Alston & Bird Consumer Finance Blog

Archives for September 23, 2020

Pennsylvania Court Invalidates Statewide Pandemic Restrictions

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A&B ABstract:  In County of Butler v. Wolf, a federal court in Pennsylvania struck down as unconstitutional key aspects of the Pennsylvania Governor’s COVID-19 Emergency Order: limitations on the size of indoor gatherings and the “closure of all businesses that are not life sustaining.”  The decision has been appealed, but the breadth of the court’s order is striking and the issue now is whether other courts will follow suit.

Challenges to COVID-19 Restrictions Usually Fail

Federal courts have been hesitant to rule that COVID-19 regulations are unconstitutional.  Notably, the Seventh Circuit recently rejected the Illinois Republican Party’s challenge to the Illinois governor’s executive order limiting physical gatherings for a social event or a political rally but providing an exemption for religious gatherings.  Relatedly, the U.S. Supreme Court recently declined, in a 5-4 decision, to enjoin California’s restrictions on attendance at religious services.

The cases that have found COVID-19 regulations constitutionally defective have generally fallen into two camps: either the court finds the law is too poorly worded (i.e., unconstitutionally vague), or the application of the law is irrational (i.e., violates due process and/or equal protection).  These problems have usually been fixable once spelled out.  For example, a Wisconsin state court judge ruled in July that Racine’s regulations were unconstitutionally overbroad and vague, but held that the city would “maintain[] its full power to issue a new order addressing COVID-19.”

County of Butler v. Wolf Struck Down COVID-19 Restrictions

Unlike other courts, the U.S. District Court for the Western District of Pennsylvania found broad constitutional violations that could not be easily remedied in County of Butler v. Wolf.  The plaintiffs challenged Pennsylvania Governor Tom Wolf’s COVID-related “emergency” restrictions limiting the number of people permitted to attend gatherings and determining which businesses could remain open, based on whether they are “life-sustaining” in nature.  The challenge was rooted in alleged violations of equal protection, due process, and First Amendment rights.

Constitutional Issues

The court found three constitutional problems with the Governor’s orders.  First, the court held that the gathering limits—25 persons for indoor gatherings, and 250 for outdoor gatherings—violated the First Amendment right to assemble because the attendance caps for assemblies were more restrictive than the 25% or 50% occupancy restrictions on certain businesses.  Further, the court found that the 25-person restriction, and the fact that the restrictions applied equally across all counties regardless of their COVID statistics, was not rationally supported by evidence.

Second, the court held that the temporary closure of certain “non-life-sustaining” businesses violated plaintiffs’ substantive due process rights under the Fourteenth Amendment because it was too broad and harsh to pass constitutional muster, and violated the right to choose one’s profession.  Citing the century-old Supreme Court decision in Lochner v. New York, the court found that the order violated plaintiffs’ economic due process rights.

Finally, the court held that the closure of certain “non-life-sustaining” businesses also violated plaintiffs’ equal protection rights under the Fourteenth Amendment, finding no rational basis for the regulations because some businesses were treated differently than other, similar businesses.  The court illustrated its reasoning with an example that imposing constraints on a “mom-and-pop” hardware store while allowing Walmart to sell the same products would not keep a consumer at home; it would simply send her to Walmart, doing nothing to protect her or others from COVID.  As a result, the court found that the restrictions’ means did not rationally relate to their ends.

Impact of the County of Butler v. Wolf Decision

Governor Wolf has already sought a stay of the decision and filed an appeal to the U.S. Court of Appeals for the Third Circuit.  But even without a stay, the immediate impact of the decision is questionable because the challenged restrictions had, at the time of the court’s decision, already been eased by Governor Wolf as part of the Commonwealth’s phased reopening plan.  This raised questions of mootness that the district court brushed aside, but which are sure to be reviewed on appeal.  Moreover, the ruling does not impact other restrictions that are still in place involving teleworking, a mandatory mask order, and worker and building safety orders.

If the holding is affirmed in the Third Circuit, however, it will become precedential and could impact restrictions in other jurisdictions within the circuit, including New Jersey, Delaware, and the Virgin Islands.  At a minimum, until the Third Circuit decides the case, County of Butler will certainly be advanced as persuasive authority by other challengers in other courts.  Its reasoning and outcome could have far-reaching impacts if adopted elsewhere.

Takeaways

Constitutional challenges to pandemic restrictions are pending in other federal courts.  A federal court in Maine recently heard oral argument on challenges to Maine’s emergency rules, including a claim that the governor’s quarantine requirement is an unconstitutional restriction on people’s right to travel.  That court has not yet issued an opinion.  Other challenges to COVID-19 restrictions are pending in federal district courts across the country, including in Arizona, California, Massachusetts, and New York. County of Butler could influence these decisions.

There are also hints that the U.S. Supreme Court may have interest in considering these types of constitutional challenges.  County of Butler cited Justice Alito’s recent dissent in the Court’s denial of injunctive relief in Calvary Chapel Dayton Valley v. Sisolak.  That case involved a challenge to certain COVID-19 restrictions in Nevada.  Justice Alito’s dissent advocated for a stricter constitutional review of emergency health measures, stating, “we have a duty to defend the Constitution, and even a public health emergency does not absolve us of that responsibility.”  Justice Alito also noted that “a public health emergency does not give Governors and other public officials carte blanche to disregard the Constitution for as long as the medical problem persists.”  

The dissent (which was joined by Justices Thomas and Kavanaugh) signals that at least some members of the Supreme Court are mindful of these constitutional challenges, and may be ready to consider such a case when an appropriate petition for writ of certiorari is filed.  County of Butler could provide that vehicle for Supreme Court review.

The Federal Moratorium On Residential Evictions Faces Constitutional Challenge

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A&B ABstract: Landlords in Tennessee have challenged the order of the Centers for Disease Control and Prevention (“CDC”) that imposed a nationwide moratorium on certain residential evictions. If sustained, the challenge could have a major impact on the scope of federal power during the pandemic.

Background of the Eviction Moratorium

The CARES Act imposed a 120-day moratorium on certain residential evictions that elapsed on August 25, 2020.  With this date impending, on August 8, President Trump directed executive agencies to “take all lawful measures to prevent residential evictions and foreclosures resulting from financial hardships caused by COVID-19.” He also ordered the CDC and the Department of Health and Human Services (“HHS”) to consider whether any measures “temporarily halting residential evictions” are “reasonably necessary to prevent further spread of COVID-19” between states.

The CDC Emergency Order

In response, on September 4, the CDC issued an emergency order imposing a nationwide moratorium on certain residential evictions through December 31, 2020 (“CDC Order”).  In doing so, the CDC coordinated with HHS and the Department of Housing and Urban Development (“HUD”). The CDC Order prevents the eviction of any tenant who certifies that he or she: (1) is “using best efforts to obtain all governmental assistance for housing”; (2) earns no more than $99,000 per year in income; (3) cannot pay rent in full due to a substantial loss in income or extraordinary medical expenses; (4) is “using best efforts to make timely partial payments”; and (5) would likely become homeless, or be forced to live in a shared living setting, if evicted.

Significantly, the CDC Order does not provide any compensation for landlords or property owners who are prevented from evicting non-paying tenants, nor does it establish any hearing process for challenges to a tenant’s Declaration.  Conversely, the Order also does not exempt tenants from their legal obligation to pay outstanding rent they accumulate.  It further provides that the moratorium can also be extended beyond December 31.

The Constitutional Challenge

On September 16, a group of seven landlords – which together own and manage over 5,000 residential rental units in western Tennessee – filed a lawsuit in federal court that challenges the constitutionality of the CDC Order.

In Tiger Lily LLC et al. v. Dep’t of Housing & Urban Devel. et al., No. 2:20-2692 (W.D. Tenn.), the plaintiffs assert seven causes of action – spanning the Takings clause, to due process, to the improper displacement of state law – that all rest on the contention that the CDC Order was not authorized by law and exceeds federal authority.  Plaintiffs seek an injunction against enforcement of the CDC Order, but not monetary damages.

The Claims

Plaintiffs’ key substantive contention is that the CDC Order is not authorized by the statute or regulations upon which it relies, rendering it unconstitutional.  The Complaint’s specific claims in this respect appear questionable.  For example, the Order is rooted in Section 361 of the Public Health Services Act, which Plaintiffs say gives the Surgeon General only limited authority to issue orders addressing specific incidents of contamination.  But Section 361 empowers the Surgeon General to “make and enforce such regulations as in his judgment are necessary to prevent the introduction, transmission, or spread of communicable diseases.”  42 U.S.C. § 264(a) (emphasis added). After listing several categories, Section 361 then repeats that the Surgeon General may enact “other measures, as in his judgment may be necessary.”  Id. 

The Complaint makes a similar argument about a federal CDC regulation the Order relies on, but it too vests the CDC Director with power to “take such measures to prevent [disease spread] as he/she deems reasonably necessary.”  42 C.F.R. § 70.2 (emphasis added).  Plaintiffs also cite a “savings” clause in the Public Health Services Act, which provides that it cannot supersede state law.  But there is an exception for state laws that “conflict” with an exercise of federal authority under the Act.  42 U.S.C. § 264(e).  Such a conflict appears to be present here.  In addition, “regulatory” Takings of the sort asserted by Plaintiffs are notoriously difficult to establish.  A New York federal judge recently rejected such a claim made against that state’s eviction moratorium.  Elmsford Apartment Assocs. LLC et al. v. Andrew Cuomo, No. 1:20-cv-04062 (S.D.N.Y. June 29, 2020).

The Deeper Roots of the Challenge

Given these issues, the constitutional challenge may instead turn on the general question of whether the scope of the CDC Order is consistent with past practice and the intent underlying Section 361.  The CDC’s broad interpretation of its power would arguably give the Executive the power to restrict almost any type of activity, as applied to any “communicable” disease.

Further, the eviction moratorium is very different than exemplary public health measures listed in the statute, perhaps exceeding its intended scope. The moratorium also applies to purely intrastate evictions, which may not threaten interstate spread of COVID-19, as required for federal action.  Further, if the court were to conclude that the broad CDC Order is not “necessary” (42 U.S.C. § 264(a)) or “reasonably necessary” (42 C.F.R. § 70.2) to prevent the interstate spread of COVID-19, the Order could be invalidated.  This appears to be a matter of first impression, although statewide moratoriums have a long history and have been upheld by courts.  E.g., Home Bldg. and Loan Assn. v. Blaisdell, 290 U.S. 398 (1934) (upholding Minnesota foreclosure moratorium).

Takeaways

The Tiger Lily case may be significant regardless of its outcome.  As a procedural matter, it could spawn future lawsuits challenging the CDC Order in other courts, and potentially in the form of a nationwide class action.  Litigation over the CDC Order could eventually rival the onslaught of lawsuits involving the CARES Act, such as the Paycheck Protection Program “agent fee” litigation.

Further, if successful, Tiger Lily would also result not just in restoration the ability for the plaintiff landlords to evict non-paying tenants, but it could yield important clarifications and limits on the regulatory power of the federal government in connection with the pandemic.  Particularly if it is appealed to the Sixth Circuit (if not the U.S. Supreme Court), the Tiger Lily case could have meaningful ramifications for all future federal regulations related to COVID-19.

Moreover, if the CDC Order is struck down, this could spur Congress to consider addressing residential evictions directly again.  For example, Congress could enact its own broad moratorium by statute or provide more stimulus payments to struggling renters, enabling them to pay rent on time – which, in turn, would help landlords, albeit at taxpayer expense.  For these reasons, Tiger Lily and any subsequent related cases will be worth watching as they move through the courts.