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United States Supreme Court Applies Taking Clause to New Deal Agricultural Products Law

iStock_000070594267_LargeHorne v. Department of Agriculture, No. 14-275 (June 22, 2015) was an "as applied" takings challenge to an almost 80-year old law that was enacted by Congress as part of President Franklin Roosevelt's New Deal. The Agricultural Marketing Agreement Act of 1937 established a marketing system for certain products. Under the Act, Defendant U.S. Department of Agriculture required raisin growers to set aside a percentage of their crop, as determined by the Raisin Administrative Committee (RAC), whose members consist of growers and others in the raisin business and are appointed by the Secretary of Agriculture. The required “set aside” has the effect of raising raisin prices and allowing the RAC to market and otherwise dispose of the set aside raisins. There are, at times, sufficient receipts from the set aside raisins to exceed their market value; however, there are also at other times insufficient revenues to equal their market value, including the year at issue.

Plaintiff, a raisin grower and handler, challenged the set aside as a physical taking for which just compensation is required. The Act requires raisin handlers, who process the crop, to segregate the set aside raisins from the market raisins. In 2002-03, that set aside was 47% and in 2003-04, it was 30%. The RAC acquires title to the set aside raisins and directs their use, with growers having a contingent interest in net profits.

In 2002, Plaintiffs refused to set aside any raisins and refused government entry to their facility to pick up the set aside raisins, for which they were fined and also assessed the market value of the set aside raisins. Plaintiffs claimed a physical taking of their personal property under the Fifth Amendment and sought just compensation. In the first iteration of this case, the Supreme Court reversed the Ninth Circuit and found the just compensation claim could be raised as part of a challenge to the RAC order regarding the fine and assessment. On remand, the Ninth Circuit rejected Plaintiffs' physical taking claim, stating the application of the Fifth Amendment afforded less protection to personal property than real property, and noting that Plaintiffs still had a contingent interest in profits from the set aside raisins and thus did not suffer a taking in any event. Finally, the Ninth Circuit found Plaintiffs could avoid the impacts of the restrictions by planting other crops and that the Act provided a proportional response to the governmental interest in maintaining a stable market. The Supreme Court took review.

Chief Justice Roberts, writing for the majority, responded to three questions. The first question was whether a public agency had a "categorical duty" to pay just compensation only for physical invasion to, or seizure of, only real property and answered in the negative. The Fifth Amendment makes no distinction between real and personal property, a point reinforced by the history of the just compensation clause. The court distinguished a passage in Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), as setting different limits for regulation of property, but did not change the prohibition of direct appropriation of real or personal property without just compensation. The physical appropriation of the set aside raisins requires just compensation.

The second question was whether the reservation of the contingency share of the profits in the set aside raisins changes the duty to pay just compensation. Because this is a direct physical appropriation of a part of Plaintiffs' crop, the categorical duty to pay just compensation remains, notwithstanding the contingency. While the government may regulate and prohibit the sale of raisins, these acts are different in kind from their physical appropriation.

The third question was whether a per se taking arises when a public agency requires relinquishment of specific identifiable property as a condition of engaging in interstate commerce, and answered the question in the affirmative. The fact that Plaintiffs could avoid the appropriation by planting other crops was non responsive to the takings issue, as the choice was not voluntary and the privilege of selling agricultural products in interstate commerce is not a sufficient government benefit to justify waiver of a constitutional right. As to the measure of just compensation, the court used the market value of the raisins which the RAC used to assess the Plaintiffs, and thus rejected a remand on that issue. Defendant may not disavow that figure so late in the litigation. The RAC order and the Ninth Circuit affirmance of the same were thus reversed.

Justice Thomas concurred, responding to Justice Breyer's suggestion that there was no taking for public use, as the appropriation of the set aside raisins by the RAC for sale, charity, samples or the like met the "public use" standard.

Justice Breyer, joined by Justices Ginsburg and Kagan, concurred in part and dissented in part. The dissenting portion focused on calculation of just compensation, pointing out that one of the functions of the set aside was to raise the price of market raisins and that the calculation of just compensation must include the effect on market price of the raisins withheld, especially when Plaintiffs may profit in those years. Justice Breyer would remand for consideration of arguments on the amount of just compensation.

Justice Sotomayor dissented, finding no per se deprivation of property rights and thus no taking, noting that Plaintiffs have made no regulatory takings argument, but rather raised a single categorical claim of physical appropriation. In this case, Justice Sotomayor found no permanent physical occupation that effected a permanent destruction of all property rights, adding that the Court usually avoids per se rules in takings cases in favor of the balance of factors as in Penn Central. The existence of any property right would nullify a per se claim, according to the dissent. Because of the contingency of receiving a return on the set aside raisins, the case must be analyzed under the Penn Central factors. The dissent would analyze the facts under a regulatory takings, rather than a physical appropriation, standard. Moreover, the dissent would ascribe more weight to the restrictions in a regulated market, where the public may deny or limit entry as part of a statutory scheme to support prices for agricultural goods for public economic welfare purposes. All parties appeared to concede that the public could put a cap on the amount of raisins that could be sold on the market without any obligation to pay for the raisins left out of the market. Justice Sotomayor termed that result "baffling."

It is somewhat strange that a 78-year old program that was (and probably still is) supported by farmers now becomes victim to the little-known and selectively utilized doctrine of unconstitutional conditions. The Hornes may have won this battle, but they and their fellow in the raisin field may now see lawful market caps and no possibility of gain from those products lawfully withheld from the market. This case recalls Panama Refining and Schecter Poultry in the regrettable use of vague constitutional doctrines applied selectively to intervene needlessly in public economic regulatory programs instituted by Congress.

Horne v. Department of Agriculture, No. 14-275 (June 22, 2015).


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