Archive | Property Rights

My JOTWELL Post on Will Baude’s “Rethinking the Federal Eminent Domain Power”

In my capacity as one of the editors for the constitutional law section of JOTWELL (a sited devoted to reviewing important new legal scholarship), I review an important new constitutional law article every summer. I usually try to pick articles that are 1) within one of my fields of expertise (primarily federalism and property rights), 2) make a major contribution, and 3) are written by younger scholars who are not yet among the most famous people in their field, and therefore exposure at JOTWELL could help get their work the attention it deserves. This year, I chose co-blogger’s Will Baude’s excellent recent work, “Rethinking the Federal Eminent Domain Power.” I should note that I picked the article and wrote the review long before I knew that Will was going to become one of my Volokh Conspiracy co-bloggers (new VC bloggers are chosen by senior Conspirator Eugene Volokh, and he doesn’t always inform me of his decisions ahead of time).

Here is an excerpt from my review:

One of the most widely accepted truisms of American constitutional law is that the federal government has the power to condemn property through eminent domain. In modern times, even scholars and jurists who generally take a narrow view of federal power—myself included, until I read this pathbreaking article—did not question this idea. Yet, as William Baude shows, the conventional wisdom at the time of the Founding, and for many decades thereafter, was exactly the opposite: the federal government did not have the authority to condemn property within the territory of state governments. It could only do so in the District of Columbia and the federal territories. Baude’s research has important implications for the constitutional law of both federalism and takings….

I have a few reservations about Baude’s excellent analysis. Most important is


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The Passing of Ronald Coase

As co-blogger Jonathan Adler notes, Nobel Prize-winning economist and legendary law and economics scholar Ronald Coase passed away today at the age of 102. Coase was the author of such foundational articles as “The Problem of Social Cost,” and “The Nature of the Firm.” His contributions to scholarship are so massive that it is hard to overstate their impact. Many of his most important articles are collected in this book.

One of my personal favorite Coase articles is “The Lighthouse in Economics,” where Coase shows that private entrepreneurs successfully established and operated an enterprise that most economists believed was the classic example of a public good that could only be provided by government. This doesn’t prove that the private sector can provide all public goods (nor did Coase claim that it can); but it does show that we should be more careful than we usually are in asserting that a given good can only be provided by the state just because it is public in nature. Before Coase, most scholars and public policy experts had simply assumed that the private sector was incapable of providing lighthouses without much investigation of the issue.

In this January post, I discussed Coase’s final book, written when he was over 100 years old. Would that we could all be so remarkably productive for so long.

My condolences to Coase’s family and colleagues. He will be greatly missed. […]

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Sacramento and Washington, DC Threaten to Use Eminent Domain to Take Property to Build Sports Stadiums

Nick Sibilla of the Institute for Justice describes Sacramento and Washington, DC’s ill-advised plans to use the threat of eminent domain to acquire property to build sports stadiums on:

In less than a week, two capital cities are preparing to use eminent domain to build professional sports stadiums. Talk about foul play.

The Sacramento city council voted 7-2 on August 13 to help the Sacramento Kings negotiate with the owner of a Macy’s. As the Sacramento Bee points out, “The city’s involvement in the talks carries with it a key negotiating tool: the threat of seizing control of the property through eminent domain.” That Macy’s Men Store is the last property the Kings have yet to acquire for the arena and may be condemned if negotiations fail. But just because they’re called the Kings doesn’t mean they should have the right to seize peasants people’s land.

Construction hasn’t even begun and the Kings are already corporate welfare queens: the city council has voted to provide the arena $258 million in public funding. Unfortunately, sports subsidies are increasingly common.

Over in Washington, D.C., officials are prepared to authorize eminent domain to build a new stadium for the DC United, the worst team in Major League Soccer. This 20,000 seat stadium is expected to cost $300 million, with half of that coming out of the taxpayers’ pockets. Yet the team sold for $50 million in 2012. In other words, the United will be getting a brand new stadium that’s worth six times as much as the team itself. [links in original post omitted].

Government subsidies for sports stadiums are almost always net losers for the communities that enact them. Using eminent domain to take the property just compounds the losses endured by taxpayers with additional harm inflicted on property owners, many […]

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My USA Today Column on the City of Richmond’s Plan to Condemn Mortgages

The USA Today website just published my column criticizing the Richmond, CA’s plan to condemn mortgages:

The City of Richmond, California is threatening to use eminent domain to condemn over 600 mortgages on homes that are now worth less than the outstanding debt on the mortgages themselves. The city plans to write down the value of the mortgages and transfer most of the value to the current owners of the homes.That’s a move that could have nationwide implications for homeowners and those who aspire to join them if the idea spreads….

Various banks and investors have filed lawsuits arguing that the Richmond policy is unconstitutional. Some of their arguments have merit… Advocates claim that the program will actually pay for itself. But the idea that the city will be able to strip distressed mortgages from one set of owners and sell new smaller mortgages to investors at a profit is speculative at best. If the rosy scenario doesn’t materialize, taxpayers will be left holding the bag; future home buyers will suffer even if it does….

[T]he Richmond takings probably won’t be invalidated because they transfer property to private interests, even though the Constitution only allows takings that are for a “public use.” But Richmond’s plan has another constitutional defect: undercompensation. The Fifth Amendment requires the government to pay “just compensation” when it condemns property, which the Supreme Court has long interpreted as “fair market value.”

The City is offering to pay lenders 80% of the home’s currently assessed value, irrespective of the amount of money still owed on the mortgage, which is often far more than that. For example, if a home is currently worth $200,000 on the open market, and is mortgaged for a total of $400,000, the city would pay lenders $160,000. Even if the owner defaults, the


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Will the City of Richmond’s Plan to Condemn Mortgages Really Cost Taxpayers Nothing?

In an earlier post, I noted that one of the problems with the California City of Richmond’s plan to use eminent domain to condemn mortgages is that taxpayers will have to pay for it. However, some defenders of the plan – such as Mortgage Resolution Partners – the “community advisory” firm that has been hired to organize the plan for the city – claim that “no taxpayer funds will be used in connection with the [p]rogram.”

This claim is hard to credit, given that any time the government condemns property, it must pay fair market value compensation. Therefore, the city of Richmond will have to spend public funds to condemn the mortgages, at least initially. MRP’s position seems to be based on the idea that, after writing down the condemned mortgages, the City will transfer them to investors who put up money to buy the now-reduced loan, thereby offsetting the public funds spent on the taking. As the New York Times explains, the city could take a $400,000 mortgage on a home now valued at $200,000, condemn it while paying only $160,000 in compensation, and then restructure it into a new $190,000 loan that could be sold to private investors. Advocates assume that the city, MRP itself (which is to be paid $4500 per mortgage), and the investors could actually profit from the $30,000 difference.

Unfortunately, there are two serious flaws in this reasoning. First, it assumes that investors really will be eager to purchase the new mortgages at a price that will offset the city’s costs. This is far from certain. The very fact that the city has condemned these mortgages in the first place is likely to lead future investors to be wary of mortgages in this area. After all, the city could resort to eminent […]

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Lawsuit Challenges Richmond, CA’s Plan to Use Eminent Domain to Condemn Mortgages

A group of bond investors has filed a lawsuit challenging the California City of Richmond’s plan to use eminent domain to condemn mortgages:

Bond investors including Pacific Investment Management Co. and BlackRock Inc. (BLK) are seeking a court order blocking Richmond, California, and Mortgage Resolution Partners LLC from seizing mortgages through eminent domain, saying the initiative would hurt savers and retirees.

The city’s plan is unconstitutional, according to a complaint filed today by mortgage-bond trustees in federal court in San Francisco. The trustees, Wells Fargo & Co. (WFC) and Deutsche Bank AG, were directed to take the action by investors in the debt that also include Jeffrey Gundlach’s DoubleLine Capital LP, said John Ertman, a partner at Ropes & Gray LLP….

The plan advanced last month with Richmond backing offers to buy 624 loans, making it the first city to push the idea so far forward. Those offers would need to be refused before the city could follow through with its mayor’s vow to invoke its potential powers to force sales of the mostly non-delinquent loans, so that homeowners could get their debt balances cut to less than the current values of their properties…

The plan is also discriminatory because it targets only certain loans, the trustees alleged. It violates California and U.S. constitutional protections against impairing private contracts and the taking of private property for public use without just compensation, according to the complaint.

I criticized the Richmond plan on policy grounds here. In a later post, I explained why the plan is likely unconstitutional because the compensation the city proposes to pay falls below the “fair market value” standard required by the Fifth Amendment’s Just Compensation Clause. The news report quoted above seems to say that this is one of the causes of action advanced […]

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New Yorker Article on Asset Forfeiture Abuse

The New Yorker has an interesting article on asset forfeiture abuse, describing how law enforcement authorities routinely use it to seize property from people who have never been convicted of any crime, and often have not even been charged:

On a bright Thursday afternoon in 2007, Jennifer Boatright, a waitress at a Houston bar-and-grill, drove with her two young sons and her boyfriend, Ron Henderson, on U.S. 59 toward Linden, Henderson’s home town, near the Texas-Louisiana border….

Near the city limits, a tall, bull-shouldered officer named Barry Washington pulled them over….

The officers found the couple’s cash and a marbled-glass pipe that Boatright said was a gift for her sister-in-law, and escorted them across town to the police station. In a corner there, two tables were heaped with jewelry, DVD players, cell phones, and the like. According to the police report, Boatright and Henderson fit the profile of drug couriers: they were driving from Houston, “a known point for distribution of illegal narcotics,” to Linden, “a known place to receive illegal narcotics.” The report describes their children as possible decoys, meant to distract police as the couple breezed down the road, smoking marijuana. (None was found in the car, although Washington claimed to have smelled it.)

The county’s district attorney, a fifty-seven-year-old woman with feathered Charlie’s Angels hair named Lynda K. Russell… told Henderson and Boatright that they had two options. They could face felony charges for “money laundering” and “child endangerment,” in which case they would go to jail and their children would be handed over to foster care. Or they could sign over their cash to the city of Tenaha, and get back on the road. “No criminal charges shall be filed,” a waiver she drafted read, “and our children shall not be turned over to CPS,” or


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Just Compensation Problems with the City of Richmond’s Plan to Use Eminent Domain to Condemn Mortgages

In my previous post on the the California city of of Richmond’s plan to use eminent domain to condemn underwater mortgages, I noted that the plan is likely to be permissible under the Supreme Court’s decision in Kelo v. City of New London, which says that a taking is for a constitutional “public use,” so long as it might advance some “public purpose” that isn’t “pretextual.” It may well also be permissible under California courts’ lax interpretation of of public use under their state constitution. But I didn’t consider another possible constitutional problem with the Richmond plan: undercompensation [HT: multiple VC readers who have directed my attention to this problem]. When the government condemns private property, the Fifth Amendment requires it to pay “just compensation,” which the Supreme Court has long interpreted as “fair market value.” As Matthew Yglesias sugggests, in many cases the formula used by Richmond would result in compensation below FMV (which is usually defined, roughly, as what the value of the asset in question would be if offered up for sale on the open market).

Here’s the compensation Richmond is offering, as described by the New York Times:

The city is offering to buy the loans at what it considers the fair market value. In a hypothetical example, a home mortgaged for $400,000 is now worth $200,000. The city plans to buy the loan for $160,000, or about 80 percent of the value of the home, a discount that factors in the risk of default.

If the home is worth $200,000 on the open market, as in the hypothetical example above, it is likely that the fair market value of the $400,000 mortgage should be at least that much, or close to it. Even if the owner defaults, the lender can recover that […]

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Using Eminent Domain to Condemn Mortgages

The New York Times has an interesting article describing one California city’s plan to use eminent domain to condemn and restructure mortgages [HT: numerous readers who have written me requesting that I do a post about this issue]:

The power of eminent domain has traditionally worked against homeowners, who can be forced to sell their property to make way for a new highway or shopping mall. But now the working-class city of Richmond, Calif., hopes to use the same legal tool to help people stay right where they are.

Scarcely touched by the nation’s housing recovery and tired of waiting for federal help, Richmond is about to become the first city in the nation to try eminent domain as a way to stop foreclosures…

Richmond is offering to buy both current and delinquent loans. To defend against the charge that irresponsible homeowners who used their homes as A.T.M.’s are being helped at the expense of investors, the first pool of 626 loans does not include any homes with large second mortgages, said Steven M. Gluckstern, the chairman of Mortgage Resolution Partners.

The city is offering to buy the loans at what it considers the fair market value. In a hypothetical example, a home mortgaged for $400,000 is now worth $200,000. The city plans to buy the loan for $160,000, or about 80 percent of the value of the home, a discount that factors in the risk of default.

Then, the city would write down the debt to $190,000 and allow the homeowner to refinance at the new amount, probably through a government program. The $30,000 difference goes to the city, the investors who put up the money to buy the loan, closing costs and M.R.P. The homeowner would go from owing twice what the home is worth to having $10,000


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Libertarianism and the Supreme Court

Simon Lazarus of the liberal Constitutional Accountability Center is correct to point out that the Supreme Court’s decisions have trended in a somewhat libertarian direction over the last year. I also agree with many of co-blogger Randy Barnett’s explanations for why this has happened. In addition to the cases cited by Lazarus, it’s also worth noting that the recently concluded Supreme Court term saw important victories for property rights in the Koontz and Horne cases.

At the same time, however, Randy is correct to point out that Lazarus’ case is overstated. For example, Lazarus exaggerates when he writes that last year’s Obamacare decision “came close” to “accept[ing] libertarian conservatives’ invitation to junk the ‘New Deal settlement’ that bars constitutional interference with regulatory and safety net legislation.” Even if the challengers had prevailed on every point at issue in that case, Congress would still have sweeping authority to regulate virtually any “economic activity,” and state governments would have even greater regulatory authority than that. Similarly, Lazarus exaggerates when he contends that cases like the DC Circuit decision restricting the presidents’ power to make “recess” appointments are part of an agenda of “doctrinal resets aimed at crippling federal regulatory power.” Even if conservatives and libertarians prevail in every single one of the cases he mentions, the federal government would still retain massive regulatory authority over almost every aspect of the economy and society. Obviously, it’s possible to characterize any decision to strike down or limit “regulatory legislation” on structural grounds as “junking the New Deal settlement.” But that’s like saying that any decision enforcing even modest constitutional limits on law enforcement amounts to junking the criminal justice system.

It’s also worth noting that many of the Court’s recent “libertarian” decisions rely on swing votes cast by Justice Anthony Kennedy. He does […]

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Court Ruling Forces Nebraska Police to Return $1 Million Seized from a Former Exotic Dancer by Asset Forfeiture

A federal judge recently ordered the return of $1 million seized from a former exotic dancer by asset forfeiture [HT: VC reader Tom Kamenick]:

A federal judge has ruled that Nebraska cops must return over $1 million confiscated at a traffic stop from a woman who saved the money $1 at a time during her 15 year career as an exotic dancer.

The money belongs to Tara Mishra, 33, of Rancho Cucamonga, Calif., who began putting aside her earnings when she started dancing at age 18, according to an opinion U.S. District Judge Joseph Bataillon wrote last week. The money was meant to start her business and get out of the stripping business, the judge wrote.

State troopers confiscated the money in March 2012 when they pulled over Rajesh and Marina Dheri, of Montville, N.J., for speeding in Nebraska, according to court documents. The Dheris are friends of Mishra and had been given the cash so they could buy a nightclub in New Jersey. Mishra would own half of the business and the Dheris would own the other half.

Mishra had packaged the money in $10,000 bundles tied with hair bands and placed in plastic bags, and it was stashed in the trunk of the Dheri’s rented car, which the Dheris were driving to Chicago. When they were pulled over for speeding, a state trooper asked the Dheris if he could search their vehicle, which they allowed, Bataillon explained.

The state trooper found the money and after suspecting it was drug money took the Dheris into custody, according to the judge’s opinion. But police did not find any evidence of drug activity in the car and a K-9 analysis found only trace elements of illegal drugs on the cash, according to Bataillon….

“The government failed to show a substantial connection


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More on Eminent Domain, Crony Capitalism, and the Decline of Detroit

Building on my post discussing the role of eminent domain abuse and the destruction of property rights in helping to cause the decline of Detroit, economist David Henderson has an interesting discussion of how “urban renewal” condemnations in the 1960s helped cause the massive 1967 race riot that most believe was a major milestone in the city’s deterioration. The use of eminent domain to forcibly uproot poor African-Americans had destroyed previously cohesive communities where social ties could forestall civil disorder or at least limit its scale. Henderson notes that one of the few poor black neighborhoods in Detroit to avoid large-scale rioting was also one that had managed to avoid urban renewal takings in earlier years. Residents of that area had previously banded together to form a a neighborhood block club, which in 1967 played a key role in preventing violence from spreading to the area. Urban renewal takings had undermined such civic society organizations in other parts of Detroit’s inner city.

Meanwhile, Shikha Dalmia discusses the role of Detroit’s deleterious policy of favoring big business interests, while at the same time harrassing and driving away smaller businesses with burdensome regulations:

Every mayor for the last two decades has tried to jump-start Detroit by reviving its crumbling downtown. In the 1990s, Dennis Archer erected stadiums and casinos. His successor, Kwame Kilpatrick (who was convicted on federal extortion and racketeering charges) hosted mega events.

The current mayor, Dave Bing, has been too bogged down in Detroit’s fiscal quagmire to propose anything grand. But a group of rich investors led by Dan Gilbert, owner of Quicken Loans, is spearheading a massive effort to bring businesses, hotels and residents into the city.

Gilbert has pumped close to $1 billion to relocate his headquarters in Detroit and scoop up real estate for stores, hotels


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Eminent Domain and the Decline of Detroit

Detroit’s sixty year decline, culminating in its recent bankruptcy, has many causes. But one that should not be ignored is the city’s extensive use of eminent domain to transfer property to politically influential private interests. For many years, Detroit aggressively used eminent domain to promote “economic development” and “urban renewal.” The most notorious example was the 1981 Poletown case, in which some 4000 people lost their homes, and numerous businesses were forced to move in order to make way for a General Motors factory. As I explained in this article, the Poletown takings – like many other similar condemnations – ended up destroying far more development than they ever created. In his prescient dissent in Poletown, Michigan Supreme Court Justice James Ryan warned that there was no real reason to expect that the project would produce the growth promised by GM and noted that Detroit and the court had “subordinated a constitutional right to private corporate interests.”

Eminent domain abuse certainly wasn’t the only cause of Detroit’s troubles. But the city’s record is a strong argument against oft-heard claims that the use of eminent domain to transfer property to private economic interests is the key to revitalizing economically troubled cities. In addition to the immediate destruction and dislocation caused by such takings, they also tend to deter investment by undermining confidence in the security of property rights. One of the main findings of recent scholarship in development economics is that secure property rights are an important factor in promoting long-term economic growth. As economists Daron Acemoglu and James Robinson put it in their much-praised recent book Why Nations Fail, “secure private property rights are central [to development], since only those with such rights will be willing to invest and increase productivity” (pg. 75). Detroit is […]

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Our Amicus Brief on the Property Rights of Private Planned Communities

The Cato Institute recently filed an amicus brief urging the Supreme Court to hear Mariner’s Cove Townhomes Association v. United States , a case addressing an important issue involving the property rights of private planned communities. The brief was filed on behalf of Cato and several property scholars, including Richard Epstein (Chicago and NYU), James W. Ely (Vanderbilt), Donald Kochan (Chapman), my George Mason colleagues Adam Mossoff, and Alex Tabarrok, and myself. Here is the petition for certiorari written by University of Virginia law professor Daniel Ortiz and the UVA Supreme Court Lititgation Clinic.

Ilya Shapiro of Cato summarizes the important issue at stake in the case:

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….

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… homes, 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


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The Case for Federal Eminent Domain Reform

Nick Sibilla of the Institute for Justice, the libertarian public interest firm that litigated Kelo v. City of New London and many other property rights cases, has a good op ed in Forbes on the need for reform measures to curb federal funding of abusive condemnations by state and local governments:

Eight years ago, the U.S. Supreme Court ruled the city of New London, Conn., could use the power of eminent domain to seize an entire neighborhood…. The city justified this as a “public use” by claiming the development might increase tax revenue and jobs.

Americans were—and still are—outraged by this decision. Since Kelo v. New London, 44 states have passed some type of eminent domain reform…..

Despite this well-deserved backlash to the Supreme Court, eminent domain abuse still festers. Six states have failed to pass any type of reform….

Meanwhile, in states that have reformed eminent domain laws, municipal governments and developers have exploited loopholes. For example, some of these reforms still allow seizing property that has been declared “blighted.” Unsurprisingly, blight can be very broadly defined….

While many redevelopment projects are funded through state and local measures, federal grants are still being used to fund eminent domain abuse. Cedar Rapids, Iowa, received a $35 million grant from the Department of Commerce’s Economic Development Administration (EDA) to seize a hotel for a new convention center. At the time, it was the “largest discretionary grant” ever doled out by the EDA. In fact, that same bureaucracy was also responsible for granting $2 million to the redevelopment project that threatened Susette Kelo’s little pink house….

To that end, Congressman Jim Sensenbrenner (R-WI) has reintroduced the Private Property Rights Protection Act, which was recently passed by the House Judiciary Committee. If the act passes, a state or political subdivision that exercises


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