Will Supremes Check Government’s Power of Confiscation?
“Government is instituted to protect property of every sort,” James Madison wrote in his essay “On Property.” “This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.”
The city of Dallas and the U.S. Congress might benefit from a little remedial reading from America’s founders. At the urging of a couple of major airlines, they took the property owned by Love Terminal Partners (“LTP”), whose airline terminal adjoining Love Field airport in Dallas was poised to compete with Southwest Airlines after nonsensical restrictions on flights into that airport was lifted.
The Takings Clause of the Fifth Amendment of the U.S. Constitution (which applies equally to the States and the Federal Government) requires that property can only be taken for public use, and then only if a just compensation is paid. LTP’s extremely valuable property was taken without a dime in compensation, however, on the flimsy rationale that the property was not yet generating positive cash flow because of restrictions imposed by the very government that condemned the property in the same statute that lifted the restrictions. LTP’s $25 million investment was thereby wiped out at the very moment LTP stood to reap the benefits of its investment and foresight, which a federal claims court found to be valued at $133 million.
How did we get here? Like hikers in a deep forest, a federal court can step a few degrees off the constitutional path, find itself in unfamiliar territory, leaving the next court to take a further step in the wrong direction. It only requires a few such missteps to get lost in a lawless wilderness. Such death by disorientation is what has happened to the Takings Clause, a blunt and unmistakably clear statement in the Fifth Amendment of the U.S. Constitution, reading: “ … nor shall private property be taken for public use, without just compensation.”
The first step the judiciary took off this clear and linear path occurred in Penn Central Transportation Co. v. New York City (1978), concerning the now-defunct railroad’s ownership of the Grand Central Terminal. The Supreme Court determined that the city could take the “air rights” from the railroad for a proposed skyscraper to be built in a cantilevered fashion over the terminal. The court arrived at this ruling through a “balancing test” that allows the government to prohibit, by regulation, uses of private property if the public benefit exceeds the investment-back expectations of the property owner. This is a test that turns the Takings Clause on its head, because it allows the government to do the very thing the Clause was adopted to prevent, namely, as the Supreme Court declared in United States v. Armstrong: “forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”
The next misstep the courts took was Lucas v. South Carolina Coastal Council (1992), which had the salutary effect of forcing that state to compensate a landowner whose two beachfront lots were rendered valueless by a state law that outlawed construction. Despite this victory for the owner, Lucas encouraged future missteps by mandating a categorical test to determine the impact of a regulation on the economic and beneficial uses of a property. Compensation would be due only to owners who had been deprived of all economically beneficial use of their property; shy of that categorical taking, the “government always wins” Penn Central balancing test would apply. As a result, Lucas has proven to be more of a barrier reef for property rights than a safe harbor.
In 2018, a U.S. Court of Appeals for the Federal Circuit took the most recent misstep into the wilds when it overturned a federal claims court ruling awarding $133.5 million to the owners of the Lemmon Avenue Terminal at the Dallas Love Field Airport. The owners of that terminal invested more than $17 million to construct their terminal in 2000 after first spending millions to acquire the lease rights. They did so despite a harsh limitation on flights imposed by the infamous Wright Amendment, meant to protect the competing Dallas/Fort Worth Airport. The Lemmon Avenue Terminal owners continued to make hefty lease payments to the city of Dallas, despite being hampered by recession and the ravaging of the airline industry by the 9/11 terrorist attacks.
These investors were on the verge of seeing their efforts pay off when five entities — the cities of Dallas and Fort Worth, the DFW Airport Authority, and Southwest Airlines and American Airlines — crafted a deal at a negotiating table at which only they had seats. In 2006, Congress recognized the terms of their agreement in the Wright Amendment Reform Act (WARA). As this measure moved forward, the owners of the Lemmon Avenue Terminal engaged in talks with JetBlue to bring new competition to Dallas travelers.
WARA passed, lifting the onerous restrictions of the Wright Amendment. But it had one unexpected wrinkle — the Lemmon Avenue Terminal could not be used for air travel. In fact, WARA mandated that the city of Dallas would take physical possession of the terminal and bulldoze it.
A federal claims court made a market-based determination of what the lost terminal meant to investors. That court saw that the value of the terminal would have been immensely increased by the lifting of the Wright Amendment, absent the attached death warrant. It recognized that what the government gave with one hand, it took away — with the same hand. And it accordingly awarded $133.5 million to the Terminal’s owners.
But the Federal Circuit ruled on appeal that the prohibition against using the terminal could not be a regulatory taking because, in its view, there was no economic value to the property prior to the new regulation. In other words, because the terminal had not previously generated a profit, it could be taken and destroyed without any compensation, much less the just compensation required by the Fifth Amendment.
LTP has asked the Supreme Court to review their case. Given the gutting of the fundamental right to property that the case involves, it is extremely important that it does so. (Disclosure, the Center for Constitutional Jurisprudence, which I head, has filed an amicus curiae brief also urging the Court to grant LTP’s petition for review.) If the Court instead allows the lower court decision to stand, government regulatory schemes against long-term investment properties will be fully immunized from the just compensation requirements of the Fifth Amendment. And the fundamental right to property, which it is the purpose of government to protect, will wither away even further than it already has.
John C. Eastman is the Director of the Center for Constitutional Jurisprudence, a public interest law firm affiliated with the Claremont Institute for the Study of Statesmanship and Political Philosophy, and the Henry Salvatori Professor of Law & Community Service at Chapman University’s Fowler School of Law.