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Nicole Garnett, Guest-Blogging About Eminent Domain:

I'm delighted to say that Notre Dame law professor Nicole Garnett -- a good friend of mine and a top property law scholar -- is going to be guest-blogging this week.

Nicole teaches property, land use planning, local government law, and an urban property law seminar. Before going into teaching she clerked for Justice Thomas and for Judge Morris Arnold (Eighth Circuit), and worked for Institute for Justice, a top libertarian public interest law firm, which has had a particular interest in economic rights and eminent domain abuse. She has written many articles, including Save the Cities, Stop the Suburbs? (Yale Law Journal), The Neglected Political Economy of Eminent Domain (Michigan Law Review), Relocating Disorder (Virginia Law Review), Ordering (And Order In) The City (Stanford Law Review), and more.

This week, she'll blogging about her Michigan piece, The Neglected Political Economy of Eminent Domain; here is the abstract (paragraph breaks added):

This Article challenges a foundational assumption about eminent domain -- namely, that owners are systematically undercompensated because they receive only fair market value for their property. The Article shows that, in fact, scholars have overstated the undercompensation problem because they have focused on the compensation required by the Constitution, rather than on the actual mechanics of eminent domain.

The Article examines three ways that Takers (i.e., non-judicial actors in the eminent domain process) minimize undercompensation. First, Takers may avoid taking high-subjective-value properties. Second, Takers frequently must pay more compensation in the form of relocation assistance. Third, Takers and property owners may voluntarily settle on above-market compensation during pre-condemnation negotiations.

The Article concludes by reflecting upon current efforts to reform eminent domain legislatively. Prominent legal scholars recently have proposed compensation-based reforms as an alternative to constraints on the use of eminent domain. The final Part rejects this suggestion, arguing that there are two problems, unique to takings raising public use questions, that more money cannot solve: First, high compensation levels may undermine political resistance to questionable projects; second, private takings may generate non-instrumental harms that will persist even as compensation increases.

One brief note: As you can gather from the abstract, the article reports that eminent domain abuse is not as serious a problem as some have suggested. Please keep in mind that the article comes from someone who has studied eminent domain law quite carefully, and who comes at the subject with a respect and sympathy for private property rights. Naturally, this doesn't mean that the article is correct. But it should, I hope, remind people to avoid casual assumptions of the "she must be some left-wing law professor who's just into socialism" / "she must be some big government fan who's into massive social engineering projects" variety.

OrinKerr:
Welcome, Nicole. Looking forward to your posts.
2.12.2007 12:49am
Ilya Somin:
Welcome!!
2.12.2007 1:49am
Lev:
I'll be interested in reading what she says about Kelo etc. and such related topics as use of emminent domain to build sports stadiums.

I don't really want to be a little stinker here, but shouldn't the welcomes to Ms Garnett be in Ms. Garnett's first blog rather than Mr. Volokh's? Not that there is any wrong with that.
2.12.2007 2:09am
logicnazi (mail) (www):
I'm very interested in hearing about this as it was my impression (admittedly based on little evidence) that substantive power gap between those doing the seizing and those whose property is seized lead to frequent under compensation even relative to market value. However, it's entirely possible that this is uncommon.
2.12.2007 5:08am
Cato (mail):
In my experience those three points are correct, but the proposition is generally incorrect. Undercompensation occurs because only one level of land user -- the fee owner generally -- gets compensated. What happens to the lessee with a thriving business at the site, or the mortgagee or the licensee of an advertising sign at the site? Their positions are generally wiped out without compensation.
2.12.2007 6:49am
Sasha Volokh (mail) (www):
And, note that the end of the Abstract undermines any assumption that Nicole is hostile to private property rights:

The final Part rejects this suggestion, arguing that there are two problems, unique to takings raising public use questions, that more money cannot solve: First, high compensation levels may undermine political resistance to questionable projects; second, private takings may generate non-instrumental harms that will persist even as compensation increases.

In other words, the taking is the problem (with its "non-instrumental harms"), not any compensation issue. If a compensation rule means more takings because political resistance is undermined, then it may be more important to maintain political resistance.
2.12.2007 9:56am
Jake (Guest):

If a compensation rule means more takings because political resistance is undermined, then it may be more important to maintain political resistance.

But that only works if you have a mandatory non-compensation rule, no? That would be an odd restriction on government power.

The sticking point for me for any argument that landowners are happy with the compensation level for takings is, why do we need the takings power at all then? If everybody is happily receiving more than their subjective value, why do you need the ability to take the property by force?

Maybe the claim is that there would be a lot of holdouts if not for the takings power--but the existence of a lot of holdouts is inconsistent with the idea that everybody is getting paid their subjective value, unless the author has discovered some way to reliably separate holdouts from people who sincerely place a high value on their property. And if you could do that, why not just limit the eminent domain power to true holdout situations?
2.12.2007 10:57am
Viscus (mail) (www):
As is typical of former Clarence Thomas clerks, former Institute for Justice attorneys, board members of the Cato Supreme Court Review, and faculty sponsors of the Federalist society, I am sure that we have to worry about Garnett's left-wing bias.

Just as we have to worry about Rush Limbaugh's left-wing bias.

Seriously. If there is a valid concern here, it should be a concern about right-wing bias.
2.12.2007 1:27pm
Viscus (mail) (www):
Jake,

I think the problem with your reasoning is that it fails to take into consideration maximization. Good negotiators can and will try to get more than their individual subjective value when they sell.

Let:
The fair market value of my property is equal $4.
The individual subjective value of my property is $5.

Let us say that there is a huge transportation project that needs to make use of my property or incur $100 extra costs.

Then:
We need takings because, absent eminent domain, if I am a relentless negotiator, I can potentially get $99 for my property when it is only worth $4 on the free market and my individual subjective value is only $5.

Here the increased price I receive has nothing to do with any productive effort on my part. Instead, I am merely extorting the public.
2.12.2007 1:35pm
David A. Smith (mail) (www):
As I've posted on my blog, compensation in eminent domain, whether for economic development or otherwise, is complex. I'll read Prof Garnett's article with interest. (Practitioners find that those who property is taken often get very good *practical* results; I don't know whether this will be reflected in Prf Garnett's piece. And the proceeds are tax free.) Meanwhile, in ED4ED, I have put forward an alternate way of providing a better fair value consideration in this post and would be interested to hear from others.
2.12.2007 2:02pm
Jake (Guest):
Viscus:

That's the empirical claim about holdouts about which I feel quite a bit of skepticism. First off, how common is it for there to be precisely one piece of land that can derail an entire project? Secondly, there has been some good literature showing how private companies, operating without eminent domain, have been able to assemble bundles of land without running into the holdout problem. IIRC, one of the useful techniques is to get options to buy property that you don't exercise until you have enough such options to make the project worthwhile. So, in your example, the government wouldn't make the $100 investment until you have a $5.01 (or $6, if they're feeling generous) option to buy the property.
2.12.2007 3:03pm
chanceH (mail):

Let:
The fair market value of my property is equal $4.
The individual subjective value of my property is $5.


No. I won't let that be. It can't possibly be true. If I value my property at $5 (and just for the record, all property valuations are "subjective"), then the fair market value has to be at least $5. By definition of "fair" and "market".

Now we can let the "unfair-and-arbitary-crony-commitee-valuation" vary in a manner which is completely unrelated to the owners valuation. Lets just go ahead and admit this is the rationalization payoff figure we are using.
2.12.2007 5:01pm
loki13 (mail):
chanceH,

I disagree with you on because of the use of the adjective 'fair' before 'market value'.

If a piece of property has a FMV of $4, then that property, if floated on the open market, would be sold at $4.

If the current owner has an idiosyncratic belief that the property is worth far more, that is not its FMV, even if that owner would not sell it.

The art world provides a valid example. A painting might be 'priceless' (which it is, as it is unique). It might have a value to the owner of some exorbitant sum that could never be matched. However, if placed into a bidding process, it would be sold for some dollar figure (theoretically, its FMV). In this case, the FMV < OPV (owner's perceived value).

Now, consider the case of the highway. A highway must be built. The government has determined the best area for it to go through. It has reached accords to buy the property for the proposed route with all property owners save one, who, for sentimental reason, belives that there property is 'priceless' or worth some outrageous value higher than it would ever be sold for (or, cynically, hopes to achieve a higher value than could normally be bargained for). Again, FMV < OPV.

I pass no judgment regarding eminent doamin for cases not involving government use or for public carriers (i.e. railroads and the like).
2.12.2007 5:29pm
Gideon Kanner (mail):
I have read Ms. Garnett's article and her understanding of the process is naive at best. First, the URA is a paper tiger: (a) some states only apply it to federally assisted condemnations, leaving all others outside its purview, (b) the additional compensation provided by the URA doesn't come close to being realistic (e.g., just you try setting up a busioness at a new location for $20,000. Hah!(c) and to get even that pittance you have to forego moving costs. Finally (d) the URA provides that its violations do not give rise to private causes of action.

Second, with all due respect to her depiction of the idiosyncratic Chicago experience, Ms. Garnett does not understand the prevailing mechanics and customs of precondemnation appraisals, particilarly for highway rights-of-way and redevelopment projects. They are prepared by mass production by lowest bidders who, in order to secure future emloyment, try to impress their government clients by being extremely conservative in their judgments and coming in with low opinions of value. Even the "real" government appraisals prepared for litigation are often weak or unsound, as demonstrated by the fact that owners' condemnation lawyers charge contingent fees based only on the overage (i.e., the funds they recover over and above the government appraisals). If those appraisals were sound, these guys would starve, which they manifestly don't.
The Salt Lake Tribune conducted a study a few yars ago and found that of the property owners who refuse the state offers and litigate value, (if memory serves me) 80% recover more than the offer, the average increase being 40%. That's par for te course.
To the extent Ms Garnett is being defended as a conservative, that only illustrates the bon mot of the late Bert Burgoyne, an outstanding Detroit condemnation lawyer, who said: "The problem with this field is that liberal judges don't believe in private property, and conservative judges don't believe in making the government pay." Amen to that.
2.12.2007 7:42pm
Tom Holsinger (mail):
I've been on all sides of this legally, representing the landowners, representing local governments, and now evaluating takings as a trial court research attorney. IMO landowners rarely get as much from eminent domain or inverse condemnation as from a private sale, but generally it is pretty close. OTOH, payment is rapid once terms are agreed on, or judicially set.

Absent from this discussion are the expense of legal fees for the landowner at the low end, where those can be significant relative to the value of the property at issue, and give governments unfair bargaining power. At the high end the tax consequences for individuals are sometimes significant.

Overall I'd say that the eminent domain system, at least in California where I practice, works reasonably well and offers the vast advantages of speed and certainty.

It is certainly possible for eminent domain to be used abusively, and that definitely happens from the case citations I've followed on this board, but that seems to be at least as much due to corrupt local political cultures as the law.
2.12.2007 11:24pm
chanceH (mail):
loki13:

Given that the property in question will be ..... ahem .... appropriated, I don't think aiming for a hypothetical-estate-sale price is completely unreasonable.

But, it looks like your definition of "fair market value" is "one cent more than the second-highest-bidders subjective valuation at an estate sale", whereas mine is the same as yours (assuming a constant set of buyers over both definitions), with the added condition that it is above the owner's subjective valuation, or "priceless" if there is no intersection.

reasons I think my definition is better than yours:

1) My definition allows some things to be "priceless". For example, my lungs. Your definition does not.

2) If there is no intersection of subjective valuations, there is no voluntary exchange, and therefore, there is no "market".

3) It certainly seems to me that it is more "fair" to allow the subjective valuations of both the owner and the potential buyer(s) to impact the actual transaction price, rather than just the buyers.
2.13.2007 5:09pm
loki13 (mail):
chanceH,

I would certainly agree that lungs are, in a sense, priceless. However, the main thrust of this discussion is whether land is more of a fungible commodity (there is more of it than can be bought) or every given piece of land is unique &necessary in its own way (akin to your lungs).

In common law (except Idaho) we traditionally view land as unique, hence the availability of an equitable remedy in land dispute contract cases that is not available in dispute over contracts for goods. However, there is also the idea that land should be put to its best economic use and not left fallow (hence adverse possesion statutes). There is also the competing idea that in damages for land despoiled, you are given the FMV for your land (what others would purchase it for) not necessarily what you would wish to sell it for. The one common theme is that subjective economic valuations are disfavored- either an equitable remedy or FMV.

I tend to view ED as a favorable outcome for many landowners. The government taking your land is preferable to, say, a hurricane or an earthquake's version of ED. This is not to say there are problems with ED (there can be) but these are matter best left to the politcal process, not the judiciary (other than to police good-faith efforts, due process etc.).

Disclaimer- I in no way claim to be an expert in the field.
2.13.2007 9:27pm