Developers counting on city governments to use eminent domain to clear urban renewal sites are watching to see if the U.S. Supreme Court favors property owners in a high-profile eminent domain dispute.

The Court is expected to rule in June in the case of Susette Kelo and other homeowners vs. the City of New London, Conn. The city used eminent domain in attempting to acquire the petitioners' homes for a 90-acre, mixed-use project intended to stimulate the local economy through development around a Pfizer Inc. research center.

The Fifth Amendment states private property shall not be “taken for public use without just compensation,” but the U.S. Supreme Court historically has left states to interpret what constitutes a public use. Kelo's lead attorney, Scott Bullock of the Washington, D.C.-based libertarian advocacy group Institute for Justice, argues “public use” doesn't include public benefits like jobs or tax revenue.

He says a ruling against his clients would put the nation's property owners — including commercial owners — at risk any time another developer proposes a more profitable use for their land. “That would justify the use of eminent domain to take the property under the arguments that were put forward by New London,” Bullock says.

At stake is a city's ability to convey private property to a private developer for economic development. The practice is common: Drawing from published reports and court documents, Institute for Justice says it found 10,282 instances where governments either used or threatened to use eminent domain to convey land to a private party from 1998-2002.

The American Planning Association contends that private-to-private takings can benefit an entire community, pointing to successful redevelopment of blighted areas to create New York's Lincoln Center for the Performing Arts and the Boston Convention and Exhibition Center.

A ruling in favor of the homeowners “wouldn't necessarily mean the halt to all such projects, but it certainly would place obstacles to their completion and may require more extensive negotiations with homeowners in the future,” says Howard Bromberg, an associate professor of property law at Ave Maria School of Law in Ann Arbor, Mich. That's because cities would need to provide other justifications for a taking beyond economic development, such as blight removal.

The U.S. Supreme Court has long allowed local governments to raze slums and take over blighted areas through eminent domain to maintain public health and safety. The new question in the Kelo case is whether economic improvement alone, rather than removal of detrimental conditions, justifies a taking.

State constitutions vary on the issue. Michigan, for example, allowed private-to-private takings for economic development until 2004, when that state's supreme court reversed an earlier opinion and rejected the idea that a private developer's pursuit of profit was a public use simply because that profit contributed to the health of the general economy (Wayne County v. Haphcock).

Allan Ackerman, a partner at Ackerman & Ackerman PC in Troy, Mich., represented property owners in that landmark case. While he predicts Justices William Rehnquist and Antonin Scalia will favor a literal definition of public use that excludes public benefits like increased tax values, he expects the majority of justices to stick with a broad interpretation that leaves more limiting interpretations up to individual states. “Despite my emotional feeling that this is wrong, the U.S. Supreme Court may very well say that this is a state by state issue,” he says.

If the court sides with Kelo and issues a narrower interpretation of the constitution's public use clause, it will strike “a real blow to the ability of local governments to engage actively in redevelopment activities,” says John McIlwain, senior resident fellow for housing at the Urban Land Institute in Washington. McIlwain says a precedent of courts second-guessing a local government's urban renewal plans would open the door to legal challenges virtually any time a city attempts to compel a sale as part of a redevelopment.

“Then what's a city to do? And then the courts all of a sudden become our redevelopment agencies,” says McIlwain, “a task for which they are profoundly unqualified.”