Reference no: EM132222203

In 1981, General Motors planned to close its Cadillac plant in Detroit and move to the South unless a new, upgraded site could be built. The Detroit area had lost another auto plant two years earlier, and this one would lead to the loss of 6,000 additional jobs and millions of dollars in tax revenues. The city of Detroit agreed to create a new site for the factory in a neighborhood called Poletown, and make infrastructure improvements to the area, if GM would stay in the area. To do this, they used the right of eminent domain to condemn over 1000 houses and 100 businesses, claiming that increased employment and tax receipts were public goods which justified using this power. The Michigan Supreme Court upheld the city’s decision; excerpts from the majority and dissenting opinions are below. (The ruling was overturned in the 2004 Michigan Supreme Court decision County of Wayne v. Hathcock; a similar 2005 U.S. Supreme Court case, Kelo v. City of New London, was decided in the same direction as Poletown.)

PER CURIAM. This case raises a question of paramount importance to the future welfare of this state and its residents: Can a municipality use the power of eminent domain granted to it by the Economic Development Corporations Act ... to condemn property for transfer to a private corporation to build a plant to promote industry and commerce, thereby adding jobs and taxes to the economic base of the municipality and state? ...

The Economic Development Corporations Act is a part of the comprehensive legislation dealing with planning, housing and zoning whereby the State of Michigan is attempting to provide for the general health, safety, and welfare through alleviating unemployment, providing economic assistance to industry, assisting the rehabilitation of blighted areas, and fostering urban redevelopment. ... To further the objectives of this act, the legislature has authorized municipalities to acquire property by condemnation in order to provide industrial and commercial sites and the means of transfer from the municipality to private users.

What plaintiffs-appellants do challenge is the constitutionality of using the power of eminent domain to condemn one person’s property to convey it to another private person in order to bolster the economy. They argue that whatever incidental benefit may accrue to the public, assembling land to General Motors’ specifications for conveyance to General Motors for its uncontrolled use in profit making is really a taking for private use and not a public use because General Motors is the primary beneficiary of the condemnation.

The defendant-appellees contend, on the other hand, that the controlling public purpose in taking this land is to create an industrial site which will be used to alleviate and prevent conditions of unemployment and fiscal distress. The fact that it will be conveyed to and ultimately used by a private manufacturer does not defeat this predominant public purpose. ...

The power of eminent domain is to be used in this instance primarily to accomplish the essential public purposes of alleviating unemployment and revitalizing the economic base of the community. The benefit to a private interest is merely incidental. ... If the public benefit was not so clear and significant, we would hesitate to sanction approval of such a project.

RYAN, Justice (dissenting). This is more than an example of a hard case making bad law [;] it is, in the last analysis, good faith but unwarranted judicial imprimatur upon government action taken under the policy of the end justifying the means. ...

It was, of course, evident to all interested observers that the removal by General Motors of its Cadillac manufacturing operations to a more favorable economic climate would mean the loss to Detroit of at least 6,000 jobs as well as the concomitant loss of literally thousands of allied and supporting automotive design, manufacture and sales functions. There would necessarily follow, as a result, the loss of millions of dollars in real estate and income tax revenues.

[General Motors had announced its intention to close the plant and move to the South unless the site of the Cadillac plant could be significantly improved. GM asked the City of Detroit to make extensive improvements to the freeways, streets, sewers, and other aspects of the site. If those changes were made, GM said that it would keep the Cadillac plant open. The cost of the acquisition of the property and of making these improvements was over $200 million. The City intended to sell the site to General Motors for $8 million.] Faced with the unacceptable prospect of losing two automotive plants and the jobs that go with them, the city chose to march in fast lock-step with General Motors to carve a “green field” out of an urban setting which ultimately required sweeping away a tightly-knit residential enclave of first- and second-generation Americans, for many of whom their home was their most valuable and cherished asset and their stable ethnic neighborhood the unchanging symbol of the security and quality of their lives.

It is plain, of course, that condemnation of property for transfer to private corporations is not wholly proscribed. For many years, and probably since the date of Michigan’s statehood, an exception to the general rule has been recognized. The exception, which for ease of reference might be denominated the instrumentality of commerce exception, has permitted condemnation for the establishment or improvement of the avenues of commerce—highways, railroads, and canals, for example. ... It cannot for an instant be maintained, however, nor has anyone suggested, that the case before us falls within the instrumentality of commerce exception. ... It may be argued, however, that the fact that the case before us lies outside the exception does not end the inquiry if the reasons justifying the existing exception are present here. I turn now to determine whether such reasons exist.

Examination of the cases involving the instrumentality of commerce exceptions reveal[s] that three common elements appear in those decisions that go far toward explicating and justifying the use of eminent domain for private corporations: 1) public necessity of the extreme sort, 2) continuing accountability to the public, and 3) selection of land according to facts of independent public significance. ...

With regard to highways, railroads, canals, and other instrumentalities of commerce, it takes little imagination to recognize that without eminent domain these essential improvements, all of which require particular configurations of property—narrow and generally straight ribbons of land— would be “otherwise impracticable”; they would not exist at all. ... [I]t could hardly be contended that the existence of the automotive industry or the construction of a new General Motors assembly plant requires the use of eminent domain. ...

One of the reasons advanced by the defendants as justification of the taking in this case, and adopted by the majority, is the claim of alleviation of unemployment. Even assuming, arguendo, that employment per se is a “necessity of the extreme sort,” there are no guarantees from General Motors about employment levels at the new assembly plant. ... But the fact of the matter is that once [the Central Industrial Park or CIP] is sold to General Motors, there will be no public control whatsoever over the management, or operation, or conduct of the plant to be built there. ... The level of employment at the new GM plant will be determined by private corporate managers primarily with reference, not to the rate of regional unemployment, but to profit.

With this case the Court has subordinated a constitutional right to private corporate interests. As demolition of existing structures on the future plant site goes forward, the best that can be hoped for, jurisprudentially, is that the precedential value of this case will be lost in the accumulating rubble.

(1) Would you characterize what the City of Detroit intends to do with this land as being the provision of a public good?

(2) Justice Ryan describes the area where the taking is to occur as a “tightly-knit residential enclave of first- and second-generation Americans, for many of whom their home was their most valuable and cherished asset and their stable ethnic neighborhood the unchanging symbol of the security and quality of their lives.” If this description is accurate, does it raise any special efficiency concerns about the government’s taking this property at fair market value? Specifically, is there a particular problem here in under- compensating the residents of Poletown for their large subjective valuation on their homes and community?

(3) Evaluate the following interpretation of the Poletown decision: “The bargaining costs between GM and the neighbors are so high that, even if the valuation of GM’s desire to use their property was greater than the valuation on the neighbors’ desire to remain where they were, no bargain could have been struck. What the court is sanctioning here is a hypothetical market transaction that would have taken place but for the level of transaction costs.”