Last month the Federal Circuit issued its opinion in Darby Development Co. v. United States, a case that attracted three amicus briefs. In this case, the Federal Circuit reviewed a judgment by the Court of Federal Claims, which dismissed a takings claim by owners of residential rental properties. The Court of Federal Claims dismissed their complaint for failure to state a claim upon which relief could be granted. In an opinion authored by Judge Prost and joined by Judge Stoll, the Federal Circuit reversed, holding that the owners did state a claim for a physical taking, and remanded the case for further proceedings. Notably, Judge Dyk dissented. This is our opinion summary.
Judge Prost began by highlighting the procedural and factual background of the case:
On March 27, 2020, Congress enacted the CARES Act, which instituted a 120-day moratorium on commencing eviction proceedings for nonpayment of rent as to certain properties that received assistance or had federally backed loans . . . . That moratorium expired on July 24, 2020. On August 8, 2020, the President issued Executive Order 13945 . . . . It [] directed the Secretary of Health and Human Services and the CDC Director to “consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary to prevent the further spread of COVID-19 from one State or possession into any other State or possession . . . .” [O]n September 4, 2020, the CDC issued an order titled “Temporary Halt in Residential Evictions [t]o Prevent the Further Spread of COVID-19. . . .” (“Order”). The CDC represented that it was issuing the Order under the authority of section 361 of the Public Health Service Act (“PHSA”) (codified as amended at 42 U.S.C. § 264) as well as 42 C.F.R. § 70.2. Id. at 55292–93, 55297. The Order provided that “a landlord, owner of a residential property, or other person with a legal right to pursue eviction or possessory action shall not evict any covered person from any residential property in any State or U.S. territory in which there are documented cases of COVID-19 that provides a level of public-health protections below the requirements listed in this Order . . . .” On December 27, 2020—just days before the Order was set to expire—Congress extended it by a month, through January 31, 2021 . . . . As the congressional extension of the Order lapsed, the CDC itself (now under a different administration) extended it . . . . Appellants . . . claimed that the Order, by preventing them from evicting non-rent-paying tenant’s, constituted a physical taking of their rental properties for public use, thus requiring just compensation under the Fifth Amendment’s Takings Clause . . . . 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 Court of Federal Claims granted the government’s motion and dismissed the complaint.
Judge Prost then began her analysis for the Federal Circuit by explaining how the panel reviews “de novo the Court of Federal Claims’ Rule 12(b)(6) dismissal of a complaint” and will “accept well-pleaded factual allegations as true and draw all reasonable inferences in the plaintiff’s favor.”
Regarding the substantive law, Judge Prost first explained that “[a] compensable taking arises only if the government action in question is authorized.” She clarified that government action may be authorized even if it is “unlawful” or “done without legal authority.” The correct inquiry under takings-law, she explained, is “whether the government should be held liable for its agents’ actions.” As to the substance of that inquiry, she highlighted “certain considerations [that] help separate authorized actions from unauthorized ones.” According to Judge Prost, a government agent’s actions were authorized if they were “a natural consequence of congressionally approved measures” or taken “pursuant to the good faith implementation of a congressional act.”
Judge Prost then distinguished unauthorized government action for takings-claims purposes as tending “‘to be outside the normal scope of the governments officials’ duties’ or done despite an ‘explicit prohibit[ion].’” Summarizing, she explained that, “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.”
Turning to the facts, she indicated the Order in question was “authorized” for takings-claims purposes because “the CDC was acting within the normal scope of its duties when it issued the Order,” doing so “explicitly under statutory authority.” She determined that the CDC was not explicitly prohibited from issuing the Order, nor was their “positive congressional intent” precluding the issuance. In fact, she highlighted, “Congress actually extended the Order by a month.” She noted how, “[a]t the very least,” this “dispel[ed] any notion that there was some explicit congressional prohibition . . . that the Order contravened.”
In sum, Judge Prost concluded that the Order was authorized for takings-claims purposes 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 doing so.
Turning towards the dissent and the government’s arguments related to authorization, she dismissed each of their positions. In Judge Prost’s view, Judge Dyk’s dissent incorrectly surmised that, “because the Order exceeded the CDC’s statutory authority under the PHSA, it was unauthorized for takings-claims.” She rejected this position because it relied on cases where “Congress had provided some explicit indication that the alleged taking was not authorized” and “those circumstances [were] not present in this case.” Next, Judge Prost examined the argument that the CDC was “not acting within the normal scope of its duties when it issued the Order.” Rejecting that claim, she reiterated that “the question of statutory authority is distinct from the question of authority for takings-claim purposes.” She found that just “because the Order was abnormal does not mean that the CDC . . . was acting outside the ‘normal scope’ of its duties for takings-claim purposes when issuing it.”
Judge Prost then assessed whether the appellants’ complaint stated a claim for physical taking by the government. She concluded it did. She first noted the court would “consider only whether Appellants’ complaint stated a claim for a physical taking, as they ha[d] expressly disclaimed any regulatory taking theory.” After addressing the relevant precedent, she held that one case’s “reasoning indicates that the complaint stated a physical-taking claim.” She also considered another precedent to be distinguishable.
Judge Prost highlighted that, in the absence of the Order, the appellants, “could have evicted (or ‘excluded’ from their property) at least some non-rent paying tenants.” In the process, she rejected the notion that “forcing property owners to occasionally let union organizers on their property infringe[d] on their right to exclude, while forcing [the appellants] to house non-rent paying tenants (by removing their ability to evict) would not.”
As a result of Judge Prost’s analysis, the Federal Circuit reversed the dismissal by the Court of Federal Claims and remanded the case for further proceedings.
As noted, Judge Dyk dissented. He noted how “the Supreme Court has recognized that unauthorized actions of a federal agency or federal official cannot create takings liability.” He agreed that “[u]nauthorized actions are distinct from unlawful actions[,]” noting “that a government action which is unlawful because it violates some other statute or misinterprets the facts can still be authorized.” In his view, however, “[t]he majority fail[ed] to recognize this distinction.”
According to Judge Dyk, the majority misinterpreted relevant precedent, noting that “not a single case from the Supreme Court or [the Federal Circuit] has ever imposed takings liability where the agency acted beyond the scope of statutory authorization.” As to the facts, he suggested the Supreme Court has made it “‘virtually certain . . . that the CDC has exceeded its authority’ in adopting an eviction moratorium.”
Judge Dyk indicated concern with the majority’s holding, saying “[i]t 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.” He dismissed the majority’s “contention that an action beyond statutory authority can result in takings liability ‘if it was done by government agents “within the general scope of their duties.”‘” He attributed this misinterpretation to reliance on irrelevant precedent.
Judge Dyk concluded his dissent by indicating “the CDC issuing an eviction moratorium cannot plausibly be said to be within the CDC’s normal scope of duties.” He argued “that Congress did not contemplate measures such as eviction moratoriums” when prescribing agency authority, as made explicit with the “Supreme Court’s decision specifically [holding] that the eviction moratorium was outside the agency’s normal scope of duties.” To him, “the majority’s mistake will have significant consequences for future cases” because “[i]t will impose potential takings liability for virtually any act that is not contrary to a specific statutory prohibition or taken in bad faith.”