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Economic Liberty

N.C. Court Holds Selective COVID Shutdown May Have Violated State Constitution's "Fruits of Labor" Clause


From N.C. Bar & Tavern Ass'n v. Cooper, decided yesterday by the N.C. Court of Appeals, in an opinion by Judge April Wood, joined by Judges Donna Stroud and Jefferson Griffin:

Plaintiffs appeal from the trial court's order granting summary judgment for Defendant and dismissing all their claims arising out of Defendant's Executive Order No. 141 issued in response to the COVID-19 pandemic. On 17 March 2020, Defendant issued Executive Order No. 118 closing all bars including those in restaurants. On 20 May 2020, Defendant issued Executive Order No. 141 letting some types of bars reopen with specific safety precautions but requiring private bars, including those owned by Plaintiffs, to remain closed. Defendant relied on "science and data" he claimed created a reasonable basis to distinguish between types of bars, thus letting some reopen while keeping others closed….

Defendant's "science and data" tends to show that bars in general did present a heightened risk of COVID-19 transmission, as people normally gather, drink, and talk in bars of all sorts…. [But] the "science and data" presented by Defendant to justify the distinction between closing some types of bars and not others … does not support Defendant's position, even if we consider all such information to be true. Some of the information did not exist at the time of Executive Order No. 141, so Defendant could not have relied on it. Most of the information is news articles, at best anecdotal reports of various incidents in different places around the world. None of the information addresses any differences in risk of COVID-19 transmission between Plaintiffs' bars and the other types of bars allowed to reopen.

For the reasons explained below, we have determined the trial court erred when it denied Plaintiffs' summary judgment motion and dismissed Plaintiffs' claims under N.C. Const. art. I, § 1, the "fruits of labor clause," and for denial of equal protection under N.C. Const. art. I, § 19….

The fruits of labor clause states: "We hold it to be self-evident that all persons are created equal; that they are endowed by their Creator with certain inalienable rights; that among these are life, liberty, the enjoyment of the fruits of their own labor, and the pursuit of happiness." N.C. Const. art. I, § 1. (emphasis added). "This provision creates a right to conduct a lawful business or to earn a livelihood that is 'fundamental' for purposes of state constitutional analysis." Treants Enterprises, Inc. v. Onslow Cnty. (N.C. 1986).

The fruits of labor clause often has applied in cases involving licensing requirements. For example, in Treants Enterprises, Inc., this Court held that a county ordinance requiring businesses "providing or selling male or female companionship" to obtain a license violated the fruits of labor clause because it "lack[ed] any rational, real, and substantial relation to any valid objective" of the county. In State v. Harris (N.C. 1940), our Supreme Court held licensing requirements in the dry cleaning industry violated the fruits of labor clause because of their "invasion of personal liberty and the freedom to choose and pursue one of the ordinary harmless callings of life[.]" Likewise, in State v. Balance (N.C. 1949), our Supreme Court held statutory licensing requirements for the practice of photography violated the fruits of labor clause as an invalid "exercise of the police power" because it "unreasonably obstruct[ed] the common right of all men to choose and follow one of the ordinary lawful and harmless occupations of life as a means of livelihood, and [bore] no rational, real, or substantial relation to the public health, morals, order, or safety, or the general welfare."

The context of licensing requirements is not the only application of the fruits of labor clause, however. Most recently, our Supreme Court held "Article I, Section 1 also applies when a governmental entity acts in an arbitrary and capricious manner toward one of its employees." Our Supreme Court also has held a town council's fee schedule for vehicle towing services "implicates the fundamental right to earn a livelihood" under the fruits of labor clause. King v. Town of Chapel Hill (2014) (quotation marks omitted). In King, the court held there was "no rational relationship between regulating fees and protecting health, safety, or welfare." The court further stated, "This Court's duty to protect fundamental rights includes preventing arbitrary government actions that interfere with the right to the fruits of one's own labor."

Accordingly, the fruits of labor clause of N.C. Const. art. I, § 1 may apply when a government actor shuts down an entire industry, here the bar industry, if the restrictions imposed by the government actor bear "no rational, real, or substantial relation to the public health, morals, order, or safety, or the general welfare," or in other words, if the restrictions are arbitrary and unreasonable. Plaintiffs here are not challenging the initial closures of all bars in Executive Order No. 118; they are challenging the provisions of Executive Order No. 141 allowing some types of bars to operate but requiring their bars to remain closed. In other words, the restrictions on Plaintiffs in particular must be supported by the "data and science" cited by Defendant as justification to shut down Plaintiffs' bars, while allowing other bars located in restaurants, breweries, or other establishments to resume operations.

There is no dispute that Defendant's public interest as stated in Executive Order No. 141 was: "[F]or the purpose of protecting the health, safety, and welfare of the people of North Carolina … [S]lowing and controlling community spread of COVID-19 … [T]o lower the risk of contracting and transmitting COVID-19[.]" Rather, the dispute arises from continuing restrictions on some types of bars while allowing others to reopen. Our Constitution, and specifically the fruits of labor clause, applies even when a government official acts with the best stated purposes.

"Traditionally our courts … have not hesitated to strike down regulatory legislation as repugnant to the state constitution when it is irrational and arbitrary." Accordingly, we must determine whether Defendant's actions were irrational and arbitrary. Exercises of State police power are constitutionally invalid when they are overbroad, unequally applied, or otherwise not carefully targeted at achieving the stated purpose….

Defendant's Executive Order No. 141 allowed "eating establishments" and "restaurants," as defined in N.C. Gen. Stat. § 18B-1000(2) and (6), to reopen with certain restrictions, such as: limiting the number of customers in the restaurant, limiting the number of people sitting at a table to ten, following signage, screening, and sanitation requirements, and marking six feet of spacing in lines at high-traffic areas. However, bars having "a permit to sell alcoholic beverages for onsite consumption … and that are principally engaged in the business of selling alcoholic beverages for onsite consumption"—in other words, regular bars—had to remain closed. In Section Five of the order, Defendant provided the following reasoning in support of keeping bars closed:

[B]y their very nature, [bars] present greater risks of the spread of COVID-19. These greater risks are due to factors such as people traditionally interacting in that space in a way that would spread COVID-19 … or a business model that involves customers or attendees remaining in a confined indoor space over a sustained period.

The order specifically allowed "retail beverage venues" to sell "beer, wine, and liquor for off-site consumption only" and specifically exempted "production operations at breweries, wineries, and distilleries" from closures.

Plaintiffs, however, specifically allege that they were as "equally capable … of complying with the reduced capacity, distancing, increased sanitation, and other requirements set forth" as other establishments that were permitted to reopen. We therefore must determine whether the forecast of evidence presented to the trial court presented a genuine issue of material fact that would preclude summary judgment, or if that forecast of evidence failed to present a genuine issue of material fact and Plaintiffs should prevail on summary judgment in their favor.

We must consider the "science and data" submitted by Defendant to the trial court as justification for the differentiation in restrictions placed on Plaintiffs' bars as opposed to the other types of bars allowed to resume operation "in the light most favorable" to Defendant to determine if there is a genuine issue of material fact as to whether Defendant acted irrationally and arbitrarily when he allowed restaurants and eating establishments to reopen but kept Plaintiffs' bars closed. In other words, we must attempt to square Defendant's reasoning for precluding Plaintiffs' bars from the opportunity to reopen under the specified guidelines that, for example, restaurants had, with their stated ability to follow the same guidelines as restaurants. Although we view the evidence in the light most favorable to Defendant for purposes of summary judgment, we must also review the scientific evidence that was before the trial court, which acts in its capacity as the gatekeeper of expert testimony, to determine whether it is sufficiently reliable.

The trial court noted that Defendant relies upon his contention that "private bars by their nature present a higher risk than those other businesses to which Plaintiffs' invite comparison." The trial court further stated that it has "not simply deferred to Defendant without inquiry into the underlying evidence upon which Defendant exercised his police power." It concluded that, concerning the purported heightened risk of COVID-19 infections in private bars compared "to other businesses which allowed alcohol consumption and public gathering[,] Defendant has produced scientific studies and learned professional commentary asserting that they do and that there was then a need for greater regulation of private bars than other businesses which, in part, serve alcohol and allow public gathering."

We are unable to arrive at the same conclusion. Our careful review of the Record does not reveal the existence of any scientific evidence demonstrating Plaintiffs' bars, as opposed to the bars located in other establishments serving alcohol, posed a heightened risk at the time Executive Order No. 141 was issued. Even if we assume the materials submitted by Defendant address higher risks of COVID-19 infections in locations where alcohol is served and people gather, these materials do not include any distinctions between different types of bars.

Defendant points us to Executive Order No. 188 in which he states that "studies have shown that people are significantly more likely to be infected with COVID-19 if they have visited a bar or nightclub for on-site consumption." First, we note that Executive Order No. 188 was issued 6 January 2021, and Executive Order No. 141 was issued 20 May 2020, meaning that this purported scientific rationale for closing private bars but no other types of bars was over seven months delayed. Second, Defendant cannot reasonably rely on his own assertion within an executive order as though it were itself a scientific study. Next, Defendant references a Washington Post article dated 14 September 2020 which states that there is a "statistically significant national relationship between foot traffic to bars one week after they reopened and an increase in cases three weeks later" compared to reopening restaurants which, according to cellphone data, is not as strongly correlated with a rise in cases. A news article, however, is not a scientific study nor is it apparent that it was based on a scientific study.

Defendant presented to the trial court two other news articles. One is a National Public Radio article titled "How Bars Are Fueling COVID-19 Outbreaks," which is an interesting opinion piece but does not link to a scientific study (or, pursuant to our review, even refer to a study). The other is an article titled "Over 100 COVID-19 cases linked to outbreak at Tigerland Bars in Baton Rouge," which reports on a COVID-19 outbreak at a Louisiana bar, but the article says nothing about the heightened risk bars purportedly pose compared to other establishments serving alcohol. "Research" such as these news articles could be conducted by private citizens utilizing Internet search engines. In fact, many of the documents in the Record were gathered from Internet searches as evidenced by the tags and links at the bottom of the printed pages. Excepting one, none of the documents purport to be scientific studies.

Defendant does point to one scientific study that is in the Record, a study dated 28 September 2020 which states the following:

[P]ost-opening surges seemed to be strongly correlated with the opening of bars. Regardless of the timing or sequence of other relaxations, opening bars was followed 11-12 days later by surging infection rates….

Bars: The effect of closing and opening bars became evident in those states that opened their economies in stages[.] Although most states closed bars and restaurants simultaneously during their early shutdowns, some opened them at different times during the re-openings. We found that, regardless of other relaxations, new infections surged beginning 11-12 days after bars were opened, and fell once again about 8 days after bars were re-shuttered. This suggests that closing (and re-opening) settings that might not be conducive to social distancing has more impact on new infection rates than would opening other types of businesses (dog groomers, markets, hardware stores; even restaurants).

Again, this study does not differentiate between various types of bars; it would apply equally to the bars Defendant allowed to resume operations as to Plaintiffs' bars. Moreover, another significant problem with Defendant's reliance on this study is that Executive Order No. 141, which closed private bars but allowed restaurants to reopen, was issued 20 May 2020, and this study was not posted until 28 September 2020. Defendant could not have relied upon this study and, therefore, at the time the executive order was issued, could only speculate that bars might pose a greater risk than restaurants where alcohol is also consumed.

Overall, the articles and data submitted by Defendant entirely fail to address any differences in the risk of spread of COVID-19 between the bars he allowed to reopen and Plaintiffs' bars which remained closed. Defendant has not demonstrated any logic in the complete closure of bars for on-premises service when the same measures that allowed other types of bars, such as hotel and restaurant bars, to open could have been applied to the operation of those businesses. Plaintiffs assert that they were as "equally capable … of complying with the reduced capacity, distancing, increased sanitation, and other requirements set forth for those" other establishments allowed to reopen. Allowing restaurants and some types of bars to reopen with restricted capacity while simultaneously prohibiting Plaintiffs' bars from reopening in like manner was arbitrary and capricious. Defendant has not produced any forecast of evidence demonstrating Plaintiffs' bars would be unable to comply with the same restrictions placed upon other types of bars allowed to reopen.

We conclude, then, Defendant failed to present any "data and science" tending to show a rational basis for allowing some types of bars to resume operations while keeping other bars closed. The continued closure of Plaintiffs' bars while permitting other similar establishments to reopen under certain conditions violated Plaintiffs' right to enjoy the fruits of their own labor from the operation of their respective businesses. Therefore, the unequal treatment of Plaintiffs compared to other similar establishments was illogical and not rationally related to Defendant's stated objective of slowing the spread of COVID-19. Accordingly, we vacate the trial court's denial of summary judgment of Plaintiffs' claim under the fruits of labor clause of N.C. Const. art. I, § 1, and we remand this cause of action to the trial court for reconsideration in light of our above analysis….

For similar reasons, the court concluded that the government violated the state constitution's equal protection clause: Because "Defendant's executive orders affected Plaintiffs' right to earn a living, … and therefore implicated a fundamental right under the North Carolina Constitution," they had to be judged under strict scrutiny, and they failed that scrutiny:

It is illogical and arbitrary to attempt to achieve Defendant's stated health outcomes by applying different reopening standards to similarly situated businesses that could have complied with those standards. In other words, if restaurants serving alcohol could operate at fifty percent capacity and keep groups six feet apart with both food and alcohol at the customers' tables, Defendant has failed to present any forecast of evidence of any reason bars would not be able to do the same with alcohol service. Therefore, Executive Order No. 141 was underinclusive for not allowing bars to participate in the same phased reopening as restaurants that serve alcohol. The unequal treatment of Plaintiffs had the effect of denying their fundamental right to earn a living by the continued operation of their businesses.

Michael J. Tadych and K. Matthew Vaughn (Stevens Martin Vaughn & Tadych, PLLC) and Robert F. Orr represent Plaintiffs.