Tag: takings

The Constitution Protects Even 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 the railroad companies. The Great Railroad Right-of-Way Act of 1875 allowed the government to give railroad companies easements to build tracks — that is, a right to use sections of another’s property without legally owning it. The Brandt family eventually acquired land in Wyoming that came with pre-existing railroad easements.

In 2001, the owner of the easement formally abandoned all claims to it, presumably returning the property to the Brandts. But the government wanted that land. In 2006, it sued for title to the former easement land on the theory that the government retained a residual claim to it after the railroad abandoned it. The Brandts argue that the government has no such right and that taking their land requires 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.

Indeed, two federal courts of appeals, the Seventh and Federal Circuits, have held that the government didn’t retain any residuary rights. In the Brandts’ case, however, the Tenth Circuit held otherwise. This circuit split is untenable. Over 5,000 miles of abandoned track has been taken by the government since the Trails Act, and about 10,000 property owners are currently fighting in federal courts to hold onto their property.

Of course, given the possible benefits of not having to pay compensation to landowners, the government has responded to these claims by being aggressively litigious, reaching into its endless war-chest of taxpayer-provided resources to challenge the landowners on every tiny point. As the Federal Circuit said, the government’s behavior is “puzzling” in that it is “foregoing the opportunity to minimize the waste both of its own and plaintiffs’ litigation resources, not to mention that of scarce judicial resources,” but also by advancing arguments “so thin as to border on the frivolous.”

Using Eminent Domain to Personally Benefit the Mayor Is Unconstitutional

One of the biggest dangers of not providing adequate constitutional protections for private property is that public officials can misuse their power to take property for private gains. Government actors, after all, have an incentive to act in a way that maximizes political gains and minimizes costs, so without adequate protection from the courts, they can be expected to use eminent to take private property for political (or even personal) benefit.

In 2005, in the now infamous case of Kelo v. City of New London, the Supreme Court unfortunately eroded the protections of the “public use” portion of the Fifth Amendment’s Takings Clause — “nor shall private property be taken for public use without just compensation” — by ruling that the potential for increased tax revenue from a large corporation can count as a “public use.” Suzette Kelo’s house was thus taken and given to Pfizer (which ended up not doing anything with the land).

It’s hard to imagine that government abuse of the Takings Clause could get any worse than that, but one such unfortunate case has arisen in Guam — which, as a U.S. territory, is covered by the Constitution. Artemio Ilagan owns and operates an apartment building in Agana, Guam. His neighbors, Engracia and Felix Ungacta, own an adjoining, residential lot that once lacked access to a road. Unfortunately for Mr. Ilagan, Mr. Ungacta was also the mayor of Agana when the city took a parking lot from Mr. Ilagan and gave it to Mayor Ungacta.

When challenged, the city claimed that the taking was done in accordance with a post-World War II “economic development” plan — the “Agana Plan” — that was enacted to reconfigure irregular lot lines in Agana. At the time of the taking (1981), the Agana Plan had not been used for seven years and, during the years it was used, was never used to take any lots. Moreover, the Plan has not been used in the 30 years since the taking of Mr. Ilagan’s lot.

The Guam trial court held the taking unconstitutional, but Guam’s Supreme Court reversed the holding by purportedly applying Kelo’s standard of judicial deference. Mr. Ilagan is now petitioning the U.S. Supreme Court to review his case, asking the Court whether it wants to allow other courts to use Kelo to cross the final bridge in eviscerating the Takings Clause — the blatantly pretextual taking of private property to give it to a public official.

Cato has joined the National Federation of Independent Business, 10 other organizations, and a group of constitutional and property law professors, on an amicus brief arguing that the Court should take the case in order to clarify, if not overrule, the broad language of Kelo. Kelo itself says that the government may not “take property under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit.”

In Kelo, taking the property as part of an “economic development plan” was held to constitute a public purpose. Here, however, the “economic development plan,” was clearly a pretext to take property to benefit a known private party who just “happened” to also be the mayor. We point out that, despite the Court’s distaste with “pretextual takings” articulated in Kelo, courts across the country are split over what a pretextual taking is. Some courts have even ruled out the possibility of their existence. Yet, from the misuse of “blight” condemnations—a designation often used to tear down old neighborhoods for the purposes of gentrification—to situations like Mr. Ilagan’s, pretextual takings occur far too often.

The egregious case of Ilagan v. Ungacta is a perfect vehicle for the Court to clarify the concept of a pretextual taking and to bring some semblance of coherence back to a vital constitutional provision. More on our brief from Ilya Somin at the Volokh Conspiracy.

Net Neutrality Violates the First and Fifth Amendments

This blogpost was co-authored by legal associate Matt Gilliam.

In December 2010, the FCC adopted Preserving the Open Internet, a “network neutrality” order regulating broadband internet access service. Issued under authority (ostensibly) derived from 24 disparate provisions of federal communications law, Preserving the Open Internet is predicated on three basic rules: transparency, no blocking, and no discrimination.

Broadly speaking, “transparency” requires broadband providers to “disclose network management practices, performance characteristics, and terms and conditions of services.” The “no blocking” rule forbids fixed broadband providers from “blocking lawful content, applications, services, and non-harmful devices.” Meanwhile, mobile broadband providers are restricted from blocking “lawful websites” and certain applications. The “No Discrimination” rule prohibits broadband providers from unreasonable discrimination in transmitting lawful network traffic.

The promulgation of the FCC’s network neutrality order will have serious consequences for the constitutional rights of broadband providers. One such provider, Verizon, now seeks to challenge the FCC order in the U.S. Court of Appeals for the D.C. Circuit. This week, Cato joined TechFreedom, the Competitive Enterprise Institute, and the Free State Foundation, on a brief urging the court to uphold Verizon’s First and Fifth Amendment rights.

We first argue that the FCC order violates broadband providers’ First Amendment rights by compelling speech, forcing them to transmit messages from content providers that they might not wish to convey, preventing them from transmitting messages they want to convey, prohibiting them from exercising editorial discretion, and generally restricting the mode and content of their communications. Because the order singles out certain speakers, it demands “strict scrutiny,” which it cannot survive because it neither serves a compelling governmental interest nor is narrowly tailored. We next argue that the FCC order violates broadband providers’ Fifth Amendment rights by subjecting them to physical and regulatory takings. The FCC order enacts a physical taking by granting the content providers an unrestricted right to occupy property while slicing through the bundle of property rights broadband providers enjoy as network owners. The order essentially gives the content providers unlimited use of the network owners’ physical property without any compensation, forbidding the rightful owners from exercising their right to control the use of their property and exclude others.

Furthermore, in forcing network owners to give network space to content providers, the regulation shifts costs to consumers, discouraging them from using broadband service and thus diminishing the network’s economic value. The FCC order also constitutes a regulatory taking because it prevents broadband providers from attaining their networks’ full economic value and subverts network owners’ reasonable investment-backed expectations. Finally, we argue that the FCC’s assertion of authority to regulate the Internet is a dangerous aggrandizement of agency power. In sum, while seeking to benefit content providers, the FCC has promulgated a regulation that violates the First and Fifth Amendment rights of broadband providers.

The case of Verizon v. FCC will be argued at the D.C. Circuit later this summer.

Can the Government Destroy Propety Values ‘Temporarily’ Without Compensation?

This blogpost was co-authored by Trevor Burrus.

A seemingly complicated legal case that has caught Cato’s attention, CCA Associates v. United States, boils down to a simple constitutional question: If the government reneges on a contract and forces a property owner to rent apartments at below-market rates for longer than originally agreed, does it constitute a taking under the Fifth Amendment (which would require the government to pay just compensation)?

In 1961, Congress amended the National Housing Act to create incentives for private builders to supply housing to low- and moderate-income families. Builders were given below-market mortgages backed by the federal government and, in return, the owners agreed to certain restrictions from the Department of Housing and Urban Development, the most relevant being limitations on raising rent. Owners were also given the right to pre-pay the 40-year mortgage after 20 years, however, freeing them at that time from their rent-control obligations.

In 1990, as one 20-year period came to a close, Congress took away the owners’ right to pre-pay their mortgages. In 1996, however, Congress returned the property owners’ right to pre-pay. Therefore, between 1991 (when the original 20-year period would have lapsed) and 1996, the property owners were forced to rent at below-market rates.

CCA Associates is one of many similarly situated property owners who are suing the federal government for its clear act of duplicity. CCA Associates’ case, among many others, has been bouncing back and forth between the Court of Federal Claims and the Federal Circuit for many years.

One of the key questions is how to determine the degree to which the government’s actions economically affected CCA Associates’ property. One view is that there was substantial economic impact during the five-year period between when Congress eliminated and then restored the pre-pay right – CCA Associates lost approximately 81% of the property’s possible value during those five years. Another view looks at the impact during the five-year period as fraction of the entire life of the property, not just the diminished value during the five-year period. Under this calculation, CCA Associates only lost 18% of the total value of the property.

The Federal Circuit adopted the latter formula and held that 18% is not a substantial enough economic impact to constitute a Fifth Amendment taking. Cato has joined the National Federation of Independent Business, the Center for Constitutional Jurisprudence, and Professor Steven Eagle of George Mason University Law School on an amicus brief urging the Supreme Court to take CCA Associates’ case.

We argue that adopting the Federal Circuit’s answer to the so-called “denominator question” – that is, whether the denominator in the “economic impact” fraction should be the entire life of the property or the shorter (here five-year) period during which the government temporarily took the owners’ right to rent at the market price – could preclude all possible claims that the government committed a “temporary taking.” By choosing a big-enough denominator, courts can always characterize an economic impact as being below the constitutional threshold.

We also argue that, in applying the Supreme Court’s factors in the famous 1978 Penn Central case (which set up the analytical framework for regulatory takings), the Federal Circuit incorrectly treated the factors as a magic formula and ignored other relevant factors. Finally, we point out how courts are obviously confused about the proper standards to apply in these cases, thus creating a perfect time for the Supreme Court’s guidance.

The Court will decide this fall whether to hear CCA Associates v. United States.

The Government Must Compensate for Property Damage Even If Its Taking Was Only ‘Temporary’

Cato today filed an amicus brief supporting a request that the Supreme Court review Arkansas Game & Fish Commission v. United States.  Here’s the case:

The Arkansas Game & Fish Commission owns and operates 23,000 acres of land as a wildlife refuge and recreational preserve; the preserve’s trees are essential to its use for these purposes. Clearwater Dam, a federal flood control project, lies 115 miles upstream. Water is released from the dam in quantities governed by a pre-approved “management plan” that considers agricultural, recreational, and other effects downstream. 

Between 1993 and 2000, the government released more water than authorized under the plan. AGFC repeatedly objected that these excessive releases flooded the preserve during its growing season, which significantly damaged and eventually decimated tree populations. In 2001, the government acknowledged the havoc its flooding had wreaked on AGFC’s land and ceased plan deviations. By then, however, the preserve and its trees were severely damaged, so AGFC sued the government, claiming damages under the Fifth Amendment’s Takings Clause.

The district court awarded $5.8 million in lost timber and reforestation costs based on the substantiality of the government’s flooding and the foreseeability of the damage it caused. The Federal Circuit reversed that decision, holding that the flooding of private land can never be a taking unless that flooding is permanent. It further held that, in determining whether the government’s intrusion on AGFC’s land was permanent or temporary, courts must focus on the character of the policy behind the intrusion rather the effects of the intrusion itself. A taking cannot have occurred here because each deviation from the plan constituted a “temporary” policy, the court concluded, so AGFC had no constitutional remedy.

AGFC is asking the Supreme Court to review its case; the Court itself has recognized that something less than a permanent invasion of land can constitute a compensable taking. Cato joined the Pacific Legal Foundation on a brief urging the Court to hear the case and uphold the Fifth Amendment rights of property owners whose land is destroyed by the federal government. Our brief highlights the conflict between the Federal Circuit’s decision and both Supreme Court and lower court precedent. First, an invasion of land by flooding is no different from an invasion of land by any other means. Second, the government’s self-professed “intent” that a possible taking be “temporary” should have no bearing on whether a Fifth Amendment remedy exists when that taking has, in fact, occurred. Instead, the relevant inquiry should be whether the government caused permanent damage and, if so, how much.

The Federal Circuit’s new rule — that, so long as it might be “temporary,” no government flooding can be remedied under the Fifth Amendment — runs afoul of the letter and spirit of a constitutional provision meant to compensate property owners for government intrusions on their land. We urge the Court to grant AGFC’s petition and maintain constitutional protections for private property.

The Supreme Court will decide in the new year whether to take the case, and would hear argument in the fall if it does.

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.