U.S. Supreme Court Issues Two Property Rights Rulings in Closing Days of the 2004-2005 Term

The Attorneys of Morrison & Foerster LLP
July 7, 2008 — 1,098 views  

The United States Supreme Court has issued the second and third decisions in its expected trilogy of property rights decisions for the just concluded 2004-2005 term. First, in Kelo v. City of New London, the Court rejected an argument by private landowners in Connecticut that a city’s taking of their property for development by a private developer would violate the “public use” provision in the Takings Clause of the Fifth Amendment to the Constitution. Second, in San Remo Hotel v. San Francisco, the Court ruled that when federal takings claims are brought in state court (as they must be brought under prior U.S. Supreme Court decisions), then the final decision of the state court must be honored under the Federal Full Faith and Credit Statute, which implements the full faith and credit clause of the U.S. Constitution. Both of these decisions make it more difficult for private landowners to prevail against public agencies in the complex realm of property rights takings litigation.

The “Public Use” Requirement and Eminent Domain:

The Takings Clause of the Fifth Amendment to the U.S. Constitution imposes two requirements before the government may take private property. First, the property must be taken for a “public use” and second, compensation must be paid to the property owner. In Kelo v. City of New London, Supreme Court No. 04-108, the Court rejected a claim by private landowners that the city’s taking of their property would violate the “public use” requirement when the property was being taken pursuant to an overall development plan that would achieve economic revitalization by having a third party private developer redevelop the site.

In ruling on the “public use” issue, the Court held that economic revitalization in itself served a public purpose and satisfied the public use requirement of the Fifth Amendment. Thus, there was a sufficient public use even though the property would be transferred to a private developer, and even though the private developer would not be providing other public access or other public benefits beyond economic revitalization. The Court did caution, however, that its ruling in favor of economic development would not extend to a situation in which the taking was designed to benefit a particular class of identifiable individuals. The “public use” requirement would not be satisfied, for example, if properties were being taken simply for the purpose of transferring it to another private party.

Four Justices, led by Justice Sandra Day O’Connor dissented from the majority ruling, and would have required some public purpose beyond simply improvement or revitalization of the property. Justice O’Connor asked “For who among us can say she already makes the most productive or attractive possible use of her property? The specter of condemnation hangs over all properties. 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.”

In contrast to some of the public claims about the Kelo decision, both public agencies and private landowners should note that the decision does not entirely eviscerate the public use requirement of the Takings Clause. First, the majority opinion emphasized that the takings at issue were part of an integrated redevelopment plan, and there was no evidence that this plan was simply a scheme to benefit a particular private developer. Second, the majority indicated that a taking will not violate the “public use” requirement as long as it is rationally related to some public purpose, and that rational relationship requirement imposes some limitation on government takings actions. Finally, as a practical matter, the requirement that just compensation be paid operates as a limitation against at least some takings of private property.

Ability to Bring Takings Claims in Federal Court:

The Court’s decision in San Remo Hotel L.P. v. San Francisco, Supreme Court No. 04-340, effectively makes it much more difficult for private property owners to bring property rights takings claims in federal court. Generally, under the Court’s 1985 decision in Williamson County v. Hamilton Bank, federal takings claims are required to be brought in state court first, before a property owner may seek relief from the federal court. In San Remo, however, the Court has essentially ruled that the federal court “shoe” will never “drop” because the Federal Full Faith and Credit Statute bars the issues decided in state court from being retried in the federal courts.

Article IV, section 1 of the U.S. Constitution provides that “full faith and credit” shall be given to the acts and judicial proceedings of all states, and the Full Faith and Credit Statute, 28 U.S.C. §1738, specifically states that court decisions of each state “shall have the same full faith and credit in every court within the United States” as in the originating state courts. This statute encompasses the legal doctrine of res judicata or “issue preclusion: pursuant to which issues that have been finally resolved by the courts cannot be relitigated. Pursuant to these provisions, in San Remo the Court held that a final ruling of the state court on a federal property rights claim which has been litigated in state court, must be given the required “full faith and credit”, and that claim cannot be re-litigated in the federal courts. In other words, once a property owner brings a federal takings claim in state court, as is required under Williamson County, the property owner cannot seek federal court review of that state court decision.

The San Remo decision was unanimous. In a concurring opinion, however, Justice Rehnquist suggested that the holding in Williamson County, which requires taking claims to be brought in state court, should be re-evaluated. This suggests that, some years hence, the Court will be again asked to re-evaluate the ability to try takings cases in federal court.

Note: Public agencies as well as private landowners should be sure to evaluate applicable state law governing property rights issues, in addition to federal law. For example, in California, the State Supreme Court’s decision in Ehrlich v. City of Culver City (1996) 12 Cal.4th 854, a regulatory takings case, extends the requirements for a substantial “nexus” and a “rough proportionality” further than the federal court’s takings jurispendence.

The Attorneys of Morrison & Foerster LLP