Eduardo Penalver's Defense of Sotomayor's Didden decision:

Eduardo Penalver, a prominent property scholar, has written an interesting, but I think ultimately unsuccessful defense of Judge Sonia Sotomayor's ruling in the Didden case, which I described and criticized here, here, and here. As readers will recall, Didden involved a case where two businessmen's property was condemned because they refused to pay $800,000 to Gregg Wasser, a developer designated by the Village of Port Chester, NY as the primary redeveloper of its "redevelopment area" under a 1999 agreement.

Here is Penalver's argument:

At first glance, the facts of the case sound like Kelo redux, except with a developer on the receiving end of the condemnation instead of elderly homeowners. But there is a wrinkle. Language in Kelo left the door open for challenges to condemnations where the stated reason for the condemnation (in this case, economic redevelopment) is not the actual reason for the exercise of eminent domain — a sort of pretext challenge to condemnations. The plaintiffs in this case alleged that, after Port Chester had authorized the condemnation of land within the redevelopment district but prior to the actual condemnation of their parcel, the designated developer demanded an $800,000 payment from the developer/landowner to walk away from his power to condemn the parcel....

While I think there are some significant problems with the trial court's opinion, and while I disagree with the Second Circuit's use of a summary order, the case does not seem to me to be such a clear slam dunk for the plaintiffs that it should cause Sotomayor any serious trouble. The Liptak story [in the NY Times] made a great deal of the demand for the $800,000 payment, and rightly so. But the fact may be less obviously damning than initially appears to be the case.

The demand for the payment was made, as I understand the facts, by the developer granted by Port Chester the exclusive power to carry out redevelopment within the designated redevelopment area. That area included the plaintiffs' parcel. Now, I take it that the redeveloper agreed to take on his role because he stood to make a tidy profit from redeveloping the land within the redevelpoment area pursuant to the comprehensive plan and empowered with the ability to assemble parcels through the use of eminent domain. But the redeveloper certainly looked at the economics of the entire plan, and the profit to be earned from the plan as a whole. That profit would not come from every parcel or every individual element of the overall plan, but on the accomplishment of the redevelopment plan as a whole.

In the redeveloper's negotiations with the plaintiffs, the plaintiffs indicated that they wanted to redevelop their parcel within the redevelopment area (as part of a project that would have included some land they owned outside the redevelopment area) themselves, keeping the profits from that project for themselves as well. It appears to have been in the context of these negotiations that the redeveloper asked for the $800,000 payment in order to forgo condemnation and as his condition for allowing plaintiffs to, in effect, remove their parcel from the larger redevelopment area.

The plaintiff quoted in the story called this extortion. But it's not obvious to me that this is the best way to characterize the dynamics of the situation. If the redevelopment of the plaintiffs' parcel was one of the elements on which the redeveloper stood to make a substantial profit, foregoing his own monopoly right to redevelop that parcel (a right given to him by the city when it designated him the developer for the redevelopment project) would have altered (from his perspective) the economics of the larger project as a whole. In other words, if I'm reading the facts correctly... to earn the profits from that parcel would have represented a significant opportunity cost to the redeveloper, and, as such, his demand for some compensation for walking away strikes me as less sinister.

The key problem with Penalver's rationale is that the redevelopment agreement only gave Wasser the power to condemn property for the purposes of advancing the goals of the redevelopment plan, which the district court decision (available here) quoted as "to revitalize and beautify the Village’s long neglected waterfront, eliminate a deteriorating downtown urban blighted area, bring sorely needed jobs to the Village, add to the Village’s tax base, and importantly, bring the public back to the Village’s downtown and waterfront." It did not give him the power to condemn property solely because the current owners refused to pay him money or grant other concessions in exchange for his forbearance. Had the agreement done so, it would have been a clear violation of federal constitutional restrictions on "pretextual" takings intended to benefit a private party (reaffirmed even in Kelo v. City of New London, as Penalver notes), and possibly also a violation of New York state law.

Penalver in effect suggests that, even if this taking wasn't needed to promote the redevelopment of Port Chester, it was constitutionally permissible because the owners' property helped to pay Wasser for his services in redeveloping the area. However, neither Kelo nor any other federal decision has ever held that the government can condemn the property of one individual in order to compensate some other private party for performing a public service. A program to pay public officials by condemning private property and transferring ownership to them would surely be unconstitutional. That conclusion is even more clear if the property is transferred to a private individual who isn't a government employee.

Penalver also argues that the Sotomayor panel's decision was justified by the fact that the owners had not filed their claims in time under the statute of limitations. As I noted in an earlier post, this point ignores the fact that Sotomayor's opinion decided the substantive constitutional issue as well. Even if Sotomayor was right about the statute of limitations question, she commmited a grave error in her extremely cursory resolution of the constitutional issue. The latter, of course, is vastly more important than the former and is the reason why the case has attracted so much attention.

Moreover, as I explained in this amicus brief (pp. 14-16) coauthored with several other property scholars, the Second Circuit's resolution of the statute of limitations issue was in fact inseparable from its resolution of the substantive question. The court had ruled that the three year statute of limitations expired in 2002, three years after the declaration of the 1999 redevelopment plan. However, this simply ignores the fact that the owners were challenging not the declaration of the plan as such, but rather Wasser's pretextual use of it in November 2003 as leverage for extorting money from them. Our amicus brief explains more fully why Kelo and other Supreme Court precedents allow owners to challenge pretextual takings even in cases where they occur within a redevelopment area. Indeed, as we explain there (pp. 11-12) the Kelo majority actually cited a 2001 case where a taking within a redevelopment area was invalidated as an example of the kind of pretextual condemnation that they believed to be unconstitutional.