Gym Owner Loses Challenge to COVID Shutdown Order

A New Jersey kickboxing business owner was recently denied compensation for the closure and limitations placed on its business under COVID-19 “shutdown” orders signed by Governor Phil Murphy.  The business, JWC Fitness, LLC, based in Franklin, New Jersey, shut its doors in March 2020 in compliance with Murphy’s Executive Order 104, thereby closing its business and offering live-stream classes free of charge on a temporary basis.  In the summer of 2020, JWC began offering outdoor classes as was permitted by EO 157, but capacity was extremely limited.   In the fall, JWC was permitted to reopen indoor operations to 25% capacity by EO 181, but this severely restricted operations and the business generated little revenue.  In September 2020, JWC’s landlord commenced eviction proceedings for non-payment of rent and JWC was forced to close business on October 31, 2020.   Before closing, JWC received grants from the federal and State governments to pay some employee salaries and some rent, and JWC’s principal received unemployment benefits.  As a result of these losses, JWC filed a claim for compensation under the N.J. Civil Defense and Disaster Control Act (Disaster Control Act), N.J.S.A. App. A:9-30 to 63.    The Disaster Control Act was cited in many of Governor Murphy’s executive orders during the COVID-19 pandemic as providing legislative authorization for the Governor’s sweeping mandates and actions.

We previously blogged about this case about a year ago, after the complaint was filed.  Time has not been kind to the claimant, JWC Fitness, as is made clear by the appellate court opinion just released.

JWC’s complaint was initially filed in the Superior Court of New Jersey, Law Division, but the matter was transferred to the Appellate Division for direct review, pursuant to N.J.R. 2:2:3-(a)(2) as an appeal from a State officer’s actions, namely, the Governor’s executive orders.  The Appellate Division focused its decision upon its statutory interpretation of the Disaster Control Act.  It concluded that, while the Governor had the power to take property under the Disaster Control Act, under which compensation would be owed to private parties through a series of administrative actions and regional  “compensation boards”, the actions complained of here by JWC did not constitute a situation where the government had “commandeered” or “utilized” JWC’s private property, but rather represented a situation where JWC’s business was “regulated” as permitted under the State’s police powers and specifically contemplated by Sections 9:40 and 9:45 of the Disaster Control Act.  After concluding that JWC lacked a valid claim for compensation under the legislative provisions of the Disaster Control Act, the court then ruled that JWC also lacked any constitutional entitlement to a takings claim, because its allegations only related to “temporary regulatory restrictions” on the ability to operate its business, which regulatory takings claim would fail under several United States Supreme Court decisions, including Tahoe Sierra Pres. Council, Inc. v. Tahoe Regional Plan. Agency, 535 U.S. 302, 323 (20020)(multi-year moratorium on development of land in Lake Tahoe region held as non-compensable due to temporary nature of regulations); Coll. Sav. Bank. v. Fla. Prepaid Postsecondary Educ. Expense Board, 527 U.S. 666, 675 (1999) (the activity of doing business or making a profit is not property in the ordinary sense).  As a result, because the restrictions in the Governor’s Executive Orders, at “most”, regulated JWC’s right to engage in a business activity, but did not deny beneficial use of “property”, JWC’s takings claim was held to fail. Finally, by applying the well-known (and nearly impossible to pass) test of Penn Cetnral Transp. Co. v. New York City, 438 U.S. 104, 124 (1978), the JWC court concluded that JWC was never deprived of “all economic beneficial or productive use of its property” because it was able to offer live-streamed kickboxing classes and made a business decision not to charge for those classes, and JWC further elected to refrain from taking full advantage of the reopening opportunities first provided in the summer of 2020.

The appellate court’s refusal to allow JWC to maintain a claim for compensation was not limited to its conclusion that JWC was at least partially to blame for its losses and ultimate business failure.  It also reminded us all that the limitations placed on JWC were placed “on numerous categories of businesses, and it is undisputed that these limitations constituted valid exercises of the State’s police powers in the context of a public health emergency, to mitigate the spread of COVID-19”.  In so doing, the court not only cited numerous decisions from other courts around the country which rejected takings claims premised upon COVID-19 closures and restrictions, it stated “[n]otably, plaintiff has not presented any cases in which courts have found takings in this context.”

The Appellate Division’s opinion in this matter was not unexpected.   We first covered the anticipated breadth of these sweeping mandates at the beginning of the pandemic in the spring of 2020, and have written on the topic and been interviewed on the Eminent Domain Podcast as well.  But the fact that it comes as no surprise does not lessen the disappointment in reading the decision, which has been approved for publication, and which affirms that so many of our citizens who have been so deeply affected by the government’s actions during the pandemic are essentially left with no remedy, outside perhaps of the funding that they may have received as part of the federal CARES act or other similar State or local funding and lending assistance programs.  At a minimum, the restrictions that have been imposed by the pandemic have affected different persons and classes of persons differently and that, in and of itself, is unacceptable as it is at variance with the rights that all are supposed to be afforded under our federal and state Constitutions.

We are hopeful that these stories are not over, and will instead motivate those who have been aggrieved to seek legislative reform since the judicial framework of the cases decided thus far has proven to be ineffective in finding ways to provide fair and equitable remedies to those involved.

A full copy of the Appellate Division’s opinion in JWC Fitness, LLC v. Murphy can be found here.