Is a business temporarily closed by order of the government entitled to compensation? Two groups of plaintiffs have petitioned the U.S. Supreme Court hoping not just for a “yes” but an overhaul of a half-century of regulatory takings doctrine. The United States Constitution prohibits the government from “taking” property without payment of compensation. That creates a question: when, exactly, has the government “taken” property? The answer is obvious when it officially initiates a condemnation proceeding for a new highway, for instance. It is less so when the government doesn’t set out to acquire the property and instead enforces a law or regulation that substantially diminishes its value.
Absent a permanent denial of all economically beneficial or productive use of land, these so-called “regulatory takings” have for nearly 50 years been governed by the rule laid down by the Supreme Court in Penn Central Transportation Co. v. New York City. Under Penn Central, to determine whether compensation is required, a court makes ad hoc factual inquiries into three factors: (i) the economic impact of the regulation on the claimant; (ii) the extent to which the regulation interferes with distinct investment-backed expectations; and (iii) the character of the government action. Under this standard, landowners have rarely convinced courts that they are entitled to payment for a regulation’s effects on their property values.
Fast forward to 2021, when, during the COVID-19 pandemic, state governments across the country ordered businesses deemed non-essential to close their doors to stem the spread of the virus. Many of these business owners sued state authorities, arguing that the closure orders constituted a regulatory taking that required compensation. These plaintiffs, universally unsuccessful in lower courts, now have the opportunity to petition the Supreme Court to hear their claims. Two such petitions are The Gym 24/7 Fitness, LLC v. Michigan and Mount Clemens Recreational Bowl v. Hertel. The petitioners ask the Supreme Court to overturn Penn Central, on the grounds that the present test provides insufficient protection to property rights and fails to provide clear guidance to lower courts.
The fundamental challenge the petitioners face is that if the Supreme Court is to overturn or tinker with Penn Central, it would traditionally do so in a case where a different framework might be dispositive. As it stands, it is difficult to conceive a set of factors under which a six-month shutdown of a business during a pandemic would be a compensatory taking. For instance, in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, the Supreme Court held that a 32-month development moratorium did not constitute a taking, even though the landowners were, for a time, completely deprived of any economic use of their land. Moreover, the Supreme Court would likely be reluctant to tie the hands of future federal, state, and local authorities grappling with infectious diseases.
That said, both petitions were filed by the Pacific Legal Foundation (“PLF”) which has had great success in front of the Supreme Court recently, winning four cases litigated before the Court in 2023 and 2024. Moreover, as recently as Sheetz v. Cnty. of El Dorado, the Supreme Court has taken cases to address the legal takings framework without deciding, substantively, whether the new framework disposes of the case. It may very well be that PLF is simply using these cases to put the question in front of the Supreme Court, and the pending petitions may set the stage for the Court’s revision of a half-century of regulatory takings law.
