Bankruptcy and Restructuring

Up Next: Does Congress Have Constitutional Authority to Regulate Evictions and Foreclosures?

Up Next: Does Congress Have Constitutional Authority to Regulate Evictions and Foreclosures?

Stay Tuned for the Coming Ruling from the U.S. Court of Appeals for the Fifth Circuit

The Supreme Court of the United States effectively ruled on August 26, 2021 that the Centers for Disease Control and Prevention (CDC) had no legislative grant of authority from Congress to impose a moratorium on evictions of tenants living in counties with significant levels of COVID-19 transmission in the much-noted case of Alabama Association of Realtors v. Department of Health and Human Services.  But there remains pending in the U.S. Court of Appeals for the Fifth Circuit a “moratorium” case that has the potential to be a judicial earthquake because it does not turn on whether Congress actually authorized the CDC to issue the moratorium, but on whether Congress has any constitutional authority at all to create such authorization in the first place.

SCOTUS stated in the Association of Realtors case that the Realtors were “virtually certain to succeed on the merits” and thus that there was no need for the District Court in Washington, D.C. to continue to stay its injunction against the CDC’s enforcement of the moratorium pending full appeals.  In deciding on the validity of the “stay,” SCOTUS necessarily addressed the ultimate legal issue in the case by deciding that the Congressional legislation on which the CDC relied for its authority to issue an executive-branch regulation prohibiting certain evictions authorized no such action on the CDC’s part.  In other words, SCOTUS ruled that the CDC had no authority to issue the moratorium because Congress had not actually granted that authority to the CDC in any law.

But in Terkel v. Centers for Disease Control and Prevention, a case that arose in the U.S. Dist. Ct. for the Eastern District of Texas, the District Court ruled that Congress itself has no constitutional authority to regulate evictions and foreclosures because such activities do not constitute or significantly affect “interstate commerce.”  The District Court found in that case that evictions and foreclosures do not involve “the production or use of a commodity that is traded in an interstate market.  Rather, the challenged order regulates property rights in buildings – specifically, whether an owner may regain possession of property from an inhabitant” and also noted that ““[r]esidential buildings do not move across state lines . . . .”  The Terkel Court further relied on the fact that the CDC’s eviction moratorium does not even pretend to be an economic regulation, but is aimed solely at the prevention of transmission of disease.

That case has been on appeal to the Fifth Circuit USCA for several months, and briefing appears to be largely complete.  After SCOTUS decided the Alabama Association of Realtors case, the plaintiff in Terkel submitted SCOTUS’s opinion to the Fifth Circuit as “supplemental authority” in favor of the affirmance of the lower court’s ruling that Congress has no power to legislate in this arena, but did not suggest that the SCOTUS decision rendered the Terkel case and appeal “moot.”

Indeed, there are good reasons for the Fifth Circuit not to consider the case before it moot.  First, SCOTUS did not finally decide the Association of Realtors case, even though it has telegraphed what its ultimate decision would be if the parties engage in “merits” appeals in that case.   More importantly, however, Terkel raises a completely different constitutional issue, the ramifications of which would reverberate well beyond the narrow issue decided in the Association of Realtors case.  If the result in the Association of Realtor’s case were likened to a “knockout punch” of the CDC’s authority to issue an eviction moratorium, the result in Terkel would have to be compared to the Earth opening up and swallowing the entire boxing ring.

Since the 1930’s when SCOTUS decided the famous “interstate commerce” case of Wickard v. Filburn (finding that Congress could legislate farm subsidies and incentives not to grow certain crops on the theory that wheat not grown in one state affects the price of wheat that is grown in another state and thus affects “interstate commerce”), there has been no meaningful limit on Congress’s power to legislate under the interstate commerce clause of the Constitution.  So far, however, all signs indicate that the Fifth Circuit intends to opine on this issue in the context of a lower-court ruling that persuasively asserts that there is in fact a limit to what can be called “interstate commerce” and that one such clear limit is dirt (real estate) that stays put and never moves from one state to another. 

The potential implications of an affirmance of this ruling are hard to overestimate.  There is a tremendous amount of federal law that purports to govern real estate transactions, the constitutionality of which would immediately become suspect if their supposed basis of “interstate commerce” is found invalid.  Stay tuned.  The Fifth Circuit may be about to upset some monumental, Congressional apple carts.