An Unpersuasive Defense of Judge Sotomayor's Ruling in the Didden Case:

Daniel Hemel has published in Forbes what I think is an unpersuasive defense of Judge Sonia Sotomayor's ruling in the Didden case, which I criticized here. In that case, a the Village of Port Chester condemned a property when the owners refused to pay $800,000 to the city's designated developer for the area. For reasons I explained in the earlier post, this case goes beyond even Kelo v. City of New London in licensing the condemnation of private property for the benefit of other private interests.

Hemel, however, has a different take on the facts that he claims justifies the decision:

According to Didden [one of the owners of the condemned property], G&S chief Gregg Wasser demanded an $800,000 payment or else he would have the village condemn the land and hand it to G&S. The village did indeed condemn the property the next day, although it paid Didden $975,000 in compensation. Didden sued the village in U.S. District Court, lost and appealed the case....

Wasser's $800,000 offer came at a November 2003 meeting with Didden and his business partner Domenick Bologna. The attendees do not agree on what happened at that session, but Wasser's account appears to be--at the very least--a plausible one. Wasser says he told Didden and Bologna that "it would be a waste of time for the lawyers to argue over who had 'better' rights to proceed with their project" and that the parties should settle the matter themselves.

According to court documents, Wasser estimated that the winner of the dispute would make a $2 million profit but that "whoever would be responsible for completing the project should be given some credit and was entitled to more than a 50-50 split." He said that whichever party proceeded with its drug store plans should pay the other $800,000, and he added that he was willing to take either end of the deal.

In retrospect, Wasser's offer appears to have been quite generous because he had strong reason to believe that he would win in court (as he ultimately did).

While Didden's backers say that Wasser's offer was extortion, it looks like it might have been an innocuous settlement proposal--standard fare for legal disputes. Unless Didden and Bologna could prove their side of this "he said, he said" spat (and they could not), Judge Sotomayor was correct to conclude that Wasser's "voluntary" attempt to settle the dispute "was neither an unconstitutional exaction in the form of extortion nor an equal protection violation."

There are two major problems with Hamel's defense of Sotomayor's ruling. First, the case was at the stage where the court was considering the Village's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for "failure to state a claim for which relief can be granted," which means that the Village was moving to dismiss the case without sending it to a jury because the owners didn't have a case even if their version of the facts was correct. When considering a 12(b)(6) motion, federal courts are required to assume that the plaintiffs' version of the facts is correct unless it can be "proven beyond doubt" that it isn't. If the suit really did hinge on a "he said, he said" dispute as Hemel suggests, the panel should have sent the disputed factual issue to the jury for adjudication. One of the most troubling aspects of the appellate panel's ruling is that they apparently concluded that Didden and Bologna had no case even under the assumption that they were telling the truth.

Second, Wasser's proposal was extortionate even if he was telling the truth. If Wasser's version of events is correct, he in effect gave Didden and Bologna two options: pay him $800,000 or 50% of the proceeds of their project for the right to proceed with the construction of a CVS on their land or transfer the land to him in exchange for an $800,000 payment from Wasser. Hamel claims that the inclusion of this second option makes the offer nonextortionate and even "generous." It was no such thing. As Hamel himself notes, the land was worth at least $975,000 (the amount the city paid Didden and Bologna as compensation for the taking). Thus, Hamel's alternative offer was an offer to pay the owners $175,000 less than they could get even in an eminent domain proceeding (which often end up undercompensating owners).

If Wasser's account is correct, he simply made two different extortionate offers, using the threat of eminent domain as leverage; his "generosity" consisted of letting the victims choose between the two unsavory options. One can characterize this is as a "settlement proposal" which is "standard fare for legal disputes." But there would have been no "legal dispute" in the first place if not for Wasser's threat to have the property condemned unless his demands were met.

If a Mafia don comes to you and says that he will break your legs unless you either 1) pay him $800,000, or 2) sell him your land at a price well below market value, that would surely be extortion. Wasser's "generous" offer was exactly the same, except that his leverage was based on the threat of condemnation rather than breaking the owner's legs. If this is not extortion using the threat of eminent domain as leverage, it's hard to see what would be.

In sum, Hamels' analysis fails to justify Judge Sotomayor's extremely dubious decision in Didden. If anything, it highlights her failure to properly apply the relevant legal standard in this important case.

UPDATE: It is worth noting that neither the district court decision (which Sotomayor's Second Circuit panel affirmed without any changes), nor the appellate opinion itself make any mention of the additional offer by Wasser that Hamel stresses in his op ed. That suggests that neither considered it relevant to the outcome of the summary judgment motion or (less likely) that they thought that Wasser's version of events wasn't credible enough to warrant consideration. Both opinions can be found in the appendices to the property owners' unsuccessful cert petition to the US Supreme Court.

UPDATE #2: I have changed around some of the wording of the original post in order to make a couple points clearer and make a few phrases flow better. I have not changed any of my substantive points, so I won't catalogue these stylistic changes in detail.

UPDATE #3: As commenters point out, the plaintiffs' case was actually dismissed under Federal Rule of Civil Procedure 12(b)(6) for failure to state a cognizable legal claim, rather than an ordinary summary judgment motion. I was remiss in not noting this in the original post. However, this fact actually weakens Hemel's argument further, since under Rule 12(b)(6), a court must assume - for purposes of ruling on the motion - that the plaintiff's version of the facts is true unless it can be proven false beyond doubt. I have amended the original post to reflect this fact.

UPDATE #4: In an e-mail to me Daniel Hemel cites court documents indicating that Wasser's alternate offer to Didden and Bologna was to by the land for $800,000 plus "fair market value" (this point was not noted in Hemel's original op ed). I thank Mr. Hemel for the clarification. Even this offer, however, would still be extortionate and far from "generous." Assuming that the "fair market" value noted in the offer was comparable to the $975,000 eventually paid in eminent domain compensation by the government, Didden and Bologna would have ultimately received $1.775 million if they had accepted the proposal. However, they would have lost some $2.975 million in exchange: the fair market value plus the $2 million Wasser estimated as the expected profits from the CVS Didden and Bologna had planned to establish on the site. Thus, Wasser's most "generous" offer was in effect a proposal to take $1.2 million from the owners, using the threat of eminent domain as leverage. This is even less "generous" than his alternative demand for a straight-up payment of $800,000 in exchange for being allowed to keep the land and proceed with the CVS, which everyone recognizes would be extortionate if proposed separately.