Interpreting the Rules
State court decision illustrates conflicting opinions on eminent domain.
Since the U.S. Supreme Court's decision on Kelo v. City
of New London,
which permitted a local government to use the power of eminent domain to take
private property for economic development, at least 47 states have revisited
their eminent domain laws. State courts may exercise their rights to define the
"public use" standards that justify the taking of private property. For
example, Rhode Island's
Supreme Court recently reminded developers that the power to take private
property has its limits. In Rhode
Island Economic Development Corporation v. The
Parking Company, LP, the Court struck down the temporary taking of a parking
garage at the state's largest airport on the grounds that the taking was not
for public use.
Case BackgroundThe Parking Co. and the Rhode Island Airport Corp. were
parties to a 20-year arrangement by which TPC would operate the airport's
parking concession. As part of the concession, TPC's predecessor had
constructed the 750-space Garage B. The concession was scheduled to end in
December 2007, at which time TPC would convey the fee-simple ownership of
Garage B to RIAC. However, during the term of the agreement, RIAC had the
option to purchase Garage B for an amount that decreased every year up to 2007.
In 2004, that price was approximately $2.7 million. RIAC and TPC also had
agreed that the first four levels of Garage B were to be used for valet parking
and the top two levels were dedicated to overflow parking from an adjacent
facility, Garage A.
On Oct. 3, 2003, RIAC informed TPC that it wanted TPC to
move valet parking out of Garage B or end it altogether so that Garage B could
be used for daily parking. As the Rhode Island Supreme Court stated,
negotiations between the parties "stalled, and the relationship of the
parties began a steep descent and crash-landed."
In February 2004, RIAC asked its parent corporation,
RIEDC, which was empowered by eminent domain to take real property for economic
development, to condemn the valet amendment. However, as TPC pointed out,
RIEDC's power of eminent domain did not extend to contracts. As a result, TPC
continued to operate Garage B pursuant to the original contractual agreement.
Taking of PropertyOn June 28, 2004, RIEDC tried again and voted to condemn
"a temporary easement in Garage B during the term of which [RIEDC] would
have the exclusive use of the interior of Garage B, as well as all entrances
and egresses therefrom." The "temporary easement" was just that;
it was set to expire a month before TPC had to convey Garage B to RIAC under
the concession agreement.
A month later on July 28, 2004, pursuant to Rhode Island's
quick-take statute, RIEDC successfully petitioned a trial judge on ex parte
basis to condemn the temporary easement. RIEDC deposited $685,000, the value of
the property according to RIAC's appraisers, into the registry of court.
TPC quickly appealed the decision, alleging that the ex
parte taking violated its due process right to a hearing prior to the taking
and that the taking was not for a public use. After wrestling with a
jurisdictional challenge by RIEDC, the Rhode Island Supreme Court denied TPC's
argument that Rhode Island's
quick-take statute was unconstitutional on the theory that TPC was entitled to
a hearing before its property could be seized by eminent domain. Rather, TPC
had a post-deprivation right to challenge the taking either by way of appeal,
as in this case, or through a collateral proceeding.
TPC had better luck challenging that the taking was for a
public use under the Fifth Amendment to the Constitution and its analog in the
Rhode Island Constitution. RIEDC contended that airport parking was a public
use, but the Rhode Island Supreme Court rejected that argument and sided with
In reaching that conclusion, the Rhode Island Supreme
Court referred to the U.S. Supreme Court's decision in Kelo, which held that
the process through which the sovereign took property was crucial. In Kelo, the
U.S. Supreme Court was favorably impressed by both the careful preparatory
steps that the municipal authorities in New
London had taken prior to the condemnation and the
fact that the taking was part of a larger economic development plan.
The Court Decides
By contrast, RIEDC had addressed neither of those
considerations. The Rhode Island Supreme Court found that the taking of the
temporary easement in Garage B was "motivated by a desire for increased
revenue." The Court particularly was bothered by the fact that RIAC had an
option to purchase the property for $2.7 million - a salient fact RIEDC omitted
at the ex parte hearing -- and instead told the judge that the property should
be valued at $685,000. The Court also noted that the taking would not add any
parking capacity; it would merely increase revenues to RIAC.
The Court also was disturbed by RIAC's manipulation of
the "temporary easement." In Rhode
Island, "temporary easements" typically are
reserved to guarantee state contractors physical access to land during
construction projects. In this case, the Court found that the use of a
"temporary easement" for a parking garage was a "pretextual and
inappropriate device" and that the exercise of the eminent domain power
was in bad faith.
While some industry observers have suggested that the
U.S. Supreme Court's Kelo decision is a green light to eminent domain in the
name of economic development, The Parking Company is an important case to keep
in mind. The Rhode Island Supreme Court's decision reminds property owners,
economic development authorities, and the courts that the use of eminent domain
requires all parties to look beyond superficial labels that describe the
putative public use.
The Parking Company also outlines key issues that
everyone in the eminent domain process should consider, specifically in this
case: Was the taking of property part of a comprehensive plan to promote
economic development or an attempt to renegotiate a bad contract? While the
reasoning in The Parking Company was constructed on both state and federal
constitutional grounds, it's important to consider if there were state
constitutional protections that go beyond the federal constitution's
protections. Other factors that must be weighed are the motivations of those
exercising the eminent domain power and if they are acting in good faith: Is
there justification for the taking aside from increasing revenue? Is the taking
a pretext for something else not permitted by the Constitution? If one thing is
clear, it's that Kelo is far from the last word in eminent domain litigation.