Dubious Domain
Jon Roland

One would think that, after more than two millennia of development and debate in almost every country on Earth, the law of eminent domain would be settled. But leave it to the State of California and the City of Richmond to muddy the subject by seeking to seize home mortgages under its alleged power of "eminent domain". Not the parcels of land. The mortgages on the land, which the City intends to extract out of any securitization bundles they may be, and renegotiate them to bring the amounts owing on the real estate down to current market value or below. It is not just the nonperforming loans for which Richmond is seeking to acquire the mortgages, but performing loans as well. Of course, once they own the mortgages, if the loans are in default, the City could just take the real property without having to compensate the homeowners for their equity. Richmond would only have to pay the discounted fair market price for the mortgage, and it would control the factors that would make the mortgages not worth their unpaid balances. A consortium of lenders have joined to file suit to enjoin this effort.

Richmond seems to be arguing that since they would be taking the mortgages "for public use", that makes the taking an exercise of the eminent domain power of the state and its agencies. But that is not correct. The Fifth Amendment to the U.S. Constitution restricts the power of eminent domain to be "for public use", but it is not the purpose of a taking that makes the taking an exercise of the eminent domain power.

The U.S. Constitution does not use the term eminent domain, nor do most state constitutions. The U.S. Constitution does not delegate the power using any terms that might be deemed synonymous. It seems to presume a power to take, if only in an emergency, but does not delegate it. In  Kohl v. United States, 91 U.S. 367, 373 (1876) the U.S. Supreme Court decided against a claim that the Union government had to go though a state condemnation process in state court to take a parcel of state land, and then only with the consent of the state legislature, and sustained a direct use of an eminent domain power by the Union government on state territory, as a "attribute of sovereignty".

The problem is that the original thirteen states, as sovereign nations, held sovereign dominion over their land, that is, their domain, under the theory of law that the sovereign is the true ultimate owner of all land over which it has legislative jurisdiction. The word "real" in real property means "royal, not "actual". The power to make laws governing land is ownership of it, regardless of what rights or interests private parties might have for the possession and use of parcels of it, called estates in the land.

When the U.S. declared independence from Britain and its sovereign monarch, it replaced the monarch with the people as sovereign, even though the people were a dormant sovereign when not actually ratifying a constitution or amendments to it. When the Constitution was adopted, some of the powers of sovereignty were transferred to the Union, some remained in the states, and others remained with the people. The Union was not made sovereign over state land once a state was admitted into the Union. The Kohl case was wrongly decided.

The states did cede legislative jurisdiction over the territories outside their boundaries to the Union, and thus made that non-state territory the domain of the Union, but there was no such cession for land within the states, except under terms set forth in Article I Section 8 Clause 17, for federal enclaves like the District of Columbia and things like forts and dockyards, but that clause provided that Congress had to obtain the consent of the state legislature before it could acquire such land.

The Constitution also provides that new states be established on the same basis as the original states, so that means when a new state is created, the sovereign dominion over its land passes to the state and its people as the sovereign of that state. The Union might hold back tracts of land as now a sole proprietor, but not as the dominion sovereign of it.

Although it is common to mistakenly classify the rights in the bundle called an estate in real property as real property itself, it is more accurate to classify them as personal property. They are claims on the land, but are not themselves real property. They may be split apart, distributed, and redistributed, among multiple parties. It is the market value of these rights that is the proper measure for compensation, not of the land on which they constitute claims.

The proper theory of eminent domain power is that that the sovereign has the power to repossess what it already owns, provided that it compensate the stakeholders in the estate for that land. Those estate rights, such as mortgages, are personal property.

So is the sovereign the ultimate true owner of personal property as well? In some countries with a tradition of absolute monarchy, it is. In those countries the monarch asserted ownership over everything, including the people. But England and its dominions was not one of them. Through the tax and police powers a state may tax and regulate the use of personal property, but until fairly recently, in some states, there was no holding that the state was the sovereign owner of personal property. Some states do impose ad valorem taxes on tangible personal property, but not intangible personal property, and all but Oklahoma exempt most personal property from taxation that is for personal use. Many states have no such tax, or a very minimal one on tangible personal property used for business, and more and more are abandoning such taxation.

It seems only California is outright asserting an eminent domain power over intangible personal property for itself and its municipalities. It has tried that once before when the City of Oakland tried to take a baseball franchise as an exercise of eminent domain. The California Supreme Court struck it down, but not on the grounds that the city had no eminent domain power to do that kind of thing. It claims the power of eminent domain over personal property is ancient and universal, but it is not. It is arguably unconstitutional.

The argument that such taking is authorized by the Necessary and Proper Clause is not consistent with original understanding of that clause, which is only for "carrying into execution" the explicit powers, that is, to take actions of an incidental administrative nature. That could include the purchase of land or other property, but not the coercive taking of it, even with compensation. That would be a different kind of power, requiring a separate constitutional authorization.

There are other kinds of takings than through eminent domain. A common kind that the Framers probably had in mind was destruction or appropriation of personal property by an army in the field. The Union government also had the option of retaining parcels of land when it admitted new states, even if none of the states consented to purchases of land for military bases and seaports. In practice it has only retained fee simple title like any private owner, which makes such federal land subject to state eminent domain. The western states could take all the federal lands within their territories now used for national forests and parks, if its state legislature had not ceded them explicitly.

The nonspecific "consents" made by many states in the 1940s are unconstitutional, in that the consent must be for a specific parcel defined by metes and bounds. I have proposed a Jurisdiction Boundary Marking Act that would require all federal enclaves to have their boundaries clearly marked, so that anyone would have notice of which laws he was subject to as he crossed the boundaries. If not marked, the enclaves would revert to the states.

There is a fundamental constitutional problem with the uncompensated taking of personal property. It is an assertion of dominion over personal property by the state, for which there is no authority under any state or federal constitution. States have superior dominion over land, which provides the basis for eminent domain, but not over personal property, which includes estates in tangible property. They might assert dominion over tangible property, but when they extend the claim to rights in tangible property, which are also personal property, they are essentially extinguishing rights to compensation for taking, and that means of rights generally.

The "takings" contemplated by the 5th Amendment was not just about taking title to land, which is what happens with eminent domain. Most of the takings of concern during that era was takings of personal property and the use of land by soldiers in the field, who sometimes but not always give the owners receipts which were to be treated as debts by Congress, but most of which were never fully paid to the original injured parties. The "power" involved was not of eminent domain but of war.

When the Constitution was adopted in 1788 the states ceded their claims on land in what came to be the territories to the federal government, but retained their sovereignty over their own land, which is recognized in Art. I Sec. 8 Cl 17 with the requirement that to take state land the federal government must have the consent of the state legislature, presumably of a specific defined parcel, not just whatever the feds might claim.

The only ambiguity arises for states created out of those territories, over which Congress initially had land sovereignty, and therefore eminent domain power. Art. IV Sec. 3 provides that Congress may admit new states, but is silent about what happens to land sovereignty when a new state is thus admitted, or what would happen to it if an admission were rescinded and a state reverted to territorial status (or in the case of Texas, to national independence). Art. I Sec. 8 Cl. 17 presumably applies to all newly admitted states, and thus implies that land sovereignty would pass to the newly admitted state. (It would also imply that a rescission of admission would render the state an independent nation, and not just a territory, but that is another article.)

There is nothing in all this that would prevent the federal government from retaining (upon admission) or acquiring fee simple title on parcels of state territory like any private party, but that would not be accompanied by legislative jurisdiction. State law would still govern, although the federal government would have the powers of a private owner.

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Original date: 2013/8/12 —