Law & the Courts

Government Shouldn’t Have the Power to Take Private Property for Free

(Jonathan Ernst/Reuters)
The Supreme Court must reverse the ruling of a lower court in Love Terminal Partners v. United States.

While public attention is riveted on Democrats with extravagant proposals for government expansion — a Green New Deal, single-payer health care, tuition-free college — few observers have noticed a recent federal court ruling that will, absent Supreme Court intervention, grant the government immense powers to confiscate private property in violation of the Fifth Amendment.

The Fifth Amendment to the U.S. Constitution mandates that private property cannot be taken for public use “without just compensation.” But this clause was eviscerated by U.S. Court of Appeals for the Federal Circuit in Love Terminal Partners v. United States, which held that any property not earning a current positive cash flow can be taken by the government without a dime of compensation. Unless this ruling is reversed on appeal, it will have a devastating impact on the value of millions of properties with excellent prospects for appreciation but no current tenants. And it will put all real-estate investments not earning money at risk of being stolen by the government.

The case has its roots in the Wright Amendment. This anti-competitive law was designed to protect Fort Worth’s interest in the Dallas/Fort Worth International Airport by sharply restricting flights out of Love Field Airport in Dallas. Sponsored by the late House speaker Jim Wright, this artificial restriction on competition created a business opportunity at Love Field, where a group of investors poured millions of dollars into building a state-of-the-art air terminal. For a while, the investment paid off: The new Lemmon Avenue Terminal earned revenues from an anchor tenant, Legend Airlines, and from Delta Airlines. But Legend went bankrupt in 2000, just before the whole industry was devastated by the events of 9/11. Industry leaders American, Delta, and United subsequently declared bankruptcy, and eight legacy carriers became four.

Yet, remaining optimistic, the Lemmon Avenue investors were energized by a “Free Love” campaign run by Southwest, foreseeing the day when the restrictions on Love Field would be lifted and the Lemmon Avenue Terminal would thrive. So they continued to pour large sums of money into the upkeep of their empty terminal and to make regular lease payments to the city of Dallas. By 2006, their patience and faith were on the verge of paying off. The cities of Dallas and Fort Worth, American Airlines and Southwest Airlines, and the Dallas/Fort Worth International Airport Authority came together to craft a compact to lift the Wright Amendment restrictions. The compact was blessed by Congress and passed into law.

But the new law came with a twist: It mandated the confiscation and destruction of the Lemmon Avenue Terminal.

The Court of Federal Claims, recognizing that the very law that destroyed the terminal would have given it immense market value, assessed just compensation at $133 million. But last year, the Court of Appeals for the Federal Circuit reversed that decision, ruling that the investors were due exactly zero for an investment that the government had destroyed and would now confiscate. The appeals court reasoned that because the terminal was not earning a positive cash flow, it had zero economic value — a notion utterly at odds with reality, in which thousands of transactions place a high value on investments that take years to bear fruit.

This ruling would have a dampening effect on all kinds of American businesses. Indeed, many of the nation’s roughly 30 million businesses invest years of capital in under-utilized commercial property before reaping the profits. The attorneys general of Texas, Arkansas, Oklahoma, and Utah, in an amicus brief in support of the Love Terminal Partners plaintiffs’ petition for review before the Supreme Court, spelled out how this brazen new government power might harm society:

The Federal Circuit’s reasoning would mean that no compensation at all is due when the government takes an inherited farm lying fallow until a new owner can be found to produce on it, or when the government seizes a church, mosque, or synagogue, or another institution not operating for a profit.

If the Court fails to review Love Terminal Partners, a serious attack on the very system that has served to safeguard our nation’s economic vitality will have been allowed to go unchallenged. The kind of confiscatory power the ruling establishes must never be granted to government by a free society.

Joel C. Peterson chairs the Hoover Institution Board of Overseers and is the Robert L. Joss Adjunct Professor of Management at the Stanford Graduate School of Business.

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