Since COVID-19’s arrival in the United States, communities and businesses across the country have seen unprecedented disruptions across all spheres of life. State and local governments have responded by issuing stay-at-home orders and other directives designed to stem the tide of infection. While these stay-at-home orders serve the public interest in combatting COVID-19, these types of orders have caused significant economic losses to those business deemed “non-essential.”
Faced with these challenges, owners of “non-essential” businesses and their attorneys have started asking whether they have any legal remedies to recover their losses. The Constitution may provide an answer. As discussed below, business owners forced to close their doors may be entitled to compensation under the 5th Amendment Takings Clause.
The Fifth Amendment of the United States Constitution declares 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.” The latter half of this provision is often referred to as the “Takings Clause.” At its essence, this provision is “designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”1 It does so by requiring the government to pay an owner “just compensation,” likely from taxpayer funds, when the government takes private property for a public purpose – thereby spreading the burden among the public.
The United States Supreme Court has recognized two general categories of takings: (a) physical takings (direct intrusions that actually appropriate an owner’s property) and (b) what are often called “regulatory takings” (government regulations that preclude an owner’s ability to use his property in a particular way or otherwise deprive it of value). Non-essential business orders would fall into the “regulatory” category.
To constitute a regulatory taking, government action must burden an owner’s private property rights to such an extent that it is functionally equivalent to a direct taking or “oust[ing] [of] the owner from his domain.” While regulations that deprive a landowner of all “reasonable and economically viable use of his property” clearly meet this standard, the courts will analyze regulations short of a complete deprivation by applying several factors that include: (1) “the economic impact of the regulation on the claimant;” (2) “the extent to which the regulation has interfered with distinct investment-backed expectations;” (3) the “character of the government action;” and (4) the duration of the restriction at issue.
As applied to the COVID-19 pandemic, “non-essential” business owners may argue that the numerous stay-at-home orders have deprived them of the economically beneficial use of their property and thereby constitute a “taking” for which they should be compensated by the government. That said, many of the orders in question are temporary and, at least in theory, allow businesses to recover their lost value when they reopen – which the Supreme Court has implied may not constitute a taking. However, it seems unlikely that reopened businesses will be able to fully recover the revenues lost while complying with stay-at-home orders. As a result, the courts may look to the total amount of the economic harm suffered by a closed business in deciding this issue. Moreover, businesses who are unable to weather the storm and forced to close permanently may have even stronger arguments that they are entitled to compensation for permanent loss of their property. On the other hand, protecting the public welfare is a weighty government interest that will need to be balanced. Ultimately, this analysis depends on the circumstances of each case and will vary for each business, as well as for each government order.
We have also seen instances of local governments commandeering private property to be operated for public uses, such as temporary field hospitals. Under existing Supreme Court precedent, these owners may also have an argument that the government has taken their property. This too is a fact-intensive inquiry and will require an in-depth look at the property owner’s particular case.
Businesses across the country have already filed suit to challenge stay-at-home orders on constitutional grounds. On March 26, 2020, Pennsylvania-based Schulmerich Bells, LLC – the oldest manufacturer of orchestral quality handbells and hand chimes in the United States – and two of its former employees filed a class action lawsuit against Pennsylvania’s Governor and Health Department Secretary after the officials issued orders requiring all businesses in the state to close except those deemed “life-preserving.”2 The suit seeks relief on behalf of two classes of plaintiffs: one led by Schulmerich and including businesses that were ordered to shut down as “non-life sustaining” and another led by its two employees, who were allegedly laid-off as a result of the orders, and including similarly situated workers who were displaced or otherwise deprived of compensation. The plaintiffs claim that the orders constituted regulatory takings that deprived them of all economic use of their properties and further violated their constitutional rights of substantive and procedural due process. These types of claims could potentially be available to the many businesses forced to shut down across the country.