Gym Not Entitled to "Just Compensation" for COVID-19 Closure

By Matthew J. Franson posted 04-06-2022 09:06

  

Overview

Gym 24/7 Fitness, LLC, sued the State of Michigan, alleging an unconstitutional taking of its business property resulting from Governor Whitmer’s executive orders shuttering businesses in response to COVID-19. Gym 24/7 Fitness, LLC v State, No 355148, ___ Mich App ___, ___ NW2d ___ (Mar 31, 2022). Although plaintiff accepted that the executive orders were issued “‘solely for a public purpose,’” it contended that the state and federal constitutions “‘require the payment of just compensation if eminent domain proceedings are not first commenced.’” Id., slip op at *3.

Takings Clauses

The issue on appeal was “whether the business owner of private property is entitled to just compensation under either the state or federal Takings Clause when the government properly exercises its police power to protect the health, safety, and welfare of its citizens during a pandemic by temporarily closing the owner’s business operations.” Id., slip op at *7.

The court noted that there are two types of regulatory takings: categorical and noncategorical. A categorical taking involves the deprivation of all economically productive or beneficial use of property and requires the payment of just compensation. A noncategorical taking, on the other hand, involves governmental actions that do not result in the total deprivation of beneficial use of the property. When a taking is noncategorical, the court will apply the balancing test from Penn Cent Transp Co v City of New York, 438 US 104 (1978), to evaluate whether the governmental action constituted a compensable taking.

Decision

The court first determined that there was no categorical regulatory taking of plaintiff’s property. The gym was closed for only six months, and there was no allegation or evidence that it suffered a total loss or elimination of its value. Thus, plaintiff was not deprived of all economically productive or beneficial use of the property as required under the prevailing caselaw.

The court next concluded that there was no noncategorical regulatory taking under a Penn Cent Transp Co analysis. The first two factors, the economic impact of the executive orders and their interference with reasonable investment-backed expectations, weighed in favor of plaintiff. However, the third factor, the character of the government’s actions, weighed heavily in favor of the state. The point of the closure was to prevent the deadly spread of COVID-19, a compelling reason to close down businesses. Plaintiff conceded that the executive orders were issued solely for a public purpose. Plaintiff also did not argue that the governor lacked the authority to issue the orders, lending further support to factor three.

The court thus reversed and remanded for entry of judgment in favor of the State. Plaintiff has indicated to the press that it intends to file an appeal to the Michigan Supreme Court.

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