This article originally appeared in the Daily Business Review on July 12, 2022, and was written by Alicia Gonzalez.
The first COVID-19 infection in the United States was confirmed on Jan. 20, 2020. Shortly thereafter came a downward spiral for businesses and property owners alike when government regulations essentially shut down our entire society due to a virus. With this unprecedented and unique situation came novel legal issues in all areas of the law—particularly in the area of government takings. Government-mandated shutdowns of businesses and eviction stays on landlords raised the question: How far can government regulation go in such exigent circumstances without resulting in a compensable taking? Florida’s first appellate decision on this issue was released this month, and it is anticipated that it will not be the last of its kind given the various contexts in which these issues can be raised.
In Orlando Bar Group v. Desantis, 5D21-1248, 2022 WL 1814256, at *1 (Fla. 5th DCA June 3, 2022), the plaintiffs were a group of bar owners that were severely restricted in alcohol sales during the pandemic due to state and local emergency orders. The plaintiffs claimed that the temporary closure of their bars, and later restrictions on operations of their bars, constituted governmental takings and entitled them to compensation. The defendants, which consisted of the governor, the Florida Department of Business and Professional Regulation (DBPR), and Orange County, moved to dismiss the claim for failure to state a claim. The trial court granted the motion to dismiss with prejudice, and the plaintiffs appealed. On review, the Fifth District Court of Appeal affirmed the dismissal.
Although the plaintiffs pleaded every applicable iteration of a taking, none prevailed. The plaintiffs first attempted to claim that the COVID regulations amounted to a physical appropriation of their properties by interfering with their right to permit others to enter on their properties. Regulations that permit a physical appropriation of property—that allow third parties to enter the property without permission—are considered per se takings. The appellate court agreed with the trial court, however, that there was no per se taking because the COVID regulations did just the opposite. Namely, the regulations prohibited any physical entry onto the owners’ properties by any third parties, thus not fitting into the existing per se takings framework.
The plaintiffs also attempted to plead a categorical taking, claiming that the regulations denied them of all economically beneficial uses of their properties even though the prohibitions were only temporary. Generally, if a property owner is able to show that they have been deprived of all economically beneficial uses (100% of all value in the property), a taking has occurred. The appellate court found that, although the regulations had a significant economic impact on the plaintiffs’ businesses, the plaintiffs did not adequately plead a categorical taking because the regulations were only temporary. The sale of alcohol was only prohibited for seventeen days, after which the businesses were permitted incrementally to return to limited sales and operations. Within six months, the plaintiffs’ businesses completely reopened. The appellate court found that this cannot, as a matter of law, amount to a deprivation of all economically beneficial uses. Notably, it is unclear how this claim would have turned out if any of the businesses had, in fact, been forced to permanently close their doors due to the significant economic impacts of the COVID regulations.
Finally, the plaintiffs claimed that the regulations amounted to a regulatory taking under Penn Central v. New York City, 438 U.S. 104 (1978) balancing test, which considers the economic impact of the regulation, the regulation’s interference with investment-backed expectations, and the character of the government action, and balances these factors to determine if the government action results in a taking. The appellate court ultimately concluded that there was no taking. focusing predominantly on the plaintiffs’ investment-backed expectations and the character of the government action. The COVID regulations concerned the sale of alcohol, which is a highly regulated industry, and the plaintiffs should have expected that they will sometimes be severely regulated. Moreover, the restrictions amounted to an exercise of government police powers in an effort to limit the spread of what the appellate court described as a “then poorly understood, highly contagious and deadly virus.” In line with other COVID decisions throughout the country, the Fifth District found this was a compelling enough government interest that it weighed against a finding the plaintiffs’ properties had been taken.
Although this is the first appellate COVID takings decision in Florida, it is certainly anticipated that it will not be the last. A survey of cases throughout the country reveals that the context in which takings law can be applied to address issues raised by COVID regulations are varied, and surprisingly do not always involve a claim against the regulating government entity.
In one case, a tenant terminated its leases under the lease’s eminent domain termination clause, alleging that COVID restrictions resulted in a taking thus permitting the termination. In another instance, a landlord that was prohibited by COVID regulations from evicting its tenant tried to claim that the restrictions resulted in a taking of its property. And, in yet another case, a taxpayer claimed that the IRS’s automatic application of the taxpayer’s income tax refund to partially offset the taxpayer’s defaulted federal student loans was an illegal exaction (which is, in essence, a taking) because the Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily suspended such collection actions. In all cases, the judicial result was the same— there was no taking. The reasoning for the decisions varied drastically. Some courts followed the Fifth District’s approach in Orlando Bar Group, applied the traditional takings tests, and found that no taking occurred. Other courts relied on the “doctrine of necessity,” pursuant to which in exigent circumstances, the government may destroy private property with immunity when doing so could save the property and lives of others.
Although courts have thus far found that challenged COVID regulations have not resulted in a taking, there must be a line that cannot be crossed, even with respect to COVID regulations, and it will be interesting to see where Florida appellate courts draw that line. Much like the rampant virus, this issue may evolve with time.
Alicia Gonzalez is a partner at Weiss Serota Helfman Cole + Bierman and represents private and public sector clients in litigation involving real property and local governments.
To read the original article in the Daily Business Review, click here.