The Unsexiest Part of the Takings Clause (Part 2)

Why is “just compensation” the least sexy phrase?

As explained in Part 1 of this post, just compensation isn’t a legal phrase that makes headlines. Nobody, except a few eminent domain nerds, will spend time at a cocktail party debating what the Constitution means by “just compensation.” And hardly anybody writes thought pieces about it—except us, apparently.

Compared with fights over whether a taking is constitutional, whether it’s truly for a “public use,” or whether the government can even touch private property in the first place, just compensation can feel, well, boring.

Why? Just compensation involves math. It involves appraisals. And it’s almost impossible to tell when a particular dollar award slides from being fair to being unfair. If $1,000,000 would be a fair award, what about $999,999? Now $850,000? Or $450,000? It’s hard to say exactly where the tipping point is—the point when compensation is no longer “just.”

Most people don’t like sliding scales. We prefer clarity. When it comes to the law, we like “yes” or “no” answers. “Yes” and “no” are simple. They reduce cognitive load, end the conversation quickly, and give us closure.

We gravitate toward sports with overtimes, extra innings, and tiebreakers—anything to ensure clear winners and losers. Professional sports that can end in ties (cough*soccer*cough) have a harder time getting traction in America.

While “just compensation” may be unsexy, it’s also the most important phrase of the Takings Clause.

Why is it the most important?

Just compensation is the only issue in almost every takings case.

Fewer than 1% of eminent domain cases raise serious issues about whether the government or other condemnor has the right to take property. Courts define “public use” and “public necessity” so broadly that those fights rarely succeed. Even fewer cases deal with what counts as “private property.” Slightly more touch on whether a regulation has gone too far and thus counts as a taking. In contrast, every time a taking is allowed to go forward, the case comes down to one thing: how much will the property owner receive for the property rights that were taken.

Why care about whether compensation is just?

It’s about fairness to the people who bear the burden of giving up their property to support a project that will supposedly benefit the larger public. The theory is that just compensation should “make the landowner whole.”

The law never actually does this in practice. We’ll talk about the law’s failures to make property owners “financially whole” in a minute. But first consider what else, beyond money, the landowners lose when there’s a condemnation. They become defendants in a lawsuit, which takes a huge toll on most people. These folks didn’t ask to be sued. They rarely had plans to sell their property. More important, land means so much more to people than just another asset on their balance sheet. Land connects us to nature and family. Land is home. Eminent domain law disregards these connections entirely, offering no condolences and no compensation for the landowners’ personal, subjective connections to their land.

Getting “just compensation” right is also important for society at large. When governments, utilities, and pipeline companies take property rights for less than their worth (spoiler: they can and do), this destroys wealth, distorts incentives, and discourages people from investing in property. Just compensation ensures that the public doesn’t take too much private property—or engage in the wrong types of takings.

As Americans, most of us see our best selves in the scrappy rebels in Star Wars, or as worthy heirs of the American Revolution, fighting for freedom against a giant empire. But what’s the reality today? Too many of us tolerate and vote for politicians who perpetuate abusive government and corporate greed. Once the underdog, America is run by the Empire, which wields vast and arbitrary powers against individuals, families, and communities.

Does the law provide “just compensation”?

Not even close.

When courts say they’re awarding “just compensation” or “fair market value,” we’rereminded of Vizzini in The Princess Bride, who keeps shouting, “Inconceivable!” To paraphrase Inigo Montoya, those words don’t mean what courts think they mean.

Under the principle of “making the landowner whole,” an award of just compensation should ensure landowners have the same net worth before and after a taking. Cash holdings go up as a result of the award of compensation; the value of land holdings will go down due to the taking. But the bottom line on the balance sheet should stay the same.

That’s not what happens.

Courts say they award the “fair market value” of the property rights taken. But the courts’ version of “fair market value” has a bunch of carve-outs—real-world losses to property value that the law prevents landowners from recovering. The result looks nothing like what market participants would consider “fair market value.”

Such carveouts can be brutal. Maybe the taking closes down a shopping center’s main entrance, but leaves an inferior secondary entrance open. Maybe a condemnation reduces or eliminates a commercial center’s visibility to people driving by. Maybe changes to an exit ramp force customers to drive an extra 10 minutes to get to your site. Or perhaps a new road is so close to your home that you now experience intense vibration and noise day and night. These are just a few of the factors that real-world buyers and sellers would consider in reaching deal terms, including sales price, but which courts have held usually can’t be considered when determining “fair market value” in takings cases.

On top of that, you’re not entitled to attorneys’ fees for defending yourself, even when the condemnor sends you low-ball offers. Our experience confirms that landowners regularly receive far more compensation when they hire a lawyer. But whether you pay the lawyer by the hour or through a success-based contingency fee, those fees come out of your so-called “just compensation.”

This lopsided system favors the government, pipeline companies, and other condemnors. Landowners are not made whole. Our system incentivizes too many takings and the wrong types of takings, often allowing private companies with condemnation power to privatize profits while socializing the costs. We know in our bones that this system is downright un-American, but it’s the system we have today.

Why reform matters

For most individuals, eminent domain is a once-in-a-lifetime hit—maybe twice, if you’re really unlucky. But for governments and pipeline companies, condemnations are an essential part of their business model. They’re repeat players. They know the system. They create and change the rules by lobbying for laws that make it easier to shortchange landowners. And private companies with condemnation power make contributions to judicial campaigns.

Stalin once quipped that “quantity has a quality all its own.” Stalin was brutal, and that statement is brutally accurate. One landowner’s case may seem small, but taken together, these thousands and thousands of “unsexy” compensation disputes have enormous consequences for real people.

That’s why legislative fixes are so critical. Just compensation is the part of the Takings Clause that’s most in need of reform. It’s what matters most to landowners, it’s what keeps the government and other condemnors accountable, and it’s where the gap between theory and reality is widest.