On June 23, 2005, the United States Supreme Court greatly expanded a municipality's use of condemnation for economic development in Kelo v. City of New London, No. 04-108. In Kelo, the City planned to raze 15 homes and replace them with a waterfront conference hotel, restaurants, shops, marinas, rows of townhouses and an office park. The City argued that the private development plans served the public purpose in boosting economic growth which outweighed the homeowners' property rights even if the area was not blighted.
In a 5-4 decision, the Supreme Court held that the City's plan to seize the homes was part of a "carefully formulated economic development plan that it believes will provide appreciable benefits to the community." The justices stated that local governments, not federal judges, know best in deciding whether a development project will benefit the community. The Court reaffirmed that it intends to continue to give states wide latitude in justifying public uses for property condemned under the takings clause.
As a result, cities now have wide power to bulldoze residences for projects such as shopping malls and hotel complexes in order to generate tax dollars.
The question becomes whether the ruling in Kelo affects condemnation for economic development in Michigan. It does not.
On July 30, 2004, in County of Wayne v. Hathcock, the Michigan Supreme Court ruled that the landmark case Poletown Neighborhood Council v. Detroit was unconstitutional. The Poletown ruling had allowed the city of Detroit to condemn 140 businesses and 1,600 homes to make way for a General Motors Corporation plant. For over 20 years, Poletown had been cited by a number of courts, and long used by municipalities to justify employing eminent domain for economic revitalization.
Hathcock changed that. In Hathcock, Wayne County used its authority to condemn defendants' properties for the construction of a 1,300-acre business and technology park, the Pinnacle Project. The County also hoped to include a hotel with a conference center and recreational facilities. This project was intended to reinvigorate the sluggish economy of southeastern Michigan by creating 30,000 jobs and generating $350 million in tax revenue.
Unlike Poletown, where the city of Detroit relied on the Michigan Economic Development Corporation Act that specifically authorized the use of eminent domain to further economic development, the County relied upon the general grant of eminent domain power contained in MCL 213.23. Defendant property owners challenged the condemnation, stating that the County did not have statutory authority to condemn their property, and that the condemnation violated Article 10 of the 1963 Michigan Constitution.
Initially, the court reviewed Wayne County's statutory authority for condemnation. The court agreed that the explicit language in the statute allowed the County to condemn private property for public purposes and further found that the proposed condemnations were within the scope of the County's powers.
Although the condemnation was statutorily valid, the court ruled that it violated Article 10, Section 2, of the Michigan State Constitution. The court focused on the constitutional "public use" requirement in Article 10. The court stated that it construes technical and legal terms, including "public use," by determining the common understanding among those sophisticated in the law at the time the constitution was ratified.
Under that standard, the court held that the condemnation of defendants' properties and the subsequent transfer of those properties to private companies violated the public use provision of Article 10. The court found that the condemnation had none of the elements in the court's pre-1963 jurisprudence. The court concluded that no one sophisticated in the law when the constitution was ratified would have understood public use to permit the condemnation of defendants' properties for the construction of a business and technology park owned by private entities.
The County's only support for its position was the opinion in Poletown. The court cited Poletown's analysis as faulty and retroactively overruled it to "vindicate our Constitution, [and] protect the people's property rights, . . . ." As a result, the court ruled that the condemnations were unconstitutional.
The U.S. Supreme Court's decision in Kelo does not affect the Michigan Supreme Court's decision in Hathcock. In its decision the U.S. Supreme Court, citing Hathcock, specifically stated, "that nothing in our opinion precludes any State from placing further restrictions on its exercise of the takings power. Indeed, many States already impose 'public use' requirements that are stricter than the federal baseline. Some of these requirements have been established as a matter of state constitutional law."
While Kelo may have huge implications for many parts of the country by widening the power of cities to condemn even non-blighted property for economic development, in Michigan, municipalities will face a greater challenge in their efforts to implement needed community redevelopment projects.
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Warner Norcross & Judd is a full-service law firm with offices in Grand Rapids, Metro Detroit, Holland, and Muskegon. Because each business situation is different, this information is intended for general information purposes only and is not intended to provide legal advice.