| Making Just Compensation Just By: Gideon Kanner Professor of Law Emeritus Loyola University, Los Angeles |
The Fifth Amendment to the U.S. Constitution and virtually all state constitutions provide
that private property may be taken for public use upon payment of just compensation. But
in practice, particularly these days, this formulation bears little relation to reality.
Condemnations for manifestly private, profit making uses abound, and the compensation
awarded by the courts falls short of being just by any rational economic or ethical
standard. Thus, we are told that the usual measure of "just compensation" is fair market
value of the taken land because such value is what sellers would accept in voluntary
transactions. Kimball Laundry Co. v. United States, 338 U.S. 1(1949). But at the same
time courts refuse to award the compensation that would be paid in a voluntary
transaction. Please don't take my word for it; the U.S. Supreme Court has explicitly
conceded as much. Recognizing the manifest fact that the "fair market value" as artificially
defined by the courts as the primary measure of just compensation falls short of what the
condemnees could obtain for their property in a voluntary transaction, the court conceded:
No doubt, all these elements of (damages) would be considered by an owner in
determining whether or not, and at what price, to sell. No doubt, therefore, if the owner is
to be made whole for the loss consequent on the sovereign's seizure of his property,
these elements should property be considered. But the courts have generally held that
they are not to be reckoned as part of the compensation for the fee taken by the
government,United States v. General Motors Co.323 U.S. 373, 379 (1945)
Why the government should thus get to enjoy a "free lunch" at the condemnees' expense,
and not have to reckon in the compensation formula the losses it consciously inflicts on
citizens, the court has never explained. And so, on the one hand courts tell us that the
award of "just compensation" is to put the condemnees in the same pecuniary position
they would have occupied had there been no condemnation, but on the other hand they
assert that the condemnees must nonetheless suffer a variety of demonstrable losses
which the courts deem noncompensable. These anomalies become particularly morally
intolerable in the context of today's redevelopment condemnations which are often not for
any real public use at all, but rather for the private enrichment of redevelopers, mass
merchandisers, automobile dealership, professional sport team owners and even
gambling casinos. See McKirdy, The New Eminent Domain. Public Use Defense
Vanishing In Wake of Growing Privatization of Power, 155 N.J. L. J. 1145 (Mar. 15, 1999),
Starkman, Take and Give: Condemnation Is Used To Hand One Business Property of
Another, Wall St Jour., Dec. 2, 1998, p. Al. It thus becomes appropriate to inquire how this
absurd legal doctrine could develop at all, much less in the name of constitutional law that
exhorts "fairness and equity" as its watchword.
The origins of this ethical and logical mess are historical. Unlike other Western countries
whose laws protected private property rights, in America land was plentiful, cheap and at
times free for the taking by anyone. There were very few condemnations in the early days.
They did not appear on the scene in significant numbers until the coming of the railroads
in the mid-19th Century. In his memoirs, John Sherman (who before embarking on his
political career was a railroad lawyer) describes early, pre-Civil War railroad
condemnations in Ohio as follows:
Much of the [railroad] right-of-way was freely granted without cost by the owners of the
land. As the chief benefit was to inure to the farmers, it as thought to be very mean and
stingy for one of them to demand money for the right-of-way through his farm. I went over
the road from Mansfield to Plymouth with a company of five appraisers, all farmers who
carefully examined the line of railroad, and much to my mortification, assessed in the
aggregate for twenty miles of railway track, damages to the amount of $2,000. I honestly
thought this an exorbitant award, but the same distance could not be traversed now at a
cost of for right-of-way for ten times that sum. John Sherman's Recollections of Forty
Years in the House, Senate and Cabinet, Vol. L P.8 I (I 89.5)*But what Sherman did not tell
his readers was that the railroads were not only taking advantage of unsophisticated
farmers, but of the state government as well. The state was subsidizing the railroads and
other road builders to such an extent that by the 1850s Ohio was $20,000,000 in debt and
paying $1,000,000 a year in interest - huge sums in the mid-1800s. Bryant, Eminent
Domain - Its Use and Misuse, 39 U. Cin. L. Rev. 259, 262 (1970). Thus while Sherman
professed to be incensed by the "exorbitant" award of $100 per mile of railroad
right-of-way, his employers were raiding the public treasury to the tune of millions. This is
by no means an isolated historical event. In the late 1960s and early 1970s, the
California Division of Highways (now Department of Transportation) was accumulating
annual surpluses on the order of hundreds of millions of dollars per year, while
simultaneously arguing to the state courts that condemnees should not receive
compensation for all demonstrable losses suffered by them. See, statistics collected in
Kanner, Condemnation Blight: Just How Just Is Just Compensation? 48 Notre Dame
Law. 765, 786, n. 101.
These bits of history reflect what went on throughout the country. Worse, during the 19th
Century formative periods of American eminent domain law, in many areas there was an
unwholesome relationship between railroads and judges who often enjoyed free railroad
passes. For further discussion of the origins of the unfair rules of compensation in
American eminent domain cases see, Comment, Eminent Domain Valuation in an Age of
Redevelopment: Incidental Losses, 67 Yale L. Jour. 62 (1957), Spies and McCoid,
Recovery of Consequential Damages in Eminent Domain, 48 Va, L. Rev. 437, 449-450
(1962), Bryant, supra; 39 U. Cin. L. Rev. at 262 (1970), Risinger, Direct Damages: The
Lost Key to Constitutional Just Compensation When Business Premises Are
Condemned, 15 Seton Hall L. Rev. 483 (1985).
All this eventually produced a prevailing judicial culture that until this day views American
condemnees with suspicion and at times with outright hostility. Nowhere is that better
illustrated than in the area of business losses where most courts repeat at times absurd
justifications for denying compensation to condemnees for the destruction of valuable
businesses conducted on the condemned land. Adding insult to injury, when it comes to
non-condemnation fields of law - such as business torts, divorce and taxation - the same
courts that profess an inability to value businesses somehow manage to do so just fine.
See Risinger, supra, 15 Seton Hall L. Rev-483 (1985), Kanner, When Is Property Not
"Property Itself" -A Critical Examination of the Bases of Denial of Compensation for Loss of
Goodwill in Eminent Domain, 6 Cal. Western L. Rev. 57 (1969).
Similarly, American courts have by and large turned a blind eye to the acute problem of
under compensation of condemnees that occurs by virtue of the fact that their litigation
expenses are not recoverable (only Florida allows them as a matter of state constitutional
law). What that means is that many property owners are forced to accept less than the fair
market value of their land because the cost of litigation is likely to consume or severely
erode any recovery exceeding the condemnors' inadequate offer. Others, who do recover
proper compensation after having to litigate over it, wind up under compensated because
their attorneys' and appraisers' fees have to come out of their recovery.
The studies that have been performed indicate that under compensation is common. See
Hearings Before the Select Subcommittee on Real Property Acquisition of the Committee
on Public Works, House of Representatives, 88th Congress, Second Session, (1963),
Berger and Rohan. The Nassau County Study; An Empirical Look Into the Practices of
Condemnation,67 Colum. L. Rev. 430 (1967). Though in theory such practices were
supposed to be ended by enactment of the Uniform Relocation Assistance Act, they have
continued unabated. See Report by the Controller General of the United States, The
Federal Drive To Acquire Private Lands Should Be Reassessed, CED-80-14 (Dec. 14,
1979), Id., Federal Land Acquisition by Condemnation- Opportunities to Reduce Delays
and Costs, CED-W54 (May 14,1980).
It was studies of this type and the angry popular reaction to the mass condemnations that
followed the enactment of the Federal Aid Highway Act of 1956, and the widespread urban
redevelopment condemnations, that led to some reform of eminent domain law by
legislative bodies in several states and to the enactment of the federal Uniform
Relocation Assistance Act and its state counterparts. A few states have also made
provisions in their laws for condemnees to recover their litigation expenses (i.e. attorneys',
appraisers' and other expert witness fees) when their award of just compensation
exceeds the condemnor's offer (some states require that the overage exceed a specified
percentage, ranging from 10% to 15% above the condemnor's offer; in New York and
California the award is largely discretionary with the court).
The area of business losses remains a blot on the law of eminent domain. The value of a
business, its goodwill or going concern value, is widely recognized as property that is
protected by law, except in eminent domain - an anomaly for which the courts have not
offered an acceptable justification. Only Alaska courts permit recovery of compensation for
the loss of business. Michigan and Minnesota allow compensation under some limited
circumstances where the business cannot be relocated, and the courts of Georgia permit
compensation where the business is unique. Otherwise, with a few statutory exceptions,
business losses remain noncompensable, which means that business people,
particularly owners of small businesses are "fair game" when condemnation actions are
filed to take the land on which their businesses are located. Many of them lose their
businesses and are never able to reopen them.
Thus, 30 years after the enactment of relocation assistance laws, much remains to be
done in this field. Though historically it is the courts that construe the term "just
compensation" because it is a constitutional term, they decide only what the minimum
constitutional requirements are. There is nothing in the law to keep legislatures from
acting in this field so as to provide a level of just compensation that is above that bare
bones minimum, that is just in fact. Indeed, when the courts refuse to reform
unsatisfactory rules of eminent domain law, they often indicate that this is a proper task for
the legislatures.
What needs to be kept in mind clearly, but alas is too often overlooked, is that the people
who find themselves in the path of a public project are not some sort of enemy to be
treated with disdain. They are Americans - good, ordinary people who have been minding
their business, paying their taxes and generally putting their property to useful and lawful
purposes. When by reason of true public necessity they have to be dragged into court so
that their land can be taken from them, and they have to be moved, that should be done
though a process that is fair to them. They are called upon to surrender their hard eamed
property for the good of society, so it is only fair that the true cost of the acquisition be fairly
spread on the society that benefits from the creation of that public project, and is thus
under a moral obligation to recompense them fairly.
As for takings that, though legally denominated for "public use" in reality are for the
creation of private profit making enterprises, there is simply no excuse for denying
compensation for all demonstrable losses suffered by the condemnee. The courts tell us
that the fact that such benefits accrue to private parties is incidental to the public purpose
and does not pose an obstacle to the taking of private property. But even on that premise,
there is no reason why - incidental or not - the parties that are the recipients of these
private benefits should not have to bear their fair share of the costs of the project, if nothing
else as a fair share of their cost of doing business.** Finally, business interests
commonly take the position that it is improper for the government to redistribute wealth,
and in that context especially they should understand that forced wealth redistribution is
just as improper when the wealth flows to them, as when it flows from them.
The sad fact is that, though "talking a god game" the courts have failed to make the law of
"just compensation" just. It is therefore appropriate for the Legislature to step in and
perform its constitutional function - and its civic duty - of reforming the law to make it
conform to elemental notions of fairness.
* Ironically, Sherman also notes that in fact the vaunted railroad turned out to be a failure: "
. . . the road turned out to be a very bad investment, bankrupting some and crippling
others." Id. That lesson remains as true today as it was then. Some public projects for
which land is condemned fail and others are never built at all.
** Thus, in Kansas a statute provides that in condemnations of land for an ultimately
private use (in the case of a racetrack the compensation to the condemnee is to be 125%
of fair market value. See, State v. Unified Government of Wyandotte County, 962 P.2d 543
(Kan. 1998).
that private property may be taken for public use upon payment of just compensation. But
in practice, particularly these days, this formulation bears little relation to reality.
Condemnations for manifestly private, profit making uses abound, and the compensation
awarded by the courts falls short of being just by any rational economic or ethical
standard. Thus, we are told that the usual measure of "just compensation" is fair market
value of the taken land because such value is what sellers would accept in voluntary
transactions. Kimball Laundry Co. v. United States, 338 U.S. 1(1949). But at the same
time courts refuse to award the compensation that would be paid in a voluntary
transaction. Please don't take my word for it; the U.S. Supreme Court has explicitly
conceded as much. Recognizing the manifest fact that the "fair market value" as artificially
defined by the courts as the primary measure of just compensation falls short of what the
condemnees could obtain for their property in a voluntary transaction, the court conceded:
No doubt, all these elements of (damages) would be considered by an owner in
determining whether or not, and at what price, to sell. No doubt, therefore, if the owner is
to be made whole for the loss consequent on the sovereign's seizure of his property,
these elements should property be considered. But the courts have generally held that
they are not to be reckoned as part of the compensation for the fee taken by the
government,United States v. General Motors Co.323 U.S. 373, 379 (1945)
Why the government should thus get to enjoy a "free lunch" at the condemnees' expense,
and not have to reckon in the compensation formula the losses it consciously inflicts on
citizens, the court has never explained. And so, on the one hand courts tell us that the
award of "just compensation" is to put the condemnees in the same pecuniary position
they would have occupied had there been no condemnation, but on the other hand they
assert that the condemnees must nonetheless suffer a variety of demonstrable losses
which the courts deem noncompensable. These anomalies become particularly morally
intolerable in the context of today's redevelopment condemnations which are often not for
any real public use at all, but rather for the private enrichment of redevelopers, mass
merchandisers, automobile dealership, professional sport team owners and even
gambling casinos. See McKirdy, The New Eminent Domain. Public Use Defense
Vanishing In Wake of Growing Privatization of Power, 155 N.J. L. J. 1145 (Mar. 15, 1999),
Starkman, Take and Give: Condemnation Is Used To Hand One Business Property of
Another, Wall St Jour., Dec. 2, 1998, p. Al. It thus becomes appropriate to inquire how this
absurd legal doctrine could develop at all, much less in the name of constitutional law that
exhorts "fairness and equity" as its watchword.
The origins of this ethical and logical mess are historical. Unlike other Western countries
whose laws protected private property rights, in America land was plentiful, cheap and at
times free for the taking by anyone. There were very few condemnations in the early days.
They did not appear on the scene in significant numbers until the coming of the railroads
in the mid-19th Century. In his memoirs, John Sherman (who before embarking on his
political career was a railroad lawyer) describes early, pre-Civil War railroad
condemnations in Ohio as follows:
Much of the [railroad] right-of-way was freely granted without cost by the owners of the
land. As the chief benefit was to inure to the farmers, it as thought to be very mean and
stingy for one of them to demand money for the right-of-way through his farm. I went over
the road from Mansfield to Plymouth with a company of five appraisers, all farmers who
carefully examined the line of railroad, and much to my mortification, assessed in the
aggregate for twenty miles of railway track, damages to the amount of $2,000. I honestly
thought this an exorbitant award, but the same distance could not be traversed now at a
cost of for right-of-way for ten times that sum. John Sherman's Recollections of Forty
Years in the House, Senate and Cabinet, Vol. L P.8 I (I 89.5)*But what Sherman did not tell
his readers was that the railroads were not only taking advantage of unsophisticated
farmers, but of the state government as well. The state was subsidizing the railroads and
other road builders to such an extent that by the 1850s Ohio was $20,000,000 in debt and
paying $1,000,000 a year in interest - huge sums in the mid-1800s. Bryant, Eminent
Domain - Its Use and Misuse, 39 U. Cin. L. Rev. 259, 262 (1970). Thus while Sherman
professed to be incensed by the "exorbitant" award of $100 per mile of railroad
right-of-way, his employers were raiding the public treasury to the tune of millions. This is
by no means an isolated historical event. In the late 1960s and early 1970s, the
California Division of Highways (now Department of Transportation) was accumulating
annual surpluses on the order of hundreds of millions of dollars per year, while
simultaneously arguing to the state courts that condemnees should not receive
compensation for all demonstrable losses suffered by them. See, statistics collected in
Kanner, Condemnation Blight: Just How Just Is Just Compensation? 48 Notre Dame
Law. 765, 786, n. 101.
These bits of history reflect what went on throughout the country. Worse, during the 19th
Century formative periods of American eminent domain law, in many areas there was an
unwholesome relationship between railroads and judges who often enjoyed free railroad
passes. For further discussion of the origins of the unfair rules of compensation in
American eminent domain cases see, Comment, Eminent Domain Valuation in an Age of
Redevelopment: Incidental Losses, 67 Yale L. Jour. 62 (1957), Spies and McCoid,
Recovery of Consequential Damages in Eminent Domain, 48 Va, L. Rev. 437, 449-450
(1962), Bryant, supra; 39 U. Cin. L. Rev. at 262 (1970), Risinger, Direct Damages: The
Lost Key to Constitutional Just Compensation When Business Premises Are
Condemned, 15 Seton Hall L. Rev. 483 (1985).
All this eventually produced a prevailing judicial culture that until this day views American
condemnees with suspicion and at times with outright hostility. Nowhere is that better
illustrated than in the area of business losses where most courts repeat at times absurd
justifications for denying compensation to condemnees for the destruction of valuable
businesses conducted on the condemned land. Adding insult to injury, when it comes to
non-condemnation fields of law - such as business torts, divorce and taxation - the same
courts that profess an inability to value businesses somehow manage to do so just fine.
See Risinger, supra, 15 Seton Hall L. Rev-483 (1985), Kanner, When Is Property Not
"Property Itself" -A Critical Examination of the Bases of Denial of Compensation for Loss of
Goodwill in Eminent Domain, 6 Cal. Western L. Rev. 57 (1969).
Similarly, American courts have by and large turned a blind eye to the acute problem of
under compensation of condemnees that occurs by virtue of the fact that their litigation
expenses are not recoverable (only Florida allows them as a matter of state constitutional
law). What that means is that many property owners are forced to accept less than the fair
market value of their land because the cost of litigation is likely to consume or severely
erode any recovery exceeding the condemnors' inadequate offer. Others, who do recover
proper compensation after having to litigate over it, wind up under compensated because
their attorneys' and appraisers' fees have to come out of their recovery.
The studies that have been performed indicate that under compensation is common. See
Hearings Before the Select Subcommittee on Real Property Acquisition of the Committee
on Public Works, House of Representatives, 88th Congress, Second Session, (1963),
Berger and Rohan. The Nassau County Study; An Empirical Look Into the Practices of
Condemnation,67 Colum. L. Rev. 430 (1967). Though in theory such practices were
supposed to be ended by enactment of the Uniform Relocation Assistance Act, they have
continued unabated. See Report by the Controller General of the United States, The
Federal Drive To Acquire Private Lands Should Be Reassessed, CED-80-14 (Dec. 14,
1979), Id., Federal Land Acquisition by Condemnation- Opportunities to Reduce Delays
and Costs, CED-W54 (May 14,1980).
It was studies of this type and the angry popular reaction to the mass condemnations that
followed the enactment of the Federal Aid Highway Act of 1956, and the widespread urban
redevelopment condemnations, that led to some reform of eminent domain law by
legislative bodies in several states and to the enactment of the federal Uniform
Relocation Assistance Act and its state counterparts. A few states have also made
provisions in their laws for condemnees to recover their litigation expenses (i.e. attorneys',
appraisers' and other expert witness fees) when their award of just compensation
exceeds the condemnor's offer (some states require that the overage exceed a specified
percentage, ranging from 10% to 15% above the condemnor's offer; in New York and
California the award is largely discretionary with the court).
The area of business losses remains a blot on the law of eminent domain. The value of a
business, its goodwill or going concern value, is widely recognized as property that is
protected by law, except in eminent domain - an anomaly for which the courts have not
offered an acceptable justification. Only Alaska courts permit recovery of compensation for
the loss of business. Michigan and Minnesota allow compensation under some limited
circumstances where the business cannot be relocated, and the courts of Georgia permit
compensation where the business is unique. Otherwise, with a few statutory exceptions,
business losses remain noncompensable, which means that business people,
particularly owners of small businesses are "fair game" when condemnation actions are
filed to take the land on which their businesses are located. Many of them lose their
businesses and are never able to reopen them.
Thus, 30 years after the enactment of relocation assistance laws, much remains to be
done in this field. Though historically it is the courts that construe the term "just
compensation" because it is a constitutional term, they decide only what the minimum
constitutional requirements are. There is nothing in the law to keep legislatures from
acting in this field so as to provide a level of just compensation that is above that bare
bones minimum, that is just in fact. Indeed, when the courts refuse to reform
unsatisfactory rules of eminent domain law, they often indicate that this is a proper task for
the legislatures.
What needs to be kept in mind clearly, but alas is too often overlooked, is that the people
who find themselves in the path of a public project are not some sort of enemy to be
treated with disdain. They are Americans - good, ordinary people who have been minding
their business, paying their taxes and generally putting their property to useful and lawful
purposes. When by reason of true public necessity they have to be dragged into court so
that their land can be taken from them, and they have to be moved, that should be done
though a process that is fair to them. They are called upon to surrender their hard eamed
property for the good of society, so it is only fair that the true cost of the acquisition be fairly
spread on the society that benefits from the creation of that public project, and is thus
under a moral obligation to recompense them fairly.
As for takings that, though legally denominated for "public use" in reality are for the
creation of private profit making enterprises, there is simply no excuse for denying
compensation for all demonstrable losses suffered by the condemnee. The courts tell us
that the fact that such benefits accrue to private parties is incidental to the public purpose
and does not pose an obstacle to the taking of private property. But even on that premise,
there is no reason why - incidental or not - the parties that are the recipients of these
private benefits should not have to bear their fair share of the costs of the project, if nothing
else as a fair share of their cost of doing business.** Finally, business interests
commonly take the position that it is improper for the government to redistribute wealth,
and in that context especially they should understand that forced wealth redistribution is
just as improper when the wealth flows to them, as when it flows from them.
The sad fact is that, though "talking a god game" the courts have failed to make the law of
"just compensation" just. It is therefore appropriate for the Legislature to step in and
perform its constitutional function - and its civic duty - of reforming the law to make it
conform to elemental notions of fairness.
* Ironically, Sherman also notes that in fact the vaunted railroad turned out to be a failure: "
. . . the road turned out to be a very bad investment, bankrupting some and crippling
others." Id. That lesson remains as true today as it was then. Some public projects for
which land is condemned fail and others are never built at all.
** Thus, in Kansas a statute provides that in condemnations of land for an ultimately
private use (in the case of a racetrack the compensation to the condemnee is to be 125%
of fair market value. See, State v. Unified Government of Wyandotte County, 962 P.2d 543
(Kan. 1998).
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