complicit in the uncompensated taking. It’s bad enough when strapped-for-cash legislatures unfairly force public burdens onto the shoulders of private parties to feed their spending addictions, but when all three government branches – including the one entrusted with soberly interpreting the law, especially in times of fiscal emergency – get drunk on power and deny even the existence of a property right, it’s time for a Supreme Court intervention.

The Supreme Court will decide by winter’s end whether to take the case of A. Gallo & Co. v. Esty.

The Supreme Court Takes up Old-Timey Property Rights

In the 19th Century, when railroads were being built across the West, the federal government granted significant land and benefits to railroad companies. The Great Railroad Right-of-Way Act of 1875 empowered the government to grant railroad companies right-of-way easements to build tracks across others’ land to facilitate the expansion of the nation’s railways – that is, railroads were granted a right to use sections of another’s property for railroad purposes without owning title to the land underneath. In 1976, the government sold the Brandt family a parcel of land in Wyoming which was crossed by one of these railroad easements.

In 2001, the railroad that owned the easement formally abandoned all claims to it.  Typically, when this happens, the easement is simply extinguished and the owner of the land may then use the former easement however he or she wishes. But the federal government had different plans for the thin strip running through the Brandts’ land. In 2006, the government sued for title to the land lying under the former easement on the theory that it had retained a “reversionary interest” in the land when granting the railroad the right of way easement, even though it never actually set aside any interests when granting the easement.  The government thus claimed that after the railroad abandoned the easement (after only ever owning an easement and never full title to the land), full title to the land “reverted” back to the federal government. The Brandts argue that under the basic principles of the common law of property, the government had no such right, and that even if any legislative act allowed the government to somehow acquire their land, such an act would require payment of just compensation under the Fifth Amendment’s Takings Clause.

Although this may seem like a small, unique problem, the scope of the Old West’s railway system was huge and those old easements criss-cross the land of thousands of property owners. In 1983, Congress amended the National Trails System Act to allow the government to take abandoned railroad easements and turn them into land for public recreation and “railroad banking.” Landowners have been fighting the taking of their property under the Trails Act ever since, claiming, as here, that the government’s original grant to the railroads contained no residual right of possession for the government.

After the trial court rejected the government’s radical claims, the U.S. Court of Appeals for the Tenth Circuit split with the Seventh and Federal Circuit courts (and ignored some of its own precedent on the way) and held that the government did indeed have a reversionary interest in the land, even though it never actually carved itself an exception, as the law requires. The Brandts, faced with the uncompensated government confiscation of a strip of land cutting their property in two, have now brought their case to the Supreme Court in an attempt to keep the government’s hands off their land and off the land of thousands of other landowners in their same position.

After supporting the Brandts’ request for Supreme Court review, Cato, along with four other groups and several property law professors – including Richard Epstein – has now filed a brief supporting the Brandts’ fight against the government’s poorly justified land-grab. We argue that the Tenth Circuit’s decision threatens to unsettle longstanding presumptions of property law because it willfully ignores basic differences between easements and “fee estates” in land and other basic principles of property law like the “strip and gore” doctrine (which holds, for example, that land under a right-of-way is split down the center and owned by those who own the land on either side of the easement).

This case is important, because there are many thousands of miles of old railroad rights-of-way crossing the countryside that would be potentially subject to uncompensated government confiscation if the Court were to follow the Tenth Circuit’s approach.  In addition, some 3,000 to 4,000 miles of old railroad easements are abandoned every year. It’s not entirely surprising that the government would go full throttle on such a shoddy legal argument for the chance to be able to snatch this land back without having to pay for it. The surprising thing is that the Tenth Circuit green-lighted it. We urge the Supreme Court to switch tracks.

The Court will hear argument in Brandt v. United States on January 14.

Cato legal associate Julio Colombo co-authored this blogpost.

Supporting Individual Rights, Opposing Eminent Domain Abuse

A recent blogpost published by Doug Kendall of the Constitutional Accountability Center (with whom we sometimes work with on op-eds and briefscriticized Cato’s involvement in Mount Holly v. Mount Holly Gardens Citizens in Action as cowardly, and inconsistent with our ideals. While Cato has great respect for any organization that, like the CAC, works “to preserve the rights and freedoms of all Americans,” their criticism of our brief is baseless, and grossly mischaracterizes Cato’s position in the case and track record generally. 

While I’m wary of misrepresenting the post through over-simplification, it can be boiled down to the following: 

  1. Mount Holly is a case about eminent domain;
  2. Pro-property rights groups (including Cato) have a history of “howling” against eminent domain;
  3. Those groups’ failure to argue against eminent domain in this case (and their support of the Township of Mount Holly), is inconsistent with their previous stance on property rights, and evinces a lack of moral courage;
  4. That failure can be explained because this case is also about civil rights and equality, and conservative groups hate equality, and live to help the state further oppress the downtrodden masses. 

 CAC’s criticism stems from an incorrect framing of the case at hand:

an important case out of Mount Holly, New Jersey, that involves Fair Housing Act (FHA) claims in the context of an effort by Mount Holly Township to use eminent domain to redevelop its only predominately minority community—and in the process, displace and raze the homes of its residents.

While that description is accurate in that the case is important, originates in Mount Holly, and concerns the applicability of the Fair Housing Act to a redevelopment plan, the case before the Supreme Court has nothing to do with eminent domain. The question to be argued before high court couldn’t be plainer: “Whether disparate impact claims are cognizable under the Fair Housing Act.”

It’s surprising that CAC would make such a basic mistake about the case, given that they filed a brief in the case, supporting the Mount Holly residents (a brief which makes no mention of eminent domain – at all).

“Eminent domain” refers to a specific way that the government can acquire private property against the will of the owner. So far, Mount Holly Township hasn’t resorted to eminent domain. Of the 329 properties that the township wants to include in the redevelopment plan, it has been able to acquire all but 70 of them through voluntary sales. If those remaining 70 owners – some of whom are parties to the case – were to challenge any attempts to expropriate their homes, Cato would be first in line to file a brief in their support, probably joined by those “howling”  pro-property groups like the Institute for Justice and Pacific Legal Foundation. (Sadly, it’s unlikely that we would garner CAC’s support, because the group has “long supported the reasonable use of eminent domain for redevelopment purposes.”)

No, this case isn’t about eminent domain because the residents aren’t challenging the township’s acquisition of property, but what it intends to do with that property. In a nutshell, the plaintiffs argue that the Fair Housing Act – which forbids governments and private individuals from refusing “to sell or rent … or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin” – bars not just intentional discrimination like restrictive covenants, but also any action that, even if entirely neutral and colorblind,  has a “disproportionate impact” on the ability of members of a protected class to buy or rent a home. They argue not that Mount Holly is intentionally discriminating against minority residents, but that the increase in property values as a result of redevelopment would effectively price the poor out of the neighborhood – and that counts as discrimination because the poorer residents are disproportionately drawn from minority groups

Cato opposes that theory of law generally, for the same reason that we oppose governmental abuse of eminent domain: we stand firmly against attempts by the government to control how people may dispose of their property. A homeowner should be able to sell his house for whatever price he thinks fair – without worrying that if his asking price is too high, he’ll be accused of racism and forced to defend himself in court. Our position in Mount Holly is the product of the reasoned and consistent application of well-articulated liberal principles, not “cowardice.”

As a closing note, we take issue with the implication that Cato “detests civil rights statutes.” Cato supports laws that protect individual freedom and opposes those that don’t. We may disagree with CAC on whether a law falls in the first or second category, regardless of whether it’s a “civil rights” statute or otherwise, but make no mistake that we support individual civil (and other) rights.

Indeed, we believe that the first and foremost duty of civil rights legislation (and constitutions) is to protect citizens from undue state interference with their daily lives and liberties. A reading of the FHA that embraces disparate impact claims doesn’t protect individuals from the state but instead represents an expansion of state interference. Behavior that was once lawful – selling your home for whatever price you wish – would become sanctionable. Disparate impact theory holds private individuals responsible not for personal bigotry, or the direct consequences of their actions, but for economic realities beyond their control – and that makes no one freer, nor more equal.

Update: Repeating what happened in the previous disparate-impact FHA case, Magner v. Gallagher, this case has apparently settled. The only question now is what the administration did to keep this issue away from the Supreme Court again. 

Further update: A couple of readers familiar with the facts on the ground in Mount Holly point out that while it’s technically correct that Mount Holly “hasn’t resorted to eminent domain,” the town’s redevelopment plan is indeed all-too-typical of eminent-domain abusers. That is, while not employing eminent domain – no condemnation proceedings have (yet) been filed – the town threatened to use it and then claimed “voluntary” sales when the homeowners capitulated. The redevelopment authority has represented that the incentives it offered for relocation were greater than what homeowners would’ve gotten from the eminent domain process – that alas is probably true, because the compensation paid for government takings is rarely “just” – but of course they would’ve had to sweeten the deal even more if they couldn’t threaten eminent domain in the first place. In other words, as we and our pro-property-rights allies have long argued, the ultimate solution is to reverse Kelo v. New London and take away the government’s ability to forcibly transfer property from one private party to another. If such eminent-domain-abuse claims aren’t foreclosed by the Mount Holly settlement, I suggest that the town’s residents hire IJ to litigate them. Cato would look forward to filing an amicus brief in support.

This blogpost was co-authored by Cato legal associate Gabriel Latner.

Luxury Mobile-Home Parks Don’t Need Rent Control

Contempo Marin isn’t your stereotypical mobile-home park. The park sits two miles from San Francisco Bay and offers tenants a pool, spa, clubhouse, and lagoon. Because of the location and amenities, these mobile homes—some of which offer vaulted ceilings, gas fireplaces, walk-in closets, and jetted tubs—can sell for over $300,000. That’s what makes the rent- and vacancy-control ordinance imposed on the park by the City of San Rafael in the name of “affordable housing” so outrageous.

The ordinance caps the amount that MHC Financing, the owner of Contempo Marin, may charge its tenants—who own their mobile homes but rent the land underneath—and mandates that the land be rented at the same price to each homeowner. The result isn’t lower costs for incoming tenants, but a redistribution of the value from the below-market rent directly to the mobile-home owners, whose homes now sell at a premium of nearly $100,000 above their pre-existing value. Thus far, the ordinance has transferred more than $95 million from MHC to its tenants.

MHC challenged the ordinance in federal court as an unconstitutional taking. The district court ruled in MHC’s favor, finding that the alleged public purpose of the ordinance—“affordable housing”—was merely a pretext, such that the ordinance violated the Fifth Amendment’s mandate that property only be taken for a “public use.” As Justice Kennedy clarified in Kelo v. City of New London (2005), “transfers intended to confer benefits on particular, favored private entities and with only incidental or pretextual public benefits, are forbidden by the Public Use Clause.”

The U.S. Court of Appeals for the Ninth Circuit, however, reversed the district court, holding that rent control generally, rather than the specific rent-control scheme at issue here, is “rationally related to a conceivable public purpose” and thus automatically meets the public-use requirement. MHC is now asking the Supreme Court to review that ruling and Cato has filed a supporting amicus brief, encouraging the Court to clarify the standard of review applied to pretextual takings claims and to confirm that the Takings Clause isn’t rendered inoperative when property is transferred.

The Ninth Circuit’s approach essentially bars future pretextual takings claims; any regulatory scheme viewed at its broadest theoretical level could have some “conceivable public purpose.” This evisceration of the Public Use Clause leaves the appropriate standard for determining if a government’s public-use justification is mere pretext in desperate need of Supreme Court clarification. The Ninth Circuit also undermined the Fifth Amendment by finding that no taking had even occurred because MHC had bought Contempo Marin after the rent- and vacancy-control provision had been enacted and therefore could have no investment-backed expectation as to the property value taken by the city. This decision directly conflicts with Palazzolo v. Rhode Island (2001), in which the Supreme Court held that buying property with knowledge of a regulation doesn’t preclude a takings challenge. The Ninth Circuit ignored the same precedent in Guggenheim v. City of Goleta in 2011—a case in which Cato also filed a brief supporting a petition for review—and the lower court’s continued misapplication of the law here reiterates the need for the Supreme Court to reaffirm that the Takings Clause has no “expiration date.” 

The Court will decide whether to take the case of MHC Financing LP v. City of San Rafael later this fall.

This blogpost was co-authored by Cato legal associate Lauren Barlow.

Curbing Class Action Settlement Abuses

In 2007, Facebook launched the controversial “Beacon” program, which automatically broadcast purchases made by Facebook users. The disclosures revealed embarrassing movie choices, indulgent spending habits, and even ruined the purchase of a young couple’s engagement ring.

In the subsequent class action lawsuit, a $9.5 million settlement was reached in which Facebook would pay $3 million to cover attorneys’ fees and a remaining $6.5 million would be used to set up a new charitable organization—controlled by Facebook—whose mission would be to educate the public about Internet privacy. The millions of class members, however, would get nothing.

This redistribution of settlement money from the victims to other uses is referred to as cy pres. “Cy pres” means “as near as possible,” and courts have typically used the cy pres doctrine to reform the terms of a charitable trust when the stated objective of the trust is impractical or unworkable. The use of cy pres in class action settlements—particularly those that enable the defendant to control the funds—is an emerging trend that violates the due process and free speech rights of class members.

Accordingly, class members objected to the Facebook settlement, arguing that the district court abused its discretion in approving the agreement and failed to engage in the required rigorous analysis to determine whether the settlement was “fair, reasonable, and adequate.” The San Francisco-based U.S. Court of Appeals for the Ninth Circuit affirmed the settlement, however, and expressed its unwillingness to inquire into the nature of the award because to do so would be “an intrusion into the parties’ negotiations.”

Now that the objecting class members have asked the Supreme Court to review the case, Cato filed an amicus brief arguing that the use of cy pres awards in class actions violates the Fifth Amendment’s Due Process Clause and the First Amendment’s Free Speech Clause. Specifically, due process requires—at a minimum—an opportunity for an absent plaintiff to remove himself, or “opt out,” from the class. Class members have little incentive or opportunity to learn of the existence of a class action in which they may have a legal interest, while class counsel is able to make settlement agreements that are unencumbered by an informed and participating class.

In addition, when a court approves a cy pres award as part of a class action settlement, it forces class members to endorse certain ideas, compelling speech in violation of the First Amendment. When Facebook receives money—essentially from itself—to create a privacy-oriented charity, the victim class members surrender the value of their legal claims in support of a charity controlled by the defendant. Class members are left uncompensated, while Facebook is shielded from any future claims of liability.

The Supreme Court will decide this fall whether to take the case of Marek v. Lane.

Community Associations Have Property Rights Too

The U.S. housing market has seen a major shift in the past 30 years: the rise of the community association. In 1970, only 1 percent of U.S. homes were community association members; today, more than half of new housing is subject to association membership, including condominium buildings. These organizations provide substantial benefits, including community facilities, maintenance, and rules designed to preserve property values, in exchange for assessment fees.

Accordingly, Mariner’s Cove Townhomes Association v. United States affects the rights of the more than 60 million Americans currently living in these associations. This case arises from the federal government’s taking 14 of 58 townhouses from one development in the wake of Hurricane Katrina. Mariner’s Cove owned a right to collect dues that was appended to those 14 townhomes, and sued the government for extinguishing that valuable right without just compensation under the Fifth Amendment’s Takings Clause.

In contrast to most lower courts, however, the U.S. Court of Appeals for the Fifth Circuit held that “the right to collect assessments, or real covenants generally” are not subject to Takings Clause analysis. In other words, the government can take those rights without paying anything to the owners. Cato and a group of esteemed professors, including Richard Epstein, James W. Ely Jr., and Ilya Somin, has submitted an amicus brief supporting Mariner’s Cove and arguing that the Supreme Court should take the case to clarify whether community association fees are compensable property under the Fifth Amendment.

Without such clarification, these beneficial private communities will be undercut. Such associations often shoulder the burden of providing and maintaining infrastructure, services, and utilities, which allows for more diverse and customizable amenities for homeowners than if those decisions were left with remote municipal governments. Because of these benefits, and because they increase the tax base, local governments are increasingly requiring developers to structure developments as community associations.

The perverse implications of the Fifth Circuit’s ruling are clear: it would allow for local governments to require he creation of a community association, benefit from the resulting private delivery of services while collecting taxes from its members, and later take the property without even paying back the very fees that enabled the government’s benefit. And the Fifth Circuit’s holding affects more than simply community associations. The court’s reference to “real covenants generally” implicates conservation easements, for example, which restrict the development and use of land for preserving the land’s natural, historic, or ecological features. This precedent would make association land an attractive option for uncompensated government takings.

The ruling also clashes with the Supreme Court’s recent decision in Koontz v. St. John’s River Water Management District: that an income stream from real property is a compensable interest under the Fifth Amendment. For these reasons, we urge the Supreme Court to take the case and to recognize the compensable property rights of the Mariner’s Cove Townhomes Association and the millions of other Americans choosing—and paying—to live in a community association.

The Fifth and Sixth Amendments Protect the Right to Counsel of Choice During Criminal Trials

Federal criminal defendants must fight a battle against the largest and most powerful organization in history, the U.S. government. At the very least, hopefully, they have a trusted attorney to fight with them.

That right of criminal defendants to choose their own lawyers is guaranteed by the Sixth Amendment and ensures the integrity of the adversarial justice process. Yet prosecutors are increasingly using a procedure called “asset forfeiture”—which freezes assets suspected of being tied to crime—to deny defendants the funds they need to retain the lawyer of their choice.

In January 2005, Kerri Kaley, then a sales representative with a New York-based medical device company, was informed that she was the target of a grand jury investigation in Miami. She was suspected of stealing prescription medical devices from hospitals and selling them on the black market. Kerri and her husband Brian (also under investigation) hired counsel to represent them in what turned out to be a two-year investigation. During that period, their lawyers interviewed witnesses, reviewed countless documents, researched legal issues, and conferred with the prosecutors.

To pay their attorneys, the Kaleys took a home equity line of credit on their house and bought a certificate of deposit. In 2007, the grand jury returned indictments, accompanied by asset forfeiture orders restraining the Kaleys’ money. Because they had been indicted, the money was said to be criminally “tainted.” These asset-restraining orders were obtained without the Kaleys’ lawyers present (called an ex parte hearing).

The Kaleys challenged the freezing of their assets, arguing that, under the Due Process Clause of the Fifth Amendment, they were entitled to a pretrial adversarial (not ex parte) hearing where they could contest the charges against them. They argued that their constitutional claim is particularly strong because the seized money was necessary to retain their chosen lawyers.

The lower courts disagreed, however, holding that the only adversarial hearing the Kaleys were entitled to was their trial—the same trial for which where they can’t afford the long-serving counsel of their choice. Now at the Supreme Court, the Kaleys hope to vindicate the right to retain counsel of choice. Indeed, the U.S. Court of Appeals for the Eleventh Circuit is an outlier from the overwhelming majority of federal appellate courts, which use a more demanding test for such claims.

Supporting the Kaleys, Cato has filed a brief arguing that the stringent test developed in a 1976 case called Mathews v. Eldridge should be used to determine the scope of the Kaleys’ hearing. Under Mathews, where the government seeks to restrain contested assets that would otherwise be used to retain counsel of choice, an adversarial hearing is required in which defendants can challenge the indictment used to support forfeiture.

Because the expansion of forfeiture has given rise to well-documented abuses, the risk of error is great and the individual interests at stake are highly compelling. Ex parte hearings are insufficient to reduce the probability of error and the countervailing government interests are insufficient to tip the balance. 

Ultimately, the right to counsel of choice preserves the integrity of the legal process by ensuring that the defendant, not the government, controls whom he trusts with his case.

The Supreme Court will hear Kaley v. United States this fall.

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