Seven homeowners in this small waterfront community lost a groundbreaking U.S. Supreme Court decision Thursday when justices ruled that City Hall may take their property through eminent domain to make way for a hotel and convention center.

Word of the high court decision spread around Bill Von Winkle's part of town like news of a passing relative.

"Hello?" he answered his cell phone. "Yeah, we lost. I know, hard to believe, huh?"

"I spent all the money I had," said Von Winkle, a retired deli owner, of the properties he bought in the Fort Trumbull (search) neighborhood. "I sold sandwiches to buy these properties. It took 21 years."

The court's decision drew a scathing dissent from Justice Sandra Day O'Connor (search), who argued the decision favors rich corporations.

The fight over Fort Trumbull has been raging for years. New London (search) once was a center for the whaling industry and later became a manufacturing hub. More recently the city has suffered the kind of economic woes afflicting urban areas across the country.

City officials envision a commercial development including a riverfront hotel, health club and offices that would attract tourists to the Thames riverfront, complementing the adjoining Pfizer center and a proposed Coast Guard (search) museum.

Most homeowners sold their properties to make way for wrecking crews, but seven families stubbornly refused to sell. Collectively, they owned 15 houses.

"The U.S. Supreme Court destroyed everybody's lives today, everybody who owns a home," said Richard Beyer, owner of two rental properties in the once-vibrant immigrant neighborhood.

Nationwide, however, legal experts said they don't expect local governments to rush to claim homes.

"The message of the case to cities is yes, you can use eminent domain, but you better be careful and conduct hearings," said Thomas Merrill, a Columbia law professor who specializes in property rights.

In his majority opinion, Justice John Paul Stevens said New London could pursue private development under the Fifth Amendment, which allows governments to take private property if the land is for public use. He said the project the city has in mind promises to bring more jobs and revenue.

"Promoting economic development is a traditional and long accepted function of government," Stevens wrote. He added that local officials are better positioned than federal judges to decide what's best for a community.

He was joined in his opinion by other members of the court's liberal wing — David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer, as well as Reagan appointee Justice Anthony Kennedy, in noting that states are free to pass additional protections if they see fit.

The four-member bloc typically has favored greater deference to cities, which historically have used the power of eminent domain for urban renewal projects.

At least eight states — Arkansas, Florida, Illinois, Kentucky, Maine, Montana, South Carolina and Washington — forbid the use of eminent domain for economic development unless it is to eliminate blight. Other states either expressly allow private property to be taken for private economic purposes or have not spoken clearly to the question.

Meanwhile, the decision did little to bring city officials and property owners here closer together.

Under the ruling, residents still will be entitled to "just compensation" for their homes as provided under the Fifth Amendment. However, homeowners had refused to move at any price, calling it an unjustified taking of their property.

City Manager Richard Brown said he expects more lawsuits, but believes the land fight is over and doesn't expect a showdown when bulldozers arrive in the neighborhood.

Landowners in the lawsuit, however, pledged to continue their fight.

"It's a little shocking to believe you can lose your home in this country," said Von Winkle, who said he would battle beyond the lawsuits and fight the bulldozers if necessary. "I won't be going anywhere."

The case is Kelo et al v. City of New London, 04-108.