The Blog

Corporate Takings

Why retail giants love eminent domain.

12:00 AM, Jul 26, 2007 • By DUNCAN CURRIE
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

IN NOVEMBER 2001, long before the Kelo ruling threw the floodlights on eminent domain abuse, Susan Watson sent a distressed letter to James D. Sinegal, the president and CEO of Costco. She owned several hundred shares in the retail giant--and, as she put it, had been "a loyal customer and ardent fan" for many years--but now feared the company "may be violating the rules of our free market economy" to swell its business.

"I recently learned that Costco has been or will be the beneficiary of at least four pending eminent domain actions, where private property was or may be condemned so that Costco could build or expand a warehouse," Watson wrote, ticking off examples in New York, Missouri, and California. "If Costco had benefited from eminent domain once, I might regard it as a lucky break. Twice would be a happy--albeit unlikely--coincidence. But the list is long, and it appears to be a strategy of Costco Wholesale Corporation to deprive others of their private property rights. To bully small business with the power of eminent domain is wrong." For that matter, she added, "among Costco's most valuable customers are small business owners."

Watson received a prompt reply from Joel Benoliel, a senior vice president at Costco and its chief legal officer. He robustly defended each of the four projects in question, assuring Watson that Costco "will not profit by violating the law, and like you, we firmly believe in the free market economy." The four cases were not anomalies, and Benoliel didn't pretend they were.

"In truth," he wrote, "there are probably dozens of other Costco projects where eminent domain or the threat of it has been involved in acquiring land for redevelopment. In some states, the constitution or laws prohibit this from happening. But, in places like California, Redevelopment Districts with bonding authority and powers of condemnation have been the norm for many decades. Much of urban America has been built using this tool. We don't see any legal or moral wrong in this. The fact is, if we refrained from participating in these deals, our competitors for these sites like Target, Home Depot, K-Mart, Wal-Mart, BJ's, Sam's Club, and many others would take advantage of our reticence, and our shareholders would be the losers. In short, we are not violating laws or any rules of the free market economy. We would be doing exactly that if we refused to participate in these deals when they are offered, while other retailers continued to do so."

However self-serving his argument, Benoliel was correct that eschewing eminent domain would hamstring Costco in relation to its fellow retailers. Such corporate behemoths had long benefited from "economic development" takings, often at the expense of smaller proprietors and homeowners. Keeping up with the competition also meant keeping up with ever-evolving definitions of "public use."

"Desperate for tax revenue, cities and towns across the country now routinely take property from unwilling sellers to make way for big-box retailers," the Wall Street Journal reported in December 2004. "Condemnation cases aren't tracked nationally, but even retailers themselves acknowledge that the explosive growth of the format in the 1990s and torrid competition for land has increasingly pushed them into increasingly problematic areas--including sites owned by other people."

The controversial 2005 Kelo decision, whose second anniversary passed last month, affirmed that economic development was a constitutionally valid "public purpose" to justify seizing land via eminent domain. But it also sparked a nationwide backlash to tighten the boundaries of eminent domain and curb some of the worst abuses. More than 40 states have amended their laws, though some of the reforms have been toothless. The ongoing debate has confirmed that, despite its reputation, the business lobby is hardly a consistent champion of small-government economic policies.

Indeed, state and local Chambers of Commerce have been notably resistant to the tide of post-Kelo legislation. In Oklahoma, for example, the state Chamber, the Greater Oklahoma City Chamber, the Oklahoma Association of Business and Industry, and the Oklahoma Professional Economic Development Council all urged the state Supreme Court to reject an eminent domain reform initiative. The business lobby fears that many redevelopment schemes could not move forward without the exercise, or at least the credible threat, of eminent domain by city governments.