On August 7, 2024, the U.S. Court of Appeals for the Federal Circuit (Court of Appeals) overturned the U.S. Court of Federal Claims’ dismissal of Darby Development Company Inc. v. United States in a 2-1 decision. The case, brought by several rental housing providers, seeks to determine whether the U.S. Centers for Disease Control and Prevention’s (CDC) eviction moratorium order is an illegal taking under the Fifth Amendment, for which compensation is required. As a result of this decision, the case is allowed to move forward against the federal government.
The Court of Appeals held that the CDC’s eviction moratorium order, which temporarily halted residential evictions, was unauthorized - but done in the normal scope of the CDC’s duties. Further, they ruled that because the order did not contravene any explicit prohibition or positively express congressional intent, takings liability under the Fifth Amendment is obtainable. This liability is potentially significant, with the dissent filed in this opinion noting that liability against the federal government could be over $50 billion if the plaintiff housing providers can prove their case. Finally, and importantly, the Court of Appeals held that the plaintiffs’ complaint had properly stated a physical taking claim.
Background
On September 4, 2020, in response to the COVID-19 pandemic, the CDC issued the Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19 Order (Order). The CDC’s Order prevented housing providers from evicting delinquent tenants from residential properties. The Order was initially set to expire on December 31, 2020, but Congress extended it through January 31, 2021, through passage of the Consolidated Appropriations Act. The CDC ultimately extended the Order several times from there; the last time through July 31, 2021.
Shortly after the CDC issued the Order, it was challenged by several rental housing providers in an initial case, Alabama Association of Realtors, which ultimately reached the Supreme Court of the United States (SCOTUS). In a decision made on August 26, 2021, dealing not with the merits of the case but rather on a lower court’s stay, or temporary pause, of the CDC’s Order, SCOTUS lifted the stay and finally allowed the Order to be vacated, or set aside. SCOTUS held that the rental housing providers were “virtually certain to succeed on the merits of their argument that the CDC has exceeded its authority” when it issued the Order.
On July 27, 2021, the National Apartment Association (NAA) – which is no longer a party to the matter - and several rental housing providers sued the federal government in the United States Court of Federal Claims seeking financial compensation for damages suffered when the CDC issued the Order. The complaint argued that the Order violated the Takings Clause of the Fifth Amendment, which states that “[n]or shall private property be taken for public use, without just compensation.” The complaint maintained that the Order appropriated the plaintiffs’ right to remove and exclude delinquent tenants, amounting to a government authorized physical taking of their property, requiring compensation.
On May 17, 2022, U.S. Courts of Federal Claims Judge Bonilla granted the federal government’s motion to dismiss the lawsuit, finding that the lawsuit failed to state a claim upon which relief could be granted. Though they dismissed the case, the court found that the CDC lacked the authority to issue the Order, citing the U.S. Supreme Court’s decision in Alabama Association of Realtors. The court also found that the CDC took this action outside the normal scope of its duties, which required the plaintiffs to show approval from Congress. The lower court noted that Congress once extended the Order under the Consolidated Appropriations Act, but concluded that “Congress did not approve, retroactively or prospectively,” the CDC’s authority to enact an eviction moratorium. Without congressional ratification of an unauthorized government act, the lower court found that takings liability under the Fifth Amendment was not available to plaintiffs and dismissed the case. Thereafter, the case was appealed to the Court of Appeals.
Court of Appeals Overturns Dismissal
The Court of Appeals decision, authored by Judge Prost, agreed with the lower court that the CDC lacked the authority to issue the Order. The Court of Appeals then discussed whether the CDC’s issuance of the Order was an action taken within the scope of its duties, for example an action done as a natural consequence or in good faith of congressionally approved measures. This preliminary issue is important for evaluating a takings claim, as the Court of Appeals laid out different standards depending on the result: If the unauthorized actions are outside the normal scope of their duties (as found by the lower court), a takings claim is unlikely to be authorized; if the unauthorized claim is within the normal scope of their duties, a takings claim will be authorized “unless Congress has expressed a positive intent to prevent the taking or to preclude governmental liability.” In diverging from the lower court, the Court of Appeals held that the CDC issued the Order within the normal scope of its duties, finding that the CDC issued the Order on a good-faith interpretation of its authority under the Public Health Service Act (PHSA).
Having concluded that the CDC was acting in the normal scope of its duties, the Court of Appeals reviewed whether Congress had expressed any explicit prohibition or intent to the CDC’s actions. Finding none, the Court noted that not only was there nothing in the record to indicate any relevant explicit prohibition or intent, Congress had once lawfully extended the Order through passage of the Consolidated Appropriations Act.
Next, the Court of Appeals considered whether the plaintiff housing providers were alleging a physical or regulatory taking. The Court of Appeals discussed two SCOTUS cases, Cedar Point and Yee. Cedar Point held that a physical taking was found when employers were prevented from occasionally excluding union organizers from their property. Yee involved a local rent control ordinance and a state statute limiting an owner’s termination of a mobile-home owner’s tenancy. Yee held that no physical taking occurred, emphasizing in its opinion that the laws at issue did not prevent property owners from evicting tenants with a six or twelve months’ notice, noting that it would be a different case if the property owner had no recourse to terminate a tenancy. Based on Yee and Cedar Point, the Court of Appeals concluded that the property owners had properly pled a physical takings claim for which compensation is available. The Court of Appeals argued that this case had significant similarities with Cedar Point, even finding the physical taking in this case to be more substantial than observed in Cedar Point. As to Yee, the Court of Appeals found that this case was distinguishable since the CDC’s Order provided for “an outright prohibition on evictions for non-payment of rent.”
Court of Appeals Dissent
The dissent opinion was authored by Judge Dyk. Judge Dyk also agreed with the lower court that the CDC lacked authority to issue the Order. However, the dissent opinion began to diverge from the majority opinion on the issue of takings liability. The dissent opinion found that established precedent from SCOTUS and the other circuits have held that “unauthorized acts by government officials cannot be attributed to Congress, which has the sole authority to obligate government funds.” The dissent stated that if the government activity is unauthorized, the only available remedy for aggrieved plaintiffs is to seek an injunction. The dissent opinion concluded that SCOTUS has repeatedly found that a takings claim can only occur for authorized government acts, and that there is “no room for a normal or general scope of duties exception to statutory authorization.”
The dissent opinion disagreed with the majority opinion’s legal standard and felt a scope of duty analysis was irrelevant to this case. The dissent opinion concluded that the CDC was not acting in the normal scope of its duties, arguing that the majority’s opinion opposite finding “is unsupported and inconsistent” with the SCOTUS’s decision in Alabama Association of Realtors. The dissent opinion noted that the history and language of the PHSA demonstrated that its primary concern was with quarantine and inspection, with no contemplation for a measure such as an eviction moratorium. The dissent opinion characterized the Order as “a response to an extreme event, and not a routine order issued within the normal scope of its duties.” To conclude, the dissent opinion characterized the majority opinion as one that will have significant consequences for future cases by expanding takings liability upon the federal government, noting that the potential liability in this case could be upwards of $50 billion.
What’s Next?
The federal government will now have an opportunity to file a motion for a rehearing (which is rarely granted), request that the case be heard en banc, meaning it would be re-heard by all the judges on the Court of Appeals (this decision was decided by a panel of three judges) or file a petition for a writ of certiorari to SCOTUS. If any of those options are unavailing or unsuccessful, the case will be sent back to Judge Bonilla at the U.S. Court of Federal Claims for further proceedings.
NAA will continue to update its members as the case proceeds.