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#eviction #moratorium

Federal Court Dismisses Lawsuit Challenging Minnesota Eviction Moratorium

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A&B ABstract: A federal district court dismissed a lawsuit filed by two landlords who sought to invalidate the Governor of Minnesota’s moratorium on evicting residential tenants for failure to pay rent during the pandemic.

 The Eviction Moratorium

In an Executive Order dated March 23, 2020, Minnesota Governor Timothy Walz suspended landlords’ ability to file eviction actions and prevented them from terminating residential leases except where a tenant took actions that “seriously endangered” other tenants or violated certain state criminal laws.  The Executive Order did not relieve tenants of their obligation to pay rent.  The moratorium was to stay in place until the statewide COVID-19 emergency declaration elapsed or the Executive Order was rescinded.

The Governor issued several later clarifications to the eviction moratorium, including Executive Order No. 20-79 on July 14, which is the version currently in effect.  It expanded certain tenant protections, and additionally permitted eviction of tenants who “significantly damage” rental property or overstay beyond a prior notice to vacate.  Landlords who violate the moratorium are subject to criminal fines and imprisonment of up to 90 days.

 The Lawsuit

Two companies that own rental properties in Minnesota, Heights Apartments and Walnut Trails, claimed to have “troublesome” tenants that they would seek to evict but for the moratorium.  They sued the Governor in federal district court in Minnesota, seeking to invalidate Executive Order No. 20-79 for several alleged violations of their constitutional rights.  The landlords also claimed that the moratorium was an unauthorized action under state law.  The complaint sought a preliminary injunction against enforcement of the moratorium, pending its invalidation.  The Governor filed a motion to dismiss.

 The Decision

On December 31, 2020, the court granted the Governor’s motion to dismiss and denied the landlord’s request for a preliminary injunction.  Much of the court’s opinion addresses – and rejects – standing, jurisdictional, and immunity arguments raised by the Governor.  On the merits, the court concluded that nothing in the moratorium interfered with the landlords’ ultimate right to collect rent pursuant to their lease agreements, and that the moratorium therefore did not “substantial impair” their contractual rights or infringe their constitutional rights.

As the court explained:

But the fundamental nature of a lease of a residential unit is that the landlord provides the tenant a place to live; the tenant, in turn, pays the landlord rent.  The landlord’s end of the contractual bargain is receiving rent payments.  Nothing in the [executive orders] interferes with that right, and each of the eviction moratoria clearly states that it does not affect a tenant’s obligation to pay rent.  And although, under the [executive orders], a landlord cannot enforce its contractual right to rent through an eviction proceeding, it can still sue tenants for rent owed.

The court found further that the executive orders advance an important state interest – preventing the spread of COVID-19 – and the court determined they “appropriately and reasonably advance that interest.”  The court also noted that the moratorium does not completely prohibit evictions, which the court believed would not reasonably advance the state’s interest in protecting public health.  For example, evictions may still be allowed if a tenant poses a risk to other residents or engages in dangerous criminal activity.  On these grounds, the court also made short order of the landlords’ First Amendment and Takings claims.

Takeaways

This decision is in line with others from across the country that have upheld statewide eviction moratoriums against legal challenges.  As a consequence, a large volume of eviction proceedings will likely be filed nationwide once the moratoriums expire, assuming tenants are unable to pay rent.  Real estate entities and landlords should prepare for a backlog of these cases, and for the potential that they will take longer to adjudicate as a result.

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.