BUSINESS ETHICS

read the case, and answer the discussion question 1, 2, 3 & 6

Eminent Domain

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SUSETTE KELO’S NONDESCRIPT, PINK

Clapboard house sits above the Thames River in the Fort Trumbull area of New London, Connecticut. It’s surrounded by vacant lots, where neighbors once lived. One by one, these neighbors have left, and their homes have been razed. Their property has been taken over by the City of New London, which has used its power of eminent domain to clear the land where dozens of homes once stood in order to prepare the way for new development.78

Eminent domain is the ancient right of government to take property from an individual without consent for the common good—for example, to build a highway, an airport, a dam, or a hospital. The U.S. Constitution recognizes that right, permitting private property to be taken for “public use” as long as “just compensation” is paid. In this case, however, New London is taking land from one private party and giving it to another. By tearing down Susette Kelo’s old neighbor- hood, the city hopes to attract new development, which in turn will help revitalize the community and bring in more tax revenue. “This isn’t for the public good,” says Kelo, a nurse who works three jobs. “The public good is a firehouse or a school, not a hotel and a sports club.”

Connecticut officially designates New London a blighted area. When the Navy moved its Undersea Warfare Center away from New London, taking 1,400 jobs with it, the city’s already high rate of unemployment only got worse. Much of its housing stock is old and second-rate. The Fort Trumbull area, in particular, is—or was, anyway—a rather gritty neighborhood, where earlier generations of immigrants struggled to get a start. But New London saw a chance to turn things around when the pharmaceutical company Pfizer

built a $350 million research center along the river below historic Fort Trumbull. Since then, city and state governments have created a park around the fort, cleaned up the Navy’s old asbestos-laden site, and opened the riverfront to public access. Now the city wants to build a hotel, office build- ings, and new homes to fill the riverfront blocks around Fort Trumbull. And it’s not talking about new homes for people like Susette Kelo.

“We need to get housing at the upper end, for people like the Pfizer employees,” says Ed O’Connell, the lawyer for the New London Development Corporation, which is in charge of the city’s redevelopment efforts. “They are the professionals, they are the ones with the expertise and the leadership qualities to remake the city—the young urban professionals who will invest in New London, put their kids in school, and think of this as a place to stay for 20 or 30 years.” And housing developers want open space to work with; they don’t want to build around a few old properties like Ms. Kelo’s and that of her neighbors, Wilhelmina and Charles Dery.

Age 87 and 85, respectively, they live in the house Wilhelmina was born in. The city is willing to pay a fair price for their home, but it’s not an issue of money. “We get this all the time,” says their son Matt. “‘How much did they offer? What will it take?’ My parents don’t want to wake up rich tomorrow. They just want to wake up in their own home.”

Unfortunately for the Derys, in 2005 the U.S. Supreme Court upheld the city’s condemnation rights. In a close, 5-to-4 decision, it ruled that compulsory purchase to foster economic development falls under “public use” and is thus constitutionally permissible. “Promoting

economic development is a traditional and long accepted function of government,” Justice John Paul Stevens wrote for the majority. Intended to increase jobs and tax revenues, New London’s plan “unquestionably serves a public purpose.” In her dissenting opinion, however, Justice Sandra Day O’Connor objected: “Under the ban- ner of economic development, all private property is now vulnerable to being taken and transferred to another pri- vate owner, so long as it might be upgraded. . . . Nothing is to prevent the state from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.”

The Supreme Court’s decision pushes the debate over eminent domain back to the states and local communi- ties. Although many cities have successfully used eminent domain to rebuild decayed urban areas or spark economic growth,79 resistance to it has intensified, with political and legal battles being fought far beyond Susette Kelo’s home in New London. For example, in Highland Park, New Jersey, the owners of a photography studio worry that a plan to redevelop their street will force them out of the location they’ve occupied for twenty-five years. In Port Chester, New York, a state development agency wants the site of a small furniture plant for a parking lot for Home Depot, and its owners are resisting. And in Salina, New York, twenty- nine little businesses—with names like Butch’s Automotive and Transmission, Syracuse Crank and Machine, Gianelli’s Sausage, and Petersen Plumbing—are battling local government’s use of eminent domain to pave the way for DestiNY’s proposed 325-acre, $2.67 billion research-and- development park.

Like New London, Salina desperately needs big ideas and big development, and it may not get another chance soon. But is tearing down these businesses fair? “We’re here,” says Philip Jakes-Johnson, who owns Solvents & Petroleum Service, one of the twenty-nine businesses in question. “We pay our taxes. We build companies and run them without tax breaks.” Brian Osborne, another owner, adds: “Everything I and my family have worked for over the past 25 years is at stake because of the way eminent domain is being used in this state and across the country.”

Susette Kelo challenged the city of New London’s use of eminent domain.

Update

In 2009, Pfizer announced that, as a cost-cutting measure, it was closing its New London facility and transferring its 1,400 employees to a campus the company owns in Groton, Connecticut.

Addendum

Richmond, California, a city of 100,000 people, has been hit hard by the recession and the real-estate meltdown. Sixteen percent of its homeowners have lost their homes in foreclosure, leaving many neighborhoods blighted with vacant and abandoned properties. With real estate worth half of what it was in 2006, 28 percent of Richmond’s homeowners are “underwater,” meaning that they owe more on their mortgages than their homes are worth—on aver- age, about 45 percent more. Neither the government nor the investors who own the mortgage loans have been able to solve the problem, largely because the mortgages were bundled into pools and resold to thousands of investors around the world, and the rules governing many of those pools forbid mortgages from being modified unless they are already in default, even if it might be in the investors’ inter- est to do so. Now the mayor of Richmond, Gayle McLaughlin, wants to use the city’s power of eminent domain to buy properties with shaky mortgages and restructure the loans, thus restoring equity to homeowners and keeping them from defaulting. She argues that preventing foreclosures and the blight of vacant properties is a legitimate public purpose. Some scholars agree with this, contending that the city’s novel use of eminent domain would enable the trustees who control the mortgage pools to get rid of bad loans. But Wall Street and various real-estate interests disagree and are lobbying vigorously against the plan. They don’t like the precedent it sets, even if the

plan would be good for Richmond and possibly for investors, too.80

DISCUSSION QUESTIONS

1. Did New London treat Susette Kelo and her neighbors fairly? Assuming that the proposed development would help to revitalize New London, is it just for the city to appropriate private property around Fort Trumbull?

2. Are towns such as New London and Salina pursuing wise, beneficial, and progressive social policies, or are their actions socially harmful and biased against ordinary working people and small-business owners?

3. Do you believe that eminent domain is a morally legitimate right of government? Explain why or why not.

6. Assess the concept of eminent domain, in general, and the plight of Susette Kelo and her neighbors, in particular, from the point of view of the different theories of justice discussed in this chapter. Is it possible to square the government’s exercise of eminent domain with a libertarian approach to justice?

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