Fred Eychaner Becomes First Chicago Casualty Of The Supreme Court’s Expansion Of Eminent Domain.

The Fifth Amendment to the United States Constitution states that “private property [shall not] be taken for public use, without just compensation.” But what constitutes a “public use”? Is there a limit to eminent domain power? In Keno v. City of New London, 545 U.S. 469 (2005), the Supreme Court held that the term “public use” should be broadly construed, reflecting a long-standing deference to legislative judgments in the field of eminent domain. In Keno, the City of New London initiated condemnation proceedings against a series of landowners whose homes stood in the way of a proposed economic revitalization project. The cynics spun the project as a concession to Pfizer and played up the interests of the individual landowners, who were being tossed out of their legacy waterfront homes.

Although the Supreme Court acknowledged that a municipality may not exercise its eminent domain powers simply to transfer real estate from one private party to another, it ruled that non-blighted property could be condemned and transferred to a development company as a part of an “economic development plan” believed to provide “appreciable benefits to the community, including — but by no means limited to — new jobs and increased tax revenue.” Writing for the Court, Justice Stevens (a native Chicagoan with family roots in the real estate business), concluded that, given the “comprehensive character of the plan, the thorough deliberation that proceeded its adoption, and the limited scope of our review,” the City of New London’s revitalization campaign “unquestionably serve[d] a public purpose.

The Court’s decision was highly controversial and created strange bedfellows. Vocal critics, including the Libertarian Party, the NAACP, and the AARP, saw their views articulated by the Court’s more conservative wing, which included Justices O’Connor, Rehnquist, Scalia, and Thomas. The dissenters argued that all private property was now unsafe and subject to condemnation for the benefit of any private person or corporation, particularly those with connections and influence that translate into legislative power. As Justice Thomas wryly observed: “Something has gone seriously awry with this Court’s interpretation of the Constitution. Though citizens are safe from the government in their homes, the homes themselves are not.”

The fallout has now reached Chicago, claiming entrepreneur and philanthropist Fred Eychaner as its first victim. The story begins in 1999, when the city proposed the creation of a Planned Manufacturing District (PMD) in the Chicago-Halsted corridor for the alleged purpose of protecting 2,800 industrial jobs, preventing residential encroachment, and encouraging manufacturers to invest in their facilities. The proposed PMD included, among other property, the Blommer Chocolate Company factory and a parcel of land two blocks away owned by Fred Eychaner. Blommer objected to its inclusion in the PMD, noting that new residential development was approaching from the south, that neighbors would inevitably complain about traffic, noise, and smell, and that, if ever forced to sell, it would be “hard to imagine [that] another manufacturing concern would be interested in buying [its] property only to inherit [its] neighborhood problems.”

Before long, however, the city and Blommer reached an understanding that Blommer would drop its objection to inclusion in the PMD and the City would help expand Blommer’s industrial campus in order to remove its truck staging from the main roads and thus alleviate complaints about traffic and noise. The city enticed Blommer by agreeing to pursue the creation of a tax-increment financing district (TIF) to help finance public infrastructure improvements and “potential acquisitions.” Accordingly, in September 2000, the city council passed an ordinance adopting the PMD. In the same month, the city’s community development commission accepted for review the proposed plan for the River West Tax Increment Financing Redevelopment Project Area (aka, the River West TIF).

In connection with the proposed TIF, the city retained a private firm to conduct an “eligibility study” and prepare a report. The study recited the litany of issues associated with the “residential renaissance” of downtown Chicago, highlighting creeping gentrification, lot sales to “high-bidding residential developers,” and the continuing complaints of traffic and noise as forces pushing industrial users out. It paid heed, therefore, to the city’s “critical” interests in land use balance, local employment, a growing tax base, and protection and enhancement of remaining industrial areas.

Needless to say, in early 2001, the City Council adopted the River West TIF. Shortly thereafter, Blommer submitted a redevelopment proposal to the city in which it proposed acquiring 4.2 acres of land around its factory, including a parcel owned by Fred Eychaner at the southwest corner of Jefferson and Grand Streets. It specifically noted that its proposal would create and retain jobs, increase tax revenue, ensure its continued presence in Chicago, and create a “buffer zone” between itself and the adjacent residential developments. In February 2002, Blommer offered to purchase Eychaner’s land for $824,980 — an offer that Eychaner declined. Next, the city got involved. It notified Eychaner that it was considering taking his property. In May 2002, the Community Development Commission held a public meeting regarding the proposed taking and, over the objections of Eychaner, recommended an exercise of eminent domain. In July 2002, the City Council passed an ordinance authorizing the taking of Eychaner’s land, finding the taking to be consistent with the objectives of the River West TIF.

In August 2005, only weeks after the Supreme Court decided Kelo, the city filed a complaint to condemn Eychaner’s property. After some lengthy pretrial wrangling, the case went to trial on the issue of just compensation, and the jury awarded Eychaner $2.5 million. But Eychaner didn’t want the money. He wanted his property. On appeal, therefore, he argued that the city could not constitutionally exercise its eminent domain power to acquire a non-blighted property and transfer it to another private party merely in the name of economic redevelopment.

The court of appeals disagreed. In an opinion authored by Justice Michael Hyman, the court started by noting that, although the taking of private property must be for a “public purpose,” the public purpose is not defeated merely because the condemned property is transferred to another private owner. It also observed that “possessory use by the public is not an indispensable prerequisite” to the lawful exercise of eminent domain power. A government may take property in the name of economic redevelopment, the court stated, so long as “members of the public are the primary intended beneficiaries of the taking rather than private businesses.”

The court then examined the proposed taking for evidence of an illegitimate purpose. In doing so, it was keen to emphasize that deference ought be accorded to the legislative findings. Nonetheless, it recognized that discerning the difference between a valid public use and a sham “can be challenging.” For example, in Southwestern Illinois Development Authority v. National City Environmental, LLC, 99 Ill. 2d 225 (2002), the Illinois Supreme Court held unconstitutional an exercise of eminent domain power in which 148.5 acres of land belonging to a recycling company was taken and transferred to a racetrack for use as a parking lot. Although the development authority justified the taking in the interest of decreased traffic, better public safety, and the reduction of blight, the Illinois Supreme Court was nonplussed. It held that, in the absence of a “thorough study” or the formulation of an “economic plan,” it had no choice but to conclude that the development authority was merely assisting the racetrack in meeting its expansion goals by acting as a makeshift land broker. It concluded that, while the authority’s actions were undertaken “in the guise of carrying out its legislated mission,” its “true intentions were not clothed in an independent, legitimate governmental decision to further a planned public use.”

Relying on Kelo and Southwestern Illinois Development Authority, the court explained that “a telling feature of sound public use in the context of economic redevelopment is the existence of a well-developed, publicly vetted, and thoughtful economic development plan.” As far as the City of Chicago is concerned, it was all downhill from here: The court examined the process behind the creation of the PMD and the overlapping TIF district and found that the city jumped through all the necessary hoops before acting and that there was no evidence of a “sweetheart deal to help Blommer avoid paying full price for Eychaner’s land.”

Although the court of appeals affirmed the finding that the city’s exercise of eminent domain was not unconstitutional, it found procedural errors relating to the computation of fair compensation and remanded the matter to the trial court.