HAWAII HOUSING AUTHORITY v. MIDKIFF
After extensive hearings in the mid-1960s, the Hawaii legislature discovered that while Federal and State governments owned nearly 49 percent of the land in Hawaii, another 47 percent was owned by only 72 private landowners. To combat this concentration of ownership, the legislature enacted the Land Reform Act of 1967. The Act adopted a method of redistribution in which title in real property could be taken from lessors and transferred to lessees. Frank E. Midkiff, a landholder, challenged the Act.
Did the Land Reform Act of 1967 violate the Public Use Clause of the Fifth Amendment?
Legal provision: Takings Clause
In a unanimous decision, the Court held that the Public Use Clause did not preclude Hawaii from taking title in real property, with just compensation, for the purpose of reducing the concentration of ownership. Noting that Hawaii's statute was rationally related to a conceivable public purpose, the Court argued that "debates over the wisdom of takings" were best carried out by legislatures, not by federal courts. The Court also held that the fact that the property taken by eminent domain was transferred to private beneficiaries did not condemn the law to having a solely private purpose.
ORAL ARGUMENT OF LAURENCE H. TRIBE, ESQ., ON BEHALF OF APPELLANTS
Chief Justice Warren E. Burger: We will hear arguments next in Hawaii Housing Authority against Frank E. Midkiff, et al.--
Mr. Tribe, I think you may proceed whenever you're ready.
Laurence H. Tribe: Thank you, Mr. Chief Justice, and may it please the Court:
This case tests the limits of federal judicial intervention into the legislative and the judicial processes of a state that has grappled since entering the Union with a land oligopoly traceable to its monarchy, very much as the original 13 colonies struggled with large landholdings traceable to the English crown.
Now, Hawaii's legislature attacked that problem by using eminent domain with fair compensation, the approach that the Appellees themselves preferred for federal tax reasons, but an approach that the U.S. Court of Appeals for the Ninth Circuit denounced as forbidden taking from one private party to benefit another, as though the Land Reform Act somehow left the land market of Hawaii itself completely unchanged and merely substituted a favored group of lessees for the Bishop Estate and other supposedly disfavored owners as the ruling oligopolist of the Hawaiian Islands.
Now, I should like to begin by showing how wholly untenable that view is.
The Appellees talk repeatedly, as did the Ninth Circuit, of appeasing the desires for land owning of the landless majority.
As I think it will become clear, that radically distorts the aims of the legislation before this Court.
But it does, perhaps inadvertently, hit upon a very fundamental truth, and that is that people everywhere greatly prefer to own not only the home they live in and invest in and build, but also the land on which that home stands.
Now, of course there are unusual circumstances... and his Court has seen some of them... that might lead a perfectly well functioning land market to separate surface from subsurface ownership, to separate the ownership of the home on top of the land from the ownership of what's under the land.
For example, in the case of Pennsylvania Coal against Mahon, where the land contained valuable minerals, the perfectly natural development was for a few large mining companies to end up owning the mining rights under very large tracts of land, and selling only surface rights to a large number of individual homeowners.
But of course, in most places, both in the continental United States and in Hawaii, a normally functioning competitive market would never yield so bizarre a pattern, where literally tens of thousands of individual homeowners are forced to build on top of land that they must rent half a century at a gulp, despite the fact that they want to buy that land at what a court would approve as fair market value and are able to do so.
The situation is that a small number of owners simply refuse to sell, and indeed those owners, as the record unmistakeably shows, keep even more land off the residential market altogether, despite the great demand.
Now, one might ask, why did this happen in Hawaii if it doesn't happen elsewhere?
The legislature asked that question and, after extensive hearings, reached the conclusions elaborately articulated in 1967 and reaffirmed in 1975 that there were in Hawaii crucial artificial deterrents to the normal functioning of the market, deterrents to the landowners selling the land that those who lived on top of it wanted to buy.
Those deterrents included trust indentures inherited from the Hawaiian monarchs.
They included as a very practical and crucial matter federal tax disincentives, because the IRS made very clear to the major landowners that were they to sell in large quantities they would be treated as ordinary dealers in real estate and would be taxed at ordinary income rates on virtually 100 percent of the proceeds.
Now, that alone would not produce this bizarre pattern were it not also for the shortage of nearby competitors with land to sell.
That is, whatever the disincentives of the large landowners, if there were adjacent landowners who for some reason were perfectly happy to meet consumer preferences for a house on top of the land and the land beneath as well, then this pattern would not have developed.
But here, as the legislature found, there was a shortage of alternative competitors, and indeed, unlike some of the early American colonies, those that did not directly break up major landholdings from the crown but nonetheless found the holdings dissolved through natural forces because people could just cross the border and go to a place where they could buy the land under their homes, that wasn't exactly available because crossing the border plunks you in the middle of the ocean.
So that was the situation that the legislature confronted, and it found specifically that this land oligopoly would not just naturally fade away; that indeed it would persist because of these artificial deterrents to sale; that it would keep forcing up land prices and lease rents and the cost of living generally, with grave economic and social consequences for the entire state, unless the oligopoly was somehow broken up by law.
Now, it was against that background that the Hawaii Land Reform Act was passed.
As a brief reading of it will make plain to the Court, it does not simply substitute a favored for a disfavored group of owners.
What it does is create a neutral mechanism for identifying where it is that the land oligopoly was actually causing demonstrable, palpable market failure.
The concept of this Act is that such market failure is identifiable where large development tracts are available only in the form of long-term leasehold of the underlying land, despite the willingness and ability of a sufficiently large number of small lot lessees to buy individual lots at fair prices.
That is, where you have lessees who want to buy at fair prices, but all they can get is long-term leaseholds in part of a large tract, there is a demonstrable market failure.
Now, how would a legislature try to figure out when that had occurred?
Well, presumably it would wait for applications by lessees to say, we're able and willing to buy, but we're unable to do it because the sellers will not sell.
And that's the way this Act works.
That is, a number of lessees, 25 or half the number in the tract, whichever is less, file an application with the Hawaii Housing Authority.
That application is a signal that the market has indeed failed, as the legislature predicted it would throughout the islands.
At that point the Act relies on a state agency, the Hawaii Housing Authority, to decide whether or not condemning all or part of the tract in question would serve the public purpose of creating a competitive land market, and if the answer to that question is yes... and I suppose that it ordinarily would be, but one can't tell because this is a facial attack on the law and the law has only begun to be applied.
If the answer to that is yes, the Hawaii Housing Authority takes all or part of the tract... it decides which part... by eminent domain.
Unidentified Justice: Precisely when does title pass to the lessee?
Laurence H. Tribe: Under that scheme, title passes from the landowner to the Hawaii Housing Authority at the time a judgment is made condemning the land, but it does not pass at that stage, Justice Brennan.
Unidentified Justice: Well, when is valuation?
When is the valuation completed?
Laurence H. Tribe: The valuation process is determined by a jury trial, and the jury trial occurs before title passes.
The jury trial occurs to decide how much money must be paid as fair compensation.
Unidentified Justice: Before title passes?
Laurence H. Tribe: Before title passes.
And when that fair compensation has been determined, then the--
Unidentified Justice: When is it paid?
When is it paid?
When is compensation paid?
Laurence H. Tribe: --Compensation is paid after the trial to determine what a fair amount of compensation would be.
At that point, the Hawaii Housing Authority takes title.
And it's at that point, Justice Brennan, that a very distorted picture of the Act is presented by the Appellees.
Unidentified Justice: But after the Authority takes title, the valuation has been fixed and the money's been paid, when does the title pass to the tenant?
Laurence H. Tribe: Well, it may never pass to the tenant.
Under the Act as written, the Hawaii Housing Authority under Section 515, parts 28 and 31, may hold title, may choose to lease the property, may put it up for public bidding.
But if the tenant has qualified and is able to pay and does not own another nearby tract, then the tenant presumably has priority and--
Unidentified Justice: Presumably?
Laurence H. Tribe: --Well, because the statute is not entirely clear on that subject, and on its face the statute suggests, although its purposes I think would best be served by giving priority to the tenant, the statute really places discretion in the state to decide how best to dispose of the now disaggregated landholdings, and the--
Unidentified Justice: Well, you said, I think, that the landowner is only one of a group of 25 or whatever that number is.
Laurence H. Tribe: --That's right.
Unidentified Justice: But he may end up not ever getting title?
Laurence H. Tribe: Well, if it should turn out that circumstances changed and that the landowner no longer wants to purchase or no longer can purchase, because his eligibility must be determined both when the land is designated--
Unidentified Justice: Well, how about the agency just doesn't want now to sell to him?
Laurence H. Tribe: --I think that I would argue that the agency doesn't have unfettered discretion simply to hold onto it.
The law says, for instance, that the agency can't use this power to earn profit on the land.
But the point is that the statute makes it plain that the agency is empowered to lease the land or to sell it to the tenant.
Unidentified Justice: And lease it to somebody else?
Laurence H. Tribe: Possibly.
Obviously, if the Act works as intended I wouldn't expect that to happen.
But it's important to see that the Act structurally has three features that are very different from what the Appellees would suggest and that make the Hawaii Housing Authority anything but a vapid conduit.
First of all, it is suggested by the Appellees that the Housing Authority may take only those lots for which the individual occupant has filed an application.
That isn't true.
It may take any or all of the lots in the tract.
Second, they suggest that it must sell the lot to the occupant, and, although it probably would end up doing that, that's not a requirement of the Act.
And third, they suggest that the Hawaii Housing Authority must pay owners with funds supplied by the buyers rather than with public funds.
Again, the Act makes clear that purchasing these lots with public funds is another option.
Now, any reasonable legislature that chose to do that would presumably find a mechanism.
Unidentified Justice: Do you think the agency could just hang on until they can get a better price than the valuation put on in the condemnation proceeding?
Laurence H. Tribe: Were it to do that, I think it might violate the prescription against running the system for profit.
That is, the statute says that it's not supposed to be used to generate surplus revenue for the state.
And if the agency does, as the Act I think implicitly contemplates, end up transferring title to the current occupant, presumably any rational system would tax the occupant with the benefit of then becoming the owner.
And so the fact that ordinarily the purchase price would come from the occupant is what one would expect.
In fact, let me say that I don't stress the mechanical details to suggest that the Act would not ordinarily work much as they suppose, but if it does it simply means that the legislature was correct in its assessment that once the tight grip of the oligopoly in this case was broken, then one would see the transactions flow naturally.
That is, then one would see those who lived on the land, who wanted to buy the land under their feet, could afford to do so, would simply do so.
So that the Hawaii Housing Authority facilitates that process.
Unidentified Justice: And then I take it if the occupant finally acquired title to the land, he could sell it?
Laurence H. Tribe: That's right, the occupant could sell it.
Unidentified Justice: No limitations whatever?
Laurence H. Tribe: Exactly.
The occupant could sell it.
But the point is, there would now be a market within which these sales would take place.
That is, as with any kind of divestiture of an oligopoly, whether it's Bell Telephone or anybody else, one is not interested here in state socialism or the government continuing to run this land.
This is not an urban redevelopment case or an urban redevelopment tract.
The point is the public purpose here, the public use, is to break up oligopoly, a fairly traditional public purpose, and then let the market do what it will.
Unidentified Justice: And did you say the operation of the statute has simply been suspended pending the result of this litigation?
Laurence H. Tribe: Well, not entirely, Justice Brennan.
In fact, the statute has been put in what the Appellees have called a holding pattern in all but one case, and when I get to Pullman and Younger standing I want to focus quite closely on that case.
It's the case of Kamiloiki Valley, and in that case as this Court sits an appeal is being considered by the Supreme Court of Hawaii in a proceeding that we will argue ought to have led the courts below not to leap to judgment, much less leap to invalidation of this statute, but to abstain under either Pullman or Younger or both.
Unidentified Justice: Professor Tribe, I may be mistaken, but I thought there was one exception, and that was if the tenant ultimately acquired the property he could not sell within ten years.
Laurence H. Tribe: Without giving the HHA an option first to purchase.
I think that's right, Justice Blackmun.
Unidentified Justice: There is that exception?
Laurence H. Tribe: Yes, there are certain limitations.
But I think it would be fair to say that on the whole the point of the Act is to create a market and not to have continuing supervision, and for that reason we don't emphasize such marginal limitations as there are.
Unidentified Justice: Is there anything in the statute which limits the time that the HHA can hold?
Laurence H. Tribe: If the HHA has not otherwise put the market... put the property up for sale and the purchase price is tendered, I believe within 60 days, title must then pass to the qualified purchaser.
Unidentified Justice: Mr. Tribe, does the Act apply to the undeveloped tracts of land that these group of landowners refuse to sell?
Laurence H. Tribe: No.
The only theory, Justice White--
Unidentified Justice: If it did, would you have the same arguments?
Laurence H. Tribe: --Well, I suppose if the argument were that their holding of the undeveloped land off the market is itself a sign of oligopoly and that they must be forced to put some of that on the market as well in return for just compensation--
Unidentified Justice: Wouldn't you have to?
Laurence H. Tribe: --I think we would be making exactly the same argument, though I suppose that the record in the case would look different and the findings that the legislature made would be quite different in character.
There are other limits I suppose I might mention, Justice Brennan, and that is that the HHA may not sell to any purchaser more than one lot.
And if by some combination a purchaser were able to acquire, let's say, two lots and another purchaser three and the two purchasers together might be deemed owners of a single development tract of five lots, then they again would be subject to the Act.
And if for some reason, though, as I tried to describe, the market would almost surely prevent it, the competitive forces working on consumer desires to own the land, if for some reason such purchasers began then refusing to sell and leasing the land for 55 years or longer, as the Appellees in this case do, then the Act, which restructures the market, would again be operative.
That is, this Act does not become functus officio the moment the new owner occupies.
This Act is a permanent restructuring of the land market of Hawaii, designed to create a market where now there is market control.
And I think it's important to recognize that that is hardly a radical step.
Unidentified Justice: Well, in Hawaii now is all the vacant land that was available now used up, that is available for individual single family dwellings?
Laurence H. Tribe: Well, Justice White--
Unidentified Justice: Is it pretty well exhausted?
Laurence H. Tribe: --There certainly is a shortage of land for single family dwellings.
But were the economic incentives to be changed, it might well happen that the major landowners would take some of the land that they have now allowed to lie fallow--
Unidentified Justice: As long as they don't, as long as they don't the available land is now taken up for single family dwellings?
Laurence H. Tribe: --There is some more, but the shortage is substantial.
Unidentified Justice: And what percentage of the single family residential ownership is... or residential units is made up of--
Laurence H. Tribe: Of these leaseholds?
Unidentified Justice: --Yes.
Laurence H. Tribe: Well, I suppose the statistic that I think may be most responsive to that question, Justice White, is that of the single family houses on Oahu, the percentage that are on leased land has been rising up until at least 1978.
It went from 16 percent in 1961 to 34 percent in 1974.
Unidentified Justice: Well now, we're talking only about Oahu?
Laurence H. Tribe: That's right, because the problem is different.
Unidentified Justice: Is it different on Hawaii and Kaui?
Laurence H. Tribe: That's right.
The problem, however, is focused, the economic problem is focused on Oahu, and the availability--
Unidentified Justice: Well, the problem is quite different in the other islands, isn't it?
Laurence H. Tribe: --Well, the legislature--
Unidentified Justice: Doesn't Oahu have half of the total population?
Laurence H. Tribe: --It's the overwhelming population center and the overwhelming center of the urban residential problem.
But the legislature found that a statewide solution would make more sense.
Unidentified Justice: Is 33 percent or 30 percent, is that normally what standards are for moving into oligopoly?
Laurence H. Tribe: Well, but the relevant figure, Justice White, would not, I suppose, be the percentage of homes that are leased, but the percentage of land which is controlled by a group of people who thereby have market force.
Unidentified Justice: Well, I know, but you just suggested to me that the Act doesn't even purport to deal with the land that is just undeveloped.
Laurence H. Tribe: But I was trying also to suggest, Justice White, that the economic incentives to hold that land off the market would be changed once competition was restored within the residential area.
That is, right now--
Unidentified Justice: Is that part of the findings?
Laurence H. Tribe: --It is suggested by the legislature that the practices, the market practices of deciding how much land to allow for residential development are affected by the concentration of market power.
Here one must remember that the top three private owners own 40 percent of the privately held land on Oahu.
The top 12 own 80 percent.
And by any test for oligopoly, or indeed monopoly, when a small handful of owners own an enormous percentage of the relevant resource, one has a problem.
In any event, it's the legislature's task to decide when that problem exists.
In doing so, the legislature in this case, following lessons I think as old as Quia Emptores and the Statute of Uses, did what the early colonies in part did in trying to throw off the fetters of land monopolies traceable to a monarchy and used a rather conventional antitrust approach, one not so different from what this Court approved in Block v. Hirsch, where the Court held that where land is monopolized in comparatively few hands government may redress a housing shortage by transferring control over the reversionary interest, and there there wasn't even compensation, as there is here.
Now, it's true that when a permanent measure is installed which transfers the whole subsurface property right to the surface owner, compensation may be required, as it was in Pennsylvania Coal.
But that is provided here.
Unidentified Justice: Mr. Tribe, in determining whether there is a public purpose should the Court look at all at the fact that only the application of private individuals can trigger the effectiveness of this Act--
Laurence H. Tribe: I would think--
Unidentified Justice: --and that should be possibly an important factor?
Laurence H. Tribe: --I would think, Justice O'Connor, that unless this Court is to overrule New Motor Vehicle Board v. Fox, that that really cannot be a factor at all.
In this case the Court made clear that a great many regulatory schemes where the government seeks not to be an officious intermeddler but to create a market rely on a private triggering mechanism.
So I think it would be wrong to make that a factor.
Unidentified Justice: But certainly in the Grendel's Den case we had to look behind the actual ostensible purpose to determine whether it was in fact a secular purpose by the effectiveness of the church involvement, did we not?
Laurence H. Tribe: No, Justice O'Connor.
I think that in the Grendel's Den case it was the vesting of absolute veto power in a church in particular, power not simply to initiate the governmental process but power to mandate a veto, as in Eubank and Richmond, as in that line of cases, that was the decisive thing.
Unidentified Justice: Certainly this involves exclusive power in a private individual to trigger the operation of the Act.
Laurence H. Tribe: Quite often the judicial system relies on the exclusive action of a private individual to bring a suit, but that's the way government often works.
For the government to insist that it will create a market no matter what, even if no one wants to buy or is able to buy, would not make any sense at all, I think.
And in general, I suppose their whole philosophy, the philosophy of the Appellees in this case, is that the involvement of private entities, whether to trigger the Act or as the possible owners of the property once the Act has done its job, creates a terribly suspect situation.
Now, if the public use requirement means anything of that sort, then it seems to me Block v. Hirsch must be overruled, Berman v. Parker must be overruled, the Mill Act decisions of 1885 must be overruled, and the Court will end up reading the public use requirement as a requirement that all public purposes must be executed through purely public governmental enterprises, that private enterprise can play no role in a legitimate governmental scheme.
It seems to me that that is not the law.
Unidentified Justice: Do you think that the public purpose requirement requires or carries with it any requirement that the public purse be at risk?
Laurence H. Tribe: I think, Justice O'Connor, it doesn't.
It didn't in the cases like Highland Boy and others where the private individual ended up paying for what was involved.
Unidentified Justice: Isn't that a sensible sort of a safeguard against a majoritarian taking?
Laurence H. Tribe: I guess, Justice O'Connor, the reason I don't think so, although it has some intuitive appeal, the reason I don't think so is that if the public decides that it wants to spend public money, let's say benefiting a crony of the mayor, so it will take a factory, turn it over to the mayor, I would think it makes matters worse, not better, that the mayor's friend doesn't even have to pay.
In a case like this, it's perfectly natural that those who occupy should be the ones who are taxed by the public.
In any case, let me briefly turn to the abstention issues, because it seems to me that if this Court does have doubts along the lines that you're suggesting... is there genuinely a public purpose... and if the Court for the first time in decades were willing to repudiate legislative findings--
Unidentified Justice: Mr. Tribe, you're pretty half-hearted about the abstention doctrine.
Basically, if we'll rule for you on the merits you want us to say abstention was not required, but if we're inclined to doubt you on the merits you want us to go back and say the court should abstain.
Laurence H. Tribe: --No, Justice Rehnquist, I believe abstention, unless we go with Justice Brennan's dissent in Thibodaux, that abstention was required, but the Court could quite efficiently say that in dictum and uphold this law on the merits, rather than dragging out what I think is frankly a wholly unsubstantiated attack against the validity of the law.
We are not trying to have it both ways.
From the very beginning, as we explain in our reply brief, we have urged that there should be abstention.
Unidentified Justice: Well, I thought you suggested earlier that there are so many uncertainties about this statute and the whole scheme that we ought to wait until we hear from the state court.
Laurence H. Tribe: If you think those uncertainties could invalidate it, then of course you must wait.
Unidentified Justice: Suppose we don't?
Laurence H. Tribe: Then I think it would be proper for the Court either to require abstention or to decide that, since so much water has gone under this--
Unidentified Justice: I thought you said earlier that it's presently pending in the Hawaiian Supreme Court, that you were going to urge upon us was reason enough for our insisting on abstention.
Laurence H. Tribe: --I would like to do just that, I would like to do just that.
Let me say as to Pullman abstention, if there are any doubts about the public purpose, it is the courts of Hawaii in the now pending case that should answer the question.
But that pending case shows you precisely how Younger abstention also was mandated.
That is, in that case a trial on just compensation was held in November of '82, a trial on public use was held in 1983.
But for all practical purposes, once the Hawaii Housing Authority decided that it would serve a public purpose to take the Kamiloiki tract on March 30, 1979, that case was pending and under Younger there should have been abstention.
And in fact we have argued, I think without any meaningful rebuttal from the Appellees, that as early as February 22nd, 1979, six days before this federal complaint was filed, they had every opportunity to present to the Hawaii Housing Authority all of their constitutional objections, and they did so in a letter, in a letter which urged it on constitutional grounds to go for them.
Now, it seems to me that when that happens, for this Court to reach the merits is wholly unnecessary, although as a matter of judicial economy, feeling that the state has unjustly been dragged through years of litigation, if it is clear to the Court, as I think it could well be, that this law is obviously valid on its face, the Court might well say so.
Let me reserve the remainder of my time if I may.
Chief Justice Warren E. Burger: Mr. Ashford.
ORAL ARGUMENT ON CLINTON R. ASHFORD, ESQ., ON BEHALF OF APPELLEES
Clinton R. Ashford: Mr. Chief Justice, may it please the Court:
This is not a regulation case.
This is not an urban land economics case.
This is a taking case.
This case will decide, hopefully, if the public use requirement of the Fifth Amendment is satisfied by a mere legislative declaration that the taking is for a public purpose.
And hopefully it would also decide whether such declaration shields the statute from judicial scrutiny and analysis and, in a proper case, from being declared unconstitutional.
At stake, if the Court please, is a fundamental right in our system, and that is the fundamental right to own, use and possess property free from government intervention or interference so long as it's being done in a lawful manner, and free of government compulsion to transfer it to another owner merely because the public interest, it is asserted, is thereby served.
This statute is absolutely unprecedented.
No legislature ever before has been so bold as to transfer a private title or to set up the machinery for transferring a private title from A to B--
Unidentified Justice: Is there any factual setting in our whole system that's comparable to the situation in Hawaii in terms of land?
Clinton R. Ashford: --Hawaii has somewhat of a unique land history, Your Honor, but that unique land history, despite what Mr. Tribe says, has got nothing to do with this.
If there is a concentration of land in Hawaii, it certainly is no greater than in the U.S. as a whole.
And concentration in any event is not going to be solved by this statute.
However, our case doesn't depend upon the application of the facts to it.
Unidentified Justice: I don't understand your comment about it being no greater a concentration than in the U.S. as a whole.
Would you expand on that?
Clinton R. Ashford: Yes, Justice Blackmun.
There was a study done in 1978 by the United States Department of Agriculture on land ownership in the United States.
That study found, among other things, for example, that less than half of one percent of the major landowners owned 40 percent of the land.
In Hawaii government collectively owns somewhere between 40 and 45 percent.
The figures are a little hazy with regard to federal ownership.
But while we do have many big landowners, we also have thousands upon thousands upon thousands of small landowners.
Unidentified Justice: Well, do you really compare federal lands on that percentage with the land owned by this trust?
Federal, Congress could dispose of that in any way they wanted, the federal lands.
Clinton R. Ashford: Yes, sir.
Unidentified Justice: And they're doing it all the time over the years, aren't they?
Clinton R. Ashford: That is correct, Your Honor.
And the State of Hawaii could dispose of state lands as another means of solving these problems of shortage of housing and so forth if it wanted to.
There are other means by which all of this could be accomplished.
Unidentified Justice: What percentage of the land is owned by the State of Hawaii?
Clinton R. Ashford: About 35 percent.
Unidentified Justice: On Oahu?
Clinton R. Ashford: That's in the state as a whole, and this statute has statewide application.
It is not limited to Oahu only.
The procedures used under this statute are also privately controlled, and the scheme is all privately financed.
If the statute is validated by this Court, it will be the same as writing the public use requirement out of the Constitution.
You will be at the beginning of a continuum which really has no end.
Unidentified Justice: Well, do any of our cases suggest that the public use requirement of the Fifth Amendment is anything more than what the legislature says it is?
Clinton R. Ashford: Your Honor, our whole point in being here is to urge this Court not to surrender to mere legislative declarations.
Deference may be due them, but not surrender.
Unidentified Justice: But what cases do you have in mind from this Court that say this Court should in effect second-guess the legislature as to a public use?
Clinton R. Ashford: Justice Rehnquist, we're not here to ask this Court to second-guess the legislature.
Unidentified Justice: Well, do you know of any cases that say that this Court may say that something said by the legislature is a public use is not in fact a public use?
Clinton R. Ashford: I would analogize it, Justice Rehnquist, to the situation, to the approach that this Court takes in examining regulations to determine whether those regulations effect a taking, and in that kind of analysis what the Court does is to look at the impact of the statute upon the owner's property.
It measures the impact on the value of the property, on the owner's ability to exclude others, upon his use of the property... in other words, the aggregate--
Unidentified Justice: To decide whether there's been a taking.
Clinton R. Ashford: --Correct, Your Honor.
And we would suggest that exactly the same type of analysis is required in this case to determine whether there is in fact a public use.
Unidentified Justice: But I don't think that follows at all.
I think the guts of the Fifth Amendment condemnation clause is to guarantee that where there has been a taking the owner gets fair compensation, and that isn't even an issue here, that these owners are going to get fair compensation.
You want us to go further and say that even where fair compensation is paid, the state can't condemn unless the courts agree with the legislature's assessment of public purpose, and I don't think any of our cases support that.
Clinton R. Ashford: That is precisely our position, Justice Rehnquist.
Unidentified Justice: Well, actually, though, Mr. Ashford, didn't Berman and Parker say explicitly that review of a legislative determination of public use is at best an extremely narrow one?
Clinton R. Ashford: That is correct, it did.
However, I would invite Your Honor's attention to the fact that in Berman against Parker the taking was by government for itself.
And the other cases, Old Dominion Land Company, TVA against Welch, these other cases which make the same kind of broad statements about deference to the Congressional determinations or legislative determinations, all of those, sir, were cases in which the government was taking the land for itself and putting it to use.
There was some private development of land in Berman... I'll get to that in just a few moments... but in all of those cases where those statements were made it was government taking it for itself.
Mr. Justice Rehnquist, just to come back to your point, sir, Justice Stewart said in Hughes against Washington, which was another taking case, granted, that the Constitution measures the effect of an Act not by what the state says or what it intends, but what it does.
Unidentified Justice: How many people joined him in that statement?
Clinton R. Ashford: That was his concurring opinion, and that is our position here.
The public use requirement and the just compensation requirement are two separate and distinct requirements.
It is our position, Your Honor, that they must both be met, and the mere statement by the legislature that the public use requirement has been met is not adequate.
This Court, in exercising its judicial function--
Unidentified Justice: Well, the legislature said more than that.
It said there's a public use and here's what it is, and they said what it is.
And what's wrong with that declared purpose?
Clinton R. Ashford: --Well, if this--
Unidentified Justice: You say... it certainly is a reason.
You just say it's not an adequate reason for taking property.
Clinton R. Ashford: --Our point is this, Mr. Justice White.
If there is a problem, there's a legitimate problem to be solved, the legislature has the power to solve it, but it must do so in a constitutional way.
And it is our position here that this statute does not do it in a constitutional way, because here we have a taking of title, title is transferred from private owner A to private owner B, with the government intervening solely and merely as a conduit in the passage of that title.
And irrespective that the legislature said that that is a public use, all of the indicia, if one examines the statute, collectively demonstrate that it is purely a private use.
Let me get to that, if I may.
There is an aggregation of indicia here which we think, notwithstanding what the legislature said about this statute, clearly brands it as a taking for private purposes.
The use and useability of the property, first, does not change.
Neither the property taken nor any property served nor the environs, nothing is changed here.
Not even a change of possession is contemplated.
Secondly, this is a private transfer from private owner A to private owner B.
The government is in the picture solely and merely as a conduit.
It cannot act at all in bringing about any of this activity unless and until the aggregate, the requisite number of lessees take certain action.
Unless and until that happens, the government can't act under this statute.
Unidentified Justice: Well, on your statement about the government being a conduit, wasn't that true in every one of the cases, not here, not in this Court that I'm aware of, where there was a waterfront clearance or a slum clearance?
The land was condemned for a declared public purpose and then was sold to the highest bidder some time later on.
It went directly from private to private, through the government.
Clinton R. Ashford: There is very definitely a difference between cases such as those Your Honor mentions, including Berman, and our case, Your Honor, because in those cases there is a government plan, there is a comprehensive detailed study made to bring about a certain change in the use of the land.
The government then embarks upon the carrying out of that plan and effects the change in use.
It happens to use private developers to accomplish that, but the plan is to change the use in the property, and it's merely the means of carrying that out that involves a private title.
Here the whole purpose of the statute is to vest private title in the lessees, and that's the end of it.
Beyond that there is no government control, no regulation whatever.
Unidentified Justice: Mr. Ashford, aren't typical antitrust divestiture orders just orders that you take from A to give to B, two private people?
Clinton R. Ashford: Justice O'Connor, I am not an antitrust lawyer, but my understanding of antitrust remedies are that, even with divestiture, the private owner is given an opportunity over a period of time to get rid of the title.
He is able to do that in a free market.
He is not limited to selling it to one person.
There are many differences between what a person is forced to do under divestiture and what this statute forces a person to do, which is to sell to one person only, upon his application, using his money.
That's another element of the statute that I'd like to invite to the Court's attention.
In this whole scheme, not only the costs of the condemnation proceeding, but all of the compensation is paid by the private party who ends up with the title.
In the redevelopment cases, Mr. Chief Justice, you do have the government at least paying the compensation and then getting back the money.
Here the compensation is all paid by the lessees.
Unidentified Justice: Well, theoretically, I guess you could have a situation where the private lessee didn't end up paying the bill and the government agency continued to hold the property, is that right?
Clinton R. Ashford: Under this statute?
Unidentified Justice: Yes.
Clinton R. Ashford: Theoretically you could, Justice O'Connor.
But the whole policy of the statute is to pass the title through the government to the lessees.
A question was asked of Mr. Tribe on this point.
Justice Brennan asked it, I believe, and the statute when it talks about using the power of eminent domain to acquire the title says in the very same section, which is 516-22, that this chapter is to govern the disposition of that title.
And in Section 516-28 it is stated:
"It shall be the policy of the Hawaii Housing Authority to encourage the widespread fee simple ownership of residential lots. "
All of the findings, and indeed all of the operations, of the statute contemplates that the government will be merely a conduit in the passage of title from private party A to the private lessee.
Unidentified Justice: Well, is that an argument in favor of abstention, to let the state courts decide the operation of the statute or the policy?
Clinton R. Ashford: There hasn't been any question raised as to how the statute does in fact operate that I am aware of, Justice O'Connor.
And the basic core question here is is this a public use.
The legislature declared it to be, we concede that.
But it is a judicial function to declare the public use.
If the legislature is permitted to itself define constitutional limits on its own power, then those limits no longer have any meaning.
Unidentified Justice: Well, what's wrong with that declared purpose?
It wants to spread out the ownership of residential property.
Now, certainly that's going to be the effect of the statute.
There's going to be more people owning residential property than there were before.
Why shouldn't that qualify as a public purpose?
Clinton R. Ashford: Because of the aggregate of the methods under which this statute--
Unidentified Justice: The owner who has to sell gets his money out of it.
Clinton R. Ashford: --But that is just compensation only.
That is not public use.
Unidentified Justice: I understand, I understand that.
What's wrong with spreading the ownership of residential property as a public purpose?
Clinton R. Ashford: I don't have any quarrel with that as a public purpose, but under this--
Unidentified Justice: Well, why isn't the case over, then?
Clinton R. Ashford: --Because under this statute and under the Constitution you cannot constitutionally accomplish that purpose by taking A's property and giving it to B, and that is the core of what the case is about.
In this case, that is all that happens, A's property is taken and is given to B.
There is no--
Unidentified Justice: But that's for the purpose of spreading the ownership of residential real estate.
Now what's wrong with that purpose?
Clinton R. Ashford: --If the Court please, a legitimate purpose must be accomplished by lawful constitutional means.
Assuming the legitimacy of the purpose here, our challenge to the statute is the means by which it is carried out, because it fails to recognize the public use limitation of the Fifth Amendment.
And that public use limitation does not permit a legislature to behave as this legislature has behaved.
Unidentified Justice: Well, if that's just going to be your syllogism, how come it's a public use for a railroad to be able to go out and condemn property of a private person, and the title goes directly from one private person to another?
Clinton R. Ashford: There's more to it than that, Mr. Justice.
Unidentified Justice: Well, there's a public purpose.
The reason they're doing it is to promote transportation and railroads.
Clinton R. Ashford: But the railroad is in effect similar to government itself.
It is a regulated entity, and through the regulation of that entity the public continues to have some interest and some control over the situation.
In this situation there is no control whatsoever by the public or by--
Unidentified Justice: How about your common law easement of necessity?
Clinton R. Ashford: --I'm not sure I understood your question, Your Honor.
Unidentified Justice: Where a person who owns a parcel of property which has no access to a public road is entitled under many circumstances to condemn an access, one private owner condemn an access through another private owner's property in order to get himself to a public road.
I don't know if it's universally true.
It certainly was in the place where I practiced.
Clinton R. Ashford: I am only aware of two cases in which this Court has validated such takings, Your Honor.
Unidentified Justice: Well, do you think if something was uniformly subscribed to at common law in England and in many states in this country it needs this Court to validate it, to call it an accepted practice?
Clinton R. Ashford: There are differences between those cases and this, because it is not merely a private party ending up with title, as in the cases that you mentioned, but in this case the taking is initiated, financed and controlled by the private party.
There is no government intervention whatsoever except to act as the conduit for passage of title.
There is no government plan, predetermined plan to be followed.
There is no restriction upon the use of the property once it has been transferred.
These elements collectively demonstrate in our view that this is purely a private taking.
Indeed, any public benefit that arises from this arises only incidentally to the party, the private party who initiates the condemnation, who identifies the property, and who pays for it, ending up owning it and using it, and there is no change in use whatsoever.
The kinds of cases which Your Honor is referring to I think are those in which there is a de minimis taking and in which either or both of the property taken and the property served by the taking will have their uses changed and would become more productive and more useful to the economy.
There's nothing of that nature whatsoever in this case.
Unidentified Justice: Well, suppose a group of farmers out West form an irrigation company and their object is to build some ditches and a reservoir and irrigate their farm, and when that company gets formed it suddenly has the power to condemn property, and it takes property from various people for the benefit of this group of farmers.
Clinton R. Ashford: In that situation you have a scheme, Your Honor, which is wrought by government, if you will, and employed and brings about certain changes in land use, and it makes otherwise worthless land productive, and that is deemed to be useful to the economy.
That is the justification for those drainage--
Unidentified Justice: Well, is that very far from saying we ought to have... we ought to spread the ownership of residential property?
It might improve the market.
Clinton R. Ashford: --Justice White, in this case we end up with a multiplicity of owners, but we don't end up with a multiplicity of new uses or any new productiveness or anything of that nature, as always occurs--
Unidentified Justice: Well, but it's a much less cluttered use and ownership, is it not?
Isn't there a difference as to whether people are likely to develop property when they have this limitation of very limited ownership?
Clinton R. Ashford: --All of these properties are fully developed, Mr. Chief Justice.
Indeed, only fully developed properties can be taken under this statute.
Only those properties on which the taking parties already own houses, and that is the only kind of property that can be reached under this statute.
I'd like to--
Unidentified Justice: But you don't think that there is a state purpose, a public purpose in trying to take some of these fetters off of the ownership?
Clinton R. Ashford: --Well, the property is now freely alienable, Mr. Chief Justice.
There are... the leasehold title and the fee simple title are separated and they're held by different parties, but each of those titles is fully alienable.
Unidentified Justice: Then are you suggesting that the purposes of the legislature were not rational?
Clinton R. Ashford: We think that the purposes were irrational, and the means that they chose to carry out those purposes were irrational, but our case does not depend upon that.
That is a portion of our due process argument.
The core of the case is, if the legislature declares it to be a public use, does this Court just accept that or does this Court make its own inquiry?
Unidentified Justice: May I ask sort of a modified question.
Supposing the Hawaiian legislature amended the antitrust law for the State of Hawaii to provide that no person may own more than ten percent of the real estate on which single family dwellings are located, thereby intending to increase competition in the sale of real estate, as you do here.
Would that be unconstitutional in your view?
Clinton R. Ashford: That would be a regulation.
Unidentified Justice: It would accomplish precisely the same purpose as this statute.
Clinton R. Ashford: If, Your Honor, there was a legitimate objective to be served by--
Unidentified Justice: The objective is to increase the ownership of real estate and improve the competition in the market for single family lots.
Clinton R. Ashford: --And they've chosen a means which is reasonably calculated to lead to that end, and I would say it would be constitutional.
Unidentified Justice: Isn't this means reasonably calculated to lead to that end?
Clinton R. Ashford: But a due process test is not the only test that needs to be applied here.
We have a specific constitutional limitation.
Unidentified Justice: No, there's not a limitation.
There's a requirement that when it's done in this way you must pay just compensation.
Clinton R. Ashford: There is a requirement also for public use, and it's our position that the public use requirement is not met when you have a taking merely from A to B with--
Unidentified Justice: Well, my example, the hypothetical I gave you, contemplated that all the sales would be to other private purchasers, and I go farther and say that the statute only be enforceable by the suit of a private party, as you have under the antitrust laws an individual can bring suit.
I don't see much difference between the two laws in terms of public purpose.
Clinton R. Ashford: --The difference is in the fact that there is an express public use requirement which must be met.
That express requirement is not an integral part so far as--
Unidentified Justice: So you would withdraw your objection if this statute said you must sell your land to the present owner?
It will not be taken by the state, but you must sell directly to them at a fair market value.
Then you have no objection?
Clinton R. Ashford: --That is what the statute in effect does.
Unidentified Justice: Well then, but my example... you said there's no problem with my example and my example would require that.
Clinton R. Ashford: But your example I think, Your Honor, was a bit different, because you were taking about the property being sold to a wide variety of people and not to the particular person who was residing on it.
Unidentified Justice: Well, supposing the statute said the owner must sell off parcels of real estate to the present occupants until his ownership is reduced to no more than ten percent of the total acreage in the state.
Clinton R. Ashford: I think that there would be a very good question, Your Honor, whether or not that would be, notwithstanding it's called a regulation, that it in fact is a taking, and then if so--
Unidentified Justice: No state money involved, no state involvement at all except as a referee on the price, I suppose.
Clinton R. Ashford: --But nevertheless, there's a mandatory obligation to sell.
Unidentified Justice: Until you reach the ceiling.
Clinton R. Ashford: And that could constitute a taking, and if so then you have to have a public use, and your hypothetical assumes a legitimate public use.
Unidentified Justice: The very public use that the Hawaiian legislature found to exist in this case.
That's what I assumed.
Clinton R. Ashford: We don't concede to that as a public use, if the Court please.
I'd like to spend a minute or two on Berman against Parker, because it is distinguishable from this case and it does not control this case.
In that case there was a tract identified by a government agency.
Here the tract to be taken or the land to be taken is identified by the private party who ends up with the title.
In Berman against Parker the condemnation was initiated, controlled and paid for by a government agency.
None of those circumstances exist in the current case.
In Berman against Parker, there was a predetermined comprehensive plan for redevelopment of these areas.
That plan was contributed to by three separate public agencies: the National Capital Planning Commission, the District of Columbia Commissioners, and the District of Columbia Redevelopment Land Agency.
Here the HHA is involved solely as a conduit for title.
There were massive changes in use to be accomplished through the redevelopment plans.
Delapidated old buildings were to be torn down, open spaces were to be created, slums were to be eliminated, new buildings were to be constructed.
The entire environment of the property taken and the property surrounding it was to be totally changed.
In our situation, nothing happens.
The lessee presumably stays in possession or, if he wants to, he can lease to someone else or he can sell the place, all without any control by government at all.
The ten-year limitation, incidentally, Mr. Justice Blackmun, applies only if the government supplies the funds which the lessee uses to purchase the property.
Absent government funds being supplied and borrowed by the lessee, which has not happened in any case, as the record in this case demonstrates, the ten-year limitation does not apply.
So that the private owner who supplies the funds can do as he will with the property with only one other exception, and that is if he chooses to lease it for more than 20 years it brings it back under the operation of the Act.
But absent that one single exception, there is no control over the use of the property.
Unidentified Justice: Was this Act challenged just as soon as the first application was made, or have there been a lot of transfers under this Act?
Clinton R. Ashford: There have been so-called "friendly condemnations", as the record reflects, where owners did go through the court process and there were transfers made.
Unidentified Justice: Why do you call it "friendly"?
You mean the Act was just operating like it was supposed to?
Clinton R. Ashford: No, I mean, Your Honor, that the HAA, the taking agency, and the party whose property was taken agreed beforehand upon the taking and the price to be paid and so forth, and that's in the testimony of Mr. of Kohatsu.
Unidentified Justice: Well, so then is there any history about what happened to the lots?
Clinton R. Ashford: Any mystery about what happened to them?
Unidentified Justice: Any history, history.
Do you know what happened to those lots?
Clinton R. Ashford: No, I don't, Your Honor.
I know in some takings, in some transfers by my client on agreed upon prices with lessees outside of the operation of this Act, there have been a lot of resales of these same properties.
Unidentified Justice: And has the price generally escalated--
Clinton R. Ashford: It has.
Unidentified Justice: --or gone down?
Clinton R. Ashford: It has.
Unidentified Justice: Gone up?
Clinton R. Ashford: It has.
I refer to Wai-Kahala in particular.
Unidentified Justice: Mr. Ashford... go ahead.
So that... so that this present system that the Act attacks, it hasn't operated to raise real estate prices?
Clinton R. Ashford: It hasn't operated to lower them, sir.
Unidentified Justice: Well, if as soon as the lots are sold the price goes up, the old system certainly didn't escalate the price.
Clinton R. Ashford: A logical conclusion, Your Honor.
Unidentified Justice: So there's no market power.
Mr. Ashford, I suppose there have been a number of friendly accommodations or uses of this statute because of the attractive tax benefits of the condemnation system, is that correct?
Clinton R. Ashford: Yes, there have been, Your Honor.
Unidentified Justice: Mr. Ashford, let me try again as to how you would distinguish what took place right here in Washington.
There were whole areas of Washington that were terribly run down and they were condemned.
I've forgotten the details about the housing authority, but they were condemned and taken... the same was true down on the waterfront... and then sold to private parties.
Do you think this purpose in Hawaii is less a public purpose than the purpose of eliminating slums?
Clinton R. Ashford: The Hawaiian situation, Your Honor, is entirely different, because when the sales were made here in Washington, D.C.--
Unidentified Justice: I realize it's quite different, but is it different in principle, in terms of the public nature of the purpose declared?
Clinton R. Ashford: --I think it is entirely different in principle, because there were massive changes in use of the property.
You had slums eliminated, new conditions created, and so forth.
Nothing of that nature is taking place under this statute.
The only thing that happens is that, instead of one owner, you're going to have several hundred or even several thousand owners.
There's a change in ownership, but there is no change in use or useability of the property, and nothing happens other than A has the title instead of B having it.
And that is what makes this case so very different.
There is no government plan beforehand.
There is no continuing government oversight or control, and none of the property is directly used for public purposes such as schools or parks or whatever, in the case of these redevelopment plans.
Unidentified Justice: What happens in the few cases, in these friendly suits or friendly sales?
Has the Internal Revenue Service insisted on taxing the proceeds at straight income tax rates?
Clinton R. Ashford: All of these have taken place, according to my understanding, Justice White, under rulings from the Internal Revenue Service which have not taxed the proceeds as ordinary income.
Unidentified Justice: So that I suppose if your clients were forced to sell a lot of these, many, many lots under this Act... suppose the Act is uphold, so that there'll be hundreds of lots sold under this.
Do you know, is it predictable that the proceeds will not be taxed as capital gain?
Clinton R. Ashford: I think that they will not be.
Unidentified Justice: Not be taxed--
Clinton R. Ashford: I think that they have not been and that they will not be, if the Act is validated.
Unidentified Justice: --You mean taxed as what, income or--
Clinton R. Ashford: No, capital gain.
I think that they will not be taxed as straight income, but they will be taxed as capital gains.
Now, the point has been made that my clients urged the legislature to arrive at this result.
But if you're confronted by a thug and said that you're going to get a terrible heating, shall I use a two by four or a steel pipe, well, obviously you're going to select the two by four.
This is a choice merely of lesser evils.
Chief Justice Warren E. Burger: Do you have anything further, Mr. Tribe?
REBUTTAL ARGUMENT OF LAURENCE H. TRIBE, ESQ., ON BEHALF OF APPELLANTS
Laurence H. Tribe: Yes, briefly, Mr. Chief Justice.
Speaking for the State of Hawaii and not I think for any thugs, this law I think is plainly valid.
And I think I now finally understand the circle that lies at the heart of the Appellees' argument.
The circle is this: It's okay to take this property, but you need a public purpose.
So Justice White asks: Why isn't spreading ownership a public purpose.
And then we're told: Oh, that's a public purpose, but you need to act constitutionally.
And then we ask: Why isn't this constitutional?
Oh, because there's no public purpose.
I suppose they try to escape from that circle by one narrow escape route, and that is to argue that the government must somehow always take for itself.
Justice Rehnquist and Justice White ask about the irrigation cases and the road cases, and we're told they're distinguishable, as is the Chief Justice's question about urban redevelopment, because there, you see, the government has a plan.
We have a plan, too; they just don't like our plan.
Our plan is to break up their market power.
As Justice O'Connor perceives and as Justice Stevens' question I think indicates, this is just like other forms of divestiture.
But their answer is divestiture is regulation, it's not taking.
I think this Court really is concerned with realities and not just labels.
The reason that taking is used rather than regulation is that they had the lobbying power to avoid the regulatory route.
And when they point out, more or less equating themselves with the government, that the government too has a lot of land, why doesn't it sell it, I think I understand what people in Hawaii mean when they say that these landowners are Hawaii's other government.
When they also say that this statute is unprecedented, that no legislature has ever been so bold, I am reminded of the Virginia legislature in 1779 which broke up landholdings in a way parallel to this, of the Connecticut legislature in 1793, and of Pennsylvania in 1799.
This is not unprecedented action.
And even if you take the pigeonholing approach of insisting that it be compared explicitly with other contemporary exercises of the taking power, it doesn't look all that unprecedented to me.
It's not really different from Pennsylvania Coal v. Mahon, where property rights were, this Court held, in effect taken from the owner of the mining rights under the land and transferred to the surface owner.
What followed from that?
That there was no power to do it because it went from A to B?
No, all that followed was that you had to compensate, and there is no challenge--
Unidentified Justice: Well, that's all the putative condemned asked for in Pennsylvania Coal against Mahon.
Laurence H. Tribe: --I suppose the condemned, though, might have been happy to have the law wholly invalidated.
The brief I think urged also invalidation, and the Court made clear, I think, that if there were compensation that's all that would be required.
In fact, the key line in Justice Holmes' opinion is that the State of Pennsylvania must not take a constitutional shortcut, it must pay.
Now, when the State of Hawaii decided to use eminent domain, to avoid the constitutional shortcut of the Maryland type law that required the inclusion of options to purchase, it's remarkable that then the Appellees turn around and say, because we're using eminent domain, with its guarantees of compensation, that now you should strike the law down.
And it's remarkable that they say that because those people who occupy the land will, of all things, end up paying for it, that that makes this law unconstitutional.
We don't think this Court should so hold.
Chief Justice Warren E. Burger: Thank you, gentlemen.
The case is submitted.