The city of Lancaster illegally attempted to take property from a 99 Cents Only store to benefit a neighboring Costco that wants to expand, a U.S. District Court ruled this week.
In a 17-page ruling Wednesday, Judge Stephen J. Wilson called the Antelope Valley city's action "nothing more than the desire to achieve the naked transfer of property from one private party to another."
Eminent domain experts said the opinion could aid others fighting takeovers of properties by redevelopment agencies catering to demands of major retailers. Similar suits are underway in Southern California against Newport Beach and Rancho Mirage.
"This is an historic decision because cities do this all the time to smaller businesses and homeowners who don't have a way to defend themselves," said Chris Sutton, a Pasadena attorney defending a Rancho Mirage homeowner.
The ruling comes on the heels of a deal struck by Lancaster earlier this month to swap a prime parcel of real estate at the gateway to the city for Costco's current location. The deal includes giving away nearly five acres of the city's signature park and cutting down 100 trees. Hundreds of residents are fighting the proposal, to be discussed July 10 by the City Council.
In his ruling, Wilson said the city's action against the 99 Cents Only store violated protection of property rights granted by the 5th Amendment. He also wrote that a city cannot declare an area blighted, which is required under redevelopment law, just because it says so. He rejected Lancaster's argument that if Costco did not get the expansion space it wanted, it would move to Palmdale, leave behind an empty anchor store and lead to "future blight."
Lancaster City Atty. David McEwen said the opinion's findings "were in many instances incorrect." He has not decided whether he will recommend an appeal but called the court action a waste of taxpayer money. He estimated the cost at more than $50,000.
The ruling was significant because it found that Lancaster's actions were not done for public benefit, said Gideon Kanner, one of the nation's leading experts on eminent domain issues, who represented the 99 Cents Only chain.
Eminent domain allows governments to take property for public benefit. The laws, which require that owners be paid a fair price, are designed for building roads, libraries, parks and other public places. Disputes generally are tried in state courts. The federal suit was filed to challenge the constitutionality of action, rather than waiting for a city to sue a property owner in a state court.
"What has been happening for the past several years is a slow but steady rise in public indignation" over the use of eminent domain for private rather than public use, said Kanner, a professor emeritus at Loyola Law School. "What makes it absolutely scandalous is that the displaced property owner does not get paid for all the losses. They say it's public use, and what I call it is unprintable."
Russell F. Wolpert, vice president and general counsel for the 99 Cents Only chain, called the opinion a landmark ruling. He said it may force redevelopment agencies to redefine what they consider public use. The opinion "makes clear that the government cannot seize the private property of one person or company for the benefit of another person or company," he said.
The Lancaster Redevelopment Agency a year ago voted to spend $3.8 million to acquire property leased by the 99 Cents Only chain and sell it to Costco for $1. The discount chain based in Commerce filed suit last year.
Another store, HomeBase, then objected to Costco's expansion plans, blocking the deal. The HomeBase store is now newly reopened as a House to Home center. The 99 Cents Only store is sandwiched between the two giants.
With its expansion plans stymied, Costco announced earlier this year that it will leave the Valley Central shopping center, the city's key retail complex. Lancaster officials, afraid that Costco would take its store and its tax dollars to Palmdale, have been working ever since to offer a deal to appease the big-box giant, its largest retailer.