Public Power, Private Gain: Minnesota

Overview

 

Minnesota’s record of the last five years is decidedly mixed. The Twin Cities and its suburbs continue to engage in development projects, both large and small, that condemn some people’s property for other private businesses. There have been at least eight projects with private condemnations in the last five years. Given that in the same time, Minnesota reports nearly 2,000 total condemnation actions filed, it seems likely that some of those also were condemnations for private parties. While Minnesota cities, particularly Minneapolis and St. Paul, continue to condemn for private use, Minnesota courts have sounded repeated notes of caution. Two Minnesota courts of appeals required condemning agencies to give owners a chance to contest public use before they lose their property. One trial court found a condemnation in Apple Valley to have an obvious private purpose and threw it out. And the Minnesota Supreme Court is torn on the issue of private use—it split evenly on two cases, leaving two utterly inconsistent appellate court opinions. One said that a St. Paul condemnation was valid and for the public purpose of eliminating blight, while the other said the same property was not blighted. Meanwhile, the legislature has considered but not decided several proposals to limit eminent domain for private use. Thus, both the law and politics of eminent domain in Minnesota remain in flux.

Legislative Actions

 

The Minnesota legislature also came out with a mixed piece of legislation affecting the state’s eminent domain laws. House Bill 2135 originally proposed prohibiting political subdivisions that acquire private property through condemnation from selling the property to another private person for a period of five years.353 Such a prohibition would have sharply discouraged the frequent practice of condemning property for the purpose of selling it to another private party. That provision did not pass. Instead, the legislature passed a law requiring that potential condemnees be given mailed and newspaper notice of public hearings about the proposed acquisition of their property. At the same time, though, the legislature also decided that if the city fails to give notice, it won’t affect the validity of the condemnation. The statute does not address the obvious question—why bother giving notice if there are no consequences for failing to notify?

 

 

Private Use Condemnations

 

Apple Valley

Valley Sales, Inc., operates a Buick dealership in Apple Valley on land that it has leased from Joseph Graeve since 1985. In 1996, Valley Sales tried to buy the land from Graeve for $1.2 million, but Graeve did not accept the offer. So Valley Sales decided that an alternate way of gaining title to the land would be to have the Apple Valley Economic Development Authority (EDA) condemn the land and give it to Valley Sales. The EDA held public meetings to discuss the possible condemnation, but coincidentally did not provide notice of any of those meetings to Graeve. Valley Sales and EDA crafted a redevelopment plan designed to withstand a legal challenge and concocted a statement of public purpose for the taking. At no point did the EDA advise the City Council of the proposed condemnation, or seek the City’s Council’s approval.

 

In September 2001, the EDA finally sent Graeve a notice to appear at an EDA meeting where the group was to consider condemning his land. This was Graeve’s first indication that his property had been targeted. At this meeting, Graeve addressed the EDA, which as it turned out had already voted to condemn the land. It then filed a condemnation action for the property. Graeve challenged the taking in the Dakota County District Court. On March 25, 2002, Judge Thomas M. Murphy handed down a scathing decision, in which he dismissed the taking and admonished the EDA for creating blatant pretexts for condemning Graeve’s land.354 Judge Murphy even went so far as to state that if Minnesota law had authorized him to award attorney’s fees to Graeve, he would definitely have awarded them in this case.355

 

Lino Lakes

The Lino Lakes Economic Development Authority filed a petition to condemn four undeveloped parcels of property, stating that the parcels were small and oddly shaped, and that it was necessary to acquire them to make private development of the land economically feasible. George Reiling, the owner of one of the parcels, challenged the taking. Reiling alleged both that the Town lacked a public use for the condemnation, and that the Town violated state law by failing to hold hearings or issue the necessary findings as required before establishing an economic development district. However, both the trial court and the Minnesota Court of Appeals disagreed with Reiling’s argument and allowed the condemnation to go forward.356

 

Minneapolis

Developer Opus Northwest LLC owned property in downtown Minneapolis that was located within a tax-increment-financing (TIF) district that the City established to finance a redevelopment project. The City had put out proposals for developing the area, and Opus, a major developer, submitted a proposal. The City went with one of Opus’ competitors, the Ryan Corporation. Ryan promised to bring a Target store, and Opus proposed an office building. The City redevelopment agency then condemned the parcel so that it could transfer it to Ryan. Opus challenged both the formation of the TIF district and the alleged public purpose behind the taking. The trial court upheld the condemnation. On appeal, the Minnesota Court of Appeals affirmed the trial court’s ruling, and the Minnesota Supreme Court denied review.357 Adding insult to injury, the appeals court in a later ruling compelled Opus to reimburse the redevelopment agency for the portion of its attorney fees attributable to the developer’s TIF challenge. Condemnees cannot be made to pay attorney’s fees for challenging a condemnation, but the court held that the TIF challenge was separate and thus subject to fees.358 Almost immediately after this experience, Opus served as the developer in another project that involved eminent domain (see below). Opus argued in its own suit that the condemnation lacked a public purpose, but it conveniently forgot that problem as soon as it benefited from eminent domain.

 

Minneapolis

In December 2002, the Minneapolis Community Development Agency (MCDA) forced Sowles Steel Erectors Co. to sell its three-acre construction business under threat of condemnation, to make way for a $7.4 million housing development. Under the MCDA’s plan, Sowles sold its property to the MCDA, which will then sell the site to the private developers behind the housing project. In total, the development is expected to include 192 units of townhouses, lofts and condominiums. Sowles did not want to sell its property or to make a move that would require transporting 1,000 semi-truck loads. However, the MCDA had threatened to condemn. Explained owner Dan Sowles, “We kind of had our backs against the wall.”359

 

Richfield

Richfield wanted to assist electronics store giant Best Buy in its effort to build a new corporate headquarters. In 1998, the town created a tax-increment-financing (TIF) district encompassing 43 acres, and declared the properties within the district to be “blighted.” The properties consisted of 67 homes, 87 apartments and 13 businesses. Two of the businesses slated for condemnation were small car dealerships owned by the Walser family.360

 

Best Buy’s developer, Opus Northwest LLC (see above), reached settlements with nearly all of the property owners within the district. However, the Walsers refused to negotiate, as they objected to the forced taking of their land and the family business. When Richfield began eminent domain proceedings against the properties, the Walsers contested the taking on the grounds that it did not serve a public use. They also sued the Town in a separate lawsuit. The second suit alleged, among other things, that the Town had illegally stretched the definition of “blight” in an attempt to meet the public use threshold required by state eminent domain law, as a means of pleasing the large corporation, and that the area did not meet the standards for a TIF district.361

 

The trial court in both cases ruled in favor of the Town, finding both a public use and a proper designation of blight.362 The Minnesota Court of Appeals decided the condemnation case first, holding in a cursory manner that the condemnation was for the public purpose of removing blight, which is well-established under Minnesota law. The court briefly mentioned that there was traffic in the area and that auto dealers were located near residences.363 Four months later, a different panel of the Minnesota Court of Appeals reversed the trial court in the case brought by the Walsers and held that the local Housing and Redevelopment Authority failed to properly establish the TIF district. This court actually discussed the evidence in some detail. In a scathing opinion, Judge Amundson said that the Town exhibited a “particular municipal meanness” and “completely ignored” the legal requirements for establishing the district. For example, the agency had classified all buildings as blighted that did not have insulation that matched the energy efficiency standards for the construction of new buildings. Also, the judge questioned whether the particular financing method was used “primarily” for a public purpose, as the law requires.364 The court’s attempt to distinguish the two cases was largely unavailing. The factual holdings in the TIF case show that there was no blight in the area and that any finding of blight was pretextual.

 

The Minnesota Supreme Court heard both cases in 2002 and split 3-3 on both.365 The Institute for Justice filed an amicus brief on behalf of Walser in the TIF case. When a supreme court splits evenly, the lower court opinion is affirmed, but without opinion and with obviously diminished precedential value. Thus, Minnesota is left with one case holding that the condemnation is for the purpose of eliminating blight and another holding that there was no blight. The U.S. Supreme Court denied Walser’s request for review of the public use ruling,366 so Minnesota citizens will have to wait for another day to find out what the limits are for the government taking private homes and businesses for private developers.

 

St. Paul

The St. Paul City Council is planning to condemn the Hillcrest Entertainment Center, a local bowling alley, so that the local Housing and Redevelopment Authority (HRA) can turn the property into new housing, offices and commercial space. The once-popular bowling alley, formerly known as Hafner’s, has become a target of neighborhood complaints in recent years. The new owners also have a dance club on the premises, and calls to the police from local residents have increased.367 On March 13, 2002, the City Council approved a measure to allow the HRA to acquire the center through negotiations or eminent domain. The Council president explained that rather than a bowling alley, there was a demand for housing in the area. At the same meeting, the City approved funding for the acquisition of a privately owned vacant tract of land in the Railroad Island neighborhood to make way for 148 single-family homes.368 Had the City not been planning for private development, perhaps it could have taken steps to reduce the noise short of condemning the property.

 

St. Paul

The Baillon Company owned a parcel of land in downtown St. Paul, which it leased to Imperial Parking, Inc., for use as a public parking lot. In 1999, the St. Paul City Council passed a resolution supporting the construction of an enclosed walkway linking major downtown hotels and the St. Paul Civic Center (known as the RiverCentre). Several of the beneficiary hotels were partially owned by the St. Paul Port Authority. The walkway plan called for erecting of a three-story connector building on the Baillon land that would provide skyway and tunnel connections to the pedestrian link. In November 2000, the Port Authority filed a petition for the “quick- take” of the Baillon property. Baillon contested the taking, but the district court approved the Port Authority’s action. In August 2001, the Minnesota Court of Appeals affirmed, holding that the owner did receive a hearing before the quick-take and that the hearing satisfied due process.369 Furthermore, the appeals court ruled that the condemnation served a valid public purpose, despite the fact that the Port Authority invoked its eminent domain powers for the benefit of its own private-sector investments.370

 

*These numbers were compiled from news sources. Many cases go unreported, and news reports often do not specify the number of properties against which condemnations were filed or threatened.

†The Research & Evaluation/Court Services Division of the Minnesota Supreme Court (includes condemnations for traditional public uses).

353 H.B. 2135, 82nd Sess. (Minn. 2001).

354 See Apple Valley Economic Development Authority v. Graeve, No. C9-01-10596, slip op. at 19-21 (Minn. 1st Dist. Ct. Mar. 25, 2002).

355 Id. at 19.

356 See Lino Lakes Economic Development Authority v. Reiling, 610 N.W. 2d 355 (Minn. App. 2000).

357 See Minneapolis Community Development Agency v. Opus Northwest LLC, 582 N.W. 2d 596, 602-03 (Minn. App.), rev. denied, 1998 Minn. LEXIS 779 (Oct. 29, 1998).

358 See Opus Northwest LLC v. Minneapolis Community Development Agency, 599 N.W. 2d 582, 585 (Minn. App. 1999).

359 “Sowles Clears Out for $7.4M Minneapolis Housing Project,” The Business Journal (Minneapolis-St. Paul), Dec. 6, 2002, at 7.

360 Chuck Haga, “Richfield Council OKs Best Buy Move,” Minneapolis Star Tribune, May 9, 2000, at 1B.

361 Dan Wascoe, Jr., “Suit Challenges Richfield Plan,” Minneapolis Star Tribune, Nov. 19, 2000, at 1B;

362 See Housing & Redevelopment Authority v. Walser Auto Sales, Inc., 630 N.W.2d 662, 665 (Minn. App. 2001); Walser Auto Sales, Inc. v. City of Richfield, 635 N.W.2d 391, 393 (Minn. App. 2001).

363 Housing & Redevelopment Authority v. Walser Auto Sales, Inc., 630 N.W.2d 662, 668-69 (Minn. App. 2001).

364 Dan Wascoe, Jr., “Court: Richfield Erred in Best Buy Project,” Minneapolis Star Tribune, Nov. 14, 2001, at 1B; see Walser Auto Sales v. City of Richfield, 635 N.W. 2d 391, 399-403 (Minn. App. 2001).

365 Housing & Redevelopment Authority v. Walser Auto Sales, Inc., 641 N.W.2d 885 (Minn. 2002); Walser Auto Sales v. City of Richfield, 644 N.W.2d 425 (Minn. 2002).

366 Housing & Redevelopment Authority v. Walser Auto Sales Inc., 123 S. Ct. 437 (2002).

367 Curt Brown, “Night Spot May Give Way for Housing” Minneapolis Star Tribune, Mar. 13, 2002, at 9B.

368 Mary Lynn Smith, “East Side Housing Plans Approved by St. Paul HRA,” Minneapolis Star Tribune, Mar. 14, 2002, at 7B.

369 See Port Authority of St. Paul v. Baillon Co., 2001 Minn. App. LEXIS 888, at *8 (Aug. 7, 2001), rev. denied, 2001 Minn. LEXIS 674 (Minn. Oct. 16, 2001).

370 Id. at *14-*15.