State doesn’t have to pay for pandemic-related business failure, court rules

By: - October 19, 2021 7:00 am

When Gov. Phil Murphy ordered gyms to close in 2020, many, like this one in Wayne, hosted outdoor classes. (Photo by Michael Loccisano/Getty Images)

A Sussex County business owner who blamed the closure of her kickboxing gym on state-ordered pandemic regulations lost her bid for compensation from the state after an appellate court ruled against her Monday.

Superior Court Judge Garry S. Rothstadt, writing for the three-judge appellate panel that heard the case, sided with Gov. Phil Murphy in denying Darlene Pallay’s claim that she is entitled to compensation under the New Jersey Civil Defense and Disaster Control Act — the act Murphy cited in several executive orders that shut down some businesses in 2020, including gyms. That act allows the government to “commandeer and utilize” personal properties during disasters, and provides rules for compensation.

But the judges cited a string of precedential cases to rule that closing businesses to protect the public during a public health emergency is not the same thing as the government commandeering and utilizing those businesses— and therefore Pallay is not entitled to compensation.

“The limitations placed on plaintiff’s business were not specific to plaintiff, or even to gyms and fitness centers as a group,” Rothstadt wrote. “The same or similar limitations were placed on numerous categories of businesses, and 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.”

Pallay’s decade-old gym, JWC Fitness, was forced to close permanently in October when she fell behind on bills because of lost business and faced eviction, she told lawmakers during a legislative hearing Republican lawmakers held on businesses, jobs, and the economy.

When Murphy ordered businesses like gyms to shut down, Pallay said, “it became a full-time job to save my business. Because we were not allowed to operate at all, we had zero income.”

Shifting to online and outdoor classes when pandemic restrictions started to ease wasn’t enough to save her business, she added.

“We could not make enough to make a dent in our rent,” Pallay testified. “The extended lockdown into fall completely destroyed my business. I would cry myself to sleep — when I could sleep.”

Pallay sued the governor last fall, calling his closure orders a “fundamentally unjust imposition on a private citizen.”

In Monday’s ruling, Rothstadt acknowledged the gym generated little revenue after March 2020. But Pallay and her gym received $21,650 in pandemic-related federal assistance ($16,650 of which went to employee salaries and rent), $1,000 in state assistance, and unemployment benefits that were expanded during the pandemic, the judge wrote.

Attorney Catherine M. Brown, who argued the case for Pallay, said they will continue fighting for relief.

“We do think the case warrants review by the New Jersey Supreme Court so we plan to file a petition for certification,” Brown said.

Pallay wasn’t the only gym owner in New Jersey incensed over pandemic closures. In South Jersey, the owners of Atilis Gym in Bellmawr resisted Murphy’s business restrictions, and supporters held periodic rowdy rallies outside the shuttered gym. The owners reopened the gym last spring in violation of the shutdown orders, prompting state Health Commissioner Judith Persichilli to sue, and a judge to order almost $275,000 in fines.

About a third of small businesses in New Jersey closed in 2020 because of the pandemic, according to Harvard University-based Minority-owned businesses were disproportionately impacted and have had a tougher time recovering, according to a recent report by the New Jersey Institute for Social Justice.


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Dana DiFilippo
Dana DiFilippo

Dana DiFilippo comes to the New Jersey Monitor from WHYY, Philadelphia’s NPR station, and the Philadelphia Daily News, a paper known for exposing corruption and holding public officials accountable. Prior to that, she worked at newspapers in Cincinnati, Pittsburgh, and suburban Philadelphia and has freelanced for various local and national magazines, newspapers and websites. She lives in Central Jersey with her husband, a photojournalist, and their two children.