"This is going to be a heartbreaking ruling for the tight-knit group of New London, Conn., neighbors who've been waging this fight," reports CBS News Correspondent Barry Bagnato. "They saw it as a crusade, a line in the sand battle to protect the property rights of everyday Americans. But for local governments, this is a brand new bank account."
The 5-4 ruling represented a defeat for residents whose homes are slated for destruction to make room for an office complex. They argued that cities have no right to take their land except for projects with a clear public use, such as roads or schools, or to revitalize blighted areas.
As a result, cities now have wide power to bulldoze residences for projects such as shopping malls and hotel complexes in order to generate tax revenue.
Justice Sandra Day O'Connor, who has been a key swing vote on many cases before the court, issued a stinging dissent. She argued that cities should not have unlimited authority to uproot families, even if they are provided compensation, simply to accommodate wealthy developers.
Connecticut residents involved in the lawsuit expressed dismay and pledged to keep fighting.
"It's a little shocking to believe you can lose your home in this country," said resident Bill Von Winkle, who said he would refuse to leave his home, even if bulldozers showed up. "I won't be going anywhere. Not my house. This is definitely not the last word."
Scott Bullock, an attorney for the Institute for Justice representing the families, added: "A narrow majority of the court simply got the law wrong today and our Constitution and country will suffer as a result."
Writing for the court, Justice John Paul Stevens said local officials, not federal judges, know best in deciding whether a development project will benefit the community. States are within their rights to pass additional laws restricting condemnations if residents are overly burdened, he said.
"The city has carefully formulated an economic development that it believes will provide appreciable benefits to the community, including — but by no means limited to — new jobs and increased tax revenue," Stevens wrote in an opinion joined by Justice Anthony Kennedy, David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer.
"It is not for the courts to oversee the choice of the boundary line nor to sit in review on the size of a particular project area," he said.
At issue was the scope of the Fifth Amendment, which allows governments to take private property through eminent domain if the land is for "public use."
"We're pleased," attorney Edward O'Connell, who represents New London Development Corporation, said in response to the ruling.
The lower courts had been divided on the issue, with many allowing a taking only if it eliminates blight.
"Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random," O'Connor wrote. "The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms."
She was joined in her opinion by Chief Justice William H. Rehnquist, as well as Justices Antonin Scalia and Clarence Thomas.
Nationwide, more than 10,000 properties were threatened or condemned in recent years, according to the Institute for Justice, a Washington public interest law firm representing the New London homeowners.