COVID shutdowns and the Constitution

The years during which various governmental orders compelled the closure of businesses because of concerns about the COVID-19 pandemic have brought the one thing that lawyers can always count on: litigation. Indeed, we noted some of the early complaint filings some time ago. See “A smorgasbord of rental takings cases,” Daily Journal, Aug. 25, 2021. Cases are now being decided and some substantive examination seems in order.

The most recent decision deals with restaurants and gyms and comes to us from the California Court of Appeal in San Diego: 640 Tenth, LP v. Newsom, D079339, Cal. App. 4th (05/11/2022). The case was a putative class action on behalf of restaurants and gyms that were compelled to close during the pandemic. Although the complaint also challenged the adoption and enforcement of the state’s regulations on administrative law grounds and (in an unpublished part of the opinion) other constitutional grounds, this column deals with takings law and we will leave the other issues for others to discuss.

From a 5th Amendment takings viewpoint, the complaint charged that state orders closing the plaintiffs’ businesses violated the constitution and required compensation because the closing of these businesses took the businesses (albeit temporarily) for a public purpose. Of course the 5th Amendment actually precludes the taking of private property for public “use” without compensation, but the United States Supreme Court has plainly held that the word “use” is not restricted to situations in which the public actually uses the private property in the way that ordinary people understand the word. The constitution uses the word “use” to mean “purpose” or “benefit.” Honest. For explanation of this literary transmogrification see Kelo v. City of New London (2005) 545 U.S. 469; Gideon Kanner, Kelo v. New London: Bad Law, Bad Policy, and Bad Judgment (2006) 38 Urb. Law. 201 (“Shall We Use Justice Stevens’ Lawnmower? Or Would It Be “More Natural” to Purpose It?”). Moreover, as will be seen, the 640 Tenth opinion focuses on the public benefit served by the closure orders.

The court’s takings discussion opens by noting that the property owners’ claim “is met first with a virtual torrent of California federal district court decisions rejecting similar challenges to Governor Newsom’s emergency COVID-19 orders.” So it seems that, if business owners are to receive any relief, it will probably have to come from the U.S. Supreme Court. Lower courts do not seem to want to touch the question. Let’s use the recent 640 Tenth opinion to analyze the issues that need to be confronted.

The opinion says first that for a regulation to result in a “categorical” (or per se) taking, the regulation must deprive the owner of “all economically beneficial use of the property,” and this complaint does not allege a deprivation of “all” economically beneficial use. This is a common judicial overstatement that needs to be confronted. When the Supreme Court noted that such a serious deprivation could violate the 5th Amendment, it was careful not to say “all use” but “all economically beneficial [or productive] use.” See Lucas v. South Carolina Coastal Council, (1992) 505 U.S. 1003, 1015. Those descriptive adjectives had to mean something. In this context, when the owner of a business is ordered to close and make no use at all of the premises, how can that comport with “economically beneficial” use? An unused gym or restaurant is merely an empty shell of a building, not something economically beneficial or productive. Neither this court nor the others attempts to explain how that can be.

Beyond that, the opinion says that the order was merely a “stop-gap” measure to deal with an emergency and was “by definition, temporary.” The temporary nature of the taking proves nothing. As 640 Tenth itself notes, a regulation may effect a taking even though it leaves the owner with “some” economically beneficial use of the property (citing Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761, 774). The U.S. Supreme Court decided years ago that all takings — even temporary ones — require 5th Amendment compensation. First English Evangelical Lutheran Church v. County of Los Angeles (1987) 482 U.S. 315, 318.

The Supreme Court has concluded that there is no “set formula” for determining when a regulation has gone “too far” (see Pennsylvania Coal Co. v. Mahon (1922) 260 U.S. 393, 415) and thus violated the 5th Amendment. Rather, a series of factors needs to be examined. Penn Cent. Transp. Co. v. New York City (1978) 438 U.S. 104, 124. The problem with the 640 Tenth opinion and the cases on which it relies is that the opinion allows a judge or panel of judges to make the determination of whether the regulation went too far and resulted in a taking. The reason that is a problem is that the question is an issue of fact to be determined by a jury, as the Supreme Court held in City of Monterey v. Del Monte Dunes (1998) 526 U.S. 687. In other words, given what the courts have noted is the “wide variety of ways in which government regulations can affect property interests” judges should not be laying down ukases like the diminution must exceed 85% of the property’s value (Walcek v. U.S. (2001) 49 Fed. Cl. 248, 271, aff’d 303 F.3d 1349 (Fed. Cir. 2002)) or even more (Colony Cove Properties, LLC v. City of Carson (9th Cir. 2018) 888 F.3d 445, 451). Rather, the facts should be presented to a jury to determine whether the constitutional threshold has been crossed.

The court rejected the claims in 640 Tenth because they merely alleged a “significant” diminution and the court didn’t think that was enough. With respect, whether a “significant” diminution is the legal equivalent of going “too far” is a question of fact, not law. Without submitting the evidence to a jury, how can a court be sure whether the damage done is “significant” enough to satisfy the 5th Amendment? Juries should decide such issues. After all, the right to a jury trial is the bulwark of American liberties. Dimick v. Schiedt, 293 U.S. 474, 486 (1935). Reverence for, and reliance on, juries has long been a cornerstone of our system of justice. United States v. Gaudin, 515 U.S. 506, 512-13 (1995).

The final Penn Central factor requires examination of “the character of the governmental action.” Candidly, that is a concept that has generally confused both bench and bar as to what the Supreme Court had in mind. One thing seems clear. If the character of the action is physical invasion, then the 5th Amendment has been violated. Penn Central itself notes that. More, however, is enshrouded. 640 Tenth adds that this factor focuses on permanent v. temporary invasions. However, as noted earlier, temporary takings are also covered by the constitutional guarantee.

640 Tenth concludes by setting up a balancing scheme in which the government always wins. It does this in two ways. First, it says that the final Penn Central factor can be measured by a “reciprocity of advantage,” measuring the burden on any single individual by the benefit of not having many people die of the pandemic. Second, it posits that prevention of serious public harm is sufficient to weigh this factor in the government’s favor. Of course, placing the harm in shutting down a single business on one pan of the judicial scale and weighing it against the harm of thousands of deaths in the other pan is a balance that will always come out in favor of overregulation.

One thing is clear. The Supreme Court’s Penn Central examination scheme needs reworking and clarification. And there is only one court that can provide that guidance. Hold onto your hats. This game has just begun.