As We Approach Our Nation’s Birthday, a New Jersey Appellate Court Rejects Hospitals’ Takings Claims

With the 4th of July fast approaching, a New Jersey appellate court issued its opinion in Englewood Hospital v. State of New Jersey. Englewood Hospital v. State of New Jersey.   While the case is hot off the press and we haven’t fully digested it, there was no ambiguity about the result:

“Considering the arguments and governing legal principles, we affirm the trial court’s order dismissing all of the constitutional taking claims, but we do so for slightly different reasons.” (Slip op. at 4).

In short, the hospitals argued that requiring them to provide charity care and Medicaid care at a loss was an unconstitutional taking of private property without just compensation.  The trial court analyzed the claims as an “as-applied” challenge.  Therefore, it dismissed some of the claims because of a failure to exhaust administrative remedies.  The “slightly different reason” was that the Appellate Court found the claims were a facial challenge to the constitutionality of the statute, and therefore it analyzed the takings claims under the familiar rubric of whether there was a “direct government appropriation or physical invasion of private property,” or an “uncompensated regulatory interference with a property owner’s interest in their property.” Slip op. at 14.

If not a per se physical taking like Cedar Point Nursery v. Hassid, 594 U.S. 139, 147-48 (2021), the focus would then shift to the Penn Central factors (and the takings’ claim is doomed).  Crystalized to its core, “plaintiffs posit N.J.S.A. 26:2H-18.64’s operation results in a per se taking of hospital property due to the “inadequate” state subsidies the statute generates.  In the alternative, plaintiffs contend they met their burden to show a regulatory taking of the same property occurred when they presented to the trial court uncontroverted Penn Central evidence.” Slip op at 17.  Neither argument persuaded the panel.

Appellants argued that there was physical taking akin to Loretto v Teleprompter which required New York property owners to locate small TV cable boxes on their buildings – and yielded the famous – “no matter how small, if there’s physical occupation it is a taking that must be compensated.”   The court was not persuaded:  “Unlike the cable installation law in Loretto, N.J.S.A. 26:2H-18.64 does not limit the right to exclude individuals from their premises. Rather, it prohibits hospitals from turning away patients “on the basis of [their] ability to pay” without being subject to civil penalty, and further prohibits billing only those patients who qualify under charity care.” The appellate court also distinguished the hospital’s case from Cedar Point, which government regulation granted an access easement to private property for union organizing activities.

Lastly, the court examined whether there was a regulatory taking by looking at the three Penn Central factors: “adverse economic impact to the hospitals; undue infringement on their investment backed expectations; and per se confiscatory government action.”  The court found that the evidence might favor a finding of adverse economic impact, but held there was insufficient evidence of the latter two elements under Penn Central.  Therefore, the panel “conclude[d] that the record shows no per se taking, nor does a balancing of the Penn Central factors reveal a regulatory taking.”

I bet the hospitals are preparing their petition for certification to the New Jersey Supreme Court now.  Happy 4th of July!