Justice Holmes to the rescue

Since existing “shelter in place” orders went into effect way back in March of this year, I have tried my level best to explain why non-essential business firms and employees should be entitled to just compensation under the Takings Clause of the Constitution. Among other things, I published some op-eds for the Mercatus Center and wrote up multiple blog posts on this subject.

Last week, my friend and colleague Ilya Somin took notice of my arguments and published a thoughtful critique of one of my op-eds. Although we both agree that morally speaking non-essential business firms and employees deserve compensation, since their property rights and liberties have been significantly curtailed and restricted, where we disagree is on “the law”. Does the Takings Clause require compensation as a matter of law?

The Federalist Society has invited us to discuss our competing views of the Takings Clause at an upcoming virtual panel on May 15; in the meantime, taking the most charitable view of Professor Somin’s strongest legal arguments, I will take this opportunity to respond.

First off, allow me to fast-forward all the way to the end of Professor Somin’s essay, where he points out that I mistakenly described him as a “conservative” legal scholar in my Kelo op-ed–when, in fact, he is a libertarian legal scholar. Although I happily concede this taxonomic error on my part, I am now even more astonished and, dare say, disappointed than ever. How can a fellow libertarian be so reluctant to see the legal merits of extending the Takings Clause to non-essential business firms as well as to non-essential employees?

Professor Somin keeps returning to the police power issue. According to Somin’s reading of the relevant caselaw, a taking does not occur when State governments are exercising their police powers. For Somin, this police power exemption is almost insurmountable: before a court can even decide whether a given governmental action is a regulatory taking, the plaintiff must first “get around” the police power issue.

But Professor Somin’s presentation of the relevant precedents is incomplete, for he fails to mention the single-most important takings case in our nation’s history: Justice Oliver Wendell Holmes’s landmark decision in Pennsylvania Coal v. Mahon. Before that case was decided, the Supreme Court had adopted a very narrow view of the Takings Clause: only physical acquisitions of private property could constitute a taking.

What Pennsylvania Coal did was change the entire landscape of our takings jurisprudence. Justice Holmes introduced a new test for so-called regulatory takings. Under this test, the government can interfere with property rights without having to provide just compensation unless the regulation, in Holmes’s own words, “goes too far” in diminishing the value of the property.

Admittedly, Holmes’s test is underspecified; after all, how much of a diminution in value is too much? The Supreme Court began to fill this gap when it decided the Penn Central case in 1978, but I won’t rehash my analysis of Penn Central here because I now want to make a more important point: the police power issue is a constitutional red herring. What matters is the diminution in value of the property rights of non-essential business firms.

To the extent many non-essential business firms are unable to earn any income during a government-ordered lockdown, they are entitled to just compensation under any reasonable reading of the leading cases of Pennsylvania Coal and Penn Central–not as a matter of charity but as a matter of constitutional law.

Lastly, but not leastly, Professor Somin and I also disagree about the controversial Kelo case. I conflate the threshold takings question (does action x constitute a taking?) with the public use issue in Kelo, (does x promote a public purpose?), while Somin wants to keep these issues separate. Admittedly, my interpretation of Kelo is a novel one, so I will return to Kelo in greater detail in my next blog post.

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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2 Responses to Justice Holmes to the rescue

  1. Pingback: Kelo and the coronavirus (part 2) | prior probability

  2. Pingback: Property rights in a pandemic | prior probability

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