U.S. Supreme Court to hear eminent domain case.

The U.S. Supreme Court added an eminent domain case to their 2005 docket last week. Its decision could have far reaching affects for future developments in New York City.

In January, the Court will hear a Connecticut case of Kelo v. City of New London and decide whether the Constitution allows the government to use eminent domain to take one person's home or small business so a bigger business can make more money off that land and pay more taxes as a result.

"This has been a focus across the country, the powers of eminent domain, to determine the extent that local government can use property for private development," said Steven Barshov, a partner at Sive Paget and Riesel who specializes in land use law, municipal law, real estate, and commercial litigation. "I have no doubt the city and state will be following this quite closely, because it will have far reaching implications for New York City."

The U.S. Constitution generally limits the use of eminent domain to government projects, like roads or public buildings, or to what used to be known as slum clearance. Local governments, however, are increasingly finding it convenient to use eminent domain to clear land for private development that will enhance the tax base.

New London's plans for the 90-acre neighborhood of small homes include a waterfront hotel and conference center, office space for high technology research and development, retail space and 80 new homes. The city has offered the property to a private developer under a 99-year lease at $1 a year. The property owners rejected the city's offer of compensation and filed a lawsuit to block the plan.

In Kelo v. City of New London the Connecticut Supreme Court ruled in a 4-3 decision earlier this year, that even if the property is not in a blighted area, the government can use eminent domain to take the land and give it to a developer for his private gain.

The Institute for Justice that petitioned the U.S. Supreme Court to hear the case said in a press release "this ruling is an invitation to disaster because every business generates more taxes than a home and every big business generates more taxes than a small one. If the ruling stands, any property can be taken through eminent domain."

Dana Berliner, senior attorney for the Institute of Justice is hoping the high court's decision will protect private property owners from losing their homes to big business.

"It is not going to prevent development of truly blighted areas," Berliner told Real Estate Weekly. "It will prevent the taking of thriving areas to produce more tax revenues."

At the very least the decision will "certainly guide courts in many of these cases. It will hopefully draw a line or discourage cities from using their powers of eminent domain to generate tax revenues," she said.

Should the high court uphold the state court's ruling, this will also send a message, said Michael Zetlin, Esq of Zetlin and De Chiara LLP.

"If the Supreme Court upholds the Connecticut Supreme Court in the Kelo case, it would suggest that municipalities would be given wide latitude in considering "economic development" a valid public use," Zetlin said.

"Such a holding could give the City and other municipalities a broader definition of public use. Relying on the power of eminent domain, municipalities would have greater liberty to foster economic development through private parties provided that municipalities demonstrate, as the Connecticut Supreme Court noted, that 'the power of eminent domain [is] used for a public use or purpose, and not primarily for the benefit of private entities.'"

Barshov said the final decision could lie somewhere in between an outright yes or no answer.

"Until you see the decision, you really cannot determine how it is going to affect an individual project," he said.

But surely it will define what "public use" is, said Berliner.

"We have to restore the meaning of public use to what everyone once understood the term to mean--something the public would own and use, such as a road. Economic development is not a public use," she said.

Has government truly overstepped its bounds or is today's use of eminent domain merely the evolution of a society that is growing and could standing in the way of development stop this growth?

Case in point, the Empire State Development Corporation used its powers of condemnation to clear the way for The Durst Organization to erect a 2 million s/f, 57-story skyscraper that will house the corporate headquarters of Bank of America. Five small businesses were involved in the condemnation process. The project is currently underway.

Forest City Ratner's Net's project may also involve the use of eminent domain, with several blocks of homeowners standing in its way.