Businesses suing over COVID-19 shutdowns may have a case

Why is everybody scoffing at the anti-shutdown lawsuits? It seems to me that they may have more of a point than critics seem to realize.

Consider the claims by shuttered businesses that continue to suffer losses — and in many cases face extinction — as shelter-in-place orders drag on. In their lawsuits, they essentially argue that by destroying their economic viability, the state governments have violated the Takings Clause of the Fifth Amendment to the U.S. Constitution, which requires just compensation when private property is taken for public use. The suits may not prevail; but they raise questions we should not ignore.

It's true that the courts usually reject claims for compensation when the government restricts or even destroys private property to prevent the spread of disease. Cases involving the destruction of plants and animals are common. But almost always, the plants and animals are infected — or reasonably believed to be at high risk. In 1928, for example, the U.S. Supreme Court denied compensation after a state ordered the cutting down of ornamental cedars infected with a disease that would have caused enormous damage had it spread to a nearby apple orchard.

Ironically, the case was grounded in the need to protect the value of the state's orchards, in which "many millions of dollars are invested" and "which furnish employment for a large portion of the population." In other words, the justification for the destruction of the trees was the protection of the state's economy.

Similarly, there will be times when no compensation is due even though properties are demolished entirely. In 1909, for example, the Supreme Court ruled that no compensation was due after the U.S. military commander in Cuba during the Spanish-American War ordered the destruction of several buildings to prevent the spread of yellow fever. There, however, the buildings were believed to be harboring germs; and the justices rested the outcome explicitly on the exigencies of wartime emergency.

Sounds pretty strong — but as it turned out, the claim of war did not bar all suits. In 1946, in a case called United States v. Causby, the justices ruled that the government had to pay damages for depreciation in the value of a farm adjacent to an airstrip for military planes. That the damage occurred during a national emergency made no difference. Nor did it matter that the farm was still usable; the compensation was due to loss in property value caused by low-flying planes.

Modern cases of this type rest heavily on the degree of economic harm. If the harm is small, the plaintiff loses. In 2009, for example, a federal appellate court rejected the claim of a Maine hospital forced by state law to serve indigent patients. The cost of the care was hundreds of thousands of dollars, but the judges pointed out that this amounted to only one half of 1% of the hospital's gross revenue.

Similarly, the length of the closure also matters. The U.S. Supreme Court has ruled that even a temporary restriction on the owner's use of the property can be compensable if it lasts long enough. In 2007, for example, a Nevada court held that keeping an owner away from his business for 48 hours during a flood emergency did not qualify. Other short-term closings have similarly been upheld. In the case of the coronavirus shutdown, there's no known end date. Businesses are being told in effect that they must stay closed until the relevant governor decides to allow them to open. So it turns out that with respect both to the degree of economic harm businesses are suffering and the length of time covered by the shutdown order, what states have done in response to the COVID-19 pandemic is different from what's happened before.

In a recent article at Reason.com, Damon Root argues that the anti-shutdown lawsuits "will have to clear some steep precedential hurdles." Yes indeed — but the slope may not be as steep as it seems. Root draws an analogy to Mugler v. Kansas, an 1887 decision in which the justices ruled that no compensation was due when laws prohibiting the sale of alcoholic beverages caused harm to a company that manufactured them. The laws were justified as protecting the public health and safety.

But in Mugler, the Supreme Court was, to say the least, influenced strongly by the anti-alcohol passions of the age. Here's Justice Harlan for the majority:

"We cannot shut out of view the fact, within the knowledge of all, that the public health, the public morals, and the public safety, may be endangered by the general use of intoxicating drinks; nor the fact, established by statistics accessible to every one, that the idleness, disorder, pauperism, and crime existing in the country are, in some degree at least, traceable to this evil."

In part, this language represents pure judicial prejudice — alcohol is bad, and shame on Mr. Mugler for selling it. But another part implies a larger point: That there is no need to demand that the state offer a justification because we all know how bad alcohol is. The implication is that in a different case, if the state wants to shut down a business entirely, it had better offer a persuasive reason. This notion has become the well-known "necessity" prong that judges apply in arguments that rely on the Takings Clause.

The plaintiffs might lose every lawsuit, and maybe they should. The coronavirus is indeed dangerous to public health. But we should at least demand that the states provide persuasive rationales for the seemingly arbitrary distinctions they are drawing.

The Takings Clause should never be transformed into a weapon to prevent the government from taking necessary measures to protect public health. But proof of necessity should require more than a governor's say-so.