Opinion ID: 779379
Heading Depth: 2
Heading Rank: 2

Heading: Takings for a Public Purpose

Text: 37 Having concluded that the Daniels' takings claim is ripe, we now proceed to the merits. We first address whether the vacation statute was applied unconstitutionally to the Daniels and then address their facial challenge. Cf. Renne v. Geary, 501 U.S. 312, 324, 111 S.Ct. 2331, 115 L.Ed.2d 288 (1991) (facial challenge should generally not be entertained when an as-applied challenge could resolve the case). The Daniels allege that the Plan Commission violated § 1983 by acting under the color of state law to take their property in violation of their constitutional rights. The Daniels argue that the covenant vacation was a taking for private purpose in violation of their rights under the Fifth and Fourteenth Amendments to the Constitution and Article 1, §§ 21, 23 of the Indiana Constitution. 14 In this case, the Plan Commission asserts that it was entitled to summary judgment because the undisputed facts demonstrate that the restrictive covenants on the Lots were vacated in the public interest. We review de novo the district court's decision to grant summary judgment to the Daniels, construing all facts, and drawing all reasonable inferences from those facts, in favor of the Plan Commission, the party against whom the motion under consideration was made. See Hendricks-Robinson v. Excel Corp., 154 F.3d 685, 692 (7th Cir.1998); Hall v. Bodine Elec. Co., 276 F.3d 345, 352 (7th Cir.2002). Summary judgment is proper when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). 38 The Takings Clause of the Fifth Amendment provides, nor shall private property be taken for public use, without just compensation. This limitation on governmental power has been imposed on the States through the Fourteenth Amendment, see Phillips, 524 U.S. at 163, 118 S.Ct. 1925; Chicago, Burlington & Quincy R.R. v. Chicago, 166 U.S. 226, 239, 17 S.Ct. 581, 41 L.Ed. 979 (1897). The Constitution only protects, rather than creates, property interests, therefore the existence of a property interest is determined by reference to existing rules or understandings that stem from an independent source such as state law.... Board of Regents of State Colleges v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972); see also Chapman v. Sheridan-Wyo. Coal Co., 338 U.S. 621, 626-27, 70 S.Ct. 392, 94 L.Ed. 393 (1950) (finding that a restrictive covenant was a property right similar to an easement by relying on state common law). 39 The property interest at issue here is the restrictive covenant that was included in the plat of Broadmoor limiting construction in the plats to single-family residences. By removing the Lots from the Plat and the restrictive covenants included therein, the Plan Commission has prevented the enforcement of the residential covenant against the current or future owners of the Lots. Under Indiana law it is well established that a restrictive covenant constitutes a constitutionally protected property interest. Pulos v. James, 261 Ind. 279, 302 N.E.2d 768, 771 (1973). It is a covenant that runs with the land and creates a property right in each grantee and subsequent grantee of a lot in the plat subject to the restriction. Id. (citing Wischmeyer v. Finch, 231 Ind. 282, 107 N.E.2d 661 (1952)). 15 The Daniels, as owners of the right to enforce the covenant pursuant to their ownership of a lot in Broadmoor, may no longer prevent commercial development in the Lots, which were in the original plat of Broadmoor. Because they have been dispossessed of this enforcement ability by the Plan Commission, they have demonstrated a property right that has been taken by state action. See Dible, 713 N.E.2d at 274. 40 Next, we look to the Daniels' claim that their property was taken not for a public use. The Supreme Court has held that implicit in the Fifth Amendment is a requirement that the government not take property for private purposes: one person's property may not be taken for the benefit of another private person without a justifying public purpose, even though compensation be paid. Thompson v. Consolidated Gas Utils. Corp., 300 U.S. 55, 80, 57 S.Ct. 364, 81 L.Ed. 510 (1937). See also, Hawaii Housing Auth. v. Midkiff, 467 U.S. 229, 245, 104 S.Ct. 2321, 81 L.Ed.2d 186 (1984) (A purely private taking could not withstand the scrutiny of the public use requirement; it would serve no legitimate purpose of government and would thus be void.). 16 41 Even though the Supreme Court has required the existence of a public use to justify a taking, the burden on the state is remarkably light. When a state's exercise of 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. Midkiff, 467 U.S. at 241, 104 S.Ct. 2321 (citing Berman v. Parker, 348 U.S. 26, 75 S.Ct. 98, 99 L.Ed. 27 (1954)). 17 Due to the rational relationship test, the Court has held that the `public use' requirement is thus coterminous with the scope of a sovereign's police powers. Id. However, while the scope of judicial scrutiny is narrow, [t]here is, of course, a role for courts to play in reviewing a legislature's judgment of what constitutes a public use, id., although this role is very limited when the legislature has determined what constitutes a public use. See National Paint & Coatings Ass'n v. City of Chicago, 45 F.3d 1124, 1127 (7th Cir.1995) (a legislative decision `is not subject to courtroom fact-finding and may be based on rational speculation unsupported by evidence or empirical data.') (citing FCC v. Beach Communications, Inc., 508 U.S. 307, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993)). Therefore, to the extent that the decisions of the Area Plan Commission fall under specific Indiana legislative determinations of public use, they should not be disturbed unless the decision is palpably without reasonable foundation. Midkiff at 241, 104 S.Ct. 2321. 42 In this case, however, the legislature has not made a specific determination of what constitutes a public use under Ind.Code 36-7-3-11(e) and instead has delegated that duty to the local Plan Commission. See Ind.Code 36-7-3-11(e) (a plan commission shall approve the petition for vacation of all or part of a plat only upon a determination that ... it is in the public interest to vacate all or part of the plat.). This has not been the situation in prior case law prescribing deference to state public use determinations. For example, in Midkiff, the Court ruled that the decisions of the Hawaii Housing Authority in determining whether state acquisition of a certain tract of land effectuated the public purposes of the Land Reform Act of 1967, as passed by the Hawaiian Legislature, would not be disturbed unless shown to be irrational. Midkiff at 242, 104 S.Ct. 2321. Similarly in Berman v. Parker, 348 U.S. 26, 75 S.Ct. 98, 99 L.Ed. 27 (1954), the Court upheld the taking of private property that the government intended to reconvey to other private persons because the taking was part of a legislatively enacted plan to remove blight found by the legislature to be for public good. And finally, in United States ex rel. TVA v. Welch, 327 U.S. 546, 552, 66 S.Ct. 715, 90 L.Ed. 843 (1946), the Court stated that it is the function of Congress to decide what type of taking is for a public use and that the agency authorized to do the taking may do so to the full extent of its statutory authority. Midkiff, Berman and Welch differ from our situation in that the condemning state agencies were not free to create a public purpose out of whole cloth but instead were limited to findings of public purpose established by the legislature. See Midkiff, 467 U.S. at 233-34, 104 S.Ct. 2321; Berman, 348 U.S. at 28-30, 75 S.Ct. 98; Welch, 327 U.S. at 552, 66 S.Ct. 715. 43 Instead we are faced with a situation where a local plan commission is making legislatively unrestrained decisions as to what constitutes a public use. The Ninth Circuit has warned that takings made by local agencies without legislative authority serve to undermine the public use requirement. See Armendariz v. Penman, 75 F.3d 1311, 1321 (9th Cir.1996). The court noted that [if] officials could take private property, even with adequate compensation, simply by deciding behind closed doors that some other use of the property would be a `public use,' and if those officials could later justify their decisions in court merely by positing `a conceivable public purpose' to which the taking is rationally related, the `public use' provision of the Takings Clause would lose all power to restrain government takings. Id. Therefore, to the extent that the Area Plan Commission's determination of a use that is in the public interest falls outside Indiana's legislative definitions of public use in other areas of state law, they will not be given the almost complete deference that the Court has afforded legislative determinations. Cf. Cincinnati v. Vester, 281 U.S. 439, 448, 50 S.Ct. 360, 74 L.Ed. 950 (1930) (holding that condemnation proceedings by a municipality exercised outside the grant of authority conferred by the legislature were void). 44 In this case, pursuant to Indiana Code § 36-7-3-11(e) the Plan Commission determined that the vacation was in the public interest because it would allow the site to be redeveloped with commercial uses which could be a more appropriate use for the property and could be a benefit to the immediate neighborhood. The uninhabited and deteriorating residential structures would be removed from the site. In approving the rezoning and primary development plan, the Plan Commission also made several findings of fact: 45 (1) Nearby commercial development and increased traffic along Lima Road have made this property less desirable for residential use. 46 (2) Redevelopment of the site for commercial uses will require development plan review by the plan commission. This review will address land use compatibility issues resulting from commercial use of the property, and will preserve property values in the remainder of the subdivision. 47 (3) The proposed redevelopment of the site would create a commercial development which could be an asset to the surrounding neighborhood. Site development plan review will mitigate any negative impacts on the adjacent residential properties. 48 (4) The proposed rezoning will establish a desirable precedent in the area because: it will continue the established precedent for commercial development or redevelopment of properties fronting on Lima Road in this area. 49 At the same time that the Plan Commission approved the covenant vacation, it also rezoned the area for commercial uses and conditionally approved HNS's development plan for the Lots that provided for a development of a 12,000 sq. ft. commercial space. Based on a plain reading of the Plan Commission's findings it is apparent that the public benefit of the vacation and zoning action will not materialize absent any promised commercial development of the Lots by HNS or a subsequent owner. HNS is thus the primary beneficiary of the vacation of the restrictive covenant, and not Allen County. The direct benefit to HNS is emphasized further by the fact that rather than build the proposed shopping center, the property is currently up for sale as commercial property for $695,000. The residents of Allen County will see none of the possible improvement in their health, safety and welfare until HNS either sells the property to a potential developer or commercially develops the property itself. This private benefit does not necessarily doom the covenant vacation under current takings jurisprudence, as even takings that transfer property from one private person to another have been deemed valid as long as there is a public purpose underlying the transfer. Hawaii Housing Auth. v. Midkiff, 467 U.S. 229, 245, 104 S.Ct. 2321, 81 L.Ed.2d 186 (1984). However in this case there is no rationally related public purpose as defined by either the Indiana legislature or the Plan Commission to support the private taking.
50 The Plan Commission's stated purpose for the covenant vacation is the development of commercial property and the removal of empty homes. The Indiana legislature has addressed, in other enactments, the public purpose requirement of eminent domain procedures in areas of commercial development and vacated homes in blighted areas. The Plan Commission's statement of public use fails under either scenario. 51 First, under Indiana law, the Plan Commission may not condemn property if commercial development is the sole public purpose. In Indiana, local governments may designate areas economic development areas and establish redevelopment commissions based on findings that increased development in the region will promote employment, attract a new business enterprise, increase the property tax base, improve diversity of the economic base and create other similar benefits. Ind.Code 36-7-14-41(b)(4). Redevelopment commissions have several powers in economic development zones including purchasing, selling and leasing property, maintaining structures, providing financial assistance to local entities, and contracting to construct necessary structures. Ind. Code 36-7-14-12.2. However, Ind.Code 36-7-14-43(a)(7) specifically prohibits a commission from exercising the right of eminent domain in an economic development area. See also, Evansville v. Reising, 547 N.E.2d 1106, 1110 (Ind.Ct.App. 1989). Similarly, local commissions may not use eminent domain for industrial development but instead may only acquire by purchase, gift, or devise, and own, improve, maintain, sell, lease, convey, contract for, or otherwise deal in, real property for the development of industrial parks or industrial sites. Ind.Code § 36-7-13-3. Therefore, the Indiana legislature has determined that economic development on its own does not constitute a public purpose sufficient to satisfy the public use requirement inherent in the exercise of eminent domain under Indiana law. 52 Instead, redevelopment commissions must treat an area as blighted in order to use eminent domain to achieve the purpose of commercial development. Id. at 1111-12. Under Indiana law the clearance of blighted areas constitutes a public purpose sufficient to enable the exercise of eminent domain. Ind.Code § 36-7-14-2(a) (The clearance, replanning, and redevelopment of blighted areas under this chapter are public uses and purposes for which public money may be spent and private property may be acquired.). However, the determination of blight is a significant step that requires more than just a finding of a couple of vacant houses. See Ind.Code § 36-7-9-4.5. For vacant structures the Indiana legislature has authorized local governmental bodies to enact regulatory standards for repair and maintenance, and order repair or at most removal of the structure itself, providing certain procedural requirements are met. Id.; see also Ind.Code § 36-7-9-5. 53 Even if there were an argument that these structures constitute a blight, Indiana has established specific and detailed processes through which a local commission must go in order to make that determination. Ind.Code § 36-7-14-15. The code provides in part: 54 Whenever the redevelopment commission finds that an area in the territory under their jurisdiction has become blighted to an extent that cannot be corrected by regulatory processes or the ordinary operations of private enterprise without resort to this chapter, and that the public health and welfare will be benefitted by the acquisition and redevelopment of the area under this chapter, the commission shall cause to be prepared: 55
56 [the affected areas and designated public uses of those areas] 57 (2) lists of the owners of the various parcels of property proposed to be acquired; and 58 (3) an estimate of the cost of acquisition and redevelopment. 59 Ind.Code § 36-7-14-15. 60 Once these findings are made the redevelopment commission shall adopt a resolution declaring that the blighted area is a menace to the social and economic interest of the unit and its inhabitants. Id. The resolution must then be submitted to the plan commission which determines whether the resolution and the redevelopment plan conform to the plan of development for the unit and approve or disapprove the resolution and plan proposed. Ind.Code 36-7-14-16. 61 Obviously, the Plan Commission did not pursue this statutory option. Instead, it simply justified the vacation based on conclusory and largely unsupported statements as to the state of the homes on HNS properties. Because the Plan Commission has neglected to follow the statutory requirements for determining blight, they cannot now rely on that legislatively determined public use in order to justify their taking. To hold otherwise would obviate the procedural requirements of Indiana's blight code. Because the Plan Commission has not relied on a legislative determination of public use, the traditional deference given to those determinations is not appropriate in this case. 18
62 Next we will examine whether the Plan Commission's stated public purpose satisfies the Fifth Amendment's public use requirement. As we have stated, the Court has held that the public use requirement is coterminous with the scope of a sovereign's police powers. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1014, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984) (citing Midkiff, 467 U.S. at 240, 104 S.Ct. 2321 (1984)). See generally R. Epstein, Takings 108-112 (1985). Regulations enacted pursuant to the police power must be substantially related to the advancement of the public health, safety, morals, or general welfare. See Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 395, 47 S.Ct. 114, 71 L.Ed. 303 (1926). 19 The Plan Commission argues that if the covenant is vacated, then HNS may develop the property in the future, thereby removing vacant houses and creating a commercial zone that may be an asset to the community. However this possible future public benefit, even combined with the possibility that HNS may decide to remove the vacant homes, is not substantially related to the advancement of the public health, safety or welfare. 63 First, this case contrasts sharply even with those cases where courts have pushed the limits of the Public Use Clause and have held that a state transfer of property to a private entity served a public interest. For example in Poletown Neigh. Council v. City of Detroit, 410 Mich. 616, 304 N.W.2d 455, 458 (1981), the Michigan Supreme Court authorized a municipality to take private property for the development of a General Motors plant. In that case, the city of Poletown condemned a site approved by General Motors under the authority of the Economic Development Corporations Act. Id. at 457. The court upheld the stated public purpose of a new General Motors plant, stating that the city presented substantial evidence of the severe economic conditions facing the residents of the city and state, the need for new industrial development to revitalize local industries, the economic boost the proposed project would provide, and the lack of other adequate available sites to implement the project. Id. at 459. Poletown differs from the case at hand. There, the city made specific findings pursuant to a legislatively determined public use (under the Economic Development Corporations Act) as to the exact needs of the local community and the property was condemned for a specific type of economic development that met those needs and statutory requirements. 64 Similarly, in Hawaii Hous. Auth. v. Midkiff the Supreme Court validated takings of private property for transfer to individuals under the Hawaii Land Reform Act. Midkiff, 467 U.S. at 233-34, 104 S.Ct. 2321 (citing Haw.Rev.Stat. § 516 (1976)). The land reform statute allowed a local commission to target certain properties and permit the holders of long-term leases on those properties to purchase the leased property from the owners. Id. The Hawaiian legislature determined that ownership of land in Hawaii was so highly concentrated as to constitute a land oligopoly and thus allowed those transfers to occur without the landlords' consent. Id. These transfers were determined by the Court to be in the public interest because they would effect a decrease in land prices and an increase in land transfers. Id. at 240-241, 104 S.Ct. 2321. In Midkiff, the actual act of the transfer, regardless of the proposed use of the property, was found to serve a public purpose. 65 Here there is no determination that commercial development in and of itself would serve some overriding public purpose. In fact there is no limit as to the actual commercial or residential purposes that HNS may use the property. Under § 3-6-13-2 of the Allen County Zoning Ordinance land zoned C-2A may be used to provide goods and services that meet day-to-day needs. However, owners of areas that are zoned C-2A may also use the property for most C-1A and C-1 uses such as a service station, a tire store, a car wash, a laundromat, a tavern, a package liquor store, a massage salon, a bowling alley, a pool hall, billboards, and manufactured or mobile homes. See Daniels, 125 F.Supp.2d at 351. As the Daniels point out, the impact on the community depends on the use to which the property is put, and without knowing the use, the Plan Commission could not reasonably find that the vacation of the covenant could benefit the community. 20 The only common feature to all of the potential future commercial uses of the Lots would be to confer a private benefit on HNS either through their own development of the Lots or the sale of the property to a developer. The underlying purpose of a government taking that transfers a property interest to a private entity must be for a public benefit, and in this case any speculative public benefit would be incidental at best. 66 Secondly, the Plan Commission did not find that any eventual commercial development would be an asset to the community, merely that it could be an asset to the community. This type of possible public use does not satisfy the Fifth Amendment requirements. The Supreme Court has held that when there is a delegation of power to a local government to determine a public use, it is not enough that property may be devoted hereafter to a public use for which there may be an appropriate condemnation. Vester, 281 U.S. at 448, 50 S.Ct. 360 (holding that a public use declaration that an excess condemnation was in furtherance of the public use was not suitably defined enough to justify the taking under a state law requiring that condemnations be supported by a public use) (emphasis added). 21 The Plan Commission argues in response that we should not just consider the actual purposes that were considered, but also any  conceivable public purpose. See Gamble, 5 F.3d at 287 (emphasis in original). However, that standard, as enunciated in Midkiff, has traditionally applied to state legislatively or congressionally designated public purposes employed to justify the use of eminent domain and so does not apply to independent findings by the Plan Commission that are unsupported by state code. See Midkiff, 467 U.S. at 244, 104 S.Ct. 2321 (Thus, if a legislature, state or federal, determines there are substantial reasons for an exercise of the taking power, courts must defer to its determination that the taking will serve a public use. (emphasis added)). See also Armendariz, 75 F.3d at 1321. Even so, while in this case there may be some conceivable public benefit of some possible future use of the property, that benefit will always be subservient to the future private uses of the Lots, and therefore private benefits, by HNS. Much like the value of the property taken, public use is to be determined at the time of the taking, and at the time of the taking of the restrictive covenant, the possible future commercial development could not be rationally described as for a public purpose. Cf. Coniston Corp., 844 F.2d at 463 (The taking is complete when it occurs....) (citing First English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304, 320, 107 S.Ct. 2378, 96 L.Ed.2d 250 (1987)). The public use requirement would be rendered meaningless if it encompassed speculative future public benefits that could accrue only if a landowner chooses to use his property in a beneficial, but not mandated, manner. 67 In sum, because the Plan Commission has not followed legislative determinations of what constitutes a valid public use, nor provided any facts that demonstrate that the covenant vacation is substantially related to a public interest, we conclude that the Plan Commission has violated the public use requirement of the Takings Clause by vacating the restrictive covenant for a private purpose.