COVID and Inverse Condemnation

Should COVID-related regulatory takings on businesses be treated as Inverse Condemnation claims under the Fifth Amendment?

As the country adjusts to the pandemic due to Covid-19 and the resulting patchwork of state rules and regulations for managing the outbreak, “unprecedented” may not be too extreme a word to use for the upheaval faced by all communities, large and small.  To be sure, businesses are struggling to both stay open as well as forecast business outlook for the near and long-term.  The forced closures, as well as various state rules regarding staggered reopenings and reduced utility of physical space for meetings, dining and retail, brings to light a question: Is there a redress of a state’s citizenry under a claim of a government taking by eminent domain, specifically a regulatory taking through inverse condemnation?

The U.S. Constitution’s Fifth Amendment guarantees that “No person shall…be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just  compensation”.  Many state Constitutions contain the same property right guarantees, although, following the U.S. Supreme Court’s decision in Kelo v. New London, many states have since expanded those rights.  To be sure, no state government may widen a road that encroaches on private land without proving a public purpose need and without first offering just compensation for the real property taken.  In these cases, the right to compensation is established, and the parties will decide both through and independent of the legal process to determine the appropriate amount of just compensation.

Inverse claims, or “forward” claims, are different, and must be proven by the filing of a lawsuit by a property or business owner and must demonstrate a government “taking” by regulation.  Thus, we reach the quandary faced by many business owners: Are forced closures of retail, dining and other establishments a government taking giving rise to a claim by those businesses for just compensation?  Most states deal with business and damages to real property separately, and many do not recognize a business damage claim at all.  The challenge faced by the various triers of fact will center around not only what constitutes a regulatory taking under an inverse condemnation claim, but also which claimants will be permitted to bring claims at all.  Consider, for example, a restaurant owner limited to 50% capacity of their dining room for patrons.  Or a manufacturer forced to close temporarily, causing customers to look elsewhere for goods; often a permanent loss of future business.  A business owner could certainly make the case that the state-mandated closures affect a business owner’s use and enjoyment of his real property, not to mention its resultant diminished value.

In the past, Courts have generally established rules around claims that consider both precedent, as well as specific guidelines for new legal issues.  Ask any business owner if their personal property, (inventory, equipment) and real property, (building, fixtures and site improvements) have been negatively affected over the past several months due at least in part to forced closures and most would probably answer in the affirmative.  But delving into which businesses have a valid claim under inverse condemnation is tricky, and courts will want to create rules, and thus, new case law, for these issues.  Consider a common effect in condemnation work of the placement of a median dividing an expanded roadway.  To be sure, reduced access to the businesses along that road may in fact harm the business and the real property, however, depending on the state, the mere existence of the median may be considered a valid use of a state’s police power.  That same police power, attached to a relevant statute, is being used now to deal with the current crisis in order to provide for the health, safety and welfare of a state’s citizenry.

One case making its way through the legal process is Elmsford Apartment Associates, LLC v. Andrew Cuomo (S.D.N.Y. June 29, 2020) Case No. 20-cv-4062.  In that case, the United States District Court for the Southern District of New York found that allowing tenants to apply their security deposits to their rent payments and temporarily halting evictions was not a regulatory taking, as renters were not released from their obligation to pay rent and there was no physical occupation of the property by the government.  As we speak, many other cases dealing with regulation under Covid-19 continue to make their way through the court system.

What follows are prior cases that may provide a roadmap for instruction on these issues.

Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978). Owners of historical landmark buildings in New York City were subject to more stringent preservation laws than owners of other buildings and, as a result were entitled to compensation under the state’s inverse condemnation law.

Case v. United States Department of Agriculture, 642 F.Supp. 341 (M.D. Pa. 1986).  The court held that owners of a bird-breeding company were not entitled to compensation as a result of regulation by the government brought on by an outbreak of Avian Bird Flu.

See also the Bert J. Harris, Jr. Private Property Rights Protection Act.  Florida enacted the statute to address an inordinate use of a specific property right to combat governmental use of general police power to protect the welfare of the public.