THE U.S. SUPREME COURT IS REVIEWING AN important Fifth Amendment property rights case this spring that may help clarify what constitutes a public use under a municipal government's eminent domain powers.

At issue is a case in New London, Conn., in which the city took over 90 acres of waterfront property in order to redevelop the economically depressed city of 25,671. As part of the project, the city needed to relocate about 90 homes and businesses. The majority of the families and businesspeople left, but nine refused to sell, saying the city abused its power of eminent domain.

A state trial court ruled in favor of a majority of the homeowners, but the Connecticut State Supreme Court ruled in the city's favor. The Institute for Justice, a Washington public interest group that represents the homeowners, appealed to the federal Supreme Court, which agreed to hear the case last fall. A decision is expected by early summer.

Bert Gall, an attorney for the Institute, says municipalities can only condemn land under eminent domain for a clear public use such as roads, sewer systems, bridges, and public schools. The Institute says the city sought to “trade up,” looking to build a hotel, housing, and a retail center to attract the upscale professionals that now work at Pfizer's new research facility in New London.

“If all it takes is a claim that a project will generate more jobs and taxes, then it's really true that no one's home or business is safe,” says Gall.

The Institute has been very successful publicizing this case in the mainstream press and has also rallied such diverse organizations as the Southern Christian Leadership Conference, American Farm Bureau Federation, the AARP, and the NAHB around the property rights issue.

“If local governments can set the price of land and force the sale, that's an awesome concentration of power,” says the NAHB's Clayton Traylor.

Although the NAHB did file an amicus brief on behalf of the property owners, the trade group also points out that any taking of land that involves a significant private interest should trigger a more careful look by the courts.

Typically, the courts just look to see if an eminent domain action was arbitrary. The NAHB says the courts have to get the municipalities to prove that a public use exists. This means local governments would have to show documents such as signed development agreements, marketing studies, and evidence of favorable economic trends. New London produced no such documentation for the waterfront project, according to the NAHB brief.

“I don't know how the urban centers of this country can compete with the suburbs for office parks, industrial parks, and retail shopping centers without the use of eminent domain,” says Thomas Londregan, city attorney for New London, who points out that New London lost thousands of jobs in the 1990s after a local military base closed following the end of the Cold War.

Learn more about markets featured in this article: Norwich, CT.