Taking Liberty

In spite of the Constitution, governments get away with taking property without just compensation. Only radical reform will protect citizens' rights.

A fundamental principle of our legal system is that law ought to embody known, promulgated rules, impartially applied to all individuals at all times. But one area of the law that seems blithely to defy such a notion of the "rule of law and not of men" revolves around individuals' use and disposition of their property.

The Fifth Amendment to the Constitution includes the "taking clause." This provision protects property owners from an otherwise almost limitless eminent-domain power by declaring, "Nor shall private property be taken for public use, without just compensation." Under the aegis of the taking clause, governments may exercise their power of eminent domain only when the property seized will be devoted to a "public use," and all takings must be accompanied by the payment of "just compensation." In many cases, however, governments do not openly take property through eminent domain. Rather, they simply regulate property under the guise of another putatively inherent power of government—the "police power," a legacy of English common law that allows governments to constrain individual conduct in the name of the public good.

Using the police power as a rationale, courts frequently sanction regulations imposing enormous financial losses on property owners and abridging their control over their own property. So long as these regulations are clothed in the proper police-power language—if a legislature proclaims that they were enacted to further the "public health, safety, morals, or general welfare"—courts will normally see them as "reasonable" and not examine either the motives of the legislators, the necessity for such measures, or the efficacy of the schemes. Zoning boards, planning commissions, city councils, and state legislatures are permitted to run roughshod over landowners' property rights, provided only that fraud, deception, or transparent favoritism are not conspicuously apparent. The rights to use, develop, enjoy, and transfer property—rights considered of intrinsic and preeminent importance by our Founding Fathers—suffer accordingly.

For example, zoning and land-use legislation frequently cause some landowners to absorb substantial financial losses, while other, more fortunate owners reap huge windfalls. This injustice mocks our basic intuitions about even-handedness in government's treatment of individuals. It also violates one of the egalitarian precepts that undoubtedly inspired James Madison's urging that the taking clause be included in the Bill of Rights: that no individual should be forced to contribute more than his fair share to public improvements.

How did such regulatory measures as zoning become judicially acceptable as legitimate exercises of local governments' police power? The reasoning can be traced in some legal precedents established when the victims of police-power acts challenged them as takings that, under the eminent-domain clause, should be beyond the pale of constitutional legitimacy.

Very early in our history, the courts confined compensable takings to instances in which a government had physically invaded the plaintiff's property. Late in the 19th century, however, the Supreme Court invoked a so-called "noxious use" test to distinguish legitimate police-power acts from unconstitutional takings. The noxious-use test arose out of a decision written by Justice John Marshall Harlan in an 1887 case, Mugler v. Kansas. Kansas passed a law prohibiting the manufacture of liquor within the state. Mugler, the owner of a distillery there, claimed that this law reduced the value of his property by 75 percent. He argued that it unconstitutionally deprived him of his property without due process of law and operated so as to take his property without compensation.

Justice Harlan rejected Mugler's argument. Conceding that not all statutes adopted under the guise of the police power are beyond review, Harlan explained that the due-process clause of the Constitution does not contravene the equally essential principle that all property is held "under the implied limitation that the owner's use of it shall not be injurious to the community." Therefore, he suggested that government can prohibit property uses validly declared injurious to the health, safety, and morals of the community. Such legislation is not a "taking"; the state need not compensate property owners for losses sustained when they are simply denied the privilege of inflicting harm on the community by the noxious use of their property. After all, no one has a right to inflict harm on others.

Justice Harlan's noxious-use test, while it remained the regnant theory embraced by the Supreme Court, produced some rather curious decisions. If the ordinary, peaceful, nonviolent, non-fraudulent operation of a brewery—a business that had never been considered a common-law nuisance—could be completely prohibited, what next? Under Harlan's test, the Supreme Court upheld a Pennsylvania statute prohibiting the manufacture or sale of oleomargarine as a valid police-power measure to protect the public health. The Court similarly endorsed a Los Angeles ordinance barring the operation of brickyards within a portion of the city even though only one brickyard fell victim to that edict, and its owner incurred a loss in excess of $700,000. Ban liquor, margarine, and brickyards today, and why not gasoline stations, cigarettes, beauty parlors, or even lemonade stands tomorrow?

Two cases in the 1920s further clarified—if it can be called clarifying—the context for distinguishing uncompensable police-power regulations from compensable takings. Pennsylvania Coal Company v. Mahon, decided in 1922, was the first.

In this case, the Pennsylvania Coal Company had sold land to the Mahons, reserving the right to mine beneath the surface of the land without liability for any attendant damages. Nevertheless, the Mahons went to court to prevent the company from mining in such a way as to cause their home, which was on the land, to subside.

The Mahons' argument relied on a Pennsylvania law called the Kohler Act, which required surface support in anthracite districts. The company argued that for this requirement to be constitutional, the state would first have to acquire the privately owned anthracite districts through condemnation and the payment of just compensation. But the state contended that it had no such obligation, because the Kohler Act fell within the bounds of its police power.

When the case went to the Supreme Court, Justice Oliver Wendell Holmes argued that the police power and the power of eminent domain were as two poles of a continuum. As a state exercised its police power, at some point it would move beyond the limits of that power and sneak over into the terrain inhabited by eminent domain. In other words, some activities that states might try to accomplish under the police power could be constitutionally performed only under the power of condemnation. Thus, as bogus police-power measures, they would have to be invalidated.

But how can one tell whether an activity is a police-power action or in the eminent-domain terrain? Holmes proposed tests that boil down to a diminution-in-value criterion. "The general rule," he wrote, "is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking," else "the contract and due process clauses are gone." He added that "one fact for consideration in determining such limits is the extent of the diminution."

Holmes found that Pennsylvania had exceeded its constitutional authority—taking, in effect, the entire value of the coal by banning mining likely to cause subsidence. But he didn't say how large a diminution is required to cross the limit (100 percent? 25 percent?), nor did he say what other facts might be taken into consideration.

Not surprisingly, the adoption of the Holmesian test has fostered a chaotic legal climate. Decisions are written in highly conclusionary language, and they often supplement the diminution-in-value test with noxious-use or physical-invasion rules.

Another related theory, usually considered to have emanated from the Pennsylvania Coal decision, attempts to balance the benefit to the public against the loss to the property owner in order to determine the legitimacy of a police-power measure. If a court determines that the supposed public benefits exceed the private losses, the measure is deemed constitutional. Some environmentalists have been zealously encouraging the wholesale adoption of this harm/benefit standard. They believe that judges will become increasingly susceptible to their briefs arguing that land-use legislation always produces an enormous public benefit, a benefit always outweighing any private losses.

The second seminal case dealing with the distinction between police power and eminent domain was Village of Euclid v. Ambler Realty (1926). This case presented the Supreme Court with its first opportunity to review a zoning ordinance. Such ordinances had become quite popular after New York City's adoption of the first one in 1916. The Department of Commerce, under its energetic Secretary Herbert Hoover, fashioned a Standard State Zoning Enabling Act in the early 1920s, encouraged the states to adopt it, and accelerated the movement toward zoning.

In Euclid v. Ambler Realty, the Supreme Court wholeheartedly blessed what would become known as Euclidean zoning. Ambler Realty alleged that Euclid's zoning ordinance operated on the company's unimproved land in such a way as to deprive the owners of liberty and property without due process of law and to reduce the normal value of the land without compensation. But the justices turned a deaf ear, despite an asserted diminution in value from $10,000 to $2,500 per acre. The town's zoning ordinance, according to the Court, fell within the purview of the village's police power.

Justice George Sutherland, writing for the Court, declared that "the line which in this field separates the legitimate from the illegitimate assumption of power is not capable of precise delimitation. It varies with circumstances and conditions." And he made an analogy between zoning and the common law of nuisance. "A nuisance may be merely a right thing in the wrong place—like a pig in the parlor instead of the barnyard," he wrote. "If the validity of the legislative classification for zoning purposes is fairly debatable, the legislative judgment must be allowed to control."

In the wake of Pennsylvania Coal and Euclid, property owners adversely affected by police-power regulations in general or land-use restrictions in particular must fight an uphill battle against the court-declared presumption of constitutionality adhering to challenged statutes. They must bear the burden of proof to demonstrate unconstitutionality, knowing full well that courts will uphold statutes if they are "fairly debatable." They must operate in a judicial climate of case-by-case, ad hoc decision-making. And even if a landowner should win a round in the courts—if he secures the invalidation of a zoning ordinance as it affects his property—the municipality can retaliate by propagating a slightly different set of rules. The property owner then has no recourse but to initiate another painful, expensive, and drawn-out round of litigation.

The "taking" muddle, with all its confusions and inequities, will never be satisfactorily resolved until judges once again appreciate the importance of and justification for property rights, as did such eminent early American jurists as Chief Justice John Marshall and Chancellor James Kent. They understood that property rights ought to be held in the highest esteem precisely because they serve as a bulwark against oppression by the state. They are the necessary, if not sufficient, scaffolding upon which all other liberties—freedom of speech, press, mobility, and privacy—depend.

At least once in recent memory, a member of the Supreme Court seemed to grasp the centrality of property rights to liberty. Twelve years ago, Justice Potter Stewart wrote in Lynch v. Household Finance Corporation:

The dichotomy between personal liberties and property rights is a false one. Property does not have rights. The rights to enjoy property without unlawful deprivation no less than the right to speak or the right to travel is in truth a "personal" right, whether the "property " in question be a welfare check, a home, or a savings account. In fact, a fundamental interdependence exists between the personal right to liberty and the personal right to property. Neither could have meaning without the other. That rights in property are basic civil rights has long been recognized.

Welfare checks as property aside, Stewart's declaration is refreshing. It takes cognizance of the fact that without a right to property we would be no better off than those heroic members of the recently dissolved Helsinki Watch Committee in the Soviet Union—defending liberty in a system in which all property is owned by the state, and defending it fruitlessly at the cost of exile, banishment, imprisonment, and frequently death.

Perhaps this will be considered hyperbolic, since our courts have not totally abolished property rights. A recent California Supreme Court decision, however, might give one cause for a bit of hysteria, since it left open the possibility that a football team can be ''taken" under a city's eminent-domain power! This is a peculiarly flagrant example, and in any case, it is currently being appealed. But in less dramatic ways, other courts have steadily undermined property rights by permitting them to be chipped away through extensions of the police power.

Most thinking people who value not only their property but their lives and liberties would concede that a Soviet-style, complete emasculation of the individual's rights over property is unacceptable. Is it also impermissible or undesirable to defend the alternative—an absolutist view of property rights? In contrast to our courts, which delight in balancing conflicting individual and societal interests (in order, one wonders, to maximize their discretionary power?), I believe that it is not only desirable but imperative that individual rights be regarded as preeminent. If this is not established soon, courts could gradually permit property owners to be deprived of all their rights, except keeping title—and paying taxes.

What does an absolutist view of property rights mean in practice? First, the power of eminent domain-the power of the state to seize property against the will of its rightful owner, accompanied by the payment of compensation or not—is wholly unjustifiable. Just as an innocent person's life shouldn't be sacrificed by government even if that could prevent other, more numerous deaths—let us say, we hang an innocent person for a heinous crime as an example to deter potential criminals—so property shouldn't be confiscated to accommodate a new state office building, a more-convenient post office, or a less-circuitous highway. If A, as an individual, has no right to seize B's property, then a collection of individuals making up a government hasn't either.

And no "pragmatic" considerations justify violating someone's property rights, short of the extreme exigencies of war, when government may have to march its armies across someone's land to protect persons and property. Then, certainly, compensation must be paid to those bearing more than their fair share of the burdens of war.

But I can discern no theoretical justification for the power of eminent domain in peacetime. If government must construct military barracks, courts, and a few office buildings to carry out its limited functions, then it should purchase the land necessary on the open market, just like any other private buyer.

Economists may be troubled by efficiency concerns attending this solution. They may worry about hold-outs demanding exorbitant sums for their property, transaction costs, and so on. I would argue that government's problems along these lines are no different from any large private developer's and should be treated accordingly: government should either pay the price, negotiate downward, or abandon its project and try again elsewhere.

But what about that other presumed power of the state, the police power? If it were strictly a police power—one that operated to prevent crimes and punish criminals—it would fall squarely within government's proper domain. But in the name of "general welfare," that power has been expanded in this century to allow economic regulation far beyond government's proper bounds. It is now used to justify such governmental tampering with the market as minimum-wage and maximum-hour laws, workers' compensation acts, zoning, and usury laws.

Likewise, regulations aimed at protecting the "public morals" traduce government's proper function. The enforcement of morals forms no part of government's legitimate purpose, unless, of course, it is strictly limited to the prevention of criminal acts such as rape and murder.

The other two domains of the police power involve "public health" and "public safety." Here, in an ideal system, I would argue that government might play a very narrow role. For instance, it would be unexceptionable if a local government prohibited bomb manufacture in residential basements or outlawed dynamite storage in the attics of nursing homes. Such brazen behavior obviously endangers lives. Just as in the criminal law there are the law of attempts and the law of conspiracy, which allow government to act to prevent a crime before dead bodies are strewn about, so it seems reasonable to permit government to proscribe types of behavior that endanger lives through reckless disregard for the physical well-being of others. On the same theory, quarantine laws are just barely acceptable.

In general, then, property owners should be left to pursue private remedies in the courts if their property has been damaged or is in clear and present danger of damage. Only to a very limited extent should government engage in police-power regulation—when the danger is both proximate and life-threatening.

In the current judicial and public-opinion climate, the position suggested here may seem like flagrant extremism. There are, however, some free-market remedies that would most likely replace the overweening regulatory framework now enforced by our states. Building codes would plausibly be replaced by codes drafted privately, adjusted to circumstances, and enforced by insurance companies. (See "No Code Comfort," REASON, July 1983). Surely few developers would construct hazardous firetraps if they knew beforehand that they could not acquire insurance for their buildings. Likewise, interested parties, in a free market, would voluntarily coordinate land uses. As law professor Bernard Siegan has brilliantly demonstrated, egregiously incompatible property uses will not often coexist in the absence of zoning ordinances. Restrictive covenants that run with the land, renewable at intervals of several decades, can easily ensure that a slaughterhouse, for example, will not locate in residential areas. And if a property owner were so unfortunate as to find his house suddenly near a noxious chemical plant, a remedy would lie in nuisance law, for no one has a right to use his property in such a way as to affect adversely another's enjoyment of his own property. Let me attempt to draw from this ideal model some implications for the real world.

The Fifth Amendment stipulations regarding the government's exercise of the eminent-domain power should be refurbished. Takings must be for a genuinely public and not a private purpose. Accordingly, urban renewal, where private property is seized and then resold to private developers in order to "beautify" the city, should be judicially repudiated. Courts ought not to defer to legislative statements about "public use"; they should independently evaluate the necessity for the taking, examining whether it is the least-onerous course possible for effecting the admittedly desirable improvement and whether the planned use is indeed a public one, of benefit to each and every citizen, or merely a private one under the mere pretense of a "public use." In five states (Arizona, Colorado, Mississippi, Missouri, and Washington), there is currently no presumption in favor of the constitutionality of a challenged taking. That reform should be extended to other state and federal jurisdictions.

"Just compensation" should include recompense for a whole range of losses now usually disallowed, including payment of legal fees, assessment costs, and loss of business good will. The fact should be squarely faced by legislatures—and if not there, then by courts—that the analogy between takings and a private sale is false, and therefore owners should not be forced to bear the costs attendant upon a forced sale as they would a voluntary sale. Also, courts ought to be more hospitable to recovery for consequential damages, allowing relief for a wider range of tangential damages and displaying a high degree of skepticism toward government excuses for denying recovery.

One more qualification should be placed on eminent domain by state constitutional changes, legislative renunciation, or judicial denial. The eminent-domain power must not be delegated to private corporations and public utilities.

As with eminent domain, the ever-expanding police power must also be circumscribed. Perhaps state constitutions could be modified to mandate that regulations significantly deflating property values must be accompanied by payment of compensation. In the 1870s, several states modified their taking provisions to allow compensation when property was "taken or damaged," rather than just "taken." This was because many property owners felt victimized when public improvements damaged their property and courts denied them recovery, terming such damages merely consequential and, therefore, damnum absque injuria (a harm or damage without violating a legal right). Today, a similar collection of aggrieved property owners is arising, as more and more hapless souls fall victim to such regulatory excesses as the California Coastal Act, no-growth policies, and open-space designations.

If states modified their taking clauses once again to mandate compensation when private property is taken, damaged, or appreciably diminished in value through regulation, governments would be more reluctant to meddle with property. They would know full well that they would have to compensate all owners sustaining direct and appreciable damages to the degree they now do in eminent-domain proceedings. Thus, less regulation would occur; and when it did, it would be better-assessed regulation. Cost-benefit analysis would suddenly become imperative as legislatures had to face the consequences of their actions. While from a property-rights perspective this solution is far from ideal, at least it would point government in the right direction. Zoning, for example, would become egregiously expensive and probably suffer a much-deserved demise.

With the police power reined in by the compensation requirement and with eminent domain limited to a narrow range of strictly public uses, the flagrant, uncompensated takings that occur today would probably be avoided. It seems unlikely that courts will strictly confine the police power even to pressing instances of protecting the public health and safety. Nevertheless, they ought at least to reexamine their rule that the burden of proof rests with plaintiffs to prove beyond reasonable debate that a challenged act is unconstitutional. This burden should instead reside with the state once the plaintiff has presented a prima facie case—just as states must meet a difficult "compelling state interest" test in order to override individuals' liberties in the case of laws challenged on equal-protection or on due-process grounds for impinging on First Amendment rights.

The courts remain the only viable institution to protect endangered property rights. It is distasteful to endorse judicial activism today, given the results when courts have, in effect, tried to run schools and mental hospitals. Yet activism in the name of protecting property rights is a perfectly legitimate court function. To borrow a locution from an august politician, judicial activism in behalf of property rights is no vice, and equivocation in the pursuit of justice is no virtue.

Ellen Paul is director of research at the Social Philosophy and Policy Center at Bowling Green State University. She is the author of This Land Is My Land? (forthcoming). This article is adapted from an article in the Manhattan Report, by permission of the author and the Manhattan Institute.