Amdt5.5.3 Just Compensation

Fifth Amendment:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

When . . . [the] power [of eminent domain] is exercised it can only be done by giving the party whose property is taken or whose use and enjoyment of such property is interfered with, full and adequate compensation, not excessive or exorbitant, but just compensation.1 The Fifth Amendment’s guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.2

The just compensation required by the Constitution is that which constitutes a full and perfect equivalent for the property taken.3 Originally the Court required that the equivalent be in money, not in kind, 4 but more recently has cast some doubt on this assertion. 5 Just compensation is measured by reference to the uses for which the property is suitable, having regard to the existing business and wants of the community, or such as may be reasonably expected in the immediate future,. . . [but] ‘mere possible or imaginary uses or the speculative schemes of its proprietor, are to be excluded.’6 The general standard thus is the market value of the property, i.e., what a willing buyer would pay a willing seller. 7 If fair market value does not exist or cannot be calculated, resort must be had to other data which will yield a fair compensation. 8 However, the Court is resistant to alternative standards, having repudiated reliance on the cost of substitute facilities. 9 Just compensation is especially difficult to compute in wartime, when enormous disruptions in supply and governmentally imposed price ceilings totally skew market conditions. Holding that the reasons which underlie the rule of market value when a free market exists apply as well where value is measured by a government-fixed ceiling price, the Court permitted owners of cured pork and black pepper to recover only the ceiling price for the commodities, despite findings by the Court of Claims that the replacement cost of the meat exceeded its ceiling price and that the pepper had a retention value in excess of that price. 10 By a five-to-four decision, the Court ruled that the government was not obliged to pay the present market value of a tug when the value had been greatly enhanced as a consequence of the government’s wartime needs. 11

Illustrative of the difficulties in applying the fair market standard of just compensation are two cases decided by five-to-four votes, one in which compensation was awarded and one in which it was denied. Held entitled to compensation for the value of improvements on leased property for the life of the improvements and not simply for the remainder of the term of the lease was a company that, while its lease had no renewal option, had occupied the land for nearly 50 years and had every expectancy of continued occupancy under a new lease. Just compensation, the Court said, required taking into account the possibility that the lease would be renewed, inasmuch as a willing buyer and a willing seller would certainly have placed a value on the possibility. 12 However, when the Federal Government condemned privately owned grazing land of a rancher who had leased adjacent federally owned grazing land, it was held that the compensation owed need not include the value attributable to the proximity to the federal land. The result would have been different if the adjacent grazing land had been privately owned, but the general rule is that government need not pay for value that it itself creates. 13

Interest

Ordinarily, property is taken under a condemnation suit upon the payment of the money award by the condemner, and no interest accrues. 14 If, however, the property is taken in fact before payment is made, just compensation includes an increment which, to avoid use of the term interest, the Court has called an amount sufficient to produce the full equivalent of that value paid contemporaneously with the taking.15 If the owner and the government enter into a contract which stipulates the purchase price for lands to be taken, with no provision for interest, the Fifth Amendment is inapplicable and the landowner cannot recover interest even though payment of the purchase price is delayed. 16 Where property of a citizen has been mistakenly seized by the government and it is converted into money which is invested, the owner is entitled in recovering compensation to an allowance for the use of his property. 17

Rights for Which Compensation Must Be Made

If real property is condemned the market value of that property must be paid to the owner. But there are many kinds of property and many uses of property which cause problems in computing just compensation. It is not only the full fee simple interest in land that is compensable property,18 but also such lesser interests as easements 19 and leaseholds. If only a portion of a tract is taken, the owner’s compensation includes any element of value arising out of the relation of the part taken to the entire tract. 20 On the other hand, if the taking has in fact benefitted the owner, the benefit may be set off against the value of the land condemned, 21 although any supposed benefit which the owner may receive in common with all from the public use to which the property is appropriated may not be set off. 22 When certain lands were condemned for park purposes, with resulting benefits set off against the value of the property taken, the subsequent erection of a fire station on the property instead was held not to have deprived the owner of any part of his just compensation. 23

The Court has also held that the government has a categorical duty to pay just compensation when it physically takes personal property, just as when it takes real property. 24

In Horne v. Department of Agriculture, the Court held that a raisin marketing order issued under a Depression-era statute requiring raisin growers to reserve a percentage of their total crop for the federal government to dispose of in its discretion constituted a clear physical taking because, even though the scheme was intended to benefit the growers by maintaining stable markets for raisins, the [a]ctual raisins are transferred from the growers to the Government.25 The Court further held the government could not avoid paying just compensation for this physical taking by providing for the return to the raisin growers of any net proceeds from the government’s sale of the reserve raisins. 26 The majority also rejected the government’s argument that the reserve requirement was not a physical taking because raisin growers voluntarily participated in the raisin market. 27 In so doing, the Court noted that selling produce in interstate commerce is not a special government benefit that the Government may hold hostage, to be ransomed by the waiver of constitutional protection.28 In addition, the Court determined that the value of the raisins for takings purposes was their fair market value, with no deduction for the offsetting benefits of the overall statutory scheme, which is intended to maintain stable markets for raisins. 29

Interests in intangible as well as tangible property are subject to protection under the Taking Clause. Thus compensation must be paid for the taking of contract rights, 30 patent rights, 31 and trade secrets. 32 So too, the franchise of a private corporation is property that cannot be taken for public use without compensation. Upon condemnation of a lock and dam belonging to a navigation company, the government was required to pay for the franchise to take tolls as well as for the tangible property. 33 The frustration of a private contract by the requisitioning of the entire output of a steel manufacturer is not a taking for which compensation is required, 34 but government requisitioning from a power company of all the electric power which could be produced by use of the water diverted through its intake canal, thereby cutting off the supply of a lessee which had a right, amounting to a corporeal hereditament under state law, to draw a portion of that water, entitles the lessee to compensation for the rights taken. 35 When, upon default of a ship-builder, the Government, pursuant to contract with him, took title to uncompleted boats, the material men, whose liens under state laws had attached when they supplied the shipbuilder, had a compensable interest equal to whatever value these liens had when the government took or destroyed them in perfecting its title. 36 As a general matter, there is no property interest in the continuation of a rule of law. 37 And, even though state participation in the social security system was originally voluntary, a state had no property interest in its right to withdraw from the program when Congress had expressly reserved the right to amend the law and the agreement with the state. 38 Similarly, there is no right to the continuation of governmental welfare benefits. 39

Consequential Damages

The Fifth Amendment requires compensation for the taking of property, hence does not require payment for losses or expenses incurred by property owners or tenants incidental to or as a consequence of the taking of real property, if they are not reflected in the market value of the property taken. 40 Whatever of property the citizen has the government may take. When it takes the property, that is, the fee, the lease, whatever, he may own, terminating altogether his interest, under the established law it must pay him for what is taken, not more; and he must stand whatever indirect or remote injuries are properly comprehended within the meaning of ‘consequential damage’ as that conception has been defined in such cases. Even so the consequences often are harsh. For these whatever remedy may exist lies with Congress.41 An exception to the general principle has been established by the Court where only a temporary occupancy is assumed; then the taking body must pay the value which a hypothetical long-term tenant in possession would require when leasing to a temporary occupier requiring his removal, including in the market value of the interest the reasonable cost of moving out the personal property stored in the premises, the cost of storage of goods against their sale, and the cost of returning the property to the premises. 42 Another exception to the general rule occurs with a partial taking, in which the government takes less than the entire parcel of land and leaves the owner with a portion of what he had before; in such a case compensation includes any diminished value of the remaining portion (severance damages) as well as the value of the taken portion. 43

Enforcement of Right to Compensation

The nature and character of the tribunal to determine compensation is in the discretion of the legislature, and may be a regular court, a special legislative court, a commission, or an administrative body. 44 Proceedings to condemn land for the benefit of the United States are brought in the federal district court for the district in which the land is located. 45 The estimate of just compensation is not required to be made by a jury but may be made by a judge or entrusted to a commission or other body. 46 Federal courts may appoint a commission in condemnation actions to resolve the compensation issue. 47 If a body other than a court is designated to determine just compensation, its decision must be subject to judicial review, 48 although the scope of review may be limited by the legislature. 49 When the judgment of a state court with regard to the amount of compensation is questioned, the Court’s review is restricted. All that is essential is that in some appropriate way, before some properly constituted tribunal, inquiry shall be made as to the amount of compensation, and when this has been provided there is that due process of law which is required by the Federal Constitution.50 [T]here must be something more than an ordinary honest mistake of law in the proceedings for compensation before a party can make out that the State has deprived him of his property unconstitutionally.51 Unless, by its rulings of law, the state court prevented a complainant from obtaining substantially any compensation, its findings as to the amount of damages will not be overturned on appeal, even though as a consequence of error therein the property owner received less than he was entitled to. 52

Footnotes

  1.  Backus v. Fort Street Union Depot Co., 169 U.S. 557, 573, 575 (1898).
  2.  Armstrong v. United States, 364 U.S. 40, 49 (1960). The political ethics reflected in the Fifth Amendment reject confiscation as a measure of justice. United States v. Cors, 337 U.S. 325, 332 (1949). There is no constitutional prohibition against confiscation of enemy property, but aliens not so denominated are entitled to the protection of this clause. Compare United States v. Chemical Foundation, 272 U.S. 1, 11 (1926) and Stoehr v. Wallace, 255 U.S. 239 (1921), with Silesian-American Corp. v. Clark, 332 U.S. 469 (1947), Russian Volunteer Fleet v. United States, 282 U.S. 481 (1931), and Guessefeldt v. McGrath, 342 U.S. 308, 318 (1952). Takings Clause protections for such aliens may be invoked, however, only when they have come within the territory of the United States and developed substantial connections with this country. United States v. Verdugo-Urquidez, 494 U.S. 259, 271 (1990).
  3.  Monongahela Navigation Co. v. United States, 148 U.S. 312, 326 (1893). The owner’s loss, not the taker’s gain, is the measure of such compensation. Brown v. Legal Found. of Washington, 538 U.S. 216, 236 (2003); United States ex rel. TVA v. Powelson, 319 U.S. 266, 281 (1943); United States v. Miller, 317 U.S. 369, 375 (1943). The value of the property to the government for its particular use is not a criterion. United States v. Chandler-Dunbar Co., 229 U.S. 53 (1913); United States v. Twin City Power Co., 350 U.S. 222 (1956). Attorneys’ fees and expenses are not embraced in the concept. Dohany v. Rogers, 281 U.S. 362 (1930).

    Applying the owner's-loss standard, the Court addressed a state program requiring lawyers to deposit client funds that cannot earn net interest in a pooled account generating interest for indigent legal aid. Brown, 538 U.S. at 237. Assuming a taking of the client's interest, his pecuniary loss is nonetheless zero; hence, the just compensation required is likewise. Brown is in tension with the Court's earlier treatment of a similar state program, where it recognized value in the possession, control, and disposition of the interest. Phillips v. Washington Legal Found., 524 U.S. 156, 170 (1998).

  4.  Van Horne’s Lessee v. Dorrance, 2 U.S. (2 Dall.) 304, 315 (C.C. Pa. 1795); United States v. Miller, 317 U.S. 369, 373 (1943).
  5.  Regional Rail Reorganization Act Cases, 419 U.S. 102, 150-51 (1974).
  6.  Chicago B. & Q. R.R. v. Chicago, 166 U.S. 226, 250 (1897); McGovern v. City of New York, 229 U.S. 363, 372 (1913). See also Boom Co. v. Patterson, 98 U.S. 403 (1879); McCandless v. United States, 298 U.S. 342 (1936).
  7.  United States v. Miller, 317 U.S. 369, 374 (1943); United States ex rel. TVA v. Powelson, 319 U.S. 266, 275 (1943). See also United States v. New River Collieries Co., 262 U.S. 341 (1923); Olson v. United States, 292 U.S. 264 (1934); Kimball Laundry Co. v. United States, 338 U.S. 1 (1949). Exclusion of the value of improvements made by the government under a lease was held constitutional. Old Dominion Land Co. v. United States, 269 U.S. 55 (1925).
  8.  United States v. Miller, 317 U.S. 369, 374 (1943).
  9.  United States v. 564.54 Acres of Land, 441 U.S. 506 (1979) (condemnation of church-run camp); United States v. 50 Acres of Land, 469 U.S. 24 (1984) (condemnation of city-owned landfill). In both cases the Court determined that market value was ascertainable.
  10.  United States v. Felin & Co., 334 U.S. 624 (1948); United States v. Commodities Trading Corp., 339 U.S. 121 (1950). See also Vogelstein & Co. v. United States, 262 U.S. 337 (1923).
  11.  United States v. Cors, 337 U.S. 325 (1949). See also United States v. Toronto Navigation Co., 338 U.S. 396 (1949).
  12.  Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470 (1973). The dissent argued that since upon expiration of the lease only salvage value of the improvements could be claimed by the lessee, just compensation should be limited to that salvage value. Id. at 480.
  13.  United States v. Fuller, 409 U.S. 488 (1973). The dissent argued that the principle denying compensation for governmentally created value should apply only when the government was in fact acting in the use of its own property; here the government was acting only as a condemnor. Id. at 494.
  14.  Danforth v. United States, 308 U.S. 271, 284 (1939); Kirby Forest Industries v. United States, 467 U.S. 1 (1984) (no interest due in straight condemnation action for period between filing of notice of lis pendens and date of taking).
  15.  United States v. Klamath Indians, 304 U.S. 119, 123 (1938); Jacobs v. United States, 290 U.S. 13, 17 (1933); Kirby Forest Industries v. United States, 467 U.S. 1 (1984) (substantial delay between valuation and payment necessitates procedure for modifying award to reflect value at time of payment).
  16.  Albrecht v. United States, 329 U.S. 599 (1947).
  17.  Henkels v. Sutherland, 271 U.S. 298 (1926); see also Phelps v. United States, 274 U.S. 341 (1927).
  18.  United States v. General Motors Corp., 323 U.S. 373 (1945).
  19.  United States v. Welch, 217 U.S. 333 (1910).
  20.  Bauman v. Ross, 167 U.S. 548 (1897); Sharp v. United States, 191 U.S. 341, 351-52, 354 (1903). Where the taking of a strip of land across a farm closed a private right-of-way, an allowance was properly made for the value of the easement. United States v. Welch, 217 U.S. 333 (1910).
  21.  Bauman v. Ross, 167 U.S. 548 (1897).
  22.  Monongahela Navigation Co. v. United States, 148 U.S. 312, 326 (1893).
  23.  Reichelderfer v. Quinn, 287 U.S. 315, 318 (1932).
  24.  See Horne v. Dep't of Agric., 576 U.S. ___, No. 14-275, slip op. at 5 (2015). In deciding this case, the Court presumably intended to leave intact established exceptions when the government seizes personal property (e.g., confiscation of adulterated drugs). See, e.g., Bennis v. Michigan, 516 U.S. 442, 452 (1996) (Petitioner also claims that the forfeiture in this case was a taking of private property for public use in violation of the Takings Clause of the Fifth Amendment, made applicable to the States by the Fourteenth Amendment. But if the forfeiture proceeding here in question did not violate the Fourteenth Amendment, the property in the automobile was transferred by virtue of that proceeding from petitioner to the State. The government may not be required to compensate an owner for property which it has already lawfully acquired under the exercise of governmental authority other than the power of eminent domain.).
  25.  Horne, slip op. at 8.
  26.  Id. at 9-12.
  27.  The government’s argument might have carried more weight had the marketing order been viewed as a regulatory taking. Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302, 321-22 (2002) (The text of the Fifth Amendment itself provides a basis for drawing a distinction between physical takings and regulatory takings. Its plain language requires the payment of compensation whenever the government acquires private property for a public purpose, whether the acquisition is the result of a condemnation proceeding or a physical appropriation. But the Constitution contains no comparable reference to regulations that prohibit a property owner from making certain uses of her private property.); Bowles v. Willingham, 321 U.S. 503, 519 (1944) (rent control cannot be a taking of premises if [t]here is no requirement that the apartments be used for purposes which bring them under the [rent control] Act).
  28.  Horne, slip op. at 13. Here, the Court expressly rejected the argument that the raisin growers could avoid the physical taking of their property by growing different crops, or making different uses of their grapes, by quoting its earlier decision in Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 439 n.17 (1982) ([A] landlord’s ability to rent his property may not be conditioned on his forfeiting the right to compensation for a physical occupation.). The Court also distinguished the raisin reserve provisions from the requirement that companies manufacturing pesticides, fungicides, and rodenticides disclose trade secrets in order to sell those products at issue in Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984). It did so because the manufacturers in Ruckelshaus were seen to have taken part in a voluntary exchange of information that included their trade secrets, recognized as property under the Takings Clause, in exchange for a valuable Government benefit in the form of a license to sell dangerous chemicals. No such government benefit was seen to be involved with the raisin growers because they were making basic and familiar uses of their property.
  29.  Horne, slip op. at 14-16.
  30.  Lynch v. United States, 292 U.S. 571, 579 (1934); Omnia Commercial Corp. v. United States, 261 U.S. 502, 508 (1923).
  31.  James v. Campbell, 104 U.S. 356, 358 (1882). See also Hollister v. Benedict Mfg. Co., 113 U.S. 59, 67 (1885).
  32.  Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984).
  33.  Monongahela Navigation Co. v. United States, 148 U.S. 312, 345 (1983).
  34.  Omnia Commercial Co. v. United States, 261 U.S. 502 (1923).
  35.  International Paper Co. v. United States, 282 U.S. 399 (1931).
  36.  Armstrong v. United States, 364 U.S. 40, 50 (1960).
  37.  Duke Power Co. v. Carolina Envtl. Study Group, 438 U.S. 59, 88 n.32 (1978).
  38.  Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41 (1986).
  39.  Congress is not, by virtue of having instituted a social welfare program, bound to continue it at all, much less at the same benefit level. Bowen v. Gilliard, 483 U.S. 587, 604 (1987).
  40.  Mitchell v. United States, 267 U.S. 341 (1925); United States ex rel. TVA v. Powelson, 319 U.S. 266 (1943); United States v. Petty Motor Co., 327 U.S. 372 (1946). For consideration of the problem of fair compensation in government-supervised bankruptcy reorganization proceedings, see New Haven Inclusion Cases, 399 U.S. 392, 489-95 (1970).
  41.  United States v. General Motors Corp., 323 U.S. 373, 382 (1945).
  42.  United States v. General Motors Corp., 323 U.S. 373 (1945). In Kimball Laundry Co. v. United States, 338 U.S. 1 (1949), the Government seized the tenant’s plant for the duration of the war, which turned out to be less than the full duration of the lease, and, having no other means of serving its customers, the laundry suspended business for the period of military occupancy; the Court narrowly held that the government must compensate for the loss in value of the business attributable to the destruction of its trade routes, that is, for the loss of customers built up over the years and for the continued hold of the laundry upon their patronage. See also United States v. Pewee Coal Co., 341 U.S. 114 (1951) (in temporary seizure, Government must compensate for losses attributable to increased wage payments by the Government).
  43.  United States v. Miller, 317 U.S. 369, 375-76 (1943). On the other hand, the Court added, if the taking has in fact benefitted the remainder, the benefit may be set off against the value of the land taken. Id.
  44.  United States v. Jones, 109 U.S. 513 (1883); Bragg v. Weaver, 251 U.S. 57 (1919).
  45.  28 U.S.C. § 1403. On the other hand, inverse condemnation actions (claims that the United States has taken property without compensation) are governed by the Tucker Act, 28 U.S.C. § 1491(a)(1), which vests the Court of Federal Claims (formerly the Claims Court) with jurisdiction over claims against the United States founded . . . upon the Constitution. See Eastern Enterprises v. Apfel, 524 U.S. 498, 520 (1998). Inverse condemnation claims against the United States not in excess of $10,000 may also be heard in federal district court under the Little Tucker Act. 28 U.S.C. § 1346(a)(2).
  46.  Bauman v. Ross, 167 U.S. 548 (1897). Even when a jury is provided to determine the amount of compensation, it is the rule at least in federal court that the trial judge is to instruct the jury with regard to the criteria and this includes determination of all issues other than the precise issue of the amount of compensation, so that the judge decides those matters relating to what is computed in making the calculation. United States v. Reynolds, 397 U.S. 14 (1970).
  47.  Rule 71A(h), Fed. R. Civ. P. These commissions have the same powers as a court-appointed master.
  48.  Monongahela Navigation Co. v. United States, 148 U.S. 312, 327 (1893).
  49.  Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685 (1897). In federal courts, reports of Rule 71A commissions are to be accepted by the court unless clearly erroneous. Fed. R. Civ. P. 53(e)(2).
  50.  Backus v. Fort Street Union Depot Co., 169 U.S. 557, 569 (1898).
  51.  McGovern v. City of New York, 229 U.S. 363, 370-71 (1913).
  52.  229 U.S. at 371. See also Provo Bench Canal Co. v. Tanner, 239 U.S. 323 (1915); Appleby v. City of Buffalo, 221 U.S. 524 (1911).