Eminent Domain

[Bees Knees]

This is one of those topics clients sometimes ask us about.

Eminent domain is the inherent power of the government to seize private property with due monetary compensation, but without the owner's consent. The property is taken either for government use (such as to build or expand a highway) or by delegation to third parties who will devote it to public or civic use or, in some cases, economic development (such as taking your house so that a private developer can build a new shopping mall which is suppose to stimulate economic activity in the community).

To tie this topic to taxes, TTB page 14-7 covers the tax rules that apply under Involuntary Conversions.

Several years ago, a long time auto dealership along with dozens of homes were taken by the city of Richfield Minnesota so that a big corporation located in Minnesota could build their new corporate offices on that location. It was controversial at the time because it was government taking private property for private development, as opposed to the taking of private property for public use. Sure, everyone was paid for having their property taken, and some welcomed being able to sell their property. But forcing everyone to sell so that some other private party could benefit seemed a little too much.

Well of course in the end, the big corporation got its land and built its huge mega complex in Richfield, which promised all kinds of new jobs for the area, which of course is one of the reasons why Richfield went along with this scheme. Those of you who live in the Twin Cities and drive the southern stretch of 494 through Richfield and Bloomington know exactly who it is I am talking about.

Fast forward a few years into the present. The controversy has died down. What was done is done. I happen to know a friend who works in that building in the accounting department. She and her entire department are losing their jobs. Why? This big corporation has decided to out-source their jobs to India.

After getting the government to give them the land for the purpose of creating new jobs for the area, they now decide to send these new jobs over to India. Of course huge areas of this new big mega building will be sitting vacant.

I’m not usually the type to wave the flag, seal up the borders, and say only buy from American owned companies who create American jobs. But when this thing happens to a friend, it makes me think. Sure, corporations should make products as cheap as possible, but not at the expense of forcing people to sell their private property. This is an example of why eminent domain should not be used to help private companies force people to sell their homes and businesses.

[Uncle Sam]

Eminent Domain

Wouldn't there have to have been written into the covenants of sale, the condition that Mr. Corporate America coming in would promote local residents for a specified period of time?
Can't this case be taken to the State Attorney General?

[Bees Knees]

Wouldn't there have to have been written into the covenants of sale, the condition that Mr. Corporate America coming in would promote local residents for a specified period of time?

Maybe, but if you are going to bring legal action, who has been damaged? Which party in the contract can make the claim they were damaged?

The employees losing their jobs were not a party to the contract between the property owners forced to sell and the government forcing them to sell. The employees had an employment contract with Mr. Corporate America, who would have never promised any one specific employee that he or she would be guaranteed employment as a result of eminent domain. If anything, Mr. Corporate America could claim those employees would have never had a job to begin with if it weren’t for the eminent domain.

The city of Richfield is the one who entered into the contract to sell that property to Mr. Corporate America. The city of Richfield never guaranteed jobs to any specific individuals who could potentially be hired and then fired by Mr. Corporate America.

Even if the city of Richfield had a contract with Mr. Corporate America that the sale was conditional on Mr. Corporate America providing jobs to the local community, how is the city of Richfield damaged? The city of Richfield does not have a local income tax, so the city of Richfield is not damaged by the loss of jobs. The city of Richfield benefits by collecting local property taxes from Mr. Corporate America. The amount of property taxes collected does not change whether or not Mr. Corporate America fills that building with employees.

The city of Richfield forced the local property owners to sell their property. The city of Richfield had the legal right to do so under the force of law. The local property owners were compensated for that forced sale. Courts often allow local governments wide latitude in deciding whether they can take property under eminent domain for just about any reason, as long as the property owners are compensated. What damage has Richfield caused to those local property owners that hasn’t already been compensated for?

Mr. Corporate America had no contract with the individual property owners because Mr. Corporate America purchased the property from the city of Richfield. Therefore, Mr. Corporate America has no obligation to the former owners as to how the property is to be used.

The State of MN who does collect income taxes and pays out unemployment benefits has no claim for damages because they were not a party to the contract between the city of Richfield and Mr. Corporate America. Eminent domain was conducted at the local level, not the state level. The city of Richfield did not need the permission of the state to force the local property owners to sell their property.

Thus, if someone wants to bring legal action against Mr. Corporate America, how has that person been damaged? Which victim has a contract with Mr. Corporate America that has been broken?

[AuditorTurnedGood]

Harkening back to my wannabe attorney days, here's a question.

If Mr. Corprate America negotiated with the City of Richfield to build the building and stated that the new building would create new jobs, and at the same time had plans in place to begin outsourcing and layoffs, wouldn't that be a deception that would invalidate the contract from the get go?

P.S. I had a friend that worked in said big giant building. For all of 3 weeks right out of college. They hired him, trained him, and eliminated the level of the organization he worked in in less than a month.

P.P.S. 2 years later he got a call from the same company offering him his old boss' job. Needless to say, he didn't take the bait.

[Uncle Sam]

Eminent Domain

I feel that the city of Richfield has been damaged because they sold the property with the future benefit in mind of local residents being employed there.
What other reason would there have been to permit the sale to a corporate entity?
Guaranteed property tax revenue, constant stream of income for local families to patronize local businesses, and everything associated with providing a healthy environment for local residents to remain there.
Otherwise, the government could have just left the property alone and let the residents keep their homes.
Outsourcing to India takes away employment opportunities to hard working Americans.
I truly feel that the corporation that bought the property breached its good faith to the local government.

[Bees Knees]

I feel that the city of Richfield has been damaged because they sold the property with the future benefit in mind of local residents being employed there.
What other reason would there have been to permit the sale to a corporate entity?

Richfield is a suburb of Minneapolis / St. Paul. Local jobs created at Mr. Evil Corporate America were never confined to benefiting the residents of the city of Richfield. Those jobs created by Mr. Evil Corporate America were spread throughout the Twin Cities Metro area. Richfield did not do it to create a local job base. They did it for the property tax revenue, which they still collect.

Doing further research on this alleged big evil Mr. Corporate America, the original eminent domain took place in 2001, right around the time when there was a U.S. Supreme Court decision that allowed a local government to take private property through eminent domain and give it to another private business. So Richfield had the backing of the U.S. Supreme Court.

In addition, a local car dealership who had been in that location on 494 since the beginning of time and was forced to sell turned around and sued the city of Richfield. They lost, although the court increased the price at which Richfield had to pay for the property.

Richfield, with the backing of the courts, sold the property to Mr. Evil Corporate America in 2001. In 2004, Mr. Evil Corporate America then turned around and eliminated some 800 IT jobs that were being outsourced. So this latest outsourcing round for the accounting department is nothing new. Mr. Evil Corporate America already has a history of doing this, and Richfield doesn’t seem to care. Apparently since Richfield still gets its property tax revenue.

[Bees Knees]

If Mr. Corprate America negotiated with the City of Richfield to build the building and stated that the new building would create new jobs, and at the same time had plans in place to begin outsourcing and layoffs, wouldn't that be a deception that would invalidate the contract from the get go?

Prove they had plans in place at the time to outsource the jobs. Why build a big huge building if you are going to turn around in three years and empty it?

Corporate America lives for the moment. One day they spend money building buildings for expansion. The next day they fire all the employees and outsource their jobs. That’s life. I'm sure Mr. Evil Corporate America had their legal department make sure any contractual obligations were fulfilled prior to the layoffs.

Its not that I am complaining about Corporations hiring and then firing employees. That's life. It’s when idiot small time local city council members get sucked into the idea that kicking out long time residents and local businesses in favor of big monster corporations is some how good for their communities. Anyone who has ever worked for big corporate America knows that you can't trust your job will be there beyond your next paycheck. My point is I do not believe Eminent Domain should be used to benefit one private business at the expense of another. I can see why we need it to build roads and hospitals. But not for the benefit of business.

[BHoffman]

...and there are those who believe that Government is the most powerful and most corrupt "corporation" in the world.

[Uncle Sam]

Eminent Domain

So Bees - what's your beef?

[Edsel]

Institutionalism

...and there are those who believe that Government is the most powerful and most corrupt "corporation" in the world.

...whether it be government, large corporations, labor unions, professional organizations, etc. all have the same characteristics.

The Richfield scenario was also played out in Connecticut, and that one went all the way to the supreme court. Connecticut had condemned private residences on a waterfront, to be replaced by office buildings for mega-corporations. The Supreme Court did not rule, but in essence that meant that the ruling by Connecticut was upheld by failure to overrule.

Other states made a grandstand show, such as Georgia, who claimed that only a condemnation and taking of property by the STATE could happen there, and not by a private developer. However, it was later pointed out that their State had been involved in a number of such condemnations, and later sold the property to wealthy private interests.

How many of you were taught in school about the pre-emptive rights of a share of common stock, i.e. the holder gets the opportunity to hold his stock, and buy more if the corporation issues more. That is a joke -- how many of YOUR shares have been bought out in a private equity deal in the last five years?

Money, not citizen welfare, runs Washington. It runs Minnesota, Bloomington, Richfield. Even Mankato and Taylor Falls, if some few of you know where these places are. It runs my state, be it TN or AL. If anyone lives in a state where this is not true, please tell me.

Those of you who like myself have worked for giant corporations and for small firms know exactly what I'm talking about with the word "institutionalism." Right and wrong give way to expedient, and a struggle between moral and immoral becomes amoral. Instead of ends becoming means, means become ends.

Old Crankcase should have kept his car dealership. Anyone who crawls in bed to play footsie with Megacorp should expect to be sold out at some point down the road when expeditious to do so.

[Bees Knees]

So Bees - what's your beef?

Eminent domain should not be used to let one business take property away from another. Eminent domain should only be used to let the government take property for public use.

[BHoffman]

Good news

http://www.ij.org/index.php?option=com_content&task=view&id=990&Itemid=165

[Bees Knees]

Good link. Too bad the U.S. Supreme Court does not see it that way.

http://www.washingtonpost.com/wp-dyn/content/article/2005/06/23/AR2005062300783.html