There was a lot of angst the day the government announced it had already allocated all of the $349 billion from the CARES Act’s Paycheck Protection Program (PPP). This was to be earmarked for forgivable loans to small businesses, and for good reason.
The money was supposed to provide life support to small businesses (with fewer than 500 employees), but that’s not exactly what happened. House Speaker Nancy Pelosi is not on the job and has no plans to approve any further money for the program. At least not unless she can get billions more in funding for pet programs unrelated to the corona virus.
CBS News reported that the government sent billions to areas of the country with relatively few coronavirus cases. Funding was also sent to companies in industries that have not been the hardest hit by the shutdown as well as those that aren’t small businesses at all. You may have heard that Ruth’s Chris Steak Houses – with over 5,000 employees and $468 million in revenues in 2019 – walked away with $20 million. Yet it was only one of 50 publicly traded companies dipping into the pie.
According to economist Gregory Daco of Oxford Economics, “The bigger firms were better equipped to get the Paycheck Protection loans,” Daco said. “A family-run restaurant with less than 10 employees probably did not have the ability to act quickly enough to get a loan.”
Instead, as CBS reports, University of Chicago accounting professor Michael Minnis says that PPP loans “appear to be going to the eligible firms most able to retain their workforces, even before receiving assistance.” Minnis found few links between the biggest economic need during the corona crisis and where the PPP funds were allocated.
Frustrated businesses have already filed suit, alleging that the government-forced shutdown of their businesses constituted an unlawful “taking” of their property without just compensation or due process – both guarantees under the Fifth Amendment.
The Pennsylvania Supreme Court has already ruled against three plaintiffs in Friends of Danny DeVito v. Wolf, though three of the seven justices, led by Chief Justice Thomas G. Saylor, filed a concurring and dissenting opinion that should provide sufficient fodder for an appeal through the federal court system.
Precedent for the DeVito case includes Nat’l Amusements Inc. v. Borough of Palmyra (3d Cir. 2013), in which the court of appeals relied on a 2002 Supreme Court case [Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency], which overturned a district court ruling and denied just compensation after two local moratoria essentially prevented any development in the Lake Tahoe area.
The Borough of Palmyra had closed a flea market for five months due to safety concerns posed by unexploded munitions left behind at the former weapons testing facility site. The Court thus stated, “It is difficult to imagine an act closer to the heartland of a state’s traditional police power than abating the danger posed by unexploded artillery shells.”
Given those precedents, the Pennsylvania Supreme Court majority held that temporary moratoria on the use of the property to prevent danger to health and safety are not takings and thus do not require compensation under the federal or state constitutions. To wit Chief Justice Saylor expressed some significant objections to the finding.
Justice Saylor wrote, “I find, however, that several material aspects of the petitioners’ claims may involve issues of disputed fact. And it also appears to me that some of the majority’s conclusions have mixed legal and factual overtones.”
He went on to state, that, “while the majority stresses that such closure is temporary … this may in fact not be so for businesses that are unable to endure the associated revenue losses. Additionally, the damage to surviving businesses may be vast.”
Then Justice Saylor hit the home run, noting that even in the Tahoe case (see above), the Supreme Court “has admonished that the impermanent nature of a restriction ‘should not be given exclusive significance one way or the other’ in determining whether it is a proper exercise of police power.”
In Justice Saylor’s view, “there seems to be a factual dynamic that should not be dismissed out of hand.” Further stating, “It is not clear, why beer, wine, and liquor stores and department stores are designated as ‘non-life-sustaining’ while beer distributors and other general merchandise stores are on the ‘life-sustaining’ list.”
In light of these anomalies, Justice Saylor concluded, “the majority allocates too much weight to temporariness to defeat developed allegations of a lack of due process in the executive branch’s determination of which businesses must close and whose must remain closed.”
In reviewing the lengthy history of the Supreme Court’s machinations regarding the Fifth Amendment’s takings and due process clauses, the Congressional Research Service states unequivocally that, “No debate on the proper balance between private property rights and conflicting societal needs is complete without noting the Takings Clause.”
Beginning with the 1922 Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 case, the Supreme Court extended the availability of takings actions from government appropriations and physical invasions of property to the mere regulation of property use. In that case, the Court established a new precedent by finding that purely regulatory interferences with property rights can have economic and other consequences for property owners as significant as appropriations and physical invasions.
Though the record since 1922 has seen several shifts between government friendly and property owner friendly, the recent (2015) case Knick v. Township of Scott established that developers and other property owners suing local governments for alleged takings can file suit in either federal or state court. Knick further established that a taking without concurrent compensation “violates” the Takings Clause.
As Christina Martin, part of the legal team that argued the Knick case before the Supreme Court, explains, “the Supreme Court has held in previous cases that when government takes away all economic use of your property, it violates the Takings Clause. After all, what good is title to land if you can’t make meaningful use of it?”
Since both the federal government (via the Paycheck Protection Program), state and even local governments (via the specific shutdown lists) are directly impacting business activities during the COVID 19 crisis, this is an important addition to the legal framework.
Moreover, the arguments by governments that the shutdowns constitute a ‘necessary use of police power’ has effectively denied affected businesses any avenue to Fifth Amendment due process. Even in the face of clear evidence, at least SOME forced closures suggest the decisions have been arbitrary and capricious and have resulted in violations of the Fourteenth Amendment’s right to equal protection under the law.
To date, government attempts to placate an angry public – via direct cash, forgivable loans (but only so many), and so forth – have failed to address the fundamental issue of ‘equal protection’. [Such that] Thus, millions of Americans who through no fault of their own have had their livelihoods threatened, suspended temporarily, or effectively taken away forever, have no recourse but to shut up and take it.
We must recognize that everyone whose business has been forced to close, or even to substantially limit operations, is being negatively impacted by these government shutdowns. Only by acting to equally and justly compensate each affected business for such losses (whether fully or partially) will the United States be able to recover from this devastating blow to its economic system.
Congress, by refusing to acknowledge these fundamental principles, has horribly acted to protect its members (while not even taking a pay cut) against the law – or at the very least, against justice, against equitable treatment for every citizen, and against the very future of the Republic. Yet no significant player even brought up the Fifth and Fourteenth Amendment protections when devising schemes to placate an angry and frightened population.
This abomination cannot stand if we are to continue to be a government of the people, by the people and FOR the people.