The Volokh Conspiracy

The Real Estate Section in today's Washington Post has an informative article by Kenneth R. Harney on the likely winners and losers from Kelo, "Court Ruling Leaves Poor at Greatest Risk":

Where does that leave you if your local government sees potential for a higher and better use for your home and land? What if you, like the New London homeowners, don't want to give up your home no matter what you're offered?

In brief: The court's decision leaves you in a weaker position, at least under federal law, than you might imagine. The majority of justices on the current court appear to be saying that "public purposes" may be discernible in a wide variety of private projects. If, for example, your city's political leaders decided that all the houses on your street would produce higher tax revenue as a regional shopping center, they are now in a stronger position to seize your house under the court's Kelo doctrine.

As a practical matter, who's really at greater risk of such seizures? Surely not homeowners in the wealthier parts of town, who have the ears of, if not control of, the local political establishment.

Dana Berliner, a lawyer for the Institute for Justice, the libertarian public interest law firm that represented the New London homeowners, says certain categories of homeowners are at heightened risk. Based on her research on more than 10,000 of what she terms "abusive" eminent domain seizures across the country, the high-risk homeowners are:

· Residents of older neighborhoods in locations that make them attractive for a supposedly "higher and better use" -- for example, near a waterfront or in a low-density area adjacent to higher-density commercial areas.

· Working-class and middle-income areas in general.

· Neighborhoods with high concentrations of lower-income minority residents.

This being the Real Estate Section of the paper, the article also provides some practical advice for what homeowners can try to do to prevent having their homes seized and given to politically-influential developers.

Allow me to second Larry Ribstein's motion that the President nominate my dear friend and sometimes co-author Edith Jones as the obviously best appointment to replace Justice O'Connor. She is smart, thoughtful, experienced, principled, and of impeccable judgment and character. An extraordinary person and extraordinary judge. As Larry suggests, she is the obviously correct choice for the slot.

In addition, Ribstein notes another key element of Jones's background that distinguishes her from many other excellent candidates--her deep experience in business law issues, an area in which, as Larry notes, the current Court is "sadly lacking." Given the substantial portion of the Court's responsibilities on issues including bankruptcy, securities, antitrust, etc., the Court could certainly use some additional expertise on those issues.

If the President decides to appoint a woman and does not decide to name Edith Jones, I think the clear other choice is my friend Alice Batchelder of the Sixth Circuit. Batchelder, like Jones, is smart and deeply experienced, as well as sharing a particular expertise in business law. She also has great judgment and common sense. She began her judicial career as a Bankruptcy Judge, then was appointed by President Reagan to the federal District Court for the Northern District of Ohio, before being named to the Sixth Circuit by the first President Bush. Batchelder is smart, thoughtful, and charming, and would also make a superb choice to the Court. Given Batchelder's immense experience and sound judgment, she may be a somewhat easier confirmation than Judge Jones (although, as I previously noted, I think it is going to be a fight regardless, and the goal should not be to try to avoid a fight, but rather to get someone actually worth fighting for).

Finally, both Jones and Batchelder would bring to the Court something that currently is sorely lacking--a real-world, outside-the-beltway perspective. The insularity of the Court today is quite striking, especially after the long stability of the Court's membership, and they must be oblivious as to what is actually going on in the rest of the country and how they are perceived in real America (sorry Justice Breyer, I don't count Cambridge as "real America"). It has been decades since any of them lived outside the northeast corridor (at least Justice Thomas gets out in his RV during the summer). It might be useful to have someone around who can pop their balloons every once in awhile and give them a sense of the real world. Jones and Batchelder, both of whom are absolutely loaded with good common sense and grounding, would certainly meet this test. Others on the short list, such as McConnell, Bainbridge's choice, obviously fit this bill as well (although Michael's real-world credentials are somewhat attenuated by his professional career as an academic...).

If the President decides to appoint a woman, it seems obvious that Jones is head-and-shoulders above the pack, with Batchelder making an excellent choice as well. As far as I can see, there are no other candidates in the same league as these two (assuming the President doesn't want to pick another fight with Brown again so soon).

Update:

[In response to some emails, I wanted to make sure that readers recognized that my crack at academics in discussing Michael McConnell's suitability for the Court was a joke.]

Roy Poses has an interesting post on the Health Care Renewal blog, where he looks at some of of the interrelationships between the parties and some of the financial details in the case.

[In my "Economics of Kelo" post, I simplified the actual relationship between Pfizer and the City of New London and the New London Development Corporation in order to try to get to the larger question of the role of "public use" in the case. I don't think it changes the analysis of the basic constitutional question and what the Court decided, which is why I used "Pfizer" as a shorthand reference to the private parties in the case in my post. Those looking for a more detailed summary of the facts can find it in Dr. Poses's post.]

For those, like me, who never really got the hearsay rule and its exceptions, you have two choices. First, you can do like me and practice in bankruptcy court, which has somewhat loose de facto evidence rules.

Second, you can learn everything you need to know from this video enactment of the hearsay exception acted out by Lego characters (yes, Lego characters) with a rocking musical accompaniment.

HT to Sean Sirrine, who has the story behind the video as well.

Update:

Just to clarify, my comment that the video has "everything you need to know" was in jest--I realize that there are many more exceptions to the hearsay rule.

I'd be out of a job quick if we could replace all the law professors with Lego characters...

P.S.: A reader reminded me that the tune for the video is from the Schoolhouse Rock video "Interjection!"--I knew I recognized it, but couldn't place it precisely.

Sean Sirrine has a very thorough roundup of the various legislative proposals related to a Ninth Circuit split.

Students say yes, some faculty say no, Arabic language department says get out of here. The story here.

Reading the tea leaves, it seems clear that there will be a brutal confirmation battle regardless of who is nominated. At this point, a confirmation battle will be supply-side driven--the interest groups have the money already, and they are going to spend it one way or the other. And then try to raise some more. And the politicians are going to try to raise money by pandering to these same players. No one is going to roll over on either side just because a particular nominee is thought to be "moderate" rather than "conservative".

The credentials or qualifications of the particular nominee under consideration will be largely beside the point.

So, the same nasty fight is going to occur regardless of who is nominated, and be just as nasty and expensive, regardless of who is nominated and the particular perception of whether he or she is moderate or conservative. So, it seems to me, the Bush Administration would be smart to simply nominate the best person that they want, and not be tricked into thinking that they can somehow avoid a nasty confirmation battle by nominating someone with a more "moderate" perception.

So if there is going to be a fight (which there undoubtedly will be), they may as well at least make it someone worth fighting for.

On the Comments Board to my "Economics of Kelo" post (and let me echo David and others on how much I have learned from reading those comments), one participant raised an excellent question, that I think is worthy of a longer response (sorry to write so long, which I have been doing a lot lately for some reason).

Bill writes on the Comment Board:

Todd's economic analysis here is great. [TZ--I think this part of the post is especially brilliant.] But I am reminded of his previous reluctance to embrace social science in considering whether Ten Commandment displays or litigation about them is more divisive. [I wrote a long post under his original one there.]

Todd: You call Breyer's analysis "second rate". Is there any other relevant difference (besides quality of analysis) between your Kelo analysis and the social scientific inquiry into divisiveness that you forswore? I can think of two or three that I mentioned in the other post. But none of them really seem decisive to me.

Perhaps I'm just deluding myself, but I think these situations are distinguishable. So let me take a crack at explaining why I think so, and when and what type/quality of social science evidence may be relevant. Note that it is a seperate question whether this sort of evidence should ever be relevant to constitutional decision-making, a different question that arises in many cases (such as the reliance on social science evidence in Brown v. Board of Education and whether the reliance on the social science evidence there was appropriate and improved the Court's decision and decision-making).

In my "Economics of Kelo" post, I am trying to argue that economics can help us to understand why the "public use" clause is written into the Fifth Amendment and should be enforced. In the "divisiveness" context (here and here), recall, my argument is that the Court should either skip the divisiveness inquiry or actually use real social science to determine whether or not religious displays are truly divisive (just like they rely on empirical evidence in reviewing dormant commerce clause cases, as in the wine cases).

The problem in the religion context, I think, is that Breyer is doing neither--he is postulating that religious displays are "divisive" and that some case rulings will reduce this divisiveness (but not all)--but the Court has no empirical evidence to support these claims. Certainly, such empirical evidence could be produced through surveys and studies, it just hasn't (or at least Breyer doesn't rely on it). Instead, he is relying on his own gut assumptions about what is or is not divisive, rather than real social science research.

Given the lack of any good social science evidence on this point, I believe that the Court should rely on principle, rather than Breyer's personal speculations, formed by a relatively cloistered and narrow social and intellectual life unrepresentative of the overwhelming majority of Americans. If valid social science evidence were available, and it tended to a determinate answer on the question of divisiveness (one way or the other), there would still be the more fundamental question as to whether this sort of social science evidence should be relevant to the decision (a question, of course, that is relevant to all "Brandeis brief"-type evidence). The only polling data I have seen suggests that these displays are not that divisive. Certainly I wouldn't rely on this one weak poll to conclude that the Ten Commandments are not divisive, but there is also no strong evidence to back up Breyer's argument that they are divisive (or to clarify, there may be such evidence out there, but he doesn't rely on any in his decision). So until such evidence is produced one way or the other, it is largely just my hunch against his. And, my own personal hunch would be that if such research were produced, it wouldn't tend to support the distinctions that the Court is drawing. But, of course, my personal hunches don't seem any more valid or relevant to Supreme Court decision-making than Justice Breyer's personal hunches.

So, in this light, it would certainly be valid to reject my Kelo analysis on the ground that the economic analysis that I put forth is incorrect or incomplete, in the same spirit as my criticism of Breyer's gut-feeling estimates of divisiveness in the religion context.

In my defense, however, I would offer that using economic analysis to support the general proposition that the Court should consider the "public use" clause in a case like Kelo is different from saying that the Court should use this evidence to drive results in any given case, as Breyer seems to be suggesting. I am not saying that the economic analysis can be used to balance subjective value with holdout problems in any given case; rather, I am supporting the more general proposition that there are very good reasons why we should take seriously the "public use" requirement in the Constitution.

To illustrate the distinction, consider freedom of speech. There is a difference between saying that the concept of a "free marketplace in ideas" provides a general presumption in favor of protecting freedom of speech versus saying that in any given case a particular idea is a valid contribution to the marketplace of ideas. I would argue that my economic analysis is more like the former (explaining the principle, but not the outcome). And that Breyer's analysis in the Ten Commandments cases is more like the latter (outcome-dterminative), only badly done. And that the Supreme Court's analysis in the context of facially-discriminatory bans on interstate commerce (such as in Granholm and older cases such as Maine v. Taylor) is in the second category (outcome-determinative), but I think generally well done.

Even Congress's "lone self-described socialist, Rep. Bernard Sanders of Vermont" doesn't like Kelo:

I disagree with the Supreme Court's decision in Kelo v. New London," Mr. Sanders said. "I believe that the result of this decision will be that working families and poor people will see their property turned over to corporate interests and wealthy developers."

Rep. Maxine Waters, "California Democrat and member of the Congressional Black Caucus, said she is 'outraged' by the decision. 'It's the most un-American thing that can be done.'"

And when is the last time those two agreed with Tom DeLay?

"The Supreme Court voted last week to undo private property rights and to empower governments to kick people out of their homes and give them to someone else because they feel like it," said House Majority Leader Tom DeLay, Texas Republican. "No court that denies property rights will long respect and recognize other basic human rights."

The Washington Post describes the legislation, co-sponsored by conservative James Sensenbrenner and liberal John Conyers in its story, curiously titled "House Votes To Undercut High Court On Property"

The House measure, which passed 231 to 189, would deny federal funds to any city or state project that used eminent domain to force people to sell their property to make way for a profit-making project such as a hotel or mall. Historically, eminent domain has been used mainly for public purposes such as highways or airports.

The measure, an amendment to an appropriations bill, would apply to funds administered by the departments of Transportation, Treasury, and Housing and Urban Development. House Majority Leader Tom DeLay (R-Tex.) and Majority Whip Roy Blunt (R-Mo.) said they will push for a more inclusive measure that would apply to all federal funds.

A fact sheet said under the bill the locality or state would "lose any federal funds that would contribute in any way to the project the property would be taken for."

Nancy Pelosi, by contrast, agrees with the decision and opposes the legislation:

House Minority Leader Nancy Pelosi, California Democrat, said she "would oppose any legislation that says that we would withhold funds for the enforcement of any decision of the Supreme Court, no matter how opposed I am to that decision." She then added: "And I'm not saying that I'm opposed to this decision." Arguing that Congress has no business interfering with the ruling unless it wants to amend the Constitution, Mrs. Pelosi said: "This is almost as if God has spoken."

So how about a constitutional amendment that makes it clear as to the limits of the emininent domain power along these lines--"nor shall private property be taken for public use without just compensation."

What amendment do we need--change the type font to italicize the words "public use"?

[In light of the Supreme Court's recent religion cases, the irony inherent in Congresswoman Pelosi's characterization of the Supreme Court's ruling in Kelo as "almost as if God has spoken" is just too easy, so I'll just let the readers supply their own ironic commentary on that one.]

Update:

An even curiouser headline of the same debate from the New York Times:

Republican Lawmakers Fire Back at Judiciary

Stepping up their assault on the federal judiciary, Congressional Republicans announced efforts on Thursday directed at overturning two recent Supreme Court decisions, one that allowed government to claim private property for economic development and another that stripped Kentucky courthouses of the Ten Commandments.

In contrast to the headline, the story notes in paragraph 6:

Illustrating the broad discontent in the House over the court ruling on property rights, House members voted 365 to 33 late Thursday night in support of a resolution expressing "grave disapproval" at the court decision.

It does not note this particular item from the Washington Post story, which I forgot to include in my original post:

Sen. John Cornyn (R-Tex.) introduced a similar measure and immediately drew a Democratic co-sponsor, Sen. Bill Nelson (Fla.), as well as Sen. Rick Santorum (R-Pa.), who is number three in his party's leadership. The House bill is sponsored by Judiciary Committee Chairman F. James Sensenbrenner Jr. (R-Wis.). Its Democratic co-sponsors include Reps. John Conyers Jr. (Mich.), Maxine Waters (Calif.) and Peter A. DeFazio (Ore.).

And yet the New York Times summary of all of this bipartisan activity is "Republican Lawmakers Fire Back at Judiciary" and that Republicans are "Stepping up their assault on the federal judiciary"?

At the least the Post headline, while implying editorial disapproval of Congress, wasn't as heavy-handed as the Times in turning it into a partisan attack (in fact, to reinforce the implicit message, the only picture in the on-line version of the Times article pictures only Republican lawmakers).

And some wonder why I don't generally read that Times any more? For more reasons, see here.

Orin says it is generally thought to be good. I'm not so sure (I honestly haven't made up my mind). In general, I think it is probably a good thing, but I think there may be substantial unrecognized costs.

It is true that articles are much shorter in other disciplines. I suspect the main reason for that is that most scholarship is in the nature of what Kuhn calls "normal science," i.e., science that takes place within a commonly-accepted paradigm. As such, most research is conducted within a relatively closed set of assumptions and techniques, which, in general, need not be repeated from one article to another. The problem with law review article length became that too much length was taken with rehashing the "normal science" portion of the article, primarily (in my view) because of the need to educate the law students reading the article, to whom there is no normal science because they haven't been immersed in the literature of a given field. So to the extent that most law review articles are in the nature of "normal science," shorter is better, following the convention of other fields.

In addition--and this differs from law reviews--other fields seem to have constraints on the number of journals in a field, and hence, on the number of slots for articles. Shorter articles permit each journal to publish more articles in each issue, which may be useful for capacity-constrained journals and fields. Law reviews seem to be under no constraint (in fact, it may be that there are more slots available in journals than there are articles truly worthy of being published).

The problem, however, are for those articles that are outside the established paradigm, and thus are not in the nature of normal science. Those articles may need to be longer, in order to educate the editors and the reader as to why a new paradigm is being proposed.

I have personally felt this pinch--because much of my work on consumer bankruptcy and consumer credit draws on economic concepts and empirical research that has been largely ignored by the legal academy, it does in fact take a fair amount of set-up. The economic approach to consumer bankruptcy, as one might expect, is well-established in the economic study of consumer credit--and much of the work there is now empirical, meaning shorter articles in the normal science mode.

But law professors have gone off in a very different direction which has little to with economic analysis. As a result, although the dominant paradigm in economics, it is not in law. So the short-cuts associated with ordinary science--and shorter articles--are in fact an obstacle for much of my work.

So I'm still on the fence as to whether adopting a rule requiring shorter articles will turn out to be an improvement over the old standard that evaluated articles on a case-by-case to determine whether they were the "correct" length.

The basic economic problem of eminent domain is the trade-off between strategic holdouts on one hand and sincere subjective value on the other. The nature of a "property" right is that it gives a holdout power to anyone who holds it--I don't have to sell you my car or my autographed picture of Franco Harris's Immaculate Reception. And you can't have the government take them, even if you promise to pay compensation, but can acquire them only if I consent to what you give me in exchange. In so doing, we protect my subjective value in the good--i.e., the value that I put on Franco (especially because my wife gave me the picture as a Tenth Anniversay gift) is much higher than the market value of my Franco picture. So, in order to protect my subjective value, I am given a property right which permits to refuse to sell it--even for "fair market value." I have a holdout power, but it is not a problem, because we assume that the reason I refuse to sell is because I place a higher value on Franco than the market price.

This "holdout" power potentially becomes a problem in a case such as Kelo, where the buyer needs to assemble several pieces of land to build a building. Any individual may decide to hold out to try to extract a larger share of the surplus associated with the higher economic value from the transaction.

The problem is that in theory, in any given situation when someone refuses to sell we can't tell whether it is because of strategic holdout or subjective value. If we knew this, then we could get rid of market transactions in general, and move to a system of central planning where the planning czar just assigned various goods to their highest valued user. But that obviously won't work. But there are better, and worse, ways of dealing with this problem. The overall facts of Kelo illustrate one of the worse ways of dealing with it, and why we need to have a real "public use" doctrine that doesn't permit taking from A to give to B.

Suppose I make you an offer for the "fair market value" of your house and you refuse. So I go to the City Council and tell them that I will make an enforceable promise to pay one dollar more in taxes than you pay on your house if they would just condemn it and give it to me. And if they evicted you, they wouldn't pay your moving expenses or disruption expenses associated with finding a new place to live. Now imagine you grew up in the house, lived there for sixty years, raised your kids there and hoped to die there.

Under those facts, would your unwillingness to accept my offer evidence that you are just being a strategic holdout? Certainly it seems plausible in that situation that the refusal of you to sell to me is efficient, in that you have high subjective value. So if I get the house and only have to pay fair market value through an eminent domaian proceeding, that result is economically inefficient because the property is not held by the highest-valued user. But in addition, we know that the strategic holdout threat isn't meaningful here. Why? Because at the time I refuse to sell, I have no strategic holdout power--if I don't sell, you can go down the street and buy another house. So we can infer from my behavior that my refusal to sell is the result of subjective value, not strategic holdout.

And all of this analysis excludes that the wealth loss here is not just the possibility of an efficiency loss by ignoring subjective value and the undercompensation problem (the so-called "Harberger Triangle" dead-weight loss), but also the Tullock Box of the rent-seeking expenses you and I both burn up trying to effect this political transfer rather than a voluntary market transfer (the real costs of rent-seeking, of course). When we replace a positive-sum voluntary market exchange with a political exchange, both parties have an incentive to "lawyer-up" and engage in various rent-seeking expenditures to try to get the result they desire. So this is the primary reason why the "public use" requirement is (or should be) a gatekeeper to make sure that I am not taking your house just because I want to end-run a consensual market exchange that I might find inconvenient or too expensive. None of the other restrictions on takings perform this function of properly channeling private transactions through the market where they belong, and where subjective value can be protected (and thus efficiency can be protected as well). Moreover, this is a threat that is unique to the private takings situation in Kelo, because with respect to a traditional public purpose taking, the undercompensation problem remains, but the strategic temptation to end-run the market to try to get the property for less than the seller's subjective value will not, because governement actors don't benefit as directly as Pfizer does.

Second, focusing on the holdout problem in the Kelo context is to focus on the wrong issue. The scenario here is different from when a government wants to build a school or post office, traditional public use purposes. Schools and post offices have to go in a particular geographic area (that's why they are being built), and thus strategic bargaining may be plausible because it is similar to a bilateral monopoly situation. The small group of landowners in the relevant area can act strategically and try to extract a high price for its sale.

In Kelo, however, there is no obvious holdout power because Pfizer could put its building in any city in America. So its not like a neighborhood school, road, or post office. In Kelo, the holdout power is created artificially by the city's desire to give Pfizer a sweetheart deal to bring it to town.

So ex ante, there is no viable holdout power in this situation because there are an infinite number of close substitute sites for the building. The building is going to be built somewhere, the only question is what city--New London, Hartford, Bridgeport, Boston, New York, Chicago, etc. The artificial scarcity that says the building has to be built in New London was created by the city's other subsidies to attract Pfizer to town (the obscenely low rent, etc.).

So if one is truly concerned about the holdout power problem, then the correct solution is to require the city to eliminate the artificial scarcity that "requires" the building to be built in New London rather than some other city, the same way that a new school would have to be built in New London. If we allow both the subsidies and the Taking for the benefit of the private party, we are allowing the distribution tail of what city the Pfizer headquarters will be built to wag the efficiency dog of whether the homeowner is holding out versus having subjective value. Instead, we want to have the parties bargain ex ante before they finally select the city--i.e., choose the city and the plot of land at the same time--not bargain ex post after the city is selected. Forcing an ex ante bargain when there are still many substitutes for the proposed site would eliminate the holdout problem and allow us to determine the extent of parties' subjective value, because the negotiations would be conducted against the backdrop of a competitive market, rather than a bilateral monopoly. The bilateral monopoly is thrust upon the city in the road or post office scenario; it is freely-chosen in the Kelo situation.

Instead, the ruling in Kelo enables the worst possible economic outcome--it permits cities to create artificial scarcity just to get a larger piece of a stable-sized pie (getting Pfizer to New London rather than Hartford), while then permitting cities on the back end to take land from private landowners who may or may not be losing subjective value and being undercompensated in the process.

And the incentive effect of Kelo is obvious--it now enables corporations to extract both subsidies and takings as the price for locating in city A rather than city B.

To further understand the second point, recall the Alaska Packers case from first-year Contracts (any of my former Contracts students out there reading this?). In that case, the shipowner and the crew bargained for wages while on the dock in San Francisco, then when the crew got to Alaska they demanded to renegotiate. The renegotiation may have been either sincere or strategic, its not clear. What we do know, however, was that the crew's bluff was real, because the captain could not turn the boat back around and cruise back to San Francisco to get a new crew without losing the seasonal catch. The Court refused to enforce the modified contract.

This is the correct answer, even though we can't tell for sure whether the subsequent renegotiation demand was sincere or strategic. The reason it is correct is because we want to make the fishermen and the shipowner in Alaska Packers have the right incentives to strike their bargain while they are all still on the dock in San Francisco. At that time there are still close market substitutes, not when they are on the boat to Alaska and it is now a bilateral monopoly situation. So we want to have a rule that enforce the first deal, not the second.

Same analysis applies here--the private taking only comes about because of the contrived artificial scarcity created by the ridiculous government subsidies to lure Pfizer to New London rather than some other city. There is no efficiency gain from providing public goods (as with a road, school, or post office). So rather than rewarding the city for creating an artificial scarcity, which then makes it vulnerable to a hold-out power, it would make more sense to deny them the right to condemn ex post, thereby encouraging more efficient arms'-length bargaining ex ante.

Recipient of the William J. Brennan Award from the DC Bar. The honor is presented biannually to a DC Bar member in recognition of "outstanding work toward furthering the public interest and equal justice."

Jonathan Adler has more.

Are any law reviews planning symposia on the Bankruptcy Reform Legislation?