Can a Community Condemn Land to Build a Data Center?

What is the hottest topic over the dinner table right now across Indiana? Data centers. They are expanding rapidly throughout the Midwest, bringing with them millions of dollars of investments and a particularly interesting demand for farmland. The recent expansion of these projects sparks the legal question: can a county or municipality use eminent domain to condemn private property for data centers? As is often the case in the law, the answer depends… primarily in this case on Indiana law’s distinction between taking land for a private entity and taking land for “public use.”

The American Farm Bureau has noted that data center developers are often attracted to agricultural land because large tracts are readily available, already cleared, graded and laid out in large contiguous tracts lowering upfront site development costs and shortening timelines. As a result, many rural communities are confronting difficult questions about balancing economic development with the preservation of productive farmland.

Eminent domain is a foundational doctrine derived from the United States Constitution’s Fifth Amendment stating, “nor shall private property be taken for public use, without just compensation.” Most people understand the concept of a “taking” where the government acquires or interferes with private property rights for a public purpose. The more difficult questions involve what qualifies as a “public use” and what constitutes “just compensation.” Both are core principles that are deeply analyzed by legal scholars which will only be glanced over in this blog. Importantly, the concept of public use was analyzed by the Supreme Court of the United States (and is case briefed by virtually every first-year law student) in Kelo v. City of New London, 545 U.S. 469, 477 (2005). The Court held that “[t]he state has inherent authority to take private property for public use.” (emphasis added). Further, this controversial ruling addressed that economic development could satisfy the public use requirement even when the property would ultimately be transferred to a private developer. Following this decision by the Court, many states including Indiana, enacted additional limitations on the use of eminent domain for private development projects.

The Indiana Supreme Court has emphasized that the distinction between a public use and “private use” remains important. In Gradison v. Ohio Oil Co., 156 N.E.2d 80, 82–86 (Ind. 1959), many years ago, the Court held that a private corporation may exercise eminent domain only when it has received an affirmative statutory grant of condemnation authority and the property will be devoted to a public use in which the corporation is engaged. Applying this framework to data centers creates an immediate problem. A data center operates as a private business serving its contracted customers. Unlike public utilities or common carriers, the public possesses no right to access or benefit directly from the facility. In fact, Indiana law does not expressly provide data center developers with condemnation authority. Therefore, a direct attempt to condemn farmland solely for construction of a privately owned data center would likely face significant obstacles.

For example: In Kessler v. City of Indianapolis, reaffirmed in Derloshon v. Fort Wayne, 234 N.E.2d 269, 275 (Ind. 1968), the Board of Park Commissioners sought to take a small piece of land adjacent to a park for the use of the park, but it was shown that the ultimate motive of the proceeding was to turn the property over to a private individual for a private roadway. The Court held that "[t]he power of eminent domain cannot constitutionally be delegated for an essentially private purpose, even though a public purpose will be incidentally served thereby." Id. (emphasis added). Applying this holding to a data center, a county could likely point to increased tax revenue, job creation, and economic growth as reasons to encourage a data center project. Nevertheless, a landowner seeking to avoid condemnation could argue that those benefits are merely incidental and that the primary beneficiary remains the private developer.

Yet perhaps the most interesting food for thought comes from other surrounding states where eminent domain disputes have arisen not over the data centers themselves, but over supporting infrastructure such as water systems, transmission lines, and electrical substations to serve these demanding projects. This distinction is important because the property is being acquired for public use in the scope of infrastructure that may serve a broader public function, even if a nearby data center receives the benefit.

Ultimately, can a community condemn land for a data center? Under current Indiana law, this is unlikely if the land is being acquired simply to transfer it to a private developer. The more difficult questions arise when the condemnation involves the infrastructure necessary to power and support these massive facilities. As some communities compete for data center projects, the tension between economic development and public use will continue to be tested. Even more so for farm ground owners.

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Author: Ethan Aspy, Janzen Schroeder Ag Law law clerk and 2L student at Capital University Law School, Columbus, Ohio.