Tag: Fifth Amendment

Rent Control Violates Property Rights and Due Process

This blogpost was coauthored by Cato legal associate Trevor Burrus, who also worked on the brief discussed below.

Rent control is literally a textbook example of bad economic policy. Economics textbooks often use it as an example of how price ceilings create shortages, poor quality goods, and under-the-table dealings. A 1992 survey revealed that 93 percent of economists believe that rent control laws reduce both the quality and quantity of housing.

As expected, therefore, New York City’s Rent Stabilization Law—the most (in)famous in the country—has led to precisely these effects: housing is scarce, apartment buildings are dilapidated because owners can’t charge enough to fix them, and housing costs have only increased (in part because costs are transferred to non-rent mechanisms such as “non-refundable deposits”). Yet the RSL persists, benefiting those grandfathered individuals who rent at lower rates but hurting the city as a whole.

Harmon v. Kimmel challenges New York’s law on the grounds that it is an arbitrary and unsupportable regulation amounting to an uncompensated taking that violates the Fifth Amendment.

Jim Harmon’s family owns and lives in a five-story brownstone in the Central Park West Historical District. The Harmons inherited the building—and along with it three rent-controlled tenants. Those tenants have occupied apartments in the building for a combined total of 91 years at a rate 59 percent below market. In their lawsuit, however, the Harmons face many unfriendly precedents that have given states free reign to regulate property, to the point that it is occupied on an essentially permanent basis while surviving Fifth Amendment scrutiny.

One way to challenge some of these laws is to argue they are so arbitrary and poorly justified that they violate the Fourteenth Amendment’s Due Process Clause. Because this is an especially difficult type of challenge to bring, Cato joined the Pacific Legal Foundation and the Small Property Owners of San Francisco Institute on a brief supporting the Harmons’ request that the Supreme Court review lower-court rulings against them. Although the Court has ruled that the Takings Clause does not permit challenges based on claims that the alleged taking fails to “substantially advance legitimate state interests,” the Due Process Clause is an independent textual provision.

We thus clarify the relationship between property rights and due process, arguing that a law which advances no legitimate governmental purpose can be challenged under the Due Process Clause. To hold otherwise would be to deny property owners any meaningful avenue for defending their property from onerous and irrational regulations.

A Property Rights Victory in the Magnolia State

One of the unambiguously good results from last Tuesday’s off-year elections came in Mississippi, the state I called home the year before I moved to D.C.  By the impressive margin of 73% to 27%, voters in the Magnolia State took a stand against judicially sanctioned eminent domain abuse, specifically the government’s taking of private property in the name of so-called “economic development.”  

By passing Measure 31, which prohibits most transfers of condemned land to private parties for 10 years after condemnation, Mississippi joins 44 other states in enacting legislation that strengthens property rights in the wake of the Supreme Court’s horrific ruling in Kelo v. New London.  In Kelo (2005), you’ll recall, the Court held that state and local governments can condemn private property not for some sort of public project like a highway or military base nor because it is a “blight” that creates a health or safety risk, but simply to transfer to another private party who claims to put it to better economic use. 

We at Cato are all in favor of economic development, of course, but not if that development comes via raw government power that treads on constitutionally protected individual rights.  If a developer thinks he can put a given piece of land to a higher-value use, let him buy that property fair and square from the owner rather than effectively forcing a sale at below-market value.

Indeed, Kelo’s holding was flawed precisely because its rationale that transferring ownership of “economically blighted” property would promote economic development is bad economics. If a proposed project were actually a better use of a given property, the developer would be willing to pay a price sufficient to induce the current owners to leave.

Kelo also undermines property security, making owners less willing to invest in their property and use it productively, lest the government swoop in, declare it “blighted,” and sell it to someone else. And securing property rights is not just a good thing economically.  It also helps prevent powerful private interest groups from undercutting the property rights of minorities and other groups who may be vulnerable due to prejudice or political disadvantage.

And the American people agree: Kelo turned out to be a Pyrrhic victory for developers and their public-official cronies, such that most of the country is now better protected against eminent domain abuse than it was before Kelo.  Notably absent from the list of states where property rights are better off, however, is New York (see my comment on a recent instance of eminent domain abuse in the Empire State).

The judiciary’s abdication of its role as a protector of property rights is bad enough, but our elected officials haven’t done much better. Tellingly, the drivers of successful anti-Kelo legislation have tended not to be state legislators (with some exception) but rather citizen-activists.  While special-interest groups, such as big car companies in Mississippi, may pressure legislators to avoid anti-Kelo legislation, even as referenda show that popular opinion is on the side of the property rights activists.

Measure 31 is not perfect, but it is a step in the right direction. The Founders took care to protect private property rights in the Constitution, and it’s heartening to see citizens taking an active role to vindicate those protections even when the Supreme Court abdicates its duty to do so.

For more commentary on the Mississippi vote, see Ilya Somin’s recent op-ed.

Property Rights Are Not Second-Class Rights

When state and local governments violate federal constitutional rights (e.g., First Amendment free speech), they can be sued in federal court — except when that government action violates the Fifth Amendment’s protections for property rights.  Under the Supreme Court’s decision in Williamson County v. Hamilton Bank, individuals and businesses alleging unconstitutional takings by state or local governments are required to exhaust state review procedures — seeking redress from the very officials who harmed them — before turning to federal courts.

This constitutional anomaly is evident in Colony Cove v. City of Carson, where the operators of a rental property in California alleged an unconstitutional taking when the local rent control board refused to approve an increase in rent to allow their business to operate profitably. California law forecloses judicial review of the findings of rent control boards, so municipal governments have an unchecked license to determine whether such businesses may operate: A property owner’s sole recourse is to appeal to the very rent control board who forbade her from charging a profitable rent in the first place.

These “review” procedures, like some others across the nation, are wildly insufficient. Even more significantly, once a takings claim has been fully heard in state proceedings per Williamson County’s command, it is usually barred from federal review based on various prudential doctrines. The result is the indiscriminate exclusion of takings claims from federal courts, a situation that invites opportunist states to usurp private property rights.

Seeking to afford citizens across the nation the opportunity to assert Takings Clause claims in parity with other constitutional rights, Cato joined the New England Legal Foundation, National Federation of Independent Business, Institute for Justice, Goldwater Institute, and Professors James Ely and Richard Epstein in filing an amicus brief supporting the California property owners’ petition for Supreme Court review of the Ninth Circuit’s ruling against them.

We argue that Williamson County should be overruled because it relegates takings claims to second-class status despite the constitutional first principle that uniform protection of individual rights is vital to our system of government. At the very least, the Court should require federal reprieve when state procedures for rectifying a taking are futile — as they were here. Finally, we argue that the Court should correct lower courts’ misinterpretation of Williamson County, which puts property rights jurisprudence at odds with Section 1983 of the Civil Rights Act of 1871 (a statute that gives people access to federal courts when a state denies them their constitutional rights).

The Court will decide whether to review Colony Cove v. City of Carson later this year.  Thanks to legal associate Anna Mackin for her help with the brief, whose counsel of record is Cato adjunct scholar Ilya Somin.

Another Judicial Takings Case Reaches the Supreme Court

For over a century, Montana citizens have used non-navigable streambeds along their properties for various purposes without objection from the state government.  The hydroelectric energy company PPL Montana and thousands of other private parties exercised their rights over these non-navigable stretches that the state never claimed. 

Last year, however, the Montana Supreme Court overturned well-settled state property law by effectively converting the title in hundreds of miles of riverbeds to state ownership. The majority of the court ruled that the entirety of the Missouri, Clark Fork, and Madison rivers were navigable at the time of Montana’s statehood, producing a broad holding that eradicates the right to use rivers and riverbanks that Montanans had enjoyed for over a century.

PPL Montana thus asked the U.S. Supreme Court to review the state court’s decision; Cato filed an amicus brief supporting that request, which the Court granted.  Now that the case is before the Court, Cato has joined the Montana Farm Bureau Federation, American Farm Bureau Federation, and National Federation of Independent Business on a brief supporting the property owners.

We are chiefly concerned with two parts of the Montana Supreme Court’s ruling:  First, the court incorrectly evaluated navigability for the purpose of establishing title – finding the entirety of the rivers at issue navigable (and thus belonging to the state) because portions of them are – contravening the legal standard established by the U.S. Supreme Court in United States v. Utah (which analyzed the riverbeds section-by-section to achieve a “precise” assessment of navigability).  Second, the court effectively transferred a substantial quantity of land from private owners to the state – a judicial taking that violates either the Fifth or Fourteenth Amendments (as the Court described in the recent Stop the Beach Renourishment case, in which Cato also filed a brief).  

In short, the Court should reaffirm the Utah standard for navigability in the context of establishing title and protect private property owners against judicial takings.  By doing so, it would send a strong message to state courts across the nation that judicial usurpations of property rights are just as unconstitutional as those undertaken by other branches of government.

The Court will hear the case of PPL Montana, LLC v. Montana late this year or in early 2012.  Again, you can find Cato’s brief here.

Magna Carta Day

The liberties we Americans enjoy were hard-won over the centuries. Today we mark a major event in that struggle, the day in 1215 when English barons presented King John with a written list of rights they demanded he recognize. Known ultimately as Magna Carta, the Great Charter, it was a compact between the barons and their king, a political effort by subjects to secure their liberty by placing their ruler under the rule of law, thus limiting arbitrary power.

The charter has gone through several iterations, but it drew in part from the common law rights, especially rights of property, that judges in the king’s courts had been finding from reason and custom as they decided controversies the king’s subjects brought before them. What Magna Carta did was bring those same rights against the king. Most important for us today was the promise found in clause 29:

No freeman shall be taken or imprisoned or deprived of his freehold or of his liberties or free customs, or outlawed, or exiled, or in any manner destroyed, nor shall we go upon him, nor shall we send upon him, except by a legal judgment of his peers or by the law of the land.

Note first the broad terms of clause 29: that enabled it to apply not just to the issues at hand but to varied future situations. Second, notice that only “freemen” were protected. The barons came to realize, however, that if their rights were to be maintained against the king, they would need the cooperation of all classes. Thus, the charter came in time to protect “common” liberties.

Each of those issues has informed the American experience. First, Magna Carta itself inspired our Founders to limit power through a written document, our Constitution. Second, clause 29 is captured in the Fifth Amendment, which provides that no person shall be deprived of life, liberty, or property, without due process of law. And third, Magna Carta’s capacity to grow is reflected by the post-Civil War inclusion of the Due Process Clause in the Fourteenth Amendment. That brought the Bill of Rights to bear not only against the federal government, its original limit, but against the states as well. We owe much to this English inheritance.

Cross-posted at the National Constitution Center’s Constitution Daily.

Boxing Gym Scores Knockout Blow for Property Rights

Last month, I wrote about a major eminent domain struggle in National City, California.  City officials had decided to declare almost seven hundred properties blighted even before conducting any sort of blight study, which eventually turned out to be riddled with errors. 

At the center of the fight is a private, nonprofit boxing gym that has helped keep hundreds of at-risk kids in school and off the streets.  The city wanted to bulldoze the center so a wealthy developer can build luxury condos and stores. 

In 2007, the Institute for Justice teamed up with the gym and filed suit to stop the city from taking the property, and here’s video about their legal fight:

Four years later, IJ scored a knockout blow against eminent domain abuse:  Last Thursday, the Superior Court of California struck National City’s entire 692-property eminent domain zone and found that National City lacked a legal basis for its blight declaration.  

This is a major victory for California property owners, and the first case to apply the property reforms that the state enacted to counter the 2005 Kelo decision.  Learn more about the victory here.

I previously wrote about eminent domain shenanigans here and you can read more from Cato on property rights here.

The Takings Clause Has No Expiration Date II

As I wrote last week, a decade ago in Palazzolo v. Rhode Island, the Supreme Court rejected the idea that those who buy property subject to burdensome regulations lose the right the seller otherwise has to challenge those regulations.  The Court ruled that the Takings Clause does not have an “expiration date.”  Sadly, not all government authorities or courts took Palazzolo to heart, and now we have a second such case meriting Cato’s involvement in the span of a week.

In 2000, after the EPA issued a Record of Decision concerning limiting access to a “slough” (a narrow strip of navigable water) on its Superfund National Priorities List, CRV Enterprises began negotiations to buy a parcel of land next to the slough across from a site once occupied by a wood-preserving plant.  CRV hoped to develop that parcel and others it already controlled into a mixed-use development, including a marina, boat slips, restaurants, lodging, storage, sales, and service facilities.  The company eventually bought the land with notice of the EPA’s ROD but the EPA later installed a “sand cap” and “log boom” that obstructed CRV’s access to the slough.

CRV sued the United States in the Court of Federal Claims, which dismissed the case for lack of standing. The Federal Circuit affirmed, finding that CRV’s claim “is barred because [the company] did not own a valid property interest at the time of the alleged regulatory taking.”  The Federal Circuit thus turned two Supreme Court precedents on their head and put that “expiration date” on the Takings Clause.  It did so despite the fact that multiple federal courts have upheld Palazzolo’s rule and that longstanding California common law recognizes that a littoral (next to water) owner’s access to the shore adjacent to his property is a property right.

Cato, joined by Reason Foundation, the Center for Constitutional Jurisprudence, and the National Federation of Independent Business, filed an amicus brief supporting CRV’s request that the Supreme Court review the Federal Circuit’s decision and reaffirm Palazzolo.  We argue the following: (1) when post-enactment purchasers are per se denied standing to challenge regulation, government power expands at the expense of private property rights; (2) a rule under which pre-enactment owners have superior rights to subsequent title-holders threatens to disrupt real estate markets; (3) the Federal Circuit abrogated the rule of Palazzolo; and (4) this case — viewed in the context of other courts’ rulings — indicates the need for the Supreme Court to settle the spreading confusion about Palazzolo.  Otherwise, the existence of a “post-enactment” rule will create a “massive uncompensated taking” from small developers and investors that would preserve and enhance the rights of large corporations.

Palazzolo put to rest “once and for all the notion that title to property is altered when it changes hands.”  The ability of property owners to challenge government interference with their property is essential to a proper understanding of the Fifth Amendment; the Court must reestablish the principle that transfer of title does not diminish property rights.  Significantly, the Federal Circuit isn’t alone in its misapplication of Palazzolo; the Ninth Circuit in Guggenheim v. City of Goleta (in which Cato also filed a brief) recently issued an opinion severely narrowing Palazzolo’s scope and deepening a circuit split.

Thanks to legal associate Nick Mosvick and former legal associate Brandon Simmons (acting as our outside counsel in this case) for their work on this case, CRV Enterprises v. United States.