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.
When Southwest Airlines first launched they flew only routes inside of Texas. That way they didn’t need to ask the federal government’s permission for where they could fly (permission that was almost never granted) or how much they could charge.
They launched service based out of Dallas’ Love Field. The airport was supposed to be shut down to commercial service — incumbent airlines had all agreed to move to the new Dallas Fort-Worth — and this plan tied up Southwest’s launch in court. Ultimately Southwest prevailed, the court’s finding that the new airline hadn’t been a party to the agreement not to use Love Field so wasn’t bound by it.
With airline deregulation Southwest would no longer be limited to intra-Texas service. That meant Southwest could compete against American, Braniff and others serving the country from DFW airport from their closer-to-downtown Dallas base.
A lower court decision the Supreme Court is currently considering reviewing has important - and dangerous - implications for property rights.
The Supreme Court is now considering whether it wants to review Love Terminal Partners v. United States, an important takings case decided by the Federal Circuit last year. The odds against any given case being taken by the Court are almost always high. But I hope this one beats them. If allowed to stand, the Love Terminal ruling would have dangerous implications for many future cases involving takings claims against the federal government. NYU/University of Chicago law professor Richard Epstein—probably the nation's leading takings scholar—has a good description of the somewhat convoluted facts of the case:
When the government takes your property, the Constitution entitles you to “just compensation.” But should the value of your property be computed based on market value, which would normally incorporate predictions about future government action? Or should the value of your property be determined without any reference to what the government might do — including take your property?
As you can imagine, this question is pretty important to anyone who invests in assets that fluctuate in value based on potential government regulation. And it’s the question posed in a case, Love Terminal Partners LP and Virginia Aerospace LLC v. U.S., that the U.S. Supreme Court will soon decide whether to hear.
What is it about Love Field? In contrast to its pleasant name, this wee patch of Texas seems to attract trouble. There on November 22nd, 1963 Air Force One landed after a short flight from Fort Worth and from Love Field, President Kennedy drove to past the schoolbook depository. A few hours later at Love Field, Lyndon Johnson was sworn in as president. The Dallas Fort Worth airport did not yet exist. The building of DFW airport pulled Love Field into national policy controversies that led to this case. The case seems to some people, but not to others to implicate the Constitution's taking clause, which says that private property shall not be taken for public use without just compensation. The history of the public use stipulation has been rich in recent controversies arising from government uses of the power of eminent domain.
The Constitution's authors did not scatter adjectives carelessly. Until relatively recently, this straight forward understanding of the phrase public use, was that it meant use for things, roads, bridges, courthouses and so on used by the general public. However, this circumscription of the eminent domain power has been drastically weakened. A 1954 case involved what was then called urban renewal in the southwest quadrant of the District of Columbia, where conditions were appalling and dangerous. Most dwellings had no baths, indoor toilets, or central heating. The Tuberculosis rate was high. The court held that taking property for public use can mean for the public purpose of combating blight that harms the larger community.
A 2018 Federal Circuit Court ruling rejected compensation to the plaintiff in a case in which the government took through eminent domain a privately owned airline terminal and physically demolished it. The plaintiffs, now seeking cert before the U.S. Supreme Court, spent $17 million building that terminal at Dallas Love Field Airport. The US Court of Claims ruled that the taking of the terminal was worth more than $133 million, but the Federal Circuit Court of Appeals reversed, declaring the terminal's value to be zero, as the investment property had yet to earn a positive cash flow.
Our panel of experts will discuss the impact of Love Terminal Partners v. US on takings law. George Will will offer opening remarks followed by the panel discussion.
America’s founders enshrined property rights in our Constitution, not just because they thought it would provide a strong blueprint for a free market but because they saw ownership as an essential human right.
Thus, the final draft of James Madison’s Fifth Amendment has no wiggle words or loopholes. It states unequivocally that private property shall not “be taken for public use, without just compensation.” And yet despite this clear guidance, courts are expanding what can be considered public use, steadily eroding protections in takings law. In 2005, the Supreme Court ruled that property can be taken from one private owner and given to another private owner. In 2018, the Court of Appeals for the Federal Circuit took an even bolder step, ruling that private property can be taken and destroyed without compensation.
Business management guru Peter Drucker once likened trying to predict the future to driving down a country road at night with no lights. Investing in a business can feel like such a journey as the successful investor tries to maneuver around unseen obstacles. One thing that cannot be foreseen or steered around, however, is a court’s unprincipled ruling.
This is what happened to the Love Terminal Partners investors who operated the Lemmon Avenue Terminal at the Dallas Love Field Airport. These investors poured $17 million into constructing a six-gate facility, separate from the main airport terminal. They never realized an annual net profit, but remained optimistic. They continued to put money into their property and to make regular lease payments to the City of Dallas because they were confident of the eventual value of their investment.
The road to deregulation is often marred by unanticipated pitfalls. Yet such is the case in a saga over airline deregulation in the Dallas-Forth Worth market. The story begins over forty years ago, and its final chapter is now being played out in the courts. In 1978, Congress decided to abolish a hoary New Deal agency, the Civil Aeronautics Board, which was created by the Civil Aeronautics Act (1938) to determine routes and to set prices for airline passenger traffic throughout the United States. But the New Deal law’s price setting powers were quickly used by airlines to suppress competition among themselves, so that interstate fares were consistently higher for short hauls than intrastate fares were for longer ones.
The deregulation movement of the late 1970s had its intended consequence of hastening competition among airlines. But it also created a backlash in one market, Dallas-Fort Worth, located in the backyard of then-Speaker of the House Jim Wright. Wright feared that vigorous competition to the new Dallas/Fort Worth airport (DFW) would come from the Love Field airport, the home of the upstart Southwest Airlines, which was now poised for the first time to expand operations into the interstate market. Wright thought that flights from Love Field would reduce the air traffic at DFW, which in turn would reduce the revenues needed to fund the debt service on DFW bonds. So in 1979, he induced Congress to pass the Wright Amendment, which perversely restricted all flights out of Love Field outside of Texas and four contiguous states—Arkansas, Louisiana, New Mexico, and Oklahoma—to aircraft that had 56 or fewer seats.
Unfortunately, this bizarre and protectionist legislation received an undeserved constitutional blessing from the courts in 1991. But local outcry against this rigged system continued, so that this already tangled history then took another bizarre turn. By 2004, Southwest mounted an effective campaign to “free Love Field,” which prompted American Airlines to make Southwest an offer it could not refuse. Both companies, the two airlines concluded, would be better off by cartelizing the market by dividing a limited number of gates at Love Field and DFW between them. In order to put this plan into action, however, the two airlines, the DFW Airport Authority, and the two cities (Dallas and Fort Worth) had to reduce the capacity of Love Field. They decided to do so by getting rid of twelve state-of-the-art gates—six at the main terminal and six on Lemmon Avenue—serving Love Field, which were owned by the company Love Terminal Partners (LTP). Flights from these gates could crater the American/Southwest alliance. So these five parties (Southwest, American Air, Dallas, Fort Worth, and DFW) prevailed on Congress in October 2006 to pass the Wright Amendment Reform Act (WARA) which provided that “The City of Dallas shall reduce as soon as practicable, the number of gates available for passenger air service at Love Field to no more than 20 gates. Thereafter, the number of gates available for such service shall not exceed a maximum of 20 gates.” And shortly thereafter, Dallas condemned LTP’s gates and promptly razed them. That’s one way to ground the competition.
The repeal of an obscure air travel restriction paved the way for government to circumvent providing just compensation for takings
What was the Wright Amendment?
George Will once characterized the Wright Amendment and the situation at Dallas’s Love Field Airport as the “farcical consequences of the government's 10-thumbed attempt to manage an industry.”
Before Dallas/Forth Worth International Airport (DFW) opened in 1974, the Dallas area was served primarily by Love Field Airport, which still operates today as the main hub of Southwest Airlines. In 1979, then-House Majority Leader Jim Wright (D-TX) represented Forth Worth and Congress passed “Wright Amendment” to the Federal Aviation Act of 1958 to encourage development of DFW. The Wright Amendment restricted Love Field to servicing final destinations only in Texas and four other contiguous states (which was later expanded to eight).
Due to this restriction, most airlines abandoned Love Field for the much larger DFW, but Southwest (which initially only operated short, intrastate flights in Texas) resisted and found creative ways to offer interstate air passenger service in spite of the Wright Amendment. Love Field consisted of its main terminal with 32 gates, as well as a smaller auxiliary terminal, added in 2000, known as the Lemmon Avenue Terminal with 6 gates.