Koontz Sets The Stage
The apparent sticking point during the January oral arguments in n Koontz v. St Johns River Water Mgmt Dist., No. 11-1447 (cert. granted Oct. 5, 2012), came to light via Justice Scalia's questioning of the property owner's counsel about whether anything had been "taken" when a property owner refused to accept a development permit conditioned on him paying for improvements to public land miles away from his property, because doing so would violate the unconstitutional conditions doctrine of Nollan/Dolan. For how could the owner claim that his property was taken when he didn't accept the permit? The issue was succintly stated by Justice Kagan when she asked point-blank, "where is the taking?" (see p. 11 of the Koontz transcript).
We're still waiting for the opinion in that case so don't have the Court's answer just yet, but Part II of the Koontz debate will likely be taking place on Wednesday, March 20, 2013, when the Court is scheduled to hear oral arguments in Horne v. United States Dep't of Agriculture, No. 12-123 (cert. granted Nov. 20, 2012), the third takings case to be argued this term.
In Horne, the Court is reviewing the Ninth Circuit's opinion which concluded that the court lacked jurisdiction to consider a takings defense raised by raisin farmers who asserted they did not qualify as "raisin handlers" under federal regulations, and could not be required to "reserve" (donate) 47% of their crop to the government because it would be a physical taking. The Ninth Circuit concluded it lacked jurisdiction because the farmers could seek just compensation in a Tucker Act claim in the Court of Federal Claims. "Takings" cases, in the Ninth Circuit's view, are about recovering just compensation and thus must be brought in the CFC if the amount sought is in excess of $10,000.
Some background before we return to that concept.
Raisin Handlers vs. Raisin Producers
This case involves much more than $10,000. For the 2003 and 2004 crop years, the USDA brought an enforcement action against the Hornes seeking to recover the monetary value of raisins they did not turn over to the government under the "marketing order" program, New Deal-era regulations designed to stabilize the raisin market. The Hornes believed they set up their business so they qualified as raisin "producers" and thus were not required to reserve any portion of their crop.
The USDA disagreed and pursued them for $483,843 for the value of the raisin crop they should have set aside, plus $200,000 in civil penalties. In the enforcement action, the Hornes asserted they were not "handlers" and didn't need to reserve any raisins, but even if they were, to impose the reserve requirement would be a prohibited physical taking of their raisins under Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) and Kaiser Aetna v. United States, 444 U.S. 164 (1979). After a losing appeal through the USDA's administrative process, the Hornes also lost in the District Court which ruled against them on all counts.
Ninth Circuit Round I: It's Their Market, You Just Participate In It
The Ninth Circuit affirmed, holding that the reserve requirement was not a taking because the raisin farmers could have avoided the confiscatory regulations by choosing to not enter the raisin market. The panel acknowledged the Hornes' "logic has some understandable appeal" because raisins are property, and they are being taken, but held there was no taking because "their argument rests on a fundamental misunderstanding of the nature of property rights and instead clings to a phrase divorced from context." The court recognized that a simple physical appropriation of raisins would be a taking. "No one suggests the government could come onto the Hornes' farm uninvited and walk off with forty-seven percent of their crops without offering just compensation, even if the seizure itself were justified."
But the reserve requirement in the USDA marketing orders are not the same thing as a direct seizure according to the court, and the regulations were merely the price that raisin farmers have to pay if they want to participate in the raisin market:
Far from compelling a physical taking of the Hornes' tangible property, the Raisin Marketing Order applies to the Hornes only insofar as they voluntarily choose to send their raisins into the stream of interstate commerce. Simply put, it is a use restriction, not a direct appropriation. The Secretary of Agriculture did not authorize a forced seizure of forty-seven percent of the Hornes' 2002-03 crops and thirty percent of their 2003-04 crops, but rather imposed a condition on the Hornes use of their crops by regulating their sale. As we explained in a similar context over seventy years ago, the Raisin Marketing Order "contains no absolute requirement of the delivery of [reserve-tonnage raisins] to the [RAC]" but rather only "a conditional one." Wallace v. Hudson-Duncan & Co., 98 F.2d 985, 989 (9th Cir. 1938) (rejecting a takings challenge to a reserve requirement under the walnut marketing order).
Relying on the rationale of Yee v. City of Escondido, 503 U.S. 519 (1992), the court viewed the raisin sale business as voluntary. In Yee, the Supreme Court upheld a mobile home rent control ordinance against a physical takings challenge, since the landowners were not required to use their property as a mobile home park, and thus the occupation of the land was not required by the government. Same for the raisin industry; no one is forcing the Hornes to participate: "[t]heir argument is founded on an erroneous belief that they have a property right to 'market their [raisins] free of regulatory controls.'"
The court distinguished the ability to sell personal property such as raisins, from the right to develop real property (as in Nollan and Dolan, two cases where the government was prohibited from conditioning the right to build on the owner's agreement to surrender the right to compensation). The government's power to regulate commerce "ought to put a property owner on notice 'of the possiblity that new regulation might even render his property economically worthless (at least if the property's only economically productive use is sale or manufacture for sale)'." Thus, personal property is apparently different than real property, and the right to sell personal property is subject to the government's power to regulate the market (even to the point of requiring raisin producers to surrender their right to compensation for reserved raisins).
Ninth Circuit Round II: A New Gloss On The Old Tucker Act Shuffle
The Hornes sought rehearing and in response, the USDA for the first time asserted that the takings defense was not ripe, and the District Court and the Ninth Circuit couldn't even consider the argument. In an amended opinion, the Ninth Circuit agreed, holding that the exclusive forum for considering takings claims -- even those raised defensively -- is a CFC claim for compensation under the Tucker Act. The Ninth Circuit dismissed the Hornes' takings defense for lack of jurisdiction, effectively telling the farmers that they could not object to the imposition of fines, but must pay and then file a claim for just compensation in the CFC to get the money back. Oddly, the Ninth Circuit didn't wipe out the earlier opinion and substitute an order dismissing the case. It left intact the substantive decision over which it had just ruled it had no jursidiction.
Old takings hands will recognize the Ninth Circuit's ruling as the latest incarnation of the Tucker Act Shuffle, which is like Williamson County ripeness writ small for takings claims against the federal government. Under that theory -- in which district courts only deal with the validity of the regulations and do not consider takings claims, leaving those exclusively to the CFC -- a property owner must either lose in the District Court, or concede the validity of the regulation at issue, and only then be able to pursue the CFC case for compensation. In these situations, the property owner's check to the government paying a fine and the government's just compensation check to the property owner for a taking could literally cross in the mail.
Just a few weeks after the Court granted cert in Koontz, it did the same in Horne, agreeing to consider two Questions Presented:
1. Whether a party may raise the Takings Clause as a defense to enjoin a "direct transfer of funds mandated by the Government." Eastern Enterprises v. Apfel, 524 U.S. 498, 521 (1998) (plurality; quotation marks omitted).2. Whether the federal courts have jurisdiction over petitioners’ takings claim, where petitioners, as "handlers" of raisins under the Raisin Marketing Order, 7 C.F.R. Part 989, are statutorily required to exhaust all claims and defenses in administrative proceedings with exclusive jurisdiction for review in federal district court.
The petitioners' merits brief argued that ripeness prohibits a plaintiff from bringing a claim only where it seeks "anticipatory relief against government action that has not yet taken place," and "does not apply when a party seeks to interpose a constitutional defense to an enforcement action brought by the government at the time and in the forum of the government’s own choosing."
The USDA's merits brief countered that the Hornes only have standing to assert the takings defense as "producers," but the USDA's order was imposed on them "only as handlers." Moreover, claims under the "Just Compensation Clause" must be brought in the CFC, and cannot be raised in the District Courts, even defensively.
A number of amicus briefs were submitted. The brief filed by Texas supporting the Hornes is here. The brief supporting the Hornes filed by the Cato Institute, the NFIB, the Center for Constitutional Jurisprudence, and the Reason Foundation is here. Also supporting the Hornes are the U.S. Chamber of Commerce (here), and five constitutional law scholars (here). The USDA is supported with an amicus brief from the International Municipal Lawyers
Assoociation (here), and by a brief filed by Sun-Maid Raisins (here).
The reason we began this post with a reference to the arguments in Koontz is that we're predicting that the questions that dogged the property owner's counsel in that case will continue to interest the Court here. In Justice Kagan's words, "where is the taking?" In Koontz, the Justices seemed hung up on the semantics of what was alleged to have been taken -- was it the permit, the property owner's right to develop his land, or the cash that was "suggested" he donate to improve the government's land? In Horne, the USDA has taken a similar approach, arguing that the Hornes have not identified what property has been taken -- is it the raisins they were required to turn over, the cash they must pay as a penalty for not doins so, or their right to sell their raisins? Hopefully, counsel for the Hornes will use the oral arguments to clarify that issue, for if the Court can identify "the taking," then the Hornes will have gone a long way to convincing it that they should be able to raise it as a defense.
"Takings" Or "Just Compensation?" -- A Remedies Question
This lead us to what we believe is the issue at the heart of the case: whether the Fifth Amendment contains a "Takings" Clause, or only a "Just Compensation" Clause. The focus of the analysis in regulatory takings law recently, especially after Lingle v. Chevron USA, Inc., 544 U.S. 528 (2005), has been whether a government action is the functional equivalent of an exercise of eminent domain. In many regulatory takings and inverse cases, the usual remedy being sought -- just like in most eminent domain cases -- is the recovery of just compensation. But that's only part of the equation, and there's no reason that after-the-fact compensation is the exclusive remedy under the Fifth Amendment.
The USDA's brief carefully labels it the "Just Compensation Clause" as if that were the only remedy available to a property owner objecting to what it believes is unconstitutional action by the government. But that's never been the case, and property owners have the ablity to challenge an action because it would be a taking if the government were to do it, even if they do not pursue compensation. For example, in Kaiser Aetna, the property owner was not seeking compensation, but only a declaratory judgment that were the Corps of Engineers to impose a navigational servitude on the private marina, it would be a taking. The Court agreed, holding that "if the Government wishes to make what was formerly Kuapa Pond into a public aquatic park after petitioners have proceeded as far as they have here, it may not, without invoking its eminent domain power and paying just compensation, require them to allow free access to the dredged pond." Kaiser Aetna, 444 U.S. at 180. In Loretto, the property owner was not only seeking compensation but an injunction. In Nollan, the property owner sought a writ of mandate ordering the offending condition struck from the permit, and not compensation.
The USDA’s argument is based on the idea that a court does not have the power to stop the agency action that is claimed to be a taking. In other words, a court cannot tell the USDA that it can’t impose reserve requirement (or the fines) on the Hornes because to do so would be a taking. Instead, the Hornes must either reserve the raisins or pay the fine and then seek "reimbursement" by way of an action in the CFC. This doesn’t make much sense, and it is a duplication of legal process and a waste of time to shuttle back and forth from a District Court to the CFC when the same issues are at stake. Indeed, where fines are at issue, the USDA’s "pay-first-then-sue-for-reimbursement" theory reeks of inefficiency and needless process.
If a majority of the Court is inclined to rule in the Hornes' favor, it can limit its ruling by issuing a narrow opinion that deals only with their ability to defend against the USDA, and offering no opinion on the merits of the takings defense. Doing so should allay the fears expressed by the USDA and its amici that a ruling in favor of the Hornes will open the floodgates to courts invalidating vast segments of the regulatory state under the Takings Clause.
We're not going to predict the outcome, at least not yet. But we do offer these prognostications: as in Koontz, Justice Scalia may be the key. If he's convinced that the Hornes can articulate where's the taking, it doesn't seem like a stretch to conclude they can raise that claim defensively. And Scalia has shown an ability to get other Justices to join him in takings cases. Justice Breyer will probably talk about the Penn Central test, as he always seems to, and Justice Kennedy will likely do likewise about Due Process. As for the others, we don't expect them to cross the usual lines in takings cases. And, of course, Justice Thomas won't ask anything (we end on an easy one).
More to follow after the arguments on Wednesday.