What is the police power?
The police power is the inherent power of the government to enact and enforce laws for the promotion of health, safety, and general welfare. Traditional applications of the police power include regulations for public safety, public health, controlling the spread of disease, and law and order. The concept of public welfare is “broad and inclusive,” and is not limited to these areas.
How does the police power differ from eminent domain?
Eminent domain, codified in Pennsylvania at 26 Pa. C.S.A. § 101 et seq. (the “Eminent Domain Code”), is the right of the government to take title to private property for public use. Similarly, the Fifth Amendment of the U.S. Constitution “prohibits government confiscation of private property for public use without just compensation to the property owner.” This is known as the “Takings Clause.”
Under both the Eminent Domain Code and the Takings Clause, compensation must be given to the property owner for property taken, injured, or destroyed by eminent domain. An exercise of the police power, in contrast, controls use of the property by the owner, either temporarily or permanently, for the public good. An exercise of the police power does not require that the property owner be compensated, even where the property may be permanently damaged or destroyed.
Police power actions may result in a taking under the Eminent Domain Code and/or the Takings Clause when the government actions or regulations go “too far.” To determine whether a claimed exercise of the police power constitutes a taking, Pennsylvania courts will examine whether the restrictions imposed on the property owner “substantially deprived him of the use and enjoyment of his property” or were otherwise unreasonable under the particular facts presented. With respect to commercial properties, factors that a Pennsylvania court will examine include: (a) physical intrusion into or onto the property; (b) actual or potential loss of title to the property and/or mortgage foreclosure; (c) loss of rental income; (d) loss of tenants; and (e) inability of the property to generate income. This is a highly fact-specific inquiry. No one factor is dispositive, and not all factors need be present for a taking to have occurred. Physical intrusion, however, is likely the clearest sign that an action constitutes a taking under both Pennsylvania and federal law, especially where the intrusion is permanent and severe.
COVID-19 regulations have caused my business to slow down or close entirely. Is that an exercise of the police power or a taking for which I should be entitled to compensation?
Given the highly infectious nature of COVID-19 and the science showing the potential adverse health impact from contracting the disease, regulations and decrees like those seen in recent days are most likely an exercise of the police power, and not a taking for which you would be entitled to compensation. A claimed exercise of the police power is likely to be upheld where the government demonstrates that the recited harms are real – not merely conjectural – and that the regulation did or will in fact alleviate these harms in a direct and material way. This may turn on factors such as the duration of the restrictions, whether or not they specifically target your business or property, and the ultimate impact on your business or property (including any permanent loss of title). Losses resulting from a general decline in economic activity attributable to COVID-19 likely will not constitute a taking.
As far as we are aware, no government agency or authority has voluntarily offered compensation to business or property owners who have been forced to close by the recent COVID-19 restrictions. To obtain such compensation, you will likely need to file suit and prove by clear and convincing evidence that the challenged regulation or action constitutes a taking.
A governmental authority has physically occupied all or a portion of my property in connection with COVID-19. Is that an exercise of the police power or eminent domain?
As stated above, physical intrusion onto a property is a factor that weighs heavily in favor of a taking, especially if the intrusion is permanent and severe. If you file suit, whether or not a taking is found may turn on the nature of the intrusion – setting up a makeshift hospital or quarantine center, for example, may be more difficult to challenge than other intrusions.
COVID-19 regulations have interfered with or prevented performance of pre-existing contracts with my customers, vendors, and/or employees. Could I have a viable claim under the Contracts Clause?
Possibly. Article One, Section Ten of the U.S. Constitution prohibits any state law “impairing the Obligation of Contracts.” This is known as the Contracts Clause, and it is well-settled that Contracts Clause is “not to be read literally.” However, not all laws affecting pre-existing contracts violate the Clause. Rather, a plaintiff must demonstrate that the challenged law or regulation operated as a “substantial impairment of a contractual relationship.” A court will consider 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. And, even where all these elements are met, the government action may be justified if it has a “significant and legitimate public purpose,” such as “the remedying of a broad and general social or economic problem.” This requirement is intended to ensure that the government is exercising its police power, rather than providing a benefit to special interests.”
Whether the recent COVID-19 regulations adopted by state and local governments violate the Contracts Clause is a novel issue that, to our knowledge, has not yet been adjudicated in any state or federal court. A Contracts Clause claim is likely to be a difficult challenge given emergency declarations and the highly contagious nature of COVID-19. That said, we do expect to see this claim asserted in the courts in the coming months as the COVID-19 restrictions extend in duration and scope and have a greater impact on businesses across the country.
Please note, on April 5, 2020, the Pennsylvania Secretary of Health issued an Order mandating enhanced cleaning and disinfecting requirements for owners of large buildings. The Cleaning Order applies to owners of buildings of at least 50,000 square feet used for commercial, industrial or other enterprises, including but not limited to facilities for warehouses, manufacturing, commercial offices, airports, grocery stores, universities, colleges, government, hotels, and residential buildings with at least 50 units.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Co-author Michael K. Coran is a partner in the Litigation Department at Klehr Harrison.
Co-author Teri M. Sherman is of counsel in the Litigation Department at Klehr Harrison.