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Gym owner who sued Gov. Murphy over COVID restrictions loses appeal

A New Jersey appellate court on Monday ruled against the owner of a kickboxing gym who sued Gov. Phil Murphy over COVID-19 mitigation measures that she claimed stifled her business and led to its closure. It’s the latest example of a court upholding orders state and local governments put in place to slow the spread of the virus.

The decision affirmed a Sussex County court ruling that Darlene Pallay, the owner of a CKO Kickboxing franchise in Franklin Borough, was not entitled to any compensation from the state because of shutdown orders and capacity restrictions last year.

Facing eviction last year before it was allowed to reopen at full capacity, Palley decided to shutter the business on Oct. 31, 2020.

In his analysis of the case, appellate Judge Garry Rothstadt dismissed Pallay’s argument that state law entitled her to compensation, or that the executive orders amounted to violations of the “taking clause” of the Fifth Amendment of the Constitution, which prohibits government from taking private property for public use without “just compensation.”

“I am very disappointed in the decision,” Pallay told NJ Advance Media via Facebook Messenger. “My family has lost so much and we continue to struggle.”

She said she plans to file a petition to have the case heard by the state’s Supreme Court.

The governor’s office referred comment to the Attorney General’s Office, which declined to offer any.

Palley’s argument hinged on whether the state “commandeered and utilized” her workout studio when, in March 2020, Murphy signed executive orders closing gyms.

Rothstadt began the 29-page decision by dismantling that notion, referencing English definitions of the words “commandeer” and “utilize” from Merriam-Webster. Both of them imply the physical taking of assets, the judge wrote. That didn’t happen in this case.

She therefore was not entitled to compensation under the state’s Civilian Defense and Disaster Control Act. Instead, Rothstadt said, the executive orders amounted to regulation, which doesn’t come with any level of compensation.

He also said the case did not trigger the federal and state constitutions’ “taking” clauses because those typically involve the taking of property; CKO rented its space.

“To state a taking claim, it is not enough to allege that government conduct frustrated a business enterprise,” Rothstadt wrote, citing a 2020 federal case out of Maine called Savage v. Mills.

Further, the executive orders didn’t amount to what the judge called a “compensable regulatory taking.” He conceded the state’s measures reduced the studio’s revenue but said the business was never deprived of every single opportunity to make money, even when government orders shuttered the physical venue.

He noted that the studio offered live online fitness classes but chose not to charge for them. He said the studio didn’t take full advantage of the state’s reopening schedule, choosing to remain an outdoor-only gym for weeks even after Murphy allowed limited indoor capacity. And the gym also lowered its rates. All the while the business qualified for more than $21,000 in federal aid, the judge said.

“The State is not liable for a regulatory taking merely because the operations permitted resulted in lower revenue than plaintiff might have earned without the regulations in place,” wrote Rothstadt. “Indeed, gyms and fitness centers likely would have seen a drop-off in business due to the COVID-19 pandemic, even absent the (executive orders).”

Finally, Rothstadt closed by saying Palley’s gym wasn’t singled out, and that the measures Murphy took were legitimate.

“It is undisputed that these limitations constituted valid exercises of the State’s police powers in the context of a public health emergency, to mitigate the spread of COVID-19,” the judge wrote.

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Josh Solomon may be reached at [email protected].