05/ 25/ 2006
by Karen J. Bannan
Should the government be able to force a small business out just to make room for a bigger one?
Tammy Hnarakis has been on the move since she founded Precision Small Engines in 1980. Her first storefront was the basement of her mother's College Park, Md., home. But the company, which sells and services hand tools, tractors and snowblower parts, among other things, grew quickly, and soon Hnarakis moved out of the basement and into a small warehouse.
In 1987, however, she and her staff were forced to relocate again. This time it wasn't growth that forced the move. Instead, they were displaced under a government eminent-domain seizure to bring in a new Washington Metropolitan Area Transit Authority station. Her business didn't move far, though. "They [government officials] advised us to go next door to another warehouse," Hnarakis says. "They said it would be 20 years before they would have funding to begin. We took them at their word and moved right in."
Only six years later, though, Precision Small Engines fell victim to eminent domain again, losing its property to another WMATA project. This time, the government forced the business out of the area.
"We relocated about four miles from the original warehouses," Hnarakis says. "Our growth income was zero for six weeks while all of our equipment sat in a trailer as we searched for new space. Customers called wanting to know where their equipment was, and we had to tell them it was in a trailer. When they asked what was happening, we transferred them to our congressman's office. His legislative aide almost had a breakdown."
Though distressed by the WMATA projects, Hnarakis accepted them because they were, after all, for the public good. But now whispers of another eminent-domain seizure of her current business location—this time for private use—has Hnarakis understandably upset. "It's this attitude of 'out with the old, in with the new' just so they can increase the tax base. It's criminal," she says. "I employ people and contribute to the community—and I pay pretty substantial taxes as well.
"This is a very dangerous national trend. It really makes it seem like our rights to own property are an illusion," Hnarakis says.
For the good of whom?
This same scenario--government-sponsored eminent-domain seizures for private use--is happening again and again across the country. Precision Small Engines and millions of other small, private businesses are in jeopardy because of a 2005 Supreme Court ruling, Kelo v. City of New London, which gives local governments the right to condemn and seize private property for outside private development.
"The Kelo decision said basically that if a city thinks someone else can make more money with your home or business, then they can condemn it and turn it over to that person," explains Bert Gall, an attorney with The Institute for Justice, a nonprofit civil liberties law firm in Arlington, Va. "The problem is there's always a business out there that can make more money than you can, so the Kelo decision really removed any federal protection against abuses of eminent domain."
Bob Blue knows the problem firsthand. His parents founded Bernard Luggage Co. in 1946 and moved the business to its current Hollywood, Calif., location in 1955. The company has remained and flourished in that location for more than half a century. This past March, however, Blue received a letter from his neighborhood's redevelopment agency. His small business, along with about 30 others, was deemed part of a blighted area, despite its tony address. The area was soon condemned. Yet some businesses benefited from this bad news: Starwood Hotels' W Hotel chain and the developer of 150 high-end apartments and other retail stores, all who are planning to start construction on the property as soon as Blue and his neighbors are out.
The "condemned" businesses were given 90 days to vacate their buildings. But relocation isn't an option Blue wants to pursue. It would be devastating for the business, he says, since 40 to 50 percent of the company's revenue comes from foot traffic. After all, the building that Blue owns and operates sits on the posh corner of Hollywood and Vine. Customers may not remember the Bernard Luggage name, but they do remember its location.
"There are so many disadvantages to moving away," Blue says. "If we found another space that would be big enough, there might already be someone established there. We might say we could bring our customers with us, but in the end, they might just end up going to another luggage store or to a Target."
And then there's Blue's emotional attachment: He and his sister grew up working in the store. Bernard Luggage is part of his parents' legacy, something that became even more precious in 2002 when his father passed away, he says.
NFIB understands the deep ties small-business owners feel to their companies and communities. For years, the organization has defended the property rights of small-business owners. Last summer, the eminent-domain issue received national media attention following the Kelo decision.
"We're one of two business organizations fighting this issue," says Karen Harned, executive director of the NFIB Legal Foundation, the arm of NFIB created to protect small business in America's courtrooms. "It's not that easy for small businesses to simply pick up and relocate. Their success and customer bases are often entrenched in their communities.
"Small-business owners who become victims of eminent-domain abuse not only lose their property, but they often lose their business," Harned says. "It's important for the courts to hear how devastating the effects of eminent domain can be on small businesses."
Taking on the establishment
Blue's strong emotional ties to his business made it easy for him to fight its condemnation. In fact, Blue filed a lawsuit against the redevelopment plans early on, and after he received his 90-day notice, he moved his fight into the public eye, appearing on local and cable television programs.
This is exactly the type of visible action that can stop private-to-private eminent-domain abuse, explains Andrew Langer, manager of regulatory policy for NFIB. Although the chances of another Supreme Court ruling to reverse the Kelo decision is unlikely, in the short-term, state and local governments can create their own rules and laws surrounding eminent domain to protect small business. But legislators can't and won't make changes unless their constituents—small-business owners and regular citizens—make their voices heard.
"People have to take a greater interest in their state laws," Langer says. "When things like this happen, we, as a people, have the right to say that an eminent-domain ruling has to be for public use, and that the government has to give you due process and pay just compensation if it's successful in its bid. Legislation has to happen on all of these fronts."
NFIB is making sure business owners understand the problem, hosting Area Action Council meetings that let small-business owners hear from and speak with their local lawmakers, the media and their peers. Meanwhile, the NFIB Legal Foundation is helping on another front, acting on new abuses by filing briefs on behalf of its small-business members, Harned says. One important item on the Foundation's agenda: getting the government to pay just compensation for small business' property that is seized.
"We're getting in precedent-setting cases in light of the Kelo decision," Harned says. "We want our members to know that if they have a problem, they need to share their story."
Bob Blue says that small-business owners shouldn't wait for an abuse to happen. They can take steps to protect themselves before their businesses are targeted. "It's important to understand the warning signs of a redevelopment project," Blue says. "You need to find out if your business is located within a redevelopment zone, and you need to keep track of plans within your local government."
For once, the little guy may prevail. To date, 47 states have introduced, considered or passed legislation reining in private-to-private eminent-domain abuse.
"South Dakota has said no to all private-to-private transfers, and Indiana and Georgia have limited the definition of blight," says Gall of The Institute for Justice. (Blight is one of the reasons sometimes cited for condemning a small business.) "Right now, the definition of blight is so wide in some states that you can be condemned for not having three bathrooms in your home. The new legislation will allow a blight designation only if a home or business is a threat to public health or safety."
Unfortunately, the reform process is a slow one, and much work still needs to be done. In the meantime, small businesses must commit to speaking up for themselves. Just ask Bob Blue.
"If something doesn't happen soon, we're going to have to move and definitely shrink our business," Blue says. "We may have to change our focus, looking at business-to-business sales. The threat of eminent domain puts everyone in a holding pattern. We can't get long-term funding. We don't know what will happen. With 850 pieces of inventory, we may end up with a lot of bags to pack."
This Land Is My Land
The NFIB Legal Foundation is constantly on the lookout for stories of business owners threatened by government land grabs. If you are dealing with or have faced an eminent-domain issue, we want to hear about it. Go to www.NFIB.com/legal and click on "Share Your Story" in the "How You Can Help" section on the right-hand side of the page, or call (800) NFIB-NOW. Follow the cases the NFIB Legal Foundation is already involved in by going to "Property Rights and Wetlands" in the "Case Summaries" section at www.NFIB.com/legal.
