Does Kansas owe businesses for mandating they close? A new lawsuit says yes.
The arrival of the COVID-19 pandemic overturned society as we know it, shutting down the state’s economy in a virtually unprecedented way.
Business owners have had to grapple with keeping the lights on, scrounging up government aid and taking precautions to keep customers and employees safe.
But can those enterprises demand compensation from a state or local government for having to shut their doors?
Increasingly, businesses across the country are saying yes to that question and filing legal challenges accordingly.
That trend has now reached Kansas.
In a lawsuit filed earlier this week in Sedgwick County District Court, a Wichita gym is arguing the state’s emergency management laws allow it to seek financial damages related to the shutdown.
The case argues the state and county orders effectively amount to the government using Omega Bootcamps’ property to respond to the pandemic.
That included an order from Gov. Laura Kelly shutting down businesses in March and April, as well as similar local orders in Sedgwick County.
Also implicated are strict restrictions on gyms outlined in the state’s Ad Astra reopening plan, which closed locker rooms and other facilities even once Omega and its counterparts were allowed to open back up.
Ryan Kriegshauser, one of the attorneys involved in the case, said more and more businesses may well look at similar suits as state and federal aid dries up.
“Federal funding has not made its way to a lot of these small businesses,” he said. “This is a way to seek compensation.”
Experts maintain, however, that such a challenge is an uphill battle.
“It is a stretch but not an impossible stretch,” said Richard Levy, a professor of administrative and constitutional law at the University of Kansas School of Law.
More businesses filing claims nationally
The move was expected by legal observers, most notably Attorney General Derek Schmidt, who predicted back in September that the state would see businesses attempt to seek damages.
“I would expect, as time passes, more people will focus on that,” Schmidt told The Topeka Capital-Journal at the time.
But Kriegshauser notes the Kansas lawsuit is distinct in that it is keyed into a clause in state law, rather than the U.S Constitution, which is what other landmark challenges to COVID-19 shutdowns have relied upon.
The state’s emergency code allows for private property to be used as part of a disaster response, saying a person must reasonably "assist and not detract from the ability of the state and the public successfully to meet disasters.“
But it also notes that compensation could be due “if the property was commandeered or otherwise used in coping with a disaster” and such an order came from either the governor or a county or city emergency management agency.
Case not without pitfalls, expert says
The statute has generally been used in fairly narrow circumstances.
Schmidt cited the example of a farmer whose field is used by personnel coping with a wildfire as someone who might go to court to seek compensation for damaged crops.
Kriegshauser said the clause would also apply in the case of the state’s five-week business shutdown in the spring.
“This is a fundamental concept in American law,” he said. “When the public uses your property for the public’s benefit, they pay you for it. I would say this is fair and this is intuitively right.”
But Levy noted several potential pitfalls with the case.
For one, he said, it was not clear the statute would in fact cover economic damages from a mandated closure.
That means the court would weigh other factors, as well, in determining the intent of the statute.
This would potentially include the "ruinous“ amount of money that the state would be forced to cough up if the case, and others like it, were to succeed.
“Given this was a compelling public health justification, compensation would seem to be a pretty extreme outcome,” Levy said.
And he said it would also be tricky to separate out losses incurred as a direct result of the government-ordered shutdown.
That’s because there likely would have been a decline in business anyway from residents not wanting to risk going to a gym at the height of the pandemic.
“Even without the governor’s order, there would have been business losses as a result of the actual public health crisis and people’s voluntary responses,” he said.
The state has 21 days to respond to the case. If it is allowed to proceed, the potential losses would be appraised by an outside board.
The state or gym owner could contest the amount awarded if they believe it to be too high or too low, at which point the case could proceed to trial.
Schmidt’s office said only that they were “reviewing“ the matter.
Will legislators step in?
But the lawsuit gets at a broader issue, one that was already on the minds of lawmakers: Is there a systematic way to boost businesses affected by COVID-19-related mandates.
State and federal aid is one thing, but not every business that sought a Paycheck Protection Program loan or a state grant has been helped.
When the state announced the recipients of a federal CARES Act-backed grant program last month, they noted that, due to high demand, they still were unable to help thousands of businesses that applied.
That has prompted lawmakers to consider a more sweeping approach, which was something Schmidt said was worth looking into when he appeared before the Special Committee on Economic Recovery in September.
“It’s probably something worth taking a look at from a business economic recovery standpoint: Should there be as a matter of public policy, some mechanism for public compensation for those private entities, commercial entities, whatever, that bore a disproportionate amount of the financial cost of fighting this pandemic,” he said.
A potential solution favored by some lawmakers was to give businesses an income tax break for the time frame their operations were shut down. That could include waiving interest and fees on any late property tax payments from businesses that closed.
Levy said sympathy was in order for businesses who were forced to halt operations because of the pandemic.
But it appears, he said, an issue which legislators, rather than judges, should consider.
“I suspect that is the perspective most courts would take,“ Levy said.