In Horne v. Department of Agriculture, SCOTUS to Wade into Complicated Nest of Takings Issues

Next Wednesday, the Supreme Court will hear oral argument in the case of Horne v. U.S. Department of Agriculture – a complicated and relatively little-noticed case that could have important implications for the direction of “takings” doctrine and, in turn, for how far judges wielding this doctrine may intrude upon the policy-making functions of the elected branches.  To understand the case, it is useful to analogize the issues in the case to a set of Russian nested dolls.

The issue representing the innermost doll, which the Court will only get to if it can unpack the outer dolls, is the most intriguing and arguably the most significant in terms of the future of takings doctrine.  The question is whether a federal agricultural marketing program results in a “taking” of private property within the meaning of the Takings Clause of the Fifth Amendment by requiring raisin producers to turn over a portion of their crop to a quasi-governmental entity for eventual disposal with little or no financial return to the producers.  The program was established pursuant to the federal Marketing Agreement Act, adopted during the Great Depression to stabilize the prices of certain crops by controlling the volume of production going to market.

The Act’s requirement that producers place a portion of their crop in “reserve” only goes into effect once the Department of Agriculture, in response to a petition supported by a majority of producers, issues a formal marketing order, which occurred in the case of raisins in the late 1940’s.  In some years, when production is low, no raisins are reserved under the program;  in other years, when production is high, raisin producers must place as much as a third of their crop in reserve.   The upshot is more stable – and higher – raisin prices for producers and consumers alike.

The Hornes, long-time raisin producers, concluded that the program represented bad agricultural policy and was unfair as applied to them.  In the hope of escaping the program’s requirements, they rearranged their business practices in an attempt to avoid the Act’s mandates while continuing to produce raisins, and ceased placing any portion of their raisin crop in reserve.  The USDA rejected this gambit and imposed civil penalties on the Hornes for violating the program rules.  They responded by filing suit in federal district court in California, arguing, among other things, that the reserve requirement constituted a taking.

If it were properly teed up for Court consideration, this takings argument would present several interesting issues.  The first would be what takings test would govern the claim.  The Hornes assert that the reserve requirement effects a per se taking by direct appropriation.  The government has responded that the program merely regulates the Hornes’ ability to sell their property, triggering relatively deferential regulatory takings analysis. 

Assuming the Hornes could establish a taking, the second issue would be whether the Hornes could prove they have suffered a compensable injury entitling them to relief under the Takings Clause.  The answer to this question is far from clear because the program confers significant economic benefits on the Hornes; it allows them to sell the remainder of their crop not subject to the reserve program at a higher price than they could in the absence of the program because the program effects a cartel-like constraint on the supply of raisins going to market.   The net economic effect of the program may well be positive for the Hornes; in any event, the burden would rest on them to show otherwise in order to establish a taking. 

Finally, assuming the Hornes could prove some compensable injury, thereby establishing liability under the Takings Clause, there would be the remaining question whether the amount of “just compensation” due the Hornes would at least need to be reduced to reflect the countervailing economic benefits they receive from the program.

In the background is the larger point that there is a serious mismatch between the legitimate legal and policy concerns about this marketing program and the Takings Clause.  The primary beneficiaries of this government-sponsored price support system are the raisin producers whose sales are supported by the program.  If the program has a victim, it is almost certainly the consumers, who are subjected to higher raisin prices, not raisin producers like the Hornes. 

Questions could be raised about whether this program is so misguided as a matter of economic policy that it violates the Due Process Clause.  However, given the deferential standard of due process review, and given that they are hardly in a position to speak for the consumers affected by the program, the Hornes understandably have eschewed that potential line of attack.  But the high likelihood that a due process claim would fail does not necessarily make resort to the Takings Clause more plausible.  Takings doctrine is designed to police the singling out of individual property owners to bear unfair and unjust burdens, which is almost certainly not something that can accurately be said about the Hornes and other raisin producers who benefit from the marketing program.

The merits of the takings issue might be primed for resolution in the Supreme Court if the Hornes had followed the usual route for raising a takings claim by filing a suit seeking just compensation in the U.S. Court of Federal Claims based on the alleged taking of the portion of their raisin crop subject to the reserve requirement.  But, instead, they raised the Takings Clause as a defense to the USDA enforcement action, which ultimately wound its way up to the U.S. Court of Appeals for the Ninth Circuit.   As a consequence, the Hornes have created four additional Russian-doll–type hurdles to the Supreme Court reaching the merits of their takings argument. 

First, the Hornes’ theory that the Takings Clause can be raised defensively to justify non-compliance with a federal regulatory mandate is inconsistent with the principle, most clearly articulated in the landmark 1987 decision in First English Evangelical Lutheran Church v. County of Los Angeles, that the purpose of the Takings Clause is to place conditions on the exercise of the eminent domain power, not to to prevent takings from occurring in the first place. So long as a taking is for a “public use,” and the government is able and willing to pay “just compensation,” the Takings Clause implicitly authorizes the government to take property, and provides no legal basis for seeking to block the taking.  To allow property owners such as the Hornes to raise the Takings Clause as a defense for noncompliance with a regulatory mandate would effectively allow them to invoke the Takings Clause to stop alleged takings, turning the basic purpose and function of the Takings Clause on its head.

Second, even if a government seizure of property would otherwise constitute a taking, it should not be regarded as a taking if the seizure is in furtherance of law enforcement purposes.    The government routinely requires law breakers to forfeit property as part of their punishment for violating the law.  While numerous legal objections have been raised to the forfeiture process, no one, so far as I know, has suggested that requiring a law breaker to forfeit property that is the fruit of illegal activity or that has been used in illegal activity constitutes a taking.  The principle is so well established that it precludes the takings argument raised by the Hornes in this case.

Third, and more generally, there is the broader argument that government impositions of generalized financial liability, as opposed to government impingements on tangible real or personal property interests, fall outside the scope of the Takings Clause.  A majority of the Court (albeit spread across a concurring and various dissenting opinions) so ruled in the 1998 Eastern Enterprises case, and the lower federal and state courts have generally applied this principle ever since.  Applying this principle in this case provides a third reason for concluding that the Hornes cannot assert that the penalties imposed on them constitute a taking.

Finally, a last obstacle to consideration of the Hornes’ takings claim in the present case is rooted not in takings doctrine but in the particulars of the statutory scheme governing the marketing program.   The Hornes’ constitutional objections to the program rest on how it affects them in their capacity as a “producer” of raisins.  But the USDA initiated its enforcement action against the Hornes on the theory that they were acting as a “handler” within the meaning of the regulations and had not complied with the rules governing handler operations.  Because a handler merely handles rather than owns raisins, the Hornes arguably have no standing to raise any takings argument in this particular enforcement action.  This narrow statutory argument provides a possible basis for the Court to affirm the Ninth Circuit without delving into all or most of the complexities of takings law discussed above.

The last and final doll to consider is represented by the specific issue on which the Court apparently granted the petition for certiorari, that is, whether the U.S. Court of Appeals for the Ninth Circuit erred in ruling that the Horne’s takings claim based on the civil penalties imposed on them was not ripe in federal district court because they could and should have pursued that claim in the U.S. Court of Federal Claims.  Ironically, as to that specific issue, the petitioners probably have a strong argument because, as they point out, if a takings claim can be asserted based on government imposition of a financial penalty, it would be pointless to require a person to pay the penalty and then seek its return in a suit for just compensation, as opposed to simply suing to block the imposition of the penalty in the first place.

But for all the reasons stated above, even if the petitioners could prevail on this preliminary procedural point, there are numerous, substantial arguments why the Court should ultimately affirm the Ninth Circuit’s dismissal of the takings claim.  Good luck to the Court in this doll house of a case.

John Echeverria filed an amicus brief on behalf of the International Municipal Lawyers Association in support of Respondent.