Here's the latest case challenging a pandemic-related eviction moratorium, this one from Minnesota and the U.S. Court of Appeals for the Eighth Circuit.
In Heights Apts, LLC v. Walz, No. 21-1278 (Apr. 5, 2022), the court reversed the district court's dismissal of a property owner's takings claims. The owner challenged the Minnesota governor's residential eviction moratorium and later extensions. Like a lot of these things, the Minnesota version was not a rent "holiday" (tenants were still, technically speaking, on the hook for the rent, and there were several limited exceptions under which the property owner could evict). But for the most part, the Minnesota measure, like a lot of these things, effectively left property owners holding the economic bag (good luck collecting thousands in back rent), and turned their units into public pandemic housing.
The owner's complaint raised Contract Clause, Petition Clause, and Takings claims.
Before we get to the good stuff (takings), a short word about the Contracts and Petition claims. The Eighth Circuit reversed the district court's dismissal of the Contracts claim, concluding that "[a] cognizable Contract Clause claim requires a showing of a substantial impairment in a contractual relationship that is not reasonably tailored to advance a significant and legitimate public purpose." Slip op. at 15. "Given the breadth and impact of the EOs on landlords’ rights, as alleged by Heights, the complaint contains sufficient facts to meet the plausibility requirement for the second prong of its Contract Clause claim[.]" Id. But the Petition claim did not similarly survive because the property owner didn't plead that the damage remedy it sought was "somehow unique to its Petition Clause claim[.]" Slip op. at 16.
With those out of the way, we get to the takings claims. The complaint alleged a physical taking, because the moratorium "forced landlords to accept the physical occupation of their property regardless of whether tenants provided compensation." Slip op. at 17. As in many other of these moratorium cases, relying on Yee v. City of Escondido, 503 U.S. 519 (1992), the state argued that the moratorium only restricted an owner's ability to evict (you let 'em in, property owner; we're only telling you that you can't get 'em out).
The Eighth Circuit instead focused on Cedar Point Nursery, concluding that that case "controls here and Yee, which the Walz Defendants rely on, is distinguishable."
The rent controls in Yee limited the amount of rent that could be charged and neither deprived landlords of their right to evict nor compelled landlords to continue leasing the property past the leases’ termination. 503 U.S. at 527–28. The landlords in Yee sought to exclude future or incoming tenants rather than existing tenants. Id. at 530–31. Here, the EOs forbade the nonrenewal and termination of ongoing leases, even after they had been materially violated, unless the tenants seriously endangered the safety of others or damaged property significantly. See 307, 712, 2103 & 3151 LLC v. City of Minneapolis, 27 F.4th 1377, No. 20-3493, slip op. at *3 (8th Cir. Mar. 14, 2022) (noting “an ordinance that would require landlords to rent to individuals they would otherwise reject might be a physical-invasion taking”).
Slip op. at 17-18. The complaint here alleged that the moratoria had made each lease "indefinite," and that was enough for the court to conclude that the complaint sufficiently alleged a physical taking.
The complaint also alleged a non-physical (regulatory) takings claim. The court first rejected the government's "notice" defense (the property owners "closed on the properties shortly after the first EO was signed"). Nope, the court concluded, the timing of the acquisition was "immaterial to our analysis," because this was too narrow a view of the property allegedly taken. Here, the complaint alleged that the moratoria "deprived it of the economic and beneficial use and decision-making related to its property and investments." Slip op. at 18. It wasn't just the value of the property, or the lost income that was alleged to have been taken. "here, since the EO's affected the least terms of every residential unit (paying or non-paying), the allegedly taken property consists of all of Heights' residential rental property." Slip op. at 18-19.
Looking at Penn Central, the court concluded that the complaint adequately pleaded the three factors. The most interesting was the court's treatment of the "character" factor, which the opinion calls "the nature of the regulation." Slip op. at 19. This perked up our ears, because it looked like the court was going to go down the valid-police-power-cannot-be-a-taking path, an analysis we've harshly criticized.
We're not quite sure whether the court went down that road (because it cited to a case in which the Supreme Court held that if a "regulation's effects are so publicly beneficial," then it cannot be a taking), but eventually distinguished that case and concluded that the complaint pleaded that the moratoria was a benefit only to a narrow class of the public. Slip op. at 19 ("Heights asserts the EOs are not in this category because, in comparison to the legislation discussed in Connolly, the EOs were not as broadly beneficial, and they improperly imposed the public cost of fighting homelessness on a subset of the population: rental property owners."). The court concluded that the complaint therefore adequately pleaded the "character" prong.
While we remain skittish of this approach, all's well that ends well, we suppose, because the court concluded, that "[c]onsidering the Supreme Court’s recent pronouncement regarding the now-defunct CDC eviction moratorium, we are unconvinced that as a matter of law the EOs are permissible non-compensable takings." Slip op. at 20.
Now that an overbroad application of Yee is off the table, but an overbroad view of Penn Central's "character" factor is in play, let's see what the district court does with this on remand.
Heights Apartments, LLC v. Walz, No. 21-1278 (8th Cir. Apr. 5, 2022)
