Do the Department of Agriculture’s regulations—requiring that a percentage of raisin crops be “reserved” for the government to use to control supply—constitute a taking necessitating just compensation?
This case presents the Supreme Court with the opportunity to clarify what constitutes a taking. The Hornes argue that the Marketing Order, requiring raisin handlers to deliver a reserve portion of a growers’ crop to the government, constitutes a categorical taking under the Fifth Amendment. The Department of Agriculture, on the other hand, argues that the reserve requirement is simply a time-use limitation that is lawful and does not require just compensation under the Fifth Amendment. This case will have important implications for property owners generally, and will affect the government’s options regarding how to regulate agriculture in ways to protect producers and consumers.
Questions as Framed for the Court by the Parties
- 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, 133 S. Ct. 511, 518 (2012), applies only to real property and not to personal property.
- Whether the government may avoid the categorical duty to pay just compensation for a physical taking of property by reserving to the property owner a contingent interest in a portion of the value of the property, set at the government’s discretion.
- Whether a governmental mandate to relinquish specific, identifiable property as a “condition” on permission to engage in commerce effects a per se taking.
In 1949, Respondent Department of Agriculture promulgated the Marketing Order Regulating the Handling of Raisins Produced from Grapes Grown in California (“Marketing Order”) under authority of the Agricultural Marketing Agreement Act of 1937 (“AMAA”). The purpose of the Marketing Order (codified at 7 C.F.R. § 989) is to stabilize the supply of raisins from year to year, in order to make the market, and thus the prices, for raisins more predictable.
In order to achieve this goal, handlers of raisins are required to divert a certain percentage of their crop, received from producers, each year to a reserve. The Raisin Administrative Committee (“RAC”) determines this percentage, known as the “reserve tonnage.” In contrast to the “free tonnage,” which can be “sold on the open market,” the diverted raisins are disposed of by the RAC in various ways, sometimes via sale in noncompetitive markets. After administrative costs are deducted, producers receive a pro-rata share of the remaining proceeds. The amount of money distributed each year varies: in some years it “is significant; in other years it is zero.” Additionally, in selling the diverted raisins, the RAC has a duty to sell the raisins in a way that maximizes producer returns. If a producer does not divert the proper percentage of raisins, the Secretary of Agriculture may impose a penalty subject to administrative and judicial review.
Petitioners Marvin and Laura Horne (collectively “the Hornes”) are raisin producers who, being “dissatisfied with what they viewed as an out-dated regulatory regime,” attempted to structure their operation so that the Marketing Order would not apply to their raisin crop. Typically, raisin producers sell their harvest to a handler, who “stems, sorts, cleans or seeds” them. The handler is then responsible for diverting the required percentage of raisins to the reserve pool. The Hornes, however, decided that after producing their raisins, they would perform the traditional functions of a handler, both with respect to their own raisins and the raisins of a number of other producers, without acquiring title. They believed that they would not fit the definition of a “handler” as defined in the Marketing Order, and therefore would not be required to divert any raisins to the reserve. For the 2002-03 and 2003-04 seasons, the Hornes did not reserve the required 47 percent and 30 percent of their raisin crop as set by the RAC for those years, respectively.
While the Hornes thought their business model would allow them to forgo the reserve requirement, the Secretary of Agriculture determined that the Marketing Order did in fact apply to them. Following administrative proceedings, a U.S.D.A. Judicial Officer found the Hornes liable for several regulatory violations, including a failure to divert the necessary raisins, and imposed a monetary penalty of $695,226.92. The Hornes sought review of that agency decision in the United States District Court for the Eastern District of California (“district court”). In court, the Hornes argued they were not “handlers” as defined by the Marketing Order, and also that “the agency's order violated the Takings Clause [under the Fifth Amendment] and the Eighth Amendment's prohibition against excessive fines.” The district court granted summary judgment in favor of the Secretary of Agriculture.
The Hornes, thereafter, appealed to the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”), which affirmed the district court’s decision with respect to the Hornes’ statutory claims and Eight Amendment claim, and further held that the court did not have jurisdiction over the Horne’s Takings claim. The Hornes then sought certiorari, successfully, in the United States Supreme Court.
In 2013, Horne v. Department of Agriculture, the Supreme Court reversed the Ninth Circuit, held that the court did have jurisdiction over the Takings claim, and remanded the case for a determination of the merits of that claim. Later, on remand, the Ninth Circuit held that the raisin diversion program did not constitute a constitutional taking under the Fifth Amendment, and affirmed the district court’s decision. The Hornes again sought certiorari in the United States Supreme Court, which the Court subsequently granted on January 16, 2015.
The Supreme Court is confronted for a second time with this dispute between the Hornes and the Department of Agriculture. However, in this case, the Court must now grapple with whether the Marketing Order constitutes a property “taking” under the Fifth Amendment. Additionally, if a property taking has occurred, the Court must consider whether there is sufficient compensation for raisin producers, or whether this issue should be remanded.
The Hornes argue that the Marketing Order constitutes a categorical—or “per se”—taking of their property under the Fifth Amendment. They specifically argue that the Marketing Order requires that a portion of all raisin crops be segregated and held by the government. This requirement, according to Horne, interferes with the Hornes’ dispositional control of their raisins, and requires sufficient compensation. The Hornes further contend that there are no sufficient provisions at law that justly compensate the Hornes for their financial losses due to the Marketing Order.
The Department of Agriculture, on the other hand, argues that the Marketing Order cannot be construed as a categorical taking under the Fifth Amendment. Instead, the Department of Agriculture contends, the Marketing Order can best be construed as a usage restriction, which is subject to a balancing test that favors the government’s purposes to constrain unfettered raisin sales. Nevertheless, the Department of Agriculture insists, even if such a usage restriction could be viewed as a property taking, the Tucker Act provides clear and reasonable means for raisin producers to be compensated for reserve raisins held by the Department of Agriculture under the Marketing Order.
WHAT CONSTITUTES A FIFTH AMENDMENT TAKING?
The Hornes argue that the Marketing Order constitutes a categorical taking under the Fifth Amendment. The Hornes explain that the Marketing Order requires raisin producers to relinquish possessory and dispositional control over their raisins. The loss of control is especially evident, the Hornes argue, because the Marketing Order requires that producers physically segregate “reserve” raisins, which are then transferred to the government’s Raisin Administrative Committee (“RAC”) for holding and distribution. This physical intrusion into the Hornes’ raisin crop, the Hornes contend, constitutes a per se taking under the Supreme Court’s decision in Loretto v. Teleprompter Manhattan CATV Corp.
The Department of Agriculture urges that the Hornes improperly read Loretto and Lucas v. South Carolina Coastal Council to expand what constitutes a “taking.” The situation here, the Department of Agriculture avers, does not constitute a permanent physical occupation because the Hornes are not fully dispossessed of the raisins’ essential property right: the revenue or sale proceeds. At worst, the Department of Agriculture continues, the regulation is assessed under the balancing test set forth by the Supreme Court in Penn Central Transportation Co. v. City of New York. Under Penn Central, the Department of Agriculture explains, the Court must apply a balancing test to determine whether the government regulation gives rise to an injury that deserves compensation. In this case, the Department of Agriculture concludes, because the government does not fully retain the essential property right in the raisins (the sale proceeds) and the Marketing Order passes Penn Central balancing, there is no taking.
Instead, the Department of Agriculture argues, the Marketing Order is simply a use restriction, rather than a taking. In support of this argument, the Department of Agriculture notes that it does not retain the economic interests of the raisins collected by the RAC. Instead, the RAC collects the reserve raisins, sells them at a rate to stabilize market prices, and then delivers the net proceeds to the raisin producers.Because this is a usage-and-timing restriction, it is not subject to takings jurisprudence according to the Department of Agriculture. Rather, the Department of Agriculture asserts, use-and-time restrictions must comply with the Supreme Court’s nexus and proportionality requirements set out in Nollan v. California Coastal Commission and Dolan v. City of Tigard. Here, the Department of Agriculture argues, the Marketing Order is appropriately related and proportionate to the harm that the government seeks to control: wildly unstable raisin market prices. Finally, the Department of Agriculture concludes, the actual regulation is voluntary, because the raisin producers choose to enter the market and therefore willingly submit to the RAC’s Marketing Order. Furthermore, the Marketing Orders are controlled by the raisin producers, who represent the vast majority of votes necessary to approve the raisin reserve levels.
The Hornes disagree, arguing that the Marketing Order’s raisin reserve requirements are anything but voluntary. In order to enter the market at all, the Hornes continue, there is a raisin reserve requirement, or a civil penalty for failure to appropriately segregate a raisin reserve. This requirement, the Hornes assert, is the equivalent of a taking because the government seizes control over the grapes. In fact, the Hornes contend, the RAC takes, in a real sense, title of the raisins while the producers retain only a contingent interest in the leftover money. Furthermore, the Hornes continue, the Marketing Order cannot be construed as a use-and-time restriction because it fails the nexus and proportionality tests under Nollan and Dolan: appropriate price stabilization is through volume controls, not reserve requirements. Moreover, the Hornes assert that the Nollan and Dolan tests “represent an exception [(relevant only in land use permitting)] to the general rule that the government’s demand for physical property must be analyzed as a per se taking, not a use restriction.”
WAS THERE SUFFICIENTLY JUST COMPENSATION?
The Hornes argue that even if an economic interest is retained in the seized property—here, through the net proceeds the RAC distributes from the raisin reserve sales—compensation is still required by the government following a taking. In this case, according to the Hornes, the compensation would be to enjoin any fees assessed against the Hornes when they refused to segregate a raisin reserve. The Hornes, however, agree that whatever the value of the seized grapes are, that the actual compensation might be mitigated based upon the net proceeds the RAC delivers to grape producers.
The Department of Agriculture, on the other hand, contends that in this case, if a taking is found, just compensation requires a new trial for factual development. Regardless, the Department of Agriculture continues, takings jurisprudence merely requires that there be a certain and adequate provision to compensate for taken property, and that the Court need not create a new regime to determine appropriate compensation. In this case, the Department of Agriculture urges, the Tucker Act provides sufficient legal recourse to ensure just compensation. While the Hornes may be conflating their status as either producers or handlers in this case, the Department of Agriculture remarks, the AMAA does not preclude raisin producers from seeking just compensation from the government by the Tucker Act.
In this case, the Supreme Court will determine whether the Marketing Order, which requires that a percentage of a crop be set aside into a reserve pool, effects a taking. The Hornes argue that the Marketing Order constitutes a categorical taking under the Fifth Amendment and, thus, requires just compensation. The Department of Agriculture, on the other hand, argues that the reserve tonnage requirement, as set by the RAC, is simply a time-use limitation that is lawful and does not require just compensation under the Fifth Amendment. The Court’s resolution of this case will have important implications, not just for the Hornes, but also for agricultural producers and for the property rights of people generally.
EFFECTS ON PROPERTY RIGHTS GENERALLY
The Chamber of Commerce, in support of the Hornes, worries that if the raisin diversion program does not constitute a constitutional taking, there will be negative practical effects on “property rights in a broad range of contexts.” For instance, the Chamber of Commerce argues that a factual, ad hoc approach to determining whether a regulatory taking has occurred puts substantial burdens on property owners and will diminish predictability and certainty about what constitutes a taking. Moreover, the CATO Institute, also in support of the Hornes, asserts that upholding the Ninth Circuit’s decision will allow the government to manipulate the takings doctrine, because the government can avoid a successful takings challenge by simply giving the property owner a contingent interest in the taken property. Thus, the government could simply characterize a public benefit as a contingent interest, effectively taking property without providing compensation according to the CATO institute.
The Department of Agriculture, on the other hand, believes that the Marketing Order does not amount to a government taking and that upholding it will not have dire consequences on takings jurisprudence. For one thing, the Department of Agriculture submits, the Marketing Order does not apply to “any raisins a producer choses to retain for his own consumption or for any other reasons.” Rather, it only affects raisins heading to market, according to the Department of Agriculture, and the “government has traditionally exercised a high degree of control over commercial dealings concerning personal property.” Additionally, the Department of Agriculture asserts that producers, under the Marketing Order, retain the most important right regarding their raisins sent to the reserve: “the right to receive net proceed from the sale of that portion of their fungible commodity.”
EFFECTS ON THE RAISIN AND OTHER AGRICULTURE INDUSTRIES
The DKT Liberty Project and several independent raisin growers in support of the Hornes (collectively “DKT Liberty Project”) argue that the Marketing Order places a severe burden on independent raisin producers—with little benefit to them—while at the same time introducing uncertainty to the industry. Additionally, the DKT Liberty Project asserts that, because the Marketing Order is similar to many other agricultural orders in California, the Supreme Court’s decision will impact regulation of other crops, and therefore, producers of other crops in California. The DKT Liberty Project claims that if the Supreme Court does not find the Marketing Order to constitute an unconstitutional taking, the government will be incentivized to institute more severe regulations on agriculture, or even to apply these types of regulations to producers of manufactured goods.
The Department of Agriculture counters that if the raisin diversion program is a constitutional taking, the government will be limited in its ability to protect producers and consumers, because dealing with takings issues would disrupt the government’s ability to regulate. This is especially important in the raisin industry where, according to the Department of Agriculture, “supply can vary dramatically from year to year” and generate large price swings. Accordingly, the Department of Agriculture argues, to implement a per se rule—“that any regulation that affects possessory rights triggers a per se taking”—would disregard the benefits that the reserve program brings to raisin producers. These benefits include, according to Sun-Maid in its earlier amicus brief in the 2013 Horne case, “avoiding [the] price volatility that was endemic prior to promulgation of the raisin marketing order,” which “benefits the entire raisin industry.”
The Supreme Court has an opportunity to clarify whether certain regulatory structures may constitute a taking under the Fifth Amendment. The Hornes argue that the reserve requirements set by the RAC, under the Department of Agriculture’s Marketing Order, constitutes a taking under the Fifth Amendment that requires just compensation. The Department of Agriculture, on the other hand, argues that the restrictions are simply a time-use limitation to minimize market price disruptions, which do not require just compensation under the Fifth Amendment. This case will have important implications for property owners generally, and will affect the government’s options regarding how to regulate to protect producers and consumers.
- Michael Doyle: U.S. Supreme Court Argument Set in Challenge to Raisin-Price Regulation, The Fresno Bee (Mar. 13, 2015).
- David A. Fahrenthold: One Grower’s Grapes of Wrath, Washington Post (July 7, 2013).