NMSC: Businesses Cannot Seek Compensation for Public Health Orders

State v. Wilson is another in a series of COVID-19 related cases the New Mexico Supreme Court has decided this year. Businesses had filed numerous lawsuits seeking compensation for damages they claim were caused by the public health orders. In this decision, the Court holds that the public health orders cannot support claims for regulatory takings or for compensation under the Public Health Emergency Response Act (“PHERA”). As an extra bonus, my former boss, Judge Bustamante, sat on this panel by designation.

Background

As with the other COVID-19 cases, this case arrives at the Court as a writ of superintending control. Business across the state (the “Real Parties in Interest”) had filed lawsuits–at least 20 of them, according to the Court–challenging the public health orders and seeking compensation. The Governor and Attorney General filed a writ of superintending control seeking a decision as to the “threshold legal issue” of whether businesses could obtain compensation over the orders.

The real parties in interest raised two arguments. First, they claimed that the public health orders operated as a taking, in violation of Article II, Section 20 of the New Mexico Constitution. Second, they argued that they were entitled to compensation under Section 12-10A-15(A), the “compensation” provision of PHERA.

The Public Health Orders Are Not a Taking

Like the U.S. Constitution, the New Mexico Constitution prohibits takings without just compensation. Article II, Section 20 of the New Mexico Constitution states that “[p]rivate property shall not be taken or damaged for public use without just compensation.” Takings are most commonly thought of as when the government actually takes the physical land. But it can also be a taking when the government prevents a property owner from making certain uses of her property. This latter type of taking is known as a “regulatory taking.”

The Court surveyed both state and federal takings law, distilling a few relevant threads. First, many courts have recognized that regulation promoting the health, safety, morals, or general welfare is generally insulated from takings analysis and compensability. But second, where the State seeks to sustain regulation that deprives land of all economically beneficial use, there is almost always a taking.

Because the Court had previously held in Reeb and Romero that the PHOs were valid exercises of the police power, it proceeded to the first takings question: did the nature of the PHOs insulate the State from takings claims? If the PHOs are a reasonable use regulation under the police power to prevent injury to the health of the community, then they cannot be deemed a taking and the inquiry is over.

Unfortunately for the Real Parties in Interest, they essentially conceded the issue. Both sides agreed that the purpose of the PHOs was to protect public health. The Real Parties in Interested argued, however, that the Court should still perform a takings analysis. The Court disagreed. First, when the public nuisance exception applies, there is no taking. And second, the Court found it significant that the pandemic–while seemingly “interminable”–was actually only a temporary event.

The Real Parties in Interest Are Not Entitled to Compensation Under PHERA

The analysis under the compensation provision of PHERA was much simpler. Section 12-10A-2 provides that “the state shall pay just compensation to the owner of health care supplies, a health facility or any other property that is lawfully taken or appropriated by the secretary of health, the secretary of public safety or the director for temporary or permanent use during a public health emergency.” The State argued for a narrow interpretation of “any other property” that was limited by the related terms “health care supplies” and “health facility.” The real parties in interest argued for a broad interpretation that could encompass lost profits.

The Court agreed with the State. New Mexico uses the rule of statutory construction known as “Ejusdem generis.” Under this rule, the meaning of a word or phrase may be limited by the series of words or phrases of which it is a part, or to the category established by the specific words or phrases in which it appears. Applying the rule, “any other property” had to be limited by “health care supplies” and “health facility.” These terms, in turn, were defined by PHERA. Critically, both definitions contained limitations that required the items to be used for or in connection with a public health emergency, the Court therefore read that limitation into “any other property.” Having done so, it easily concluded that lost profits of businesses subjected to the PHOs were not sufficiently related to come within the scope of PHERA’s compensation clause.

Finally, and almost as an aside, the Court addressed a procedural technicality that was fatal to the Real Parties in Interest’s PHERA cases. PHERA requires parties seeking compensation to follow obtain a preliminary determination from the Attorney General before they can appeal to the district court. Apparently, none of them did so. Where a statute requires administrative procedures before a suit may be filed, those procedures are jurisdictional, and the Court cannot simply ignore the party’s failure to comply with them.

A Warning for Future Cases

This is now the third case the Court has published in the last year about the public health orders. Though each case has addressed slightly different issues, the same themes run through them all. And the Court has made it clear that it expect future litigants (and their attorneys) to pay attention:

Future parties should take into account that we have now thrice found that the State has broad powers to act in the face of grave threats such as COVID-19.

So far, the parties in these cases have apparently made weak arguments for the notion that the PHOs were not rationally related to the pandemic. I’m skeptical there is a strong argument to be made. But it is clear from today’s opinion that if you plan on bringing one of these suits in the future, you’ll also need to bring some pretty serious evidence.

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