On March 23, 2020, Minnesota Governor Walz signed an executive order (“EO”) mandating a statewide residential eviction moratorium. That executive order was extended and revised several times before it was voided by State statute. The purpose of the moratorium was to alleviate the displacement of families arising out of the COVID-19 pandemic and loss of employment due to widespread business closures. As most landlords know, it eliminated the right of landlords to evict for non-payment of rent, lease terminations and most lease violations. A Minnesota Landlord (“Landlord”) commenced an action naming Walz and Ellison in their individual and official capacities alleging that the EOs unlawfully prevented it from excluding tenants who breached lease agreements, intruded on its ability to manage its private property and interfered indefinitely with its ability to collect rents. Landlord requested compensatory damages as well as attorney fees which will be awarded should Landlord prevail pursuant top 42 U.S.C. §1983. At the district court level, the action was dismissed for failure to state a claim. Landlord appealed to the 8th circuit Court of Appeals. Invoking
On April 5, 2022, the 8th Circuit Court of Appeals reversed the dismissal on the pleadings as to Landlord’s claims of a violation of the Contract Clause (U.S. Constitution Art. 1, §10) and the Takings Clause (U.S. Constitution amend. V) pursuant to 42 U.S.C. §1983. The court assumed without deciding (because defendants did not object) that a private cause of action exists for Landlord’s claims and determined it had subject matter jurisdiction. The court remanded for judicial determination the standard of review for the constitutional claims. Part of Landlord’s damages occurred during a period when there was a serious public health crisis where the constitutional review for the EO’s would fall under the Jacobson framework. Other damages occurred after the public health crisis dissipated where the more traditional framework of strict scrutiny would apply. The district court could determine the EOs were unconstitutional under both standards, unconstitutional under both standards, or, constitutional during the serious public health crisis but unconstitutional when that health crisis was not as severe.
The Courts apply a two-prong test to determine whether a state has impermissibly interfered with a contract: (1) whether the state law substantially impairs a contractual relationship, which takes into consideration “the extent to which the law undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights,” (2) if the first prong is met, “whether the state law is drawn in an ‘appropriate’ and ‘reasonable’ way to advance ‘a significant and legitimate public purpose…” Under the first prong the Court found that Landlord’s pleading supported that the EOs interfered in a substantial manner with the right of Landlords to collect rent, terminate contracts, the right to exclude tenants and occupants, and the right to enforce other contract violations all through the eviction process. Although the court recognized the necessity and important public purpose of controlling Covid-19 infections, the EOs were not drawn in a appropriate and reasonable way to effectuate control of Covid 19. The EOs required Landlords to house for free and in violation of their leases and local ordinances all persons whether healthy, employed and non-quarantined as well as those unemployed, sick, quarantined persons whose lives were affected by Covid-19. As Landlords across the state recognized, the former did not deserve the application of the EOs though the latter did. The EOs lacked reasonable tailoring to the legitimate government purpose of limiting the spread of Covid-19 as alleged in the pleadings.
The Fifth Amendment’s Takings Clause provides: “[N]or shall private property be taken for public use, without just compensation.” The Takings Clause protects property owners from both physical and regulatory takings-the “direct appropriation of property” by governmental actors and imposition of “restriction[s] on the use of property that went ‘too far.'” The government must pay for what it takes. Landlord plead both theories.
Landlord alleges the EOs effectuated physical takings because they forced landlords to accept the physical occupation of their property regardless of whether tenants provided compensation. According to Landlord’s complaint the EOs “turned every lease in Minnesota into an indefinite lease, terminable only at the option of the tenant.” Landlord sufficiently alleged that the Walz Defendants deprived Landlord of its right to exclude existing tenants without compensation and the claim was determined by the court to be plausible.
In determining whether a property use restriction is a “taking” under the Fifth Amendment, the courts balance three factors: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations;” and (3) the “character of the governmental action.” Landlord alleged the EOs deprived it of receiving rental income and managing its properties according to the leases’ terms and Minnesota law. Also, the court noted, no landlord could have reasonably expected regulations of the duration and extent present in the EOs. Landlord was found to have sufficiently pleaded the first two factors. Landlord also alleged, to satisfy the third factor, that the EOs directly benefited only some Minnesotans (residential renters) and that those benefits were not the same type of widespread interests that have in the past survived regulatory taking claims. The moratorium restricted the rights of one subset of society, landlords, at risk of irreparable harm by depriving them of rent payments with no guarantee of eventual recovery. Through the EOs, the government determined that landlords should bear a significant financial cost of the pandemic…many of whom have modest means. The EOs prevented landlords from evicting tenants who breach their leases which intrudes on one of the most fundamental elements of property ownership-the right to exclude, possess, use and dispose of property. The EOs imposed severe restrictions on landlords’ property rights and the courts determined that the pleadings plausibly give rise to a Takings Claim under the 5th Amendment.
This matter merely reversed the Federal District Court’s order dismissing Landlord’s claims on the pleadings and the litigation process will continue, possibly for years at considerable expense. However; the damages against the State could be significant as other Landlords may pick up the ball and attorney fees will be awarded if landlords prevail. If nothing else, this action will give pause to those in power tempted to overstep in the future. I will follow this case with great interest as should other similarly situated landlords.
 The Jacobson standard would apply to the government’s exercise of police powers during a health emergency. This standard is more deferential and permissive to the constitutionality of the law in question. The Jacobson standard establishes a floor of constitutional protections that weighs 4 overlapping standards: necessity, reasonable means, proportionality, and harm avoidance.
 The government must show that there is a compelling, or very strong, public interest in the law, and that the law is either very narrowly tailored or is the least restrictive means available.