Horne v. USDA: Revisiting The Supreme Court’s Takings Jurisprudence

“We are in danger of forgetting that a strong public desire to improve the public conditions is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change” Justice Holmes, Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 416 (1922).

On April 22, 2015 the Supreme Court heard oral arguments for the second time in Horne v. United States Department of Agriculture, Docket. No. 14-275.  This case will require the Supreme Court to further explain their recent regulatory takings jurisprudence post Lingle, and which takings test applies to the USDA marketing orders.

The Hornes, as raisin farmers, must abide by the USDA’s Raisin Marketing Order, a Depression Era regulation. Known as the “world’s most outdated” and “ridiculous” law, the Raisin Marketing Order (“RMO”) requires raisin handlers to set aside a predetermined amount of raisins (reserved) “for account of” the United States. These regulations were implemented to help stabilize the post-depression raisin market. It should be noted that 99.5% of the United States and 40% of the world’s raisins are grown in California. After nearly thirty years of operating Raisin Valley Farms in California, the Hornes created a hybrid producing and handling system, and refused to put aside part of their crop. Producers grow the raisins and then physically deliver their crops to handlers who stem, sort, clean, and set aside the reserve. The Secretary of Agriculture (USDA) fined the Hornes the equivalent market price for the raisins that they did not separate for account of the government (reserve). In defense of this fine, the Hornes claimed a governmental taking.

After years of administrative review, the Ninth Circuit was to decide whether the government’s taking of reserve raisins under the RMO resulted in a per se taking. However, the Ninth Circuit determined that the RMO cannot be analyzed under the physical per se taking analysis for the reserved raisins, but rather by the Nollan/Dolan  “essential nexus and rough proportionality” test. The Court subsequently held that the RMO did satisfy the test, and thus was not a regulatory taking under the Fifth Amendment.

In holding that Nollan/Dolan applied to the RMO, the Ninth Circuit extended this test to non-land use cases, thus creating a conflict with the Supreme Court’s takings precedence of the last forty years. In addition, the Ninth Circuit held that per se takings could only apply to real property, rather than both real and personal property, an issue not to be discussed here. The current issues presented to the Supreme Court are: (1) whether the government’s “categorical duty” under the Fifth Amendment to pay just compensation when it “physically takes possession of an interest in property” Arkansas Game Fish Comm’n v. United States, 113 S. Ct. 511, 518 (2012) applies to only real property and not personal property; (2) whether the government may avoid the categorical duty to pay just compensation for the physical taking of property by reserving to the property owner a contingent interest in portion of the value of the property, set at the government’s discretion; and (3) whether a governmental mandate to relinquish specific identifiable property as a “condition” on permission to engage in commerce effects a per se taking.

What is missing entirely from this question is the most logical test, the Penn Central balancing test. It is difficult to argue a per se taking on the level of Loretto and Lucas due to their narrow construction. Loretto applies when there is a “permanent physical invasion” no matter how minor. Lucas applies when a regulation denies a property owner of all economically viable use of his or her land. Here, handlers set aside a predetermined percentage of raisins and the overage is released to the free market. The government has never required 100% of the raisins in any one year.

In finding that a per se analysis cannot be used, the Ninth Circuit used the Nollan/Dolan balancing test for land use forced exactions. However, this line of reasoning is clearly inappropriate for the Hornes case. The Supreme Court in Lingle stated both Nollan and Dolan involve Fifth Amendment takings challenges to adjudicative land use exactions, specifically, government demands that a landowner dedicate an easement to the permitting agency. This was further stated in Koontz, when the Court held that “[Nollan and Dolan] provide important protection against the misuse of the power of land use regulation.”

With three types of cases analyzed, the Penn Central balancing test remains. The Hornes intentionally did not argue Penn Central, most likely because the outcome would not be favorable to them. However, we know that when government regulations impact some strands of the “bundle of property rights”, and the owner retains important interests, the Penn Central balancing test can be used. The Penn Central balancing test requires the court to take into consideration the character of the governmental action, the economic impact of the regulation on the claimant, and the extent to which the regulation has interfered with a distinct investment backed expectation. Unfortunately for the Hornes, a ‘taking’ is more readily found when the interference with property can be characterized as a physical invasion by the government, rather than a public program that adjusts benefits and burdens to promote the common good.

The Hornes will have difficulty proving the RMO is so severe, if the program is meant to stabilize prices and help handlers receive a profit. The RMO mitigates the economic fluctuations on all involved, benefiting the Hornes and other handlers. As for the investment-backed expectations, the finding of a taking relies on the purchaser’s notice and awareness of the regulation. Although the notice is not an automatic bar, it plays a significant role in the analysis. Here, not only did the Hornes know about the RMO, they intentionally took it upon themselves to change the system and wait for a reaction while they were making a substantial profit over other handlers. Finally, when weighing the final Penn Central factor, the RMO has stabilized the market for the past seventy years. The RMO keeps the raisin handlers at a competitive, but fair level. Even if the Hornes were upset with this system, they could have sought out other administrative remedies.

It will be interesting to see what the Court decides. On one hand, the Justices will have to decide the issues on appeal, such as the application of per se takings on personal properties and whether Nollan/Dolan can apply to cases outside of land use exactions. On the other hand, the Court is making this decision on bad facts. The Hornes were not acting as a traditional handler, instead they created their own system. Should an almost eighty year old marketing order be rewritten just because of this family? It is not for the Court to determine, but rather Congress, who has the power to rewrite the statute.

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