This one is a must-read.
In Darby Dev. Co., Inc. v. United States, No. 22-1929 (Aug. 7, 2024), the U.S. Court of Appeals for the Federal Circuit held that the Court of Federal Claims should not have dismissed Darby's complaint for failure to state a physical invasion takings claim.
The short takeaways:
- Takings claims do not require the government action be legally authorized (here, the courts invalidated the government action, after which the plaintiff sued for a taking), only that the government action was "authorized" and thus can be "chargeable to the government."
- Prohibiting evictions is not merely a regulation of the landlord-tenant relationship. Yee v. City of Escondido is distinguishable, and does not categorically exempt all actions that implicate the landlord-tenant relationship from physical takings challenge.
We think the longer story is worth your time. Here it is.
As you may recall, the Center for Disease Control purported to impose a nationwide moratorium on residential evictions during the Co-19 lockdowns. (Sidebar: we don't know about you, but the lockdowns now seem like eons ago -- some distant fever dream, no?) When the Supreme Court got a hold of a challenge to the CDC's authority to do this, the Court concluded, "[i]t strains credulity to believe that this statute grants the CDC the sweeping authority that it asserts."
Now remember, that was one of the cases challenging the CDC moratorium on non-takings grounds, primarily asserting that the CDC's enabling statute did not give it the authority to impose such a sweeping an action (or if it does, the statute is unconstitutional). The Court invalidated the moratorium. Or, more precisely, concluded the challengers in that case stood a pretty good chance of ultimately prevailing on the merits, since this went to the Court on a preliminary injunction. In any event, that was enough, and the CDC stood down.
But as we also noted, Court's opinion contained some tantalizing takings language that we thought then (and continue to think now) predicted a physical takings claim:
Despite the CDC's determination that landlords should bear a significant financial cost of the pandemic, many landlords have modest means. And preventing them from evicting tenants who breach their leases intrudes on one of the most fundamental elements of property ownership - the right to exclude. See Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 435 (1982).
Not surprisingly, some property owners took up the challenge, and several takings claims against the federal government in the Court of Federal Claims followed. Some of the claims were quite ... extraordinary. Others a bit more modest. But here's the general theory most of them employed:
In their operative complaint, they claimed that the Order, by preventing them from evicting non-rent-paying tenants, constituted a physical taking of their rental properties for public use, thus requiring just compensation under the Fifth Amendment’s Takings Clause. See J.A. 37 ¶ 31, 38 ¶¶ 36–37 (describing the Order as having deprived Appellants of their “fundamental right to exclude” and having “effected a government-authorized physical invasion, occupation, or appropriation of [their] private property, for the government itself or for third parties” (cleaned up)).
Slip op. at 6-7 (footnote omitted0.
To our surprise [more like "surprised not surprised"], most of those complaints went nowhere, and floundered on familiar shoals, as in the Darby case:
The government moved under Court of Federal Claims Rule 12(b)(6) to dismiss Appellants’ complaint for failing to state a claim upon which relief could be granted. The government made two primary arguments relevant here. First, it argued that a takings claim cannot be premised on government action that was unauthorized; and, in its view, the Supreme Court in Alabama Association of Realtors essentially confirmed that the Order was unauthorized. Second, it argued that, under Yee v. City of Escondido, 503 U.S. 519 (1992), the Order could not constitute a physical taking because it merely regulated the landlord-tenant relationship.The Court of Federal Claims granted the government’s motion and dismissed the complaint. Darby Dev. Co. v. United States, 160 Fed. Cl. 45 (2022).
Apparent Authority and "Chargeable to the Government"
The Federal Circuit first considered the government's argument that only authorized actions result in takings liability. It argued that "authorized" means legal, or done with actual legal authority. The court rejected the claim, holding that "authorized" means "chargeable to the government" Slip op. at 10. So an action that is ultimately ultra vires or illegal can result in takings liability. This reminds us of the common law "apparent authority" vibe:
An action will normally be deemed authorized if it was done by government agents “within the general scope of their duties”—i.e., if it was “a natural consequence of congressionally approved measures” or “pursuant to the good faith implementation of a congressional act.” Del-Rio, 146 F.3d at 1362 (cleaned up); see also Ramirez, 724 F.2d at 152 (“[O]n numerous occasions when the government agent was acting within the ordinary scope of responsibilities conferred on him by Congress, and took private property without express statutory authority or prohibition, the Tucker Act remedy was held to lie.”).
Slip op. at 11 & n.7 (citing Restatement (Third) of Agency § 2.02 cmt. c (Am. Law. Inst. 2006) ("In determining when an agent’s act is attributable to a principal, it is not novel to define the agent’s authority based on its reasonable (even if ultimately mistaken) understanding of the authority that the principal gave it.")).
This portion of the opinion wraps up with this summary:
To summarize: even if an action by a government agent is unlawful, it will likely be deemed authorized for takings claim purposes if it was done within the normal scope of the agent’s duties—for example, if it was done “pursuant to the good faith implementation of a congressional act.” Del- Rio, 146 F.3d at 1362 (cleaned up). If instead the action was outside the normal scope of the government agent’s duties— or, despite being within that scope, it contravened an explicit prohibition or other positively expressed congressional intent—it will likely be deemed unauthorized. See id. at 1363; Ramirez, 724 F.2d at 151. The ultimate inquiry is whether the government agent’s action is “chargeable to the government.” Del-Rio, 146 F.3d at 1362.
Slip op. at 16.
The court concluded that "because the CDC issued the Order within the normal scope of its duties, and because it did not contravene any explicit prohibition or positively expressed congressional intent in so doing (far from it, as just discussed), we concluded that the Order was 'authorized' for takings-claim purposes." Slip op. at 20.
Yee Doesn't Go That Far: Cedar Point is More On-Point
Next, the court considered whether Yee v. Escondido -- a case which has caused all sorts of mischief in the takings field -- could be employed to deem the CDC's restriction on a lessor recovering possession of rented property via eviction merely a regulation on the landlord/tenant relationship, and not the government allowing third-party occupation of property.
The court found Cedar Point more on-point: "Cedar Point's reasoning indicates that the complaint stated a physical-takings claim. And, as explained below, we consider Yee distinguishable." Slip op. at 30.
[A]t a fundamental level, we cannot reconcile how forcing property owners to occasionally let union organizers on their property infringes their right to exclude, while forcing them to house non-rent-paying tenants (by removing their ability to evict) would not.
Slip op. at 31.
The court limited Yee ("the laws at issue in Yee expressly permitted eviction for nonpayment of rent"), and noted that "Yee was fundamentally a rent-control case." Id. The court rejected each of the government's Yee-based arguments.
First, Yee is not a get-out-of-jail-free card, and did not hold that "government actions implicating the landlord-tenant relationship can never be a physical taking." Slip op. at 31-32. Yes, there's a broad power to regulate, but "we see nothing in Yee (or any other binding precedent we are aware of) that immunizes -- as a categorical matter -- government action implicating the landlord-tenant relationship from being treated as a physical taking." Slip op. at 32.
Second, the court rejected the notion that because the owner invited the tenant to occupy the property by entering into a lease, she thereby abandons a right to recover the property upon breach of that lease. "While we agree that this point distinguishes Cedar Point, we are not persuaded that it compels a different result." Slip op. at 33.
If a previous voluntary invitation (by itself) controlled the analysis, that would essentially mean that all government actions implicating the landlord-tenant relationship are immune from being treated as physical takings. (After all, we can safely assume that just about every landlord-tenant relationship stems from a voluntary “invitation” from the landlord to the tenant.) And yet, as noted above, we see no reason why government actions implicating that relationship must be categorically immune from being treated as a physical taking. At bottom, just because tenants (or other occupiers of property) were at one point “invited” does not mean that their continued, government-compelled occupation cannot, under any circumstances, be treated as a physical taking.
Id.
The court summarized by noting that the CDC's restriction "is hardly a run-of-the-mill law implicating the landlord-tenant relationship. Instead, it is a highly-unusual -- and, so far as the parties have shown, unprecedented -- Order that outright prevent evictions for nonpayment of rent." Slip op. at 34.
The Federal Circuit joins the Eighth in limiting the scope of Yee, while other circuits (see also this) -- and some state courts -- continue to to view Yee as allowing nearly any form of regulation as long as the tenancy originally was permissive.
One judge dissented (Judge Dyk, in case you were wondering). He focused on the "authorized" argument, and would have concluded that the CDC's actions were not within the "normal scope" of the agency's duties, and was "well-outside" what the CDC is charged with doing. In other words, the more the CDC strayed outside the lines, the less its actions could result in a taking.
This, he asserted, would result in a massive expansion of government liability:
It would effectively make even clearly unauthorized agency action authorized for purposes of takings liability unless that action was contrary to a specific prohibition of the authorizing statute or taken in bad faith. That cannot be correct. The majority’s decision would work a sea change in our takings jurisprudence and impose significant takings liability on agencies for unauthorized acts, directly discouraging adoption of legitimate government programs because of the risk of takings liability in addition to injunctive and declaratory relief. Historically, unauthorized programs were enjoined. Now, in addition there is the specter of takings liability.
Dissent at 3.
The length of Judge Dyk's dissent tells us he was trying to set up en banc review, or even a government cert petition.
So stay tuned.
Darby Dev. Co., Inc. v. United States, No. 22-1929 (Fed. Cir. Aug. 7, 2024)
