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Property Rights

Eighth Circuit Rules Eviction Moratoria are Likely to be Takings Requiring Compensation Under the Fifth Amendment

The court based its decision on the US Supreme Court's 2021 decision in Cedar Point Nursery v. Hassid.

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On April 5, in Heights Apartments v. Walz, a unanimous panel of the US Court of Appeals for the Eighth Circuit ruled that a Minnesota state eviction moratorium (enacted for the purpose of mitigating the Covid pandemic) likely qualifies as a taking of private property requiring compensation under the Takings Clause of the Fifth Amendment. They based their ruling in large part on the Supreme Court's June 2021 decision in Cedar Point Nursery v. Hassid, which held that temporary physical occupations of property qualify as "per se" takings, that automatically require compensation. Before Cedar Point, conventional wisdom assumed that most temporary physical occupations are subject to the complicated Penn Central balancing test, under which the government usually prevails.

Here is the key passage from the Eighth Circuit ruling:

Heights alleges the EOs effectuated physical takings because they forced landlords to accept the physical occupation of their property regardless of whether tenants provided compensation. The Walz Defendants contend that no physical taking has occurred because landlords were not deprived of their right to evict a tenant. Rather, they argue, the [governors executive orders] imposed only a restriction on when a landowner could evict a tenant, making it similar to Yee v. City of Escondido, 503 U.S. 519 (1992) (finding a rent control ordinance was not a physical taking). Since the parties briefed this issue, the Supreme Court decided Cedar Point Nursery, which is instructive in this case.

In Cedar Point Nursery, the Supreme Court determined a California regulation
requiring agricultural employers to permit "union organizers onto their property for
up to three hours per day, 120 days per year" was a per se physical taking under the
Fifth and Fourteenth Amendments….. The Court explained:

"Whenever a regulation results in a physical appropriation of property, a per se
taking has occurred." Id. at 2072. It is immaterial whether the physical invasion is
"permanent or temporary," "intermittent as opposed to continuous," or whether the
government is directly invading the land or allowing a third party to do so.

Cedar Point Nursery controls here and Yee, which the Walz Defendants rely
on, is distinguishable. The rent controls in Yee limited the amount of rent that could
be charged and neither deprived landlords of their right to evict nor compelled
landlords to continue leasing the property past the leases' termination. 503 U.S. at
527–28. The landlords in Yee sought to exclude future or incoming tenants rather
than existing tenants. Id. at 530–31. Here, the EOs forbade the nonrenewal and
termination of ongoing leases, even after they had been materially violated, unless
the tenants seriously endangered the safety of others or damaged property
significantly….

According to Heights' complaint, the EOs "turned every lease in Minnesota into an indefinite lease, terminable only at the option of the tenant." Heights has sufficiently alleged that the Walz Defendants deprived Heights of its right to exclude existing tenants without compensation. The well-pleaded allegations are sufficient to give rise to a plausible per se physical takings claim under Cedar Point Nursery.

I think the Eighth Circuit is right about this. The reasoning of Cedar Point readily applies to eviction moratoria. I reached much the same conclusion myself, in a July 2021 post analyzing a takings claim filed against the now-defunct federal eviction moratorium enacted by the Centers for the Disease Control, and later invalidated by the Supreme Court on grounds unrelated to takings. The takings case against the federal eviction moratorium continues, as affected landlords are (if they prevail) still entitled to compensation for the time during which the moratorium was in effect.

Technically, the Eighth Circuit ruling isn't a final decision on the merits. It merely reverses the trial court's decision to dismiss the case, and remands for "further proceedings." However, the appellate panel made clear they think the per se physical takings claim is likely to prevail.

The Eighth Circuit also reversed the trial court's dismissal of the plaintiffs' claims that the eviction moratorium violated the Contracts Clause of the Constitution, and that the moratorium might qualify as a taking even under the Penn Central test. By contrast, they upheld the dismissal of a claim under the Petition Clause of the First Amendment.

I will leave the Contracts Clause and First Amendment issues to experts in the relevant fields. As for the Penn Central claim, I am skeptical that it can ultimately succeed (though the test is admittedly murky). The Eighth Circuit is also more equivocal about that issue than the per se taking argument. They merely concluded that it is plausible enough to survive a motion to dismiss. But the Penn Central argument won't matter if the courts ultimately conclude that the eviction moratorium was a per se taking under Cedar Point.

The Eighth Circuit ruling does not address the argument that an eviction moratorium intended to mitigate the spread of Covid might fall under the "police power" exception to takings liability. This issue might well come up as the case continues. I am skeptical that courts either will or should push the police power exception so far. But the boundaries of that exception are admittedly murky.

The three judges on the Eighth Circuit panel (Erikson, Gruender, and Stras) are all Republican appointees. It is possible that more liberal judges would have adopted a narrower interpretation of Cedar Point, that would exclude eviction moratoria. But I think it would be difficult to that in a way that is coherent. An eviction moratorium is pretty obviously a temporary occupation of property, as it requires the owner to accept the presence of a tenant whom he or she would otherwise have the right to remove. It thereby goes against the owner's right to exclude, which was the central right at issue in Cedar Point. As Chief Justice John Roberts emphasized in his opinion for the Court, "[t]he right to exclude is 'universally held to be a fundamental element of the property right.'"

I would add, also, that Cedar Point's logic can be used to challenge conservative laws and regulations no less than left-leaning ones, like eviction moratoria. A good example of the former are state laws requiring property owners to allow guns on their land, even if they would prefer to bar them. Thus, liberal judges might have reason to doubt the desirability of adopting a very narrow interpretation of Cedar Point.

Even if property owners ultimately prevail in this case, and other takings claims against eviction moratoria, it remains to be seen how much compensation they would get. Calculating it may not be easy, and there is likely to be considerable case-by-case variation. Nonetheless, these are important cases to follow. They could well set significant precedents constraining future eviction moratoria, and other similar regulations.

NOTE: The property owners in the Cedar Point case were represented by the Pacific Legal Foundation. My wife Alison Somin works for PLF. But she has no involvement in this particular case.