Opinion ID: 746291
Heading Depth: 3
Heading Rank: 2

Heading: The Public Use Clause

Text: 16 The Bishop Estate and the Small Landowners (collectively the landowners) argue that Ordinance 91-95 violates the Public Use Clause of the United States and Hawaii constitutions. The Fifth Amendment of the United States Constitution provides that private property [shall not] be taken for public use, without just compensation. U.S. Const. amend. V. This provision applies to the states through the Fourteenth Amendment. See Missouri Pac. Ry. v. Nebraska, 164 U.S. 403, 417, 17 S.Ct. 130, 135, 41 L.Ed. 489 (1896). Municipalities possessing delegated eminent domain power also are subject to the restrictions of the Fifth and Fourteenth Amendments. See Chicago B. & Q. R.R. Co. v. City of Chicago, 166 U.S. 226, 238-39, 17 S.Ct. 581, 585-86, 41 L.Ed. 979 (1896). Similarly, the Hawaii Constitution provides that [p]rivate property shall not be taken or damaged for public use without just compensation. Haw. Const. art I., § 20. 17 The landowners argue that Ordinance 91-95 is unconstitutional because it takes land for the benefit of private persons and, alternatively, that its public purpose is not served by its mechanism. As noted above, the Ordinance is similar to Hawaii's Land Reform Act of 1967 4 (the Act), which was upheld on public use grounds in Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 104 S.Ct. 2321, 81 L.Ed.2d 186 (1984). Because of the Ordinance's similarity to the Act, we begin our analysis with Midkiff. 18 In that case, the Supreme Court upheld the Act, concluding that Hawaii could constitutionally use its power of eminent domain to break up a land oligopoly. Id. at 241-42, 104 S.Ct. at 2329-30. The Supreme Court rejected the landowners' arguments that the Act violated the public use requirement of the Takings Clause. 5 The Court stated, The 'public use' requirement thus is coterminous with the scope of a sovereign's police powers. Id. at 240, 104 S.Ct. at 2329. 19 Thus, as the Court noted, the judiciary's role in reviewing the legislature's judgment regarding public use is extremely narrow. Id. The judiciary should defer to the legislature's public use determination unless the use involves an impossibility or is palpably without reasonable foundation. Id. at 240-241, 104 S.Ct. at 2329-30. The Court further noted that where the exercise of the eminent domain power is rationally related to a conceivable public purpose, the Court has never held a compensated taking to be proscribed by the Public Use Clause. Id. at 241, 104 S.Ct. at 2329-30. 20 Applying that test, the Court noted that the state legislature determined a land oligopoly existed in Hawaii. The Court reasoned that regulating the oligopoly and the evils associated with it is a classic exercise of a State's police powers. Id. at 242, 104 S.Ct. at 2330. Even though the Act's result was to turn land over from one private owner to another, the Court held that the statute's purpose was sufficiently public. See id. at 241, 104 S.Ct. at 2329. Finally, the Court noted that using a lease-to-fee transfer statute to regulate that oligopoly was not irrational. Id. Accordingly, the Court upheld the Act. 21 The analysis under the Hawaii Constitution is similarly deferential to the legislature's public use determination. 22 [O]nce the legislature has spoken on the social issue involved, so long as the exercise of the eminent domain power is rationally related to the objective sought, the legislative public use declaration should be upheld unless it is palpably without reasonable foundation. The crucial inquiry is whether the legislature might reasonably consider the use public, and whether it rationally could have believed that application of the sovereign's condemnation powers would accomplish the public use goal. 23 Hawaii Housing Authority v. Lyman, 68 Haw. 55, 704 P.2d 888, 897 (1985) (internal citation omitted). 24 In the present action, both district courts determined that Midkiff controlled the outcome of this dispute. Because the statute in Midkiff and Ordinance 91-95 are so similar, both courts found no merit in the Landowners' public use arguments. Before this court, the landowners seek to distinguish Midkiff on several grounds: (1) that the standard of review has changed since Midkiff; (2) that the public purpose of the Ordinance is not as compelling as the purpose asserted in Midkiff; and (3) that the means of effectuating the purpose is irrational in light of developments since Midkiff. We discuss each of these arguments.
25 The landowners argue that, in light of Dolan v. City of Tigard, 512 U.S. 374, 114 S.Ct. 2309, 129 L.Ed.2d 304 (1994), Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992) and Nollan v. California Coastal Comm'n, 483 U.S. 825, 107 S.Ct. 3141, 97 L.Ed.2d 677 (1987), the deference given in Midkiff to the legislative body's public use findings is inappropriate. The landowners assert that those cases require heightened scrutiny. We conclude that those cases are not applicable because they involved uncompensated regulatory takings, in which the issues are quite different. 26 In a regulatory taking case, the court must determine whether a putative regulatory action masks a taking. For example, in Dolan, the most recent case, a shop owner in Oregon brought suit against the City of Tigard. She had applied for a permit needed to expand her store and pave a parking area. Dolan, 512 U.S. at 379, 114 S.Ct. at 2313-14. The city's planning commission granted the permit application, but only on the condition that the shop owner dedicate to the city part of her property that was within a floodplain plus a 15 foot strip of land for use as a pedestrian pathway. Id. at 379-80, 114 S.Ct. at 2313-14. The shop owner filed suit alleging that the condition was an unconstitutional regulatory taking. 27 Dolan, as well as Lucas and Nollan, are quite different from the cases before us. At bottom, those cases involve balancing the authority of state and local governments to engage in land use planning against the property rights of individuals. See Dolan, 512 U.S. at 383-86, 114 S.Ct. at 2315-17. The primary issue is whether the landowner is to receive just compensation. See e.g., id. at 385, 114 S.Ct. at 2317 (Under the well-settled doctrine of 'unconstitutional conditions,' the government may not require a person to give up a constitutional right--here the right to receive just compensation when property is taken for a public use--in exchange for a discretionary benefit conferred by the government where the property sought has little or no relationship to the benefit.). That is, if the Court would have upheld the putative regulatory actions in those cases, the landowners' property would have been subject to the challenged land restriction and the owner would not have been entitled to compensation for the diminution in land value. The heightened scrutiny applied in Dolan was employed to prevent the government from using its regulatory power to force individuals to bear burdens that properly should be born by the public. See id., at 389, 114 S.Ct. at 2319 (We think this standard is too lax to adequately protect petitioner's right to just compensation if her property is taken for a public purpose.). 28 Conversely, in the cases before us, the government has expressly exercised its condemnation power and will compensate the landowners. Here, as in Midkiff, the requirement of just compensation ensures that individuals will not be forced to bear public burdens, which in all fairness should be borne by the public as a whole. Heightened scrutiny thus is inappropriate. The language used throughout Midkiff indicates that deference to the legislative body's public use determination is required when the taking is fully compensated. See e.g., Midkiff, 467 U.S. at 241, 104 S.Ct. at 2329-30 ([W]here the exercise of the eminent domain power is rationally related to a conceivable public purpose, the Court has never held a compensated taking to be proscribed by the Public Use Clause.). For these reasons, we believe that Nollan-Lucas-Dolan trio does not signal a change from this longstanding rule of deference because we see nothing inconsistent in applying heightened scrutiny when the taking is uncompensated, and a more deferential standard when the taking is fully compensated. 29 We hold, therefore, that the standard of review to be used in examining Ordinance 91-95 is the minimum scrutiny test espoused in Midkiff. We will defer to the City's determination regarding public use unless the use involves an impossibility or is palpably without reasonable foundation. Midkiff, 467 U.S. at 240-41, 104 S.Ct. at 2329.
30 Unlike the statute at issue in Midkiff, the Ordinance is not grounded on the desire of breaking up a land oligopoly. Rather, the City enacted the Ordinance to strengthen Oahu's economy and remedy perceived failures in its real estate market. The City found: 31 There is a close relationship between the monetary values accorded land on Oahu and the stability and strength of Oahu's economy as a whole. Residential condominium, cooperative housing and planned development land values, artificially inflated by concentrated or single ownership, market conditions or other factors, skew Oahu's economy toward unnecessarily high levels. The pervasive and substantial contribution made to inflation by high residential condominium, cooperative housing and planned development land values creates a potential for economic instability and disruption on Oahu. Economic inflation, instability and disruptions on Oahu have real and potential damaging consequences for all members of an affected society. Checking inflation, improving the stability of the economy, and avoiding disadvantageous economic disruptions all are productive of general benefit to all members of Oahu's community. 32 Honolulu City & County, Haw. Ordinance 91-95 § 1(a). 33 This purpose--remedying a failure in the real estate market and strengthening the economy--is a public purpose. See Midkiff, 467 U.S. at 242, 104 S.Ct. at 2330 (land oligopoly caused failure in real estate market; regulating evils associated with oligopoly is classic exercise of police power); Berman v. Parker, 348 U.S. 26, 75 S.Ct. 98, 99 L.Ed. 27 (1954) (affirming the constitutionality of the District of Columbia Redevelopment Act of 1945, which provided for the condemnation of slum areas for possible sale to private interests). The landowners contend, however, that the evidence presented to the City does not support the stated public purpose. They assert that, contrary to the City's findings, ownership of condominium units is not concentrated in the hands of large landowners and that landowners do sell proportionated shares of their fee simple titles. Thus, they argue that because the City incorrectly determined these facts, the findings do not support the Ordinance's stated public purpose. 34 Under the standard espoused in Midkiff, we must accept the public purpose of the Ordinance unless the City's findings are palpably without reasonable foundation. Midkiff, 467 U.S. at 241, 104 S.Ct. at 2329. The City held three days of public hearings before enacting the Ordinance. The City determined that the price of condominiums was higher because the ownership of the feesimple titles to the land underneath the condominiums was excessively concentrated. While the hearings produced conflicting testimony, one study presented to the City showed that the largest 20 Landowners own 34.9% of the land under condominium units in Honolulu, and that the largest 60 own 50.4%. Legislative Reference Bureau, Report No. 6, Ownership Patterns of Land Beneath Hawaii's Condominiums and Cooperative Housing Projects 21 (1987) (Ownership Patterns). While the largest 20 landowners own a smaller percentage of land underneath condominiums than the largest 22 owned of the fee simple titles when the Court decided Midkiff, see Midkiff, 467 U.S. at 232, 104 S.Ct. at 2325, the concentration of ownership of land underneath condominiums is greater than the concentration of land ownership throughout the state at the time Midkiff was decided. Compare Ownership Patterns at 21 (60 persons own 50.4% of land under condominiums), with Midkiff, 467 U.S. at 232, 104 S.Ct. at 2325 (72 persons own 47% of land in Hawaii). We thus cannot say that the City's finding is without reasonable foundation. 35 Similarly, the evidence presented to the City regarding the amount of fee simple lands for sale underneath condominiums was conflicting. We are not free to substitute our judgment for that of the City. The evidence reviewed by the City adequately demonstrated that the land underneath the condominiums was not being sold and that the lack of such sales was driving up the price of housing in Honolulu. We therefore must accept the City's asserted public purpose because its findings are not without reasonable foundation. See Midkiff, 467 U.S. at 241, 104 S.Ct. at 2329 (In short, the Court has made clear that it will not substitute its judgment for a legislature's judgment as to what constitutes a public use 'unless the use be palpably without reasonable foundation.' ) (citation omitted).
36 The landowners also argue that, between 1987 and 1990, the price of condominiums in Hawaii increased by 66%. However, the price of single-family dwellings--which were subject to the Act's lease-to-fee provision--increased by 98%. Dep't of Business and Economic Dev., The State of Hawaii Databook 1990: A Statistical Abstract 549 (1990). Thus, the landowners argue that even if a lease-to-fee statute was reasonably related to eliminating a land oligopoly at the time of Midkiff, such means are not rationally related to remedying a failure in the real estate market and strengthening the economy in light of recent history. 37 Deference to the legislative body's public use determination is required  'until it is shown to involve an impossibility.'  Midkiff, 467 U.S. at 240, 104 S.Ct. at 2329 (quoting Old Dominion Co. v. United States, 269 U.S. 55, 66, 46 S.Ct. 39, 40-41, 70 L.Ed. 162 (1925)). Any departure from this judicial restraint would result in courts deciding on what is and is not a governmental function and in their invalidating legislation on the basis of their view on that question at the moment of decision, a practice which has proved impracticable in other fields. United States ex rel. T.V.A. v. Welch, 327 U.S. 546, 552, 66 S.Ct. 715, 718, 90 L.Ed. 843 (1946). Additionally, in Midkiff the Court noted that whether the statute actually succeeds is irrelevant. 38 But whether in fact the provision will accomplish its objectives is not the question: the [constitutional requirement] is satisfied if ... the ... [state] Legislature rationally could have believed that the [Act] would promote its objective. When the legislature's purpose is legitimate and its means are not irrational, our cases make clear that empirical debates over the wisdom of takings ... are not to be carried out in the federal courts. 39 Midkiff, 467 U.S. at 242-43, 104 S.Ct. at 2330 (brackets in original) (quoting Western & Southern Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 671-72, 101 S.Ct. 2070, 2084-85, 68 L.Ed.2d 514 (1981)) (internal citations omitted). 40 Under the rational basis test, we hold that the Ordinance is constitutional under both the United States and Hawaii constitutions. Regardless of what has occurred with single-family dwellings, the City rationally could have believed that, if the supply of condominiums increased (through the lease-to-fee measure of Ordinance 91-95), the price of those condominiums would decrease. Additionally, although the price of single-family houses increased dramatically between 1987 and 1990, there is no indication that the price would not have gone up even more without the Act's lease-to-fee mechanism. Finally, even if the price of condominiums does not decrease as a result of the Ordinance, some of the public purposes of the Ordinance will be served. If a family is allowed to purchase its condominium, that family will not risk being thrown out of its home in 25 years because the family cannot afford the renegotiated rent. The City rationally could have concluded that the lease-to-fee mechanism would remedy defects in the housing market and stabilize Oahu's economy.