WASHINGTON, Oct. 12 - With an important eminent domain case
already on the docket, the Supreme Court expanded its examination
of private-property rights on Tuesday by accepting a new case
on how courts should decide when an economic regulation goes
so far as to amount to an unconstitutional "taking"
of private property.
The case is an appeal by the state government of Hawaii, where
a federal court ruled unconstitutional a law limiting the
rent that oil companies can charge to independent dealers
who lease its service stations. The district court in Honolulu,
in a decision upheld by the United States Court of Appeals
for the Ninth Circuit, in San Francisco, held that expert
testimony on the economic effect of the regulation had failed
to prove that it would "substantially advance a legitimate
This was the wrong standard, the state argued vigorously in
its Supreme Court appeal. The state said the Ninth Circuit
had established an "intrusive" legal test that invited
judges to substitute their own views of the "efficacy
or wisdom of the government action" for the views of
elected officials. Courts should limit themselves to deciding
whether a government economic regulation has a rational basis,
a much more deferential standard, the state argued.
The importance of this issue to government officials was underscored
in briefs filed on Hawaii's behalf by New York, California,
Connecticut and 16 other states as well as by the National
Conference of State Legislatures, the United States Conference
of Mayors and other government bodies. It has implications
not only for rent-control laws like Hawaii's, but for environmental,
health and safety rules as well as for the zoning and land-use
regulations that have been the focus of the courts' concerns
about the Fifth Amendment's "takings" clause.
The Fifth Amendment provides that private property shall not
be "taken for public use without just compensation."
In the case the Supreme Court accepted late last month, Kelo
v. City of New London, No. 04-108, the question is whether
private economic development that will add to the city's tax
base is an appropriate "public use" for which a
city can exercise its power of eminent domain to condemn property
of lower economic value.
The new case, Lingle v. Chevron U.S.A. Inc., No. 04-163, presents
a related but distinct question: whether the challenged rent
regulation is a taking in the first place. The Supreme Court's
precedents make clear that the government does not have to
physically acquire property in order to "take" it
and incur the obligation to pay for it. A regulation can be
a taking if it strips the property of much of its economic
In a zoning case from 1980, Agins v. City of Tiburon, the
court went further and said that a regulation can amount to
a taking if it "does not substantially advance legitimate
state interests." But the court has never explained exactly
what it meant. The Hawaii Legislature passed the rent law
in 1997 in response to what it saw as a lack of competition
in the retail gasoline market in the state, which is served
by only two refiners. The Legislature wanted to protect independent
dealers, who lease their stations from oil companies and had
to pass rent increases on to consumers. The law capped the
dealers' rent at 15 percent of their profits plus certain
increases that the oil companies were permitted to pass on.
Chevron, Hawaii's biggest gasoline refiner and marketer, brought
a lawsuit arguing that the rent cap violated due process,
equal protection and amounted to an unconstitutional taking.
After the district court accepted Chevron's takings argument,
the company voluntarily dismissed the other claims.
The district court conducted a one-day hearing at which the
company and the state each presented an economic expert to
testify about the likely impact of the regulation on the retail
gasoline market. When the experts disagreed, the court found
that Chevron's expert was "more persuasive" in predicting
that the rent cap would discourage investment and lead to
fewer independent dealers. Therefore, the court held and the
appeals court agreed, the regulation did not "substantially
advance a legitimate state interest."
Eliot L. Spitzer, the state attorney general of New York,
said in a brief filed in support of Hawaii's Supreme Court
appeal that this test "threatens to establish the federal
courts as overseers of state laws, routinely inquiring whether
the state has made the 'correct' policy choice to respond
to a particular problem."