Taking Control

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Norwood, Ohio, already was bleeding in 1987 when General Motors Corp. pulled the plug on its plant in the Cincinnati suburb, idling more than 4,000 workers and sucking away 35 percent of the city’s tax base.

Other heavy industries had packed and left, and still others were on the verge of moving out. But when the Camaros and Firebirds stopped rolling off GM’s Norwood assembly line, it became a defining moment for the city of about 20,000 residents.

GM had been making cars in Norwood since 1923. The plant appeared impervious to economic forces that periodically rock the auto industry, including the 1970s gas crisis. “When other General Motors plants were shut down, ours was running two and three shifts a day,” recalls Nor­wood Mayor Thomas F. Williams. “It didn’t affect those Camaros and Firebirds. When General Motors decided to close, everybody said that’s the end of Norwood.”

But, Williams quickly adds, “It didn’t happen that way.” At least not yet.

With GM gone, along with most of the other factories whose smokestacks had dotted the cityscape since the late 19th century, prospects were grim that Norwood could attract new industries to fill the void. So city officials set out in the late 1980s to replace lost blue-collar jobs by trying to lure development that would depend on a mix of office and retail workers to heal the gaping tax wound the industrial exodus left behind.

“In order for the city to survive, it must change,” Williams says. “It must adapt, or it won’t exist.”

And if that means designating an area as blighted, then condemning and bulldozing people’s homes there to make way for commercial development, so be it. Like many Rust Belt cities and older suburbs, Norwood has used the legal weapon of eminent domain in its attempt to reinvent itself.

Now the town is embroiled in a court fight with a hand­ful of owners resisting its attempt to take their properties and turn them over to a developer. On the site, the developer wants to build the kind of mixed-use project the city says will help it crawl out of its fiscal hole. It’s a confrontation that replicates itself nationwide as other communities large and small look for new revenue sources to pay for essential services, from police protection to garbage collection.

Norwood’s prayer for financial salvation doesn’t provide much solace for Carl and Joy Gamble, who were forced to move last winter from the three-bedroom, English Tudor-style home on a double lot that cost them $16,000 in 1969. Though a jury awarded them $280,000 in compensation–double the home’s market value today–the retired poultry company owners say they won’t touch the money until the Ohio Supreme Court decides their appeal against the city. Two lower courts already have said the Gambles must go. “When we got it, that was our castle,” recalls Joy Gamble. “That was our own house. We didn’t have to share anything with anybody.”

Public Use Goes Private

Long a mainstay in helping state and local governments obtain land for roads, parks, schools and other public facilities, the U.S. Supreme Court put a new face on eminent domain this summer when it held 5-4 that private economic development satisfied the public-use requirement of the Fifth Amendment’s takings clause. Kelo v. City of New London, 125 S. Ct. 2655 (June 23).

The decision allowed New London, Conn., to evict Susette Kelo and eight of her neighbors from their homes so the city could replace them–along with about 100 others whose owners voluntarily sold–with a high-end retail, commercial and residential complex.

Significantly, all the homes were condemned simply because they happened to be in the project area, not because they were blighted or otherwise in poor repair.

In the ensuing outrage, more than two dozen state legislatures and Congress began proposing laws to stunt Kelo’s reach by banning takings solely to support private development. The Ohio Senate in October unanimously approved a one-year moratorium on use of eminent domain as a tool for developers while a legislative task force studies whether the Buckeye State needs to change its approach to condemnation.

The House is expected to follow by year’s end. The moratorium wouldn’t affect the Norwood project. “I have been surprised by the vehemence of the reaction,” says Norwood’s lawyer, Timothy M. Burke, a land use and zoning specialist. “I really don’t think the court in Kelo changed the law all that much.”

To be sure, Kelo’s holding that economic development alone serves a public purpose opens an expansive new frontier for eminent domain. But Burke also is largely correct when he says the law hasn’t changed that much.

That’s because the Supreme Court for more than 50 years already had recognized blight removal as a public purpose and allowed local governments to use eminent domain to condemn dilapidated and unsafe buildings. Once a community accomplishes the public purpose of blight removal, the court has said it can do what it wants with the property, even turn it over to a private developer. Ohio law carries a similar and even longer pedigree, also left undisturbed by Kelo. Property rights advocates challenging such condemnations have targeted “blight loopholes” in cases in Norwood and elsewhere.

“This was an important case before Kelo and it remains an important case because of the nationwide abuse of blight designations,” says Bert Gall, a lawyer for the In­stitute of Justice, a Washington, D.C., public interest law firm that took Kelo to the Supreme Court and represents the Norwood holdouts. “The problem of bogus blight designation is a real one that state courts are going to have to address. It’s an end run that municipalities have been using for decades.”

Besides decreeing that private development is a legitimate public purpose, the Kelo majority also remind­ed state courts they are free to accord highly deferential rational-basis review to urban renewal plans that entail eminent domain. At the same time, states remain free to offer prop­erty owners greater protection than the Supreme Court does. Though the substantive aspects of the New London and Norwood cases differ significantly, the Ohio Supreme Court could become the nation’s first to consider raising the rational-basis standard set in Kelo. Meanwhile, Kelo ranks among the U.S. Supreme Court’s most controversial decisions in recent terms.

Even the majority opinion’s author, Justice John Paul Stevens, appeared to have second thoughts when he listed the outcome with four other opinions he had written last term as yielding “results that I consider unwise.” In an Aug. 18 speech to a local bar association in Las Vegas, he explained, “In each I was convinced that the law compelled a result I would have opposed if I were a legislator.”

Developer Goes It Alone

At issue in Norwood is a roughly 10-acre site known as the Edwards Road corridor. A partnership formed by local developer Jeffrey R. Anderson wants to use the property for a $125 million complex of offices, apartments and chain retail stores to be called Rookwood Exchange.

The city told the partnership it could build the project but would have to acquire on its own the 71 properties–nearly all of them residences–that had occupied the site since the 1920s.

Blight eradication leads Norwood’s legal argument, with economic development assuming a fallback position. Still, city officials don’t blink when they say what they ultimately expect in return for letting a single developer have a crack at the land. They also worry aloud about allowing erratic growth, which they fear would occur if individual property owners were left to their own devices.

“If this were to fall through, it will just get piece­mealed out,” Williams says. “It will not improve anything, and the city will not get money.”

Norwood’s first forays into urban renewal in the late 1980s were a relative cakewalk compared with what was to come.

Less than two years after the GM plant’s 1987 closing, the city managed to entice a developer into building a $100 million mixed-use project on the abandoned 50-acre site. When the project, called Central Parke, was completed in 1997, more than 800,000 square feet of office and retail space housing 80 different businesses stood in GM’s place. Developer Anderson soon followed, converting a nearby former machine-tool factory into a $30 million complex named Rookwood Pavilion, containing 245,000 square feet of upscale retail, res­taurant and office space. Ander­son then moved on to another old industrial site adjacent to the Pavilion and constructed the Rookwood Commons shopping center, which features such well-known retailers as Old Navy, Victoria’s Secret and Eddie Bauer.

The two developments drew business from throughout the Cincinnati area and northern Ken­tucky. The make­over was on, and people stopped calling Norwood “Hill­billy Heaven,” a nickname attributed to the stream of workers from Appala­chian states who migrated to the city over the years for jobs with GM.

“When they built [those], it just – bam! – took off,” says Williams, referring to the Anderson projects. “It became the place. People just absolutely went nuts.” In 2002, Anderson started looking across the street from Rookwood Commons to the Edwards Road corridor as the site of his next venture. A new challenge arose.

Though negotiations for land sometimes were difficult, and even ended up in litigation in GM’s case, the city and its private development partners largely had dealt with single owners just dying for someone to take large, contiguous tracts of old industrial property off their hands. Those locations eventually started to dry up.

So when Anderson scanned the Edwards Road area for his proposed Rookwood Exchange, he saw 71 separate properties, nearly all of which had different owners. Not only did that mean Anderson would have to deal with more people, but he also faced the prospect that some owners would refuse to sell and thus thwart his plans.

Joy Gamble recalls opening The Cincinnati Post on the eve of Mother’s Day 2002. A photo of Anderson caught her attention.

“There was a big picture of him standing on top of his building, looking over and saying, ‘This is going to be mine,’ ” says Gamble, who with her husband is staying with a daughter in Kentucky. “And we thought, ‘Oh, my Lord.’ We had retired in November 2001. We had six months of heaven, and then the roof fell in.”

The prospect of eminent domain arose during the developer’s initial talks with city officials. While a spokes­person for the partnership was unable to remember which side first raised the subject, the two courts that later considered the case didn’t harbor similar uncertainty.

“Early on, Rookwood repeatedly pressed Norwood to invoke its eminent domain powers, but each request was denied,” Ohio Court of Appeals Judge Mark P. Painter wrote this spring in a decision affirming the city’s right to take the land. City of Norwood v. Horney, 830 N.E.2d 381 (May 20).

Norwood initially told the partnership to purchase as many of the homes as it could on its own before the city would intervene and use eminent domain against any holdouts. By early 2003, the developer reported that it could line up only about 60 voluntary sellers, and that the city would have to condemn the remaining homes. The city council acquiesced and eventually condemned five properties after the Anderson group successfully negotiated on the other 66.

As a prerequisite for eminent domain and generous tax breaks that accompany urban renewal, the Norwood City Code and Ohio statutes required the city to determine that the area was blighted. The city describes blight in part as an area where a majority of structures are so rundown that they impair community planning and growth. The code defines a blighted structure as one that is “con­du­cive to ill health, transmission of disease, infant mortality, juvenile delinquency and crime, and is detrimental to the public health, safety, morals and general welfare.”

As an alternative to tough blight requirements, the city code also permits Norwood to use a lesser standard to jus­tify eminent domain in cases where the council deems neighborhoods “deteriorating” and at risk of becoming blighted. Unlike a blight designation, the majority of struc­tures don’t have to show signs of deterioration to qualify an entire neighborhood for eminent domain under the relaxed standard.

Writing Was On The Wall

Though the Gambles say Anderson’s plans took them by surprise, other former residents say the eventual fate of the Edwards Road corridor started to become evident decades before Rookwood Exchange entered the picture.

Geography and political boundaries were crucial. Nor­wood is unusual because it lies entirely within the Cin­cin­nati city limits. Thus, it doesn’t have the option of expanding its tax base through annexation. Construction of In­terstate 71 in the late 1960s immediately west of the Edwards Road area further isolated the neighborhood by cutting it off from the rest of Norwood.

Anderson began encroaching from the south in the 1990s, first with the Pavilion and later with the Commons. That left a triangle-shaped sliver of land hemmed in by an interstate on one side, a shopping center on another and the city of Cincin­nati on the third. Meanwhile, other development was coming close. By the late 1990s, twin office towers called the Cornerstone of Nor­wood had begun to cast a shadow over the neighborhood from the other side of I-71. At the same time, partly as a result of favorable zoning, isolated businesses began appearing in residential areas.

“With all these developments coming in, and with I-71 coming in 30 years ago, I had a firsthand look at the neigh­borhood going down the tubes,” says lifelong resident William Pierani, 55, who describes himself as semi-retired.

Pierani remained in the neighborhood after Anderson – without the threat of eminent domain – successfully persuaded his parents and a couple dozen other homeowners to voluntarily sell their properties as part of the earlier Rookwood Commons. But the increased traffic and constant construction finally got to Pierani. After Ander­son proposed Rookwood Exchange, Pierani voluntarily cleared out, receiving $230,000 for a two-bedroom stucco home he bought for $33,000 in the mid-1970s.

“When they were building Rookwood Commons, my house stayed dirty,” Pierani says. “And the noise? It was 24/7. Would I like to stay there? Yes. Could I ever have grandkids over there? No. Could I ever have a dog? No.”

Anderson wound up paying $2 million an acre, double the going price for comparable Cincinnati area real estate. But Anderson wasn’t buying homes. In reality he was buy­ing commercial square footage that would become worth much more if he leveled the homes and the project went ahead.

The city selected the Cincinnati architectural and consulting firm Kinzelman, Kline & Grossman to conduct the urban renewal study, which boiled down to an inventory of existing uses, zoning and housing conditions. The developer reimbursed the city for the $28,000 cost.

The study, however, didn’t find the area blighted. In fact, the consultants were unable to point out a single structure as dilapidated and said that while many lacked some maintenance, “most properties are [in] generally fair to good condition.”

But the consultants cited as inadequate numerous conditions the residents didn’t create, such as dead-end streets and lack of access to the rest of Norwood caused by the construction of I-71. Addi­tionally, consultants cited increased noise and traffic, as well as shrinking setbacks, as further development required widening other streets.

Many of the same conditions were double-counted by including them in more than one broader category. For example, 65 errors resulted by counting increased highway noise and light in a category citing “lack of adequate provision for ventilation, light, air and sanita- tion,” which a firm representative admit­ted at trial is intended to cover building codes. The consultants also didn’t attempt to verify reported building code violations through inspections, and instead relied on city records.

Moreover, zoning changes that occurred long after their homes were built counted against the owners as incompatible land uses, as did detached gar­ages and ribbon driveways, which consist of two strips of pavement leading to the garage.

The council hedged its bets and issued findings that the project area was both blighted and in danger of becoming blighted. The city’s package for Anderson also included tax increment financing, itself a controversial urban renew­al tool that exempts developers from real estate taxes – for 30 years in this case – so they can pay for the streets, sewers and other public works to support their projects.

Still, Anderson’s lawyer, Richard B. Tranter, insists that his client is merely doing the city’s bidding. He describes Rookwood Exchange as a run-of-the-mill urban renewal project in which the developer has been unfairly singled out for blame.

“You should be applauding elected officials for anticipa­ting and reacting in a timely way instead of waiting until the area became a total slum,” says Tranter, who is Ander­son’s brother-in-law. “There was a development opportunity that we could do successfully, and of course there’s a profit motive. That’s what we do. But we’re not the city council. We’re not the homeowners.”

Setback For Homeowners

The court fight was on. at the trial level, Hamilton County Common Pleas Judge Beth A. Myers at first hand­ed the property owners a victory by holding that the coun­cil had abused its discretion in reaching the blight deter­mination. Then, though troubled by the study’s errors and by deadlines the developer had dictated to the city, Myers burst the owners’ bubble and held that the city could declare the existing neighborhood at risk for blight.

“While the court does have concerns about the amount of control given to the developer, it is not for this court to substitute its judgment for Norwood in its dealings with third parties,” Myers wrote in a June 14, 2004, opinion approving the takings.

As the appeals court considered the case, simmering bad blood began to bubble between the holdouts and the voluntary sellers who were forced to wait for their money. Tension remained as the developer finally started closings in February, then turned around and bulldozed the site after vandals began stripping the vacant homes.

“Within two weeks we had 30 break-ins,” Tranter says. “We didn’t want to have some dramatic public safety issue – like arson.” In the end, only three homes that remained tied up in litigation remained standing in the middle of what now is a construction site. In a related case, the state supreme court also is considering the developer’s attempts to raze those homes before the owners exhausted their appeals.

Most of the community ire focused on holdout Joe Horney, a landlord who owns a rental duplex in the project area, and Nick Motz, a businessman who offered to negotiate sales for his neighbors while at the same time challenging in court Anderson’s designs on his property.

The two organized a citizens group that still rails against the project on the Web site Norwoodblight.com. Though his furious neighbors say he can burn in hell, they don’t bother Horney. He has equally unkind words for them.

“I’m actually rather enjoying it the longer it takes,” says Horney, 36, a project manager for a decorative concrete company. “Justice is a slow process, and I’m willing to accept this. I’m a patient man. I don’t think I’ll ever lose. I’ve already won. Now people are paying attention and talking about this. I’m satisfied with that.”

The prospect of violence also hung over the neighborhood. But Pierani says he and other voluntary sellers agreed on the eve of the condemnation trial not to engage in tactics that would do nothing more than play into the holdouts’ hands. “There wasn’t one egg thrown,” Pierani says. “There wasn’t one tire slashed. There wasn’t one paintball. There wasn’t anything. Everybody just sat back and let Anderson and the lawyers do their thing. If this had happened 25 years ago, somebody would have been found at the bottom of the Ohio River. Believe me.”

Lawyers for the city and Anderson question the Insti­tute for Justice’s motives and strategy in representing the holdouts. They’re particularly aggravated at the institute’s description of the urban renewal study as one Anderson “brazenly offered to pay for” when Norwood and other municipalities routinely try to squeeze everything they can from developers and other businesses so individual taxpayers won’t wind up with the bill. For example, in the contentious negotiations for the GM site, the city got two parking garages the automaker had planned to raze.

Institute lawyer Gall won’t back off, though he acknowl­edges that the city, not the developer, selected the study consultants. “Follow the money,” he says.

City lawyer Burke says he cannot figure out why the in­stitute didn’t ask the court to either enjoin the title transfers or the subsequent demolition – or at least require the developer to post an appeal bond. The voluntary sale con­tracts were contingent on the developer’s ability to acquire all the properties on the site.

Though the other holdouts haven’t said what they plan to do, the Gambles insist they want to return to their home, even if it’s on a vacant lot or surrounded by parking garages.

Gall shifts the blame to Anderson: “The main issue at the end of the day is who brought out the bulldozers. It wasn’t the Gambles.”

Precarious Position

Though the appeals court signed off in may on the use of eminent domain, Rookwood Exchange remains a gamble for Norwood, which in large part approved the venture based on Anderson’s successful local track record.

Through a contract with the Rookwood partnership, Norwood retains control over the zoning and the project’s design. But Anderson now owns almost all the properties on the site. That could leave the city helpless, save for a possible breach-of-contract action, should Anderson encounter financial difficulty or simply walk away. Already, Tranter says, delays caused by court proceedings have cost the developer $100 million in loan commitments.

“That’s hardly as much protection as you have in Con­necticut,” says New London’s lawyer, Wesley W. Horton, who argued the city’s side of Kelo in the U.S. Supreme Court. “A contract action? Sheesh.”

In New London, the city and state initiated the plan to redevelop Kelo’s neighborhood. They still hadn’t chosen a developer by the time the case arrived at the Supreme Court. With no developer in the picture, the city’s public purpose argument became politically and legally more palatable, Horton says.

When New London does decide on a developer, the city plans to keep command of the project by leasing the site at the nominal sum of $1 a year instead of allowing the developer to purchase it outright, as Norwood did with Anderson. That way, if the developer fails to meet contract conditions, it breaks the lease and can be evicted. “That’s certainly not to say that Norwood’s plan would be held unconstitutional,” says Horton, adding that he has not studied the Ohio case closely. “But it’s certainly more vulnerable than New London’s.” By the same token, the Norwood property owners also won’t have an easy time convincing a court the city used the legal maneuver of eminent domain as an illegal front for private development.

“It’s a tough battle, no doubt about it,” says lawyer Dar­ius W. Dynkowski of suburban Detroit, who is also condemnation committee co-chair for the ABA State and Local Government Law Section. “Without someone leaving a paper trail stating their intentions, it’s going to be hard to prove.”

Just in case, Norwood also has on the bench a Kelo-style economic development argument, meaning the property owners can ill afford to consider blight and development in vacuums. If they concentrate on one, the other could come back to bite them.

Consider Michigan, where Dynkowksi’s firm won a land­mark victory last year when it convinced the state supreme court that economic development alone doesn’t satisfy the public-use requirement. County of Wayne v. Hath­cock, 684 N.W.2d 765. In doing so, the court overruled the notorious Poletown decision. Regarded by many as the precursor to Kelo, the 1981 ruling cleaned out a working-class Detroit neighborhood to make way for a GM plant. Pole­town Neighborhood Council v. Detroit, 304 N.W.2d 55. Still, Hathcock didn’t exactly leave property rights advocates dancing in the streets, as the court went no further than wiping out economic development as an accept­able public use in Michigan.

“The Michigan Supreme Court still allows blight rehabilitation,” Dynkowski says. Back in Ohio, Norwood mayor Williams has no regrets. Like many of the folks who had to leave the Edwards Road area, Williams was born and raised in Norwood. A retired police captain, Williams has been a city council member since 2001 and became mayor in 2004.

Williams remembers the Norwood of his youth from behind his desk in City Hall on nearly deserted Mont­gom­ery Road. The once-busy thoroughfare had been Norwood’s main drag for decades until Anderson and other developers came along. As a kid, Williams lived only a half-mile away from what was then the center of town and, for that matter, the universe.

“We walked to Montgomery Road,” says Williams, who turned 66 on Nov. 1. “We bought our shoes there. We did our grocery shopping there. It was all there within walking distance.

“We had three movie theaters,” he continues. “We had cops to help you cross the street. It was just hustle-bustle.”

Williams knows that side of Norwood is gone forever. What’s more, as the city slashes some services to the bone, Williams warns residents not to count on the Anderson project alone for relief from an estimated year-end $2.5 million deficit in its $19 million operating budget.

But, though he had to make a devilish choice when he voted to use eminent domain against some of his neighbors, Williams isn’t looking back. He hopes his decision pays off someday.

“If you evaluate it and make a decision, you stick with it. You don’t back away from it,” Williams says.

“Was it difficult? Yes. But it was in the best interest of the city. We’re trying to transform ourselves. We’re trying to survive.”

John Gibeaut is a senior writer for the ABA Journal.

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