Are we tossing aside the rule of law as we respond to the COVID-19 pandemic? I’m beginning to wonder.
I can’t help but think the state-by-state designations of essential businesses have been arbitrary, inconsistent, and in some instances driven by politics and opportunity, certainly not by medical necessity. On March 19, 2020, the Cybersecurity & Infrastructure Security Agency (“CISA”) released a list of 16 industries deemed essential, intending to provide a guideline for state and local governments to use in formulating lists of essential businesses that would not be subject to shelter in place orders. That list has since been expanded and is not binding upon state and local governments. The CISA list, and the various state lists, are not based on any assessment of the contagion risks posed by the businesses, rather whether they are deemed “essential.”
Take alcohol and cannabis as illustrations. Ironically, 100 years ago on January 17 the Volstead Act became effective banning the manufacture and sale of alcohol in the U.S. and implementing the 18th Amendment to the Constitution. Prohibition ended in 1933 with the repeal of the 18th Amendment. Cannabis is illegal under federal law, but legal in some states for medical use only, and in some states for both medical and recreational use, by my count twenty and eight states respectively.
“In recent weeks, the alcohol industry has seen a decades-long wish list on easing sales restrictions fulfilled. … Those changes are being implemented by a wide range of states across the country. Maryland and New Jersey also call liquor stores essential, while California, Nebraska, Vermont, Kentucky, Colorado and the District of Columbia allow restaurant takeout and delivery orders for alcohol. Maryland and Texas are allowing alcohol deliveries to customers, just to name a few. ‘It’s definitely a step forward towards liberalizing a lot of these laws,’ Jarrett Dieterle, senior fellow at R Street, a nonpartisan public policy research organization, told The Hill.[1]
According to an April 2, 2020 article in Marijuana Business Daily, “Most state governments around the nation have deemed medical marijuana companies ‘essential’ during the coronavirus pandemic, meaning the vast majority can keep doing business after residents were told to stay at home and many businesses were ordered to scale back or close their operations.”[2] In some locations, recreational use continues too.
While it may be amusing to contemplate why alcohol and marijuana are deemed essential, the situation is dire for those businesses deemed non-essential. And deemed non-essential by orders that have not been subjected to normal rulemaking procedures and without judicial review. Cases are beginning to emerge.
For example, a class action complaint filed in federal court in Pennsylvania alleges, “The Governor and the Secretary [of Pennsylvania] have seized without compensation the property of businesses and the livelihoods of individuals across the Commonwealth, forcing indefinite closures and widespread layoffs. These uncompensated seizures violate the Takings Clause of the Fifth Amendment, made applicable to States through the Fourteenth Amendment, and also violate well-established notions of Substantive and Procedural Due Process. Plaintiffs respectfully request that this Court (i) declare the Governor’s actions unconstitutional, and (ii) order the payment of just compensation.” Two classes are sought to be certified. First, a class of businesses ordered to be closed, and second, the displaced workers.[3]
Ordinarily, I would assess the chances of the plaintiffs prevailing as meagre. After all, it is well established that “[t]he principle, that no person shall be deprived of life, liberty, or property, without due process of law, was embodied, in substance, in the constitutions of nearly all, if not all, of the States at the time of the adoption of the Fourteenth Amendment; and it has never been regarded as incompatible with the principle, equally vital, because essential to the peace and safety of society, that all property in this country is held under the implied obligation that the owner’s use of it shall not be injurious to the community.” Mugler v. Kansas, 123 U.S. 623, 665 (1887). In Mugler, a liquor manufacturer had challenged a Kansas law banning the sale and manufacture of alcohol. In another often cited case, Miller v. Schoene, 276 U.S. 272 (1928), a Virginia state entomologist ordered the plaintiffs to cut down a large number of ornamental red cedar trees growing on their property, as a means of preventing the communication of a rust or plant disease with which they were infected to the apple orchards in the vicinity. “When forced to such a choice the state does not exceed its constitutional powers by deciding upon the destruction of one class of property in order to save another which, in the judgment of the legislature, is of greater value to the public.” Id. at 279.
Is that what we are doing? In Ohio, TV and radio stations are essential. So is a cleaning service or laundromat. But not a barber shop. So suppose you were a barber with poor IT skills and unable to successfully complete an application for a Paycheck Protection Plan loan. Your business fails. Was your business “injurious to the community?” Was your business a greater risk for the transmission of COVID-19 than any of the essential businesses? More dangerous than a laundromat? Suppose further that you were the sole employee and can present a negative COVID-19 antibody test proving that you couldn’t have infected anyone since you have never had the disease? How does the state justify shutting you down, but not the laundromat next door?
Another class action case was filed on April 24, 2020 in federal court in Chicago.[4] It challenges the CARES Act’s constitutionality on behalf of a class consisting of any “U.S. citizen who earns less than $75,000.00 in adjusted gross income, whose children are also U.S. citizens, and is excluded from the government’s $2 trillion coronavirus financial relief package because he files his taxes jointly with his spouse, an immigrant who does not have a Social Security number.” The complaint asserts there are 1.2 million such individuals and alleges, “Discrimination based on the fundamental right to marry is presumptively unconstitutional and subject to strict scrutiny.” The plaintiff was allegedly denied his $1,200 Stimulus Check because his wife does not have a Social Security number although she purportedly files her taxes using an Individual Taxpayer Identification Number issued by the IRS.
“Churches, religious organizations and faith-based organizations were delighted to learn that they were eligible for funding under the recently enacted Paycheck Protection Program (PPP) included in the recently enacted federal CARES Act (the Act). Upon closer inspection, however, many of these organizations began to express concerns about whether applying for funds under the Act might infringe upon their religious autonomy. Fortunately, the Small Business Administration (SBA) recently issued an Interim Final Rule and a separate Frequently Asked Questions designed to address these concerns.”[5] Among the issues addressed in the FAQs, were whether churches would run afoul of the 500 employee limit by reason of church affiliations (no), and whether churches which never applied for a tax exemption are ineligible (again no). “As some religious organizations had feared, the SBA confirmed that receipt of federal loan monies would constitute federal financial assistance (FFA) and thus would subject such organizations to federal nondiscrimination obligations. This would include nondiscrimination on the basis of sex, which would implicate such matters as transgender rights, gay marriage and termination of pregnancies. To address these concerns, the SBA effectively bifurcated the issue into two categories. For goods, services or accommodations offered to the general public, the nondiscrimination rules would apply. As an example, the SBA cited a restaurant or thrift store that was open to the general public. For goods, services or accommodations offered strictly to its own members, however, the nondiscrimination rules were deemed not to apply.”[6]
“Of the approximately 17,000 Catholic parishes across the country, about 8,000 applied for PPP loans, according to Pat Markey, executive director of the Diocesan Fiscal Management Conference, an association of diocesan financial officers. As of April 17, about 20% had been approved, according to Markey, and more were notified in recent days.”[7] Two issues here. The First Amendment’s establishment clause and federal rulemaking.
The First Amendment to the U.S. Constitution provides, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”
In Zelman v. Simmons-Harris, 536 U.S. 639 (2002), the U.S. Supreme Court held that Ohio’s publicly funded vouchers could be used to send children to religious schools, provided certain constitutional prerequisites were satisfied. A 5-4 majority upheld the program in large measure because, “Under such a program, government aid reaches religious institutions only by way of the deliberate choices of numerous individual recipients. The incidental advancement of a religious mission, or the perceived endorsement of a religious message, is reasonably attributable to the individual aid recipients not the government, whose role ends with the disbursement of benefits.” Id. (Emphasis added.) In other words, the vouchers were given to individuals who chose to use them to enroll children in religious schools. Here, the forgivable loans are made directly to the churches with the SBA, by “Interim Final Rule,” waiving requirements or limitations applicable to other borrowers.
Anyone who has followed the PPP Loan program and SBA guidelines will acknowledge that the guidelines are a moving target, often changing daily. “The Small Business Administration, working in conjunction with the Treasury Department, issued guidance Friday [April 24, 2020] that the leaders of the agencies do not ‘believe that Congress intended’ for private equity and hedge funds to be eligible for loans. … It seems likely that will create an incentive for those categories of borrowers to refrain from applying … but Congress just changed the law and chose not to exclude them. So it’s not entirely clear yet what effect the rule will have on lenders and borrowers.”[8] I expect that most lawyers would agree that the SBA can’t lawfully legislate or change the terms of the CARES Act.
Federal rulemaking is governed by the Administrative Procedure Act (“APA”). Ordinarily, a notice of proposed rulemaking is published in the Federal Register announcing the intent of a federal agency to promulgate a particular rule. Ordinarily, there is an opportunity for public comment. The SBA did not follow this procedure in changing the rules for church eligibility for PPP loans. Instead it issued an “Interim Final Rule.” An interim-final rule is a rule published first as a final rule with the opportunity to comment at the time the rule is promulgated. This is limited to situations where the agency has “good cause” to find that the ordinary process would be impracticable, unnecessary, or contrary to the public interest.
Federal rulemaking authority is not unfettered. Individuals or businesses may challenge rules on a variety of grounds, including that the agency failed to follow the procedures outlined in the APA, that the rule exceeds the authority granted to the agency by Congress, or that the rule violates a constitutional or statutory right of the person challenging the rule. Will the SBA rules be challenged? Probably at least some of them.
The United States and the world are faced with many challenges. Our fiscal response has been monstrous in size, perhaps $4 trillion or more. Treating lightly, or casting aside, the rule of law will not help, in my opinion.
[1] “Coronavirus brings quick changes to state alcohol laws,” The Hill. https://thehill.com/business-a-lobbying/business-a-lobbying/490514-coronavirus-brings-quick-changes-to-state-alcohol.
[2] https://mjbizdaily.com/states-that-have-allowed-marijuana-businesses-to-remain-open-during-coronavirus-pandemic/.
[3] Schulmerich Bells, LLC, et al. v. Thomas W. Wolf, et al., U.S. District Court for the Eastern District of Pennsylvania, Case No. 2:20-cv-01637 filed March 26, 2020.
[4] John Doe v. Donald J. Trump, et al., U.S. District Court for the Northern District of Illinois, Eastern Division, Case No. 1:20-cv-02531 filed April 24, 2020.
[5] “SBA Addresses Concerns of Faith-Based Organizations,” The National Law Review, April 7, 2020.
[6] Id.
[7] “Black Pastors Say They Have Trouble Accessing SBA Loan Program,” NPR, April 25, 2020. https://www.npr.org/2020/04/25/844802957/black-pastors-say-they-have-trouble-accessing-sba-loan-program.
[8] “Washington won’t fix design flaws in small-business loan program,” NBC News, April 25, 2020. https://www.nbcnews.com/politics/congress/washington-won-t-fix-design-flaws-small-business-loan-program-n1191166.