Can Government Use Eminent Domain to Eliminate Private Competition?

Date: August 06, 2018

More than a decade after the infamous Kelo v. City of New London decision, we hear stories of eminent domain abuse from small business owners. Kelo approved the use of eminent domain to take private property from a homeowner for the benefit of a large corporation. As Justice O’Connor warned in dissent, this opened the door for any mom-and-pop store to be replaced by a Ritz-Carlton.

The idea that government may take one’s home or business for the benefit of a wealthier, and more politically connected, corporation violates our most basic sensibilities. But while ordinary Americans revile Kelo, it remains the law of the land. Granted, some states have enacted legislation or constitutional amendments to provide greater protection against eminent domain abuse. But, those reforms have proven largely ineffective.

Case in point, the Louisiana Supreme Court recently upheld an anticompetitive taking. Violet Dock Port Inc. owned land and docking facilities along the Mississippi River and was targeted for eminent domain because the public port authority wanted to expand its operations. Rather than purchasing land, and developing its own facilities, the Authority decided it was easier to take Violet Dock’s property. The record demonstrates that the Authority intended, from the outset, to have another business operate Violet Dock’s facilities—with the Authority to take a portion of the profits generated from the property. But the Louisiana Supreme Court looked past all these issues to bless this taking under Kelo.

In our recent amicus filing, we urge the Supreme Court to take this case either to overturn Kelo and or to limit its application. And there are truly compelling reasons to revisit Kelo—including the fact that the principal author, Justice John Paul Stevens, has since acknowledged that the decision was predicated on an embarrassing error: the assumption that a series of late nineteenth and early twentieth century “substantive due process” cases—applying a highly deferential standard—were decided under the Fifth Amendment. Apparently, Stevens still believes that Kelo was correctly decided, but he justifies that conclusion by embracing the extreme proposition that “neither the text of the Fifth Amendment Takings Clause, nor the common law rule that it codified, place any limit on the states’ power to take private property, other than the obligation to pay just compensation to the former owner.”

Whether Kelo was correctly decided remains a fiercely debated question; however, the greater body of legal scholarship concludes that Kelo was wrong. Still, even if the Court is not prepared to entirely repudiate Kelo, we argue that the Court should clarify limitations on when the government may take private property to benefit another private entity. For one, the Court said that the asserted public benefits must be real—not mere pretext or conjecture; however, the Court did not give guidance as to what counts as improper pretextual taking. For that matter, the lower courts are deeply divided on this issue. Some courts prohibit takings where there is evidence of collusion with a private beneficiary, while others rubber-stamp the government’s assertion that a taking will benefit the public at large.

This case also raises an interesting question of whether the government may use eminent domain in an anti-competitive manner to advance its own commercial enterprise. Our brief argues that a public corporation should be prohibited from using eminent domain to advance its own pecuniary interests. The reason is simple: When the government is competing with private industry. it is not acting in a sovereign capacity; instead, it is acting as a market-participant, on equal footing with its competitors.

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