Official Publication of the Minnesota State Bar Association


Vol. 62, No. 7 | August 2005
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Limits of Urban Redevelopment?
Kelo, Walser, and Condemnation in Minnesota 

The U. S. Supreme Court decision in Kelo v. New London reaffirms the deferential standard of review of legislative takings.  Minnesota courts nevertheless are challenged to balance the benefits of redevelopment with the private property rights of landowners.

by
Jeffrey W. Post and Melissa A. Baer

By highlighting the almost unfettered power of the government to seize a person’s property, the Supreme Court’s ruling in Kelo v. City of New London, 125 S. Ct. 2655 (U.S. 2005) has generated a great deal of discussion.  The Kelo decision, however, is not a radical departure from precedent.  Instead, Kelo reaffirms the deferential standard of review applied by the Court to the government’s exercise of eminent domain.  Nevertheless, the bare majority the decision garnered — not to mention two strong dissents — illustrates the inherent tension between the public’s desire for urban redevelopment and an individual’s fundamental right to have, hold and enjoy property.  The Minnesota Supreme Court’s evenly divided decision in Hous. and Redev. Auth. of Richfield v. Walser Auto Sales, Inc., 641 N.W.2d 885 (Minn. 2002), demonstrates that same tension in Minnesota.

Background of Kelo

By the 1990s, New London, Connecticut was suffering from economic stagnation. In 1990, a state agency designated the city a “distressed municipality.”1  Six years later, the federal government closed the Undersea Warfare Center, which had employed 1,500 people in New London, whose population was 24,000.  By the late 1990s, New London’s unemployment rate was nearly twice the Connecticut average.

In response, state and city officials targeted New London for economic revitalization.  The New London Development Corporation (“NLDC”), an economic development corporation established by the city, created a mixed-use development plan covering 90 acres of the Fort Trumball area divided into seven parcels.  The plan consisted of a hotel, museum, housing, restaurants, retail shops, offices, a marina, a riverfront walkway, and parking facilities. The city expected that the redevelopment project, in connection with the construction of a new $300 million research facility by Pfizer Inc., would rejuvenate New London’s downtown and waterfront areas and potentially stimulate economic growth throughout the city.

In January 2000, the NLDC began purchasing the land necessary for its redevelopment project, but several owners would not sell their properties.  Suzette Kelo would not agree to sell because she had made significant improvements to her house and valued its water view. Another affected owner, Wilhelmina Derby, was born in her house in 1918 and had lived there her entire life. None of the homes of the owners who refused to sell were blighted or otherwise in poor condition.2 

Unable to purchase the homes from Ms. Kelo and eight other owners, the NLDC commenced condemnation in November 2000.  The trial court granted permanent injunctive relief to two of the owners, finding that these properties were not necessary to the development; however, the court approved the taking of the other properties.  The Connecticut Supreme Court reversed the injunction and allowed all of the takings.  The owners then appealed to the United States Supreme Court under the 5th Amendment of the United States Constitution.

The Supreme Court’s Decision

The Supreme Court’s decision in Kelo has two significant components.  First, the Court held that the Constitution does not preclude the government from condemning nonblighted property for private economic development. Second, the Court ruled that a condemning authority’s decision to take private property is subject to de minimus review.

The Court’s first holding revolves around the Court’s interpretation of the phrase “public use.”  The Takings Clause of the 5th Amendment grants the government the power to take private property only if the taking is for a public use and the government pays just compensation.3  While the Court’s majority conceded that the condemned land would not — at least in its entirety — be used by the general public after redevelopment, it circumvented this pitfall by holding that the term public use was synonymous with the term “public purpose.”4  In other words, if the government takes property to advance a legitimate public purpose, that taking constitutes a public use of the property.  The underlying rationale for the Court’s expansive interpretation of the phrase “public use” was that a broad construction was necessary “given the diverse and always evolving needs of society.”5  The Court held that this condemnation served a public purpose, even though private parties would ultimately own the condemned land, because the taking advanced the economic development of a community.6 The economic development of the Fort Trumball area, if it came to fruition, was expected to generate higher tax revenues, create employment, and improve the overall aesthetics of the waterfront area.

The second component of the opinion centers on the level of review that the Court applied to the condemning authority’s rationale for taking the property. The Court noted that the city’s decision to create a redevelopment plan for the waterfront area is “entitled to our deference.”  The Court further stated that the “amount and character of land to be taken for the project and the need for a particular tract to complete the integrated plan rests in the discretion of the legislature.”7 Although the Court did not explicitly articulate a standard of review, the Court cited cases that applied the rational-basis test to the government’s exercise of its condemnation powers.8 

The majority asserted that its ruling was a natural progression of the Court’s prior eminent domain decisions, namely Berman v. Parker, 348 U.S. 26 (1954), and Hawaii Housing Authority v. Midkiff, 467 U.S. 229 (1984).  In Berman, the Supreme Court approved the taking of private property to relieve the “urban blight” of a Washington D.C. neighborhood, even though one or more of the properties affected by the taking were not blighted.9 Deferring to the judgment of the condemning authority, the Court found that it is often necessary to redevelop a community as a whole, instead of on a piecemeal basis. The Court also relied on the Midkiff decision, which upheld a Hawaii statute that transferred fee title to land, upon the payment of just compensation, from owners to tenants in order to break up a “land oligopoly.”10 Rejecting the notion that this law merely took land from one private person to give to another for her sole benefit, the Court focused on the state’s purpose for the taking — to diversify land ownership in Hawaii — not its implementation.  To that end, the statute satisfied the public use requirement of the 5th Amendment.11

In this context, the majority found that because New London officials had created a comprehensive, carefully considered, redevelopment plan designed to revitalize their economically depressed city for the benefit of all its citizens, the taking was a valid public use under the Constitution.

At least one of the justices in the majority felt that the standard of review needed to be explicitly defined.  Justice Kennedy, who provided the majority’s critical fifth vote, emphasized in his concurrence that the rational-basis test applied to the NLDC’s decisions regarding the condemnation.12  Moreover, Kennedy noted that takings that are clearly “intended to confer benefits on particular, favored private entities” are forbidden even if the takings offer incidental or pretextual public benefits.  According to Kennedy, such takings could not survive constitutional scrutiny even under the rational-basis test.

Dissenting Opinions

Justice O’Connor, writing for the four dissenters, pointed out that by blurring the distinction between public and private use the majority’s decision effectively erased the words “public use” from the Takings Clause of the 5th Amendment, therefore sweeping away the limitations the Constitution placed on the government’s taking power.13  Consequently, all private property is now at risk of being taken by the government and given to another private owner under the guise of economic redevelopment for the construction of a newer, bigger building or facility, which ultimately may or may not benefit the public.14  The dissenters consider economic development takings unconstitutional for failing to be a valid public use of the condemned property.  Lastly, Justice O’Connor noted that by leaving states with the ability to impose stricter limitations on the government’s right to take private property by eminent domain, the majority had abdicated its responsibility.

Justice Thomas, in a separate dissent, initially focused on the majority’s holding that public use is synonymous with public purpose. Justice Thomas noted that the term public use limits the government’s condemnation powers to takings that ultimately result in the government owning the land (e.g., army base) or in the general public having the right to use the land (e.g., streets and parks).15  He opined that by adopting the public-purpose test, which does not require public ownership or access, the majority effectively removed this constitutional restraint on the government’s condemnation powers.16

Justice Thomas then focused on the level of deference that the majority opinion affords the condemning authority’s decision.  He argued that the rational-basis test, when combined with the public purpose definition of public use, effectively eliminates meaningful review of the government’s exercise of eminent domain.17 Justice Thomas further noted that the Court has emphasized the sanctity of the home when reviewing whether the government may search the home, but that the Court is unwilling to engage in serious review when the government takes the home. He wrote, “Though citizens are safe from the government in their homes, the homes themselves are not.”18

Condemnation Law in Minnesota

Minnesota condemnation law mirrors Kelo’s significant holdings.  Yet there are critical differences between federal and Minnesota law. The differences make it unclear whether the Minnesota Supreme Court would rule in the same manner as the United States Supreme Court given Kelo’s facts.  The Kelo decision does not foreclose the Minnesota Supreme Court from reaching a different result.  Indeed, the Kelo majority expressly reserved the right of states to place stricter limits on condemnation:  “[N]othing in our opinion precludes any state from placing further restrictions on its exercise of the takings power.”19

The similarities between Minnesota law and the significant Kelo holdings are obvious.  When addressing the public use requirement of a taking, the words “public purpose” are considered to be interchangeable with “public use” under Minnesota law.20  Likewise, Minnesota courts have recognized economic development as a legitimate public purpose.21  Moreover, the scope of review that Minnesota courts apply to the decisions of the condemning authority is extremely narrow, and the condemnation will be reversed only if the government’s actions are “manifestly arbitrary or unreasonable.”22

One major distinction between federal and Minnesota condemnation law is that under Minnesota law the condemning authority must show that the taking is necessary.23  A taking is necessary only if the government intends to use the property for an identifiable public purpose “now or in the near future.”  Thus, the government may not stockpile property through condemnation for future speculative use.24

In Kelo, the NLDC did not know how it was going to use a substantial portion of the condemned property.  Of the 25 properties targeted for condemnation, 11 were located on a parcel whose use was not specified by the NLDC’s development plan.25 At oral argument before the Supreme Court, New London conceded the vagueness of its plans and suggested that “the parcel might eventually be used for parking.”

The NLDC’s opaque plan might not have passed muster in Minnesota.26 In fact, when the University of Minnesota failed to identify its planned use for a targeted property, the Minnesota Court of Appeals held that the University did not establish that the taking was necessary.27  The vitality of the necessity requirement was recently reaffirmed by Hennepin County District Court.  In Minneapolis Cmty. Dev. Agency v. Reichold, Inc., the district court ruled that, when the Minneapolis Community Development Agency (“MCDA”) let the exclusive development rights granted to the proposed developer expire, the MCDA had failed to establish that the taking was necessary.28

Another difference between the Kelo decision and Minnesota law centers on what constitutes a sufficient public purpose to support an economic redevelopment condemnation.  The split Minnesota Supreme Court in Walser suggests that Minnesota might not follow the Kelo ruling, which held the taking of nonblighted property for economic development constitutes a valid public purpose.

The Minnesota Supreme Court’s initial public purpose justification for redevelopment condemnations was based exclusively on the removal of blight.  Requiring blight limited the type of property subject to condemnation for economic redevelopment.29  A series of subsequent cases seems to have eroded the protection afforded by the blight requirement, but the Minnesota Supreme Court has not addressed the constitutionality of a redevelopment condemnation in the absence of blight.

The constitutionality of condemning land for redevelopment was first squarely addressed by the Minnesota Supreme Court in the late 1950s.30 The Court’s emphasis on the removal of blight, as opposed to the economic gains occasioned by redevelopment of the land, was motivated by the restrictions placed on eminent domain by the Minnesota Constitution.31 In Hous. & Redev. Auth. of St. Paul v. Greenman, 96 N.W.2d 673 (Minn. 1959), the targeted landowner argued that, because the condemned land would ultimately by transferred to private parties, the condemnation was for a private purpose, not a public use as required by Minnesota Constitution.32  The Court avoided this obstacle by focusing on blight. The Court’s rationale for finding the taking constituted a public purpose was entirely based on the removal of blight, with the Court emphasizing that the “subsequent transfer of these lands to private parties is incidental to the main public purpose.”33

The Minnesota Supreme Court expanded the definition of public purpose to include economic development when Minneapolis was assembling land for the City Center.  In Minneapolis v. Wurtele, 291 N.W.2d 386, 390 (Minn. 1980), the Minnesota Supreme Court found that there were two bases for finding public purpose:  the area was blighted and its redevelopment would lead to substantial economic development.34  Although the taking was justified in part by economic development, the Court did not abandon the need to find that the targeted area or property was blighted.

The Minnesota Court of Appeals ventured beyond Greenman in Minneapolis Cmty. Dev. Agency v. Opus N.W., LLC, 582 N.W.2d 596 (Minn. App. 1998). The Opus decision involved the condemnation of property along Nicollet Mall in downtown Minneapolis for the construction of a Target store. None of the project goals enumerated by the Court of Appeals included the removal of blight.  Instead, the court’s public purpose finding was totally based on economic development.  The Opus ruling appeared to abandon the blight requirement that underpinned Greenman’s public purpose finding.35

In Walser, the Minnesota Supreme Court considered the validity of the taking of a Richfield neighborhood comprising auto dealerships and residential properties.  Richfield officials wanted to take the land so Best Buy could build its new corporate headquarters on the site. The Court of Appeals held that the condemning authority had established a public purpose because the taking served to eliminate and prevent blight.36 The basis for the blight findings, however, was remarkably weak.  Basically two pieces of evidence supported the finding of blight.  First, the mix of residential and business properties created hazardous traffic patterns. Second, the auto dealerships’ buildings, although fit for continued use as dealerships, were not top-end commercial facilities.  Given the limited evidence of blight, it is unlikely that the taking could have survived scrutiny under any analysis more rigorous than the rational-basis test.

The Minnesota Supreme Court’s hesitancy to affirm such a weak blight finding was demonstrated by its split decision in Walser.  The decision of the Court of Appeals was confirmed as a result of a three-three tie, with Justice Lancaster recusing herself.37  The Walser decision seemingly represents an attempt by at least three of the justices to return to the original rationale that underpinned the public purpose finding in Greenman, the removal of blight, as opposed to the economic development rationale more recently advanced by the Court of Appeals in Opus.

It is worth noting here that the United States Supreme Court opinion in Kelo conceded that none of the targeted properties were blighted.38  Nevertheless, the Court held that deference must be given to the city’s conclusion that New London was economically distressed and that the takings advanced economic development of the city, a legitimate public purpose in this context.

The reservations that the Minnesota Supreme Court displayed in Walser would likely be amplified if the Court were faced with the absence of blight that presented itself in Kelo.  Given the Walser split, it would not be surprising if the Minnesota Supreme Court rejected an economic development taking on public purpose grounds if the taking did not also serve to remove blight.  A decision to the contrary would completely unmoor the Court’s rationale for finding public purpose from its precedential anchor, the Greenman case.

Conclusion

Some Minnesota condemnations have led to substantial redevelopment that has had a positive impact on the community.39 Other Minnesota condemnations have had negative impacts primarily on minorities and the elderly.40  Despite the Supreme Court’s decision in Kelo, the Minnesota Supreme Court still faces substantial challenges in balancing the public goal of redevelopment with the private property rights of individual citizens.  c

Notes
1 Kelo v. City of New London, 125 S. Ct. 2655, 2658 (U.S. 2005).

2 Id. at 2660.

3 U.S. Const. amend. V (“[N]or shall private property be taken for public use, without just compensation.”).

4 Kelo at 2662-3.

5 Id. at 2662.

6 Id. at 2664-5.

7 Id. at 2668.

8 Id. at 2668 citing Haw. Hous. Auth. v. Midkiff, 467 U.S. 229, 241 (1984) and Berman v. Parker, 348 U.S. 26, 75 (1954).

9 Id., 125 S. Ct. at 2663 citing Berman, 348 U.S. at 31-33.

10 Id. at 2663-4 citing Midkiff 467 U.S. at 241-2.

11 Id. at 2663-4 citing Midkiff at 235.

12 Id. at 2669 (Kennedy, J., concurring).

13 Id. at 2671 (O’Connor, J., dissenting).

14 Id. at 2676 (“Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.”)

15 Id. at 2679-80 (Thomas, J., dissenting).

16 Id. at 2678.

17 Id. at 2684.

18 Id. at 2685.

19 Id. at 2668.

20 Hous. & Redev. Auth. of Richfield v. Walser Auto Sales, Inc., 630 N.W.2d 662, 668 (Minn. App. 2001) quoting Duluth v. State, 390 N.W.2d 757, 763 (Minn. 1986).

21 Minneapolis Cmty. Dev. Agency v. Opus N.W., llc, 582 N.W.2d 596, 599-600 (Minn. App. 1998) citing Minneapolis v. Wurtele, 291 N.W.2d 386, 390 (Minn. 1980).

22 Hous. and Redev. Auth. of Minneapolis v. Minneapolis Metro. Co., 104 N.W.2d 864, 874 (Minn. 1960).

23 Univ. of Minn. v. Chicago & N.W. Transp., 552 N.W.2d 578, 580 (Minn. App. 1996).

24 Id. at 580.

25 Kelo at 2671-2 (O’Connor, J., dissenting).

26 The Connecticut Superior Court was also troubled by the lack of necessity and enjoined the NLDC from taking several of the properties. The Connecticut Supreme Court, while not overruling the Superior Court’s factual findings regarding the lack of a declared use, reversed the Superior Court by requiring that the condemnee show that the taking was irrational. Kelo v. New London, 843 A.2d 500, 572 (Conn. 2004). 

27 Univ. of Minn., 552 N.W.2d at 580.

28 Minneapolis Cmty. Dev. Agency v. Reichold, Inc., No. CD 2673 (Hennepin Cty. Dist. Ct. 07/15/04).  See also Minneapolis Cmty. Dev. Agency v. Reichold, Inc., No. CD 2673 (Hennepin Cty. Dist. Ct. 05/02/05).

29 A non-blighted property may be targeted for a redevelopment condemnation if it is located in a blighted area and the property’s condemnation is necessary for a redevelopment plan that results in the removal of blight. Minneapolis Metro. Co., 104 N.W.2d at 875.

30 Hous. & Redev. Auth. of St. Paul v. Greenman, 96 N.W.2d 673 (Minn. 1959).

31 Minn. Const., art. 1 §13 (“Private property shall not be taken, destroyed or damaged for public use without just compensation therefor, first paid or secured.”).

32 Greenman, 96 N.W.2d at 702-3.

33 Id., 96 N.W.2d at 680; see also Port. Auth. of St. Paul v. Groppoli, 202 N.W.2d 371, 374-5 (Minn. 1972).

34 Minneapolis v. Wurtele, 291 N.W.2d 386, 390 (Minn. 1980).

35 Minneapolis Cmty. Dev. Agency v. Opus N.W., llc, 582 N.W.2d 596, 599-600 (Minn. App. 1998).

36 Hous. & Redev. Auth. of Richfield v. Walser Auto Sales, Inc., 630 N.W.2d 662, 669 (Minn. App. 2001).

37 Hous. and Redev. Auth. of Richfield v. Walser Auto Sales, Inc., 641 N.W.2d 885, 891 (Minn. 2002).

38 Kelo, 125 S. Ct. at 2660.

39 Terry Fiedler, “Target, Allies Fill Up Office Space,” Minneapolis Star Tribune, 07/08/05, at D1 (noting the positive impact that keeping the Target headquarters has had on the downtown Minneapolis real-estate market).

40 Kelo, 125 S. Ct. at 2687 (Thomas, J., dissenting) (noting the severe impact of condemnations in the 1950s and 1960s on St. Paul’s minority neighborhoods).


JEFFREY W. POST is an officer at Fredrikson & Bryon and has represented both the government and property owners in condemnation actions.

MELISSA A. BAER, a lawyer at Lindquist & Vennum, PLLP, practices in the area of real-estate law. She represents developers and lenders in various real-estate transactions.