"Separate educational facilities are inherently unequal."
Chief Justice Earl Warren,
Brown v. Board of Education
"The Fourteenth Amendment does not enact
Mr. Herbert Spencer's Social Statics."
Justice Oliver Wendell Holmes,
dissenting in Lochner v. New York
"...prejudice against discrete and insular minorities..."
Justice Harlan Fiske Stone, in footnote 4,
United States v. Carolene Products Co.
"Raisins ... are a healthy snack."
Chief Justice John G. Roberts,
Horne v. Dep't of Agriculture
A Supreme Court win is a win, particularly by a margin of 8-1, so we're not going to complain too much about the Court's opinion in Horne v. Department of Agriculture, No. 14-275 (U.S. June 22, 2015), holding that the USDA’s requirement that raisin producers physically turn over a percentage of their yearly crops to the government without being provided compensation is a taking in violation of the Fifth Amendment.
Because the case involved California raisin farmers, and the regulatory scheme which was challenged was so easily subject to mockery, the case has spawned more than a few jokes and horrible puns in the popular media and commentariat, and it certainly brought out the Chief Justice's dry wit, as reflected in the above quote. No less than The Daily Show did a piece caricaturing the USDA’s regulation of raisins (“the product” according to the investigator interviewed, with plaintiff Marvin Horne labeled “a modern day Jesse James”), and nearly every report on the case has not resisted the temptation to make very bad raisin jokes. Even the Court could not hold back, and in addition to the Chief Justice's bon mot, Justice Thomas noted in his short concurring opinion that sending the case back to the Ninth Circuit for yet another try "would be a fruitless exercise." We gave in also, and did a cheeky "unboxing" video.
And don't forget those dancing raisins.
The case was also subject to mockery on the substantive side. The Ninth Circuit’s rationale upholding the law was so transparently ridiculous that the government didn’t even defend it seriously in the Supreme Court. The panel concluded that personal property is not subject to the same constitutional protection as real property, and thus the unconstitutional conditions doctrine of Nollan, Dolan, and Koontz wasn't applicable when raisins are seized.
So it wasn't that hard to predict that the Hornes would prevail in this, their second trip to the Court.
Although "raisins ... are a healthy snack" certainly won't enter the SCOTUS Quote Hall of Fame (while clever, the phrase hasn't even generated an internet meme), it would be a mistake to relegate the case to the humor file, or to write off the Court’s ruling as a result so obvious that there was never any serious question about the outcome.
Round I: Takings Defenses
Horne is also one of those cases that could easily be overlooked by land use lawyers because it isn’t a traditional regulatory takings or inverse condemnation case in which a property owner asserted a positive claim that the government either physically harmed or overregulated her real property such that it was the equivalent of the exercise of eminent domain, and sought just compensation as the remedy.
The takings claim arose as a defense by the Hornes to what Justice Kagan characterized as “perhaps the world’s most outdated statute” the first time the case went up to the Supreme Court two years ago. The Hornes asserted the USDA could not legally impose fines on them for violating a statute that regulates the production and sale of raisins, because to do so would violate the Takings Clause. They defended against the fines under the Administrative Procedures Act, and asked for the fines to be voided. They did not seek just compensation. Indeed, the remedy was the issue resolved unanimously in their favor in the first Supreme Court opinion, which held that the Hornes were not required to press their takings claim exclusively in the U.S. Court of Federal Claims, and their remedies for a taking were not limited to just compensation.
The Hornes could, the Court held in that opinion, raise a takings defense, and were not limited to the bizarre and wasteful process the Ninth Circuit would have required them to pursue: pay the fines in the District Court, and then later seek reimbursement as just compensation by way of a Tucker Act claim in the Court of Federal Claims, which was, in the Ninth Circuit’s view, the only court with subject matter jurisdiction to consider any form of a takings claim against the federal government.
The World's Most Outdated Statute
The litigation began when the USDA fined the Hornes, who had structured their raisin farming and processing operation in such a way that they believed they were exempt from the reach of the statute. The regulatory scheme is, as Justice Kagan aptly noted, complex. But here’s the short version.
The statute is one of those New Deal-era price controls designed to maintain the market for raisins by limiting supply through something called a “raisin marketing order.” We won’t get into the statute’s technical distinction between a raisin “producer” (essentially, someone who grows raisins) and a raisin “handler” (who buy raisins from the producers, and who manage the sale further down the supply chain), but suffice it to say that the yearly raisin marketing order required producers to physically set aside a certain percentage of their yearly crops “for the account of” the Raisin Administrative Committee, an agent of the USDA, an industry group which establishes how much of a producer's yearly raisin crop cannot be sold. Title to the “reserve tonnage raisins” actually transfers to the government, a fact which the Court found critical.
The Raisin Administrative Committee, in turn, controls the sale of these reserve tonnage raisins―which are sold in secondary markets or simply given away―and keeps the proceeds for itself to cover the cost of administering the program, with the excess, if any, being returned to the handlers. The bottom line is that producers may be compelled to turn over title to a large percentage of the raisins they grow to the government (actually, an agent of the government, the Raisin Administrative Committee, but as we shall see, any distinction there was abandoned by the government during oral arguments), and the statute itself provides no compensation mechanism.
The purported goal of the scheme is to stabilize the raisin market by limiting the amount of raisins which are grown each year that can be sold. Apparently, back in the day, raisin farmers weren't all that good at predicting the raisin market, and as a result they grew more than the market could bear, and the prices dropped. Until the Hornes, however, apparently no one asked whether the program was still a good idea, nor had anyone challenged it.
The Hornes established a system where they were both producers and handlers and they didn’t comply with the reserve tonnage requirements. This raised the ire of the USDA, which imposed massive fines―nearly $700,000―which were affirmed during the USDA’s regulatory appeals process. The Hornes sought judicial review in the U.S. District Court under the APA, interposing a takings defense that argued, in essence, “you can’t do this, USDA, because you are physically taking my raisins and, in effect turning them over to someone else for public benefit or use, all without just compensation.”
Round II: Fast Times in the Ninth Circuit
After the Supreme Court in the first round rejected the Ninth Circuit’s jurisdictional dodge which concluded that the only forum in which a property owner can raise a takings argument (even as a defense) is the Court of Federal Claims, the Court sent the case back to the Ninth Circuit for a decision on the merits.
That court pulled another fast one. (We say "fast one" because the Ninth Circuit panel had already ruled on the merits, issuing an opinion in the first case, and then withdrawing it in favor of the no-jurisdiction opinion which the Supreme Court eventually vacated. In the withdrawn opinion, the Ninth Circuit had ruled that there was no taking.)
So it was no surprise when the panel got the case back and on the merits (again) held that this was not a taking because raisins are personal property and not real property, and thus are not subject to the “physical occupation” per se rule of Kaiser Aetna, Loretto, and similar cases that we land use lawyers know intimately. The basis of the Ninth Circuit’s decision was so outrageous that the government didn’t seriously defend it in the Supreme Court, and although those of us who follow regulatory takings cases were a bit surprised that the Supreme Court granted cert again simply because this was the second time up (and that is rare), we truly were not all that surprised given the low-hanging curve ball which the Ninth Circuit’s rationale had offered up. There’s never been a substantive distinction between personal and real property for purposes of takings or expropriation, back to the colonial days and even earlier, so it was hard to see how this rationale could survive.
It didn't, and the Supreme Court’s majority opinion expressly tracked the Hornes’ three Questions Presented, answering each seriatim.
Question 1: Personal vs Real Property
Every justice but Justice Sotomayor rejected the Ninth Circuit’s rationale. The opinion, authored by the Chief Justice, found it critical that title to the raisins actually transferred from the Hornes to the government, and that the raisins were required to have been “physically set aside.” Magna Carta and the Takings Clause in our own constitution were probably adopted in at least partial response to the “arbitrary and oppressive mode of obtaining supplies for the army” ― which were takings of personal and not real property.
Once it acknowledged that the same rules govern personal and real property, the eight-justice majority applied the long-standing physical takings rule, easily rejecting the Ninth Circuit’s conclusion that Lucas established a distinction between physical takings of personal property and takings of real property. The Lucas language relied on by the Ninth Circuit involved regulatory takings and not actual appropriations; Lucas wasn’t a physical taking case, but rather a regulatory wipeout, an entirely different animal.
Question 2: Raisins Are Not Eagle Feathers, Pesticide Trade Secrets, or Oysters
The Court also rejected Justice Sotomayor’s assertion that this was not a taking because the regulations didn’t result in a total wipeout of the raisins’ value. After all, the government argued that the regulations allowed in certain circumstances for producers such as the Hornes to potentially get some return, and a hypothetical, future interest is enough to say that the raisins were not taken. The Court rejected this theory, holding that a “contingent interest of indeterminate value” does not lessen the blow of a physical appropriation of the raisins.
To reach this result, the majority rejected each of the cases which the USDA had raised to argue that the Court had, in years past, upheld similar schemes. The government prohibition on the sale of eagle feathers wasn’t a confiscation of the feathers and left their owners with other valuable rights, so it wasn't a regulatory taking. But the Hornes, unlike the owners of the eagle feathers, actually lost possession of their reserve tonnage raisins, so it was not relevant whether the requirement left them with value. Nor are raisins like dangerous pesticides, so in Monsanto, the government could validly condition entry into the pesticide market on the surrender of trade secrets. Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984). This is where the "healthy snack" bit came in. And raisins are not oysters, which are wild animals owned by the state on state land. Raisins, by contrast, are private property, grown on private land. Leonard & Leonard v. Earle, 279 U.S. 392 (1929) (the Court upheld a Maryland state tax, which required oyster farmers turn over to the state 10% of the empty oyster shells which they harvested, or pay a monetary equivalent).
Question 3: "Let Them Sell Wine?"
The Court also rejected the USDA's attempt to characterize the regulation as a mere “use restriction” akin to a condition in a land use permit. The government had argued that it was the master of the raisin market, and if the Hornes wanted to play, they had to pay the price of admission. Which they did voluntarily, according to the government. Having agreed to participate, they could not object to the price of the ticket, the raisin marketing order's restrictions. The USDA also argued the Hornes were not being forced to use their grapes for raisins, or to even grow grapes at all. This “[l]et them sell wine” theory was also soundly rejected by the majority.
Interestingly, the majority completely ignored Yee v. City of Escondido, 503 U.S. 519 (1992), a case relied upon by the USDA, which held that owners of mobile home parks which rented space to mobile home owners did not have a physical takings claim that an ordinance controlling the rent they could charge was a physical taking because they voluntarily opened up their properties to the renters. Yee's rationale, if applied to the Hornes, might have supported the USDA's argument that “hey, no one is forcing the Hornes to grow and sell raisins,” and “they can always do something else with their grapes and not turn them into raisins.” Which would take the wind out of the Hornes' sails on the physical takings trump card. But only Justice Sotomayor’s dissent mentioned that decision.
The majority did cite PruneYard Shopping Center v. Robins, 447 U.S. 74 (1980), the case in which the Court held there was no taking when the California Supreme Court interpreted the free speech provision in the California Constitution tp bar the owner of a shopping center from excluding someone based on the content of their speech. See slip op. at 11 ("The owner retained the value of the use of the property as a shopping center largely unimpaired, so the regulation did not go 'too far.'"). That's a very unsatisfactory read of PruneYard in our view, because its difficult to see in either that case or Yee how the regulations at issue did not require a physical occupation, at least to the same extent as the raisin marketing order did.
A Taking Without Compensation?
Finally, we get to the main disagreement: did the regulation which resulted in the physical occupation of the Hornes' raisins also provide them "in-kind" compensation (and thus, there was no unconstitutional, uncompensated taking)?
Three Justices (Breyer, Ginsburg, Kagan) dissented, and wanted to send the case back to the Ninth Circuit to figure out whether the Hornes may have benefitted more from the regulations than the value of the taken raisins. If so, no problem.
The majority rejected this argument (which seemed to be gaining some traction during oral arguments), and held that nothing further was needed. The appellate remedy was thus an outright reversal of the Ninth Circuit -- and not the usual vacate-and-remand -- with judgment entered for the Hornes. Game, set, match.
Chief Justice Roberts and the majority concluded that the just compensation in this case had already been calculated: the amount of the fine imposed by the USDA, which was supposedly based on market value of the raisins. The point of this wasn't to calculate the compensation that the Hornes are owed -- recall that the takings argument was raised as a defense to the fines imposed, the Hornes never paid the fines, nor did they seek compensation in the Court of Federal Claims -- but a clever way for the majority to show that no compensation had been offered. Indeed, the amount of the compensation was already known, and the USDA had attempted to impose the cost on the Hornes and not the other way around. Essentially, the majority concluded the USDA had conceded that no compensation had been paid, and thus there was nothing to remand.
The Chief Justice's sleight-of-hand was cute, but much too hard in our view. What mattered was that the regulation itself didn’t provide for compensation and the USDA didn't offer any. There never was any need to calculate compensation in this case, just determine that the government didn’t provide any, and the Hornes didn’t get any. The Court decided that in the first go-round, when it held the Hornes could raise their takings defense in the district court, and didn’t need to pay the fine, and then go ask for it back as just comp in a court of federal claims action.
Justice Breyer and Special Benefits
Justice Breyer and the dissenters' disagreement was with the lack of remand. He wrote that the case should have been sent back to the Ninth Circuit to calculate whether the Hornes received just compensation, since the takings clause says, you know, "no takings without just compensation." Maybe the Hornes were compensated by other means, such as having the market price of their raisins raised or stabilized, for example. He didn't know, so argued for remand (this is where the Chief Justice's clever maneuver worked in: the majority knew how much compensation the Hornes would have been deprived of -- the amount of the fine -- and because the government thus tacitly admitted that no compensation had been paid, there was no need for a remand to calculate it).
This average-reciprocity-of-advantage argument wasn’t pushed too hard by the government, and it was not in the Questions Presented. The Ninth Circuit had not decided it. “It was barely touched on in the briefs,” according to Justice Breyer. So he Posnered it and did his own research and theorizing, and the dissenters relied on Bryer's version of the "benefits" rule to support their point that when looked at overall, the Hornes might be better off in the program than outside it.
The benefits rule is from eminent domain: when a taking increases the value of property, the increase, in some circumstances, has to be taken into account. So if a new road takes property and that road creates access to the remaining land that wasn’t there before, the land may be worth more in its after condition than before.
But this is not a general rule as Bryer set out, but rather the special benefits rule, applicable only in certain situations involving (1) partial, and not total takings; (2) where the “benefits” are specific to the remainder property, and not shared with the public; and (3) and special benefits to the remainder may only be set off against damages to the remainder, and not to just compensation for the property actually taken (at least in my jurisdiction).
In our view, Justice Bryer was, in effect, is trying to bootstrap a narrow just compensation doctrine (that no party presented or argued) into the question of whether there’s been a taking at all, even in a case of a physical occupation. Which seems wrong. This sounds more like “regulatory just compensation” and not “regulatory takings.” Takings is concerned with impact on the property, not value to the taker. And when there’s been a physical taking, you really don’t care how or if property not taken has been benefited at all.
And what to make of Justice Sotomayor's solo dissent, which argued that there was no taking at all, because the USDA didn’t take all of the Hornes’ rights in their raisins?
The rights they have, according to Justice Sotomayor, is that contingent remainder that we mentioned earlier. To her, the raisins were like eagle feathers, like pesticides, and like oysters. They are especially like mobile homes. To Justice Sotomayor, a physical occupation is no different than other cases, and must utterly destroy the value of property for it to be deemed a taking. Which is just another way of bootstrapping in the Penn Central ad hoc economic test into per se physical takings doctrine. A non-starter with her fellow Justices, and rightly so.
Takeaways from Horne
- Physical takings: Still the Holy Grail of regulatory takings law. Although regulation can depress the value of property severely without it being a taking, a physical take is different. Even a small one. Does the physical take fetish make sense? Not really, because why should a regulation that nearly -- but doesn't totally -- wipe out the value of property be for the most part deemed okay, while a de minimus physical intrusion that causes little impact (Loretto) be treated like the apocalypse? No good reason, as far as we can tell. But there's no likelihood the Court will be abandoning this distinction in the foreseeable future.
- Conditions: The government can’t make the ticket to admission to the raisin market conditional on giving up some of the product. See slip op. at 13. We think this is the biggest point to take home from Horne, and a prime area for future cases. Yes, the government can control markets, overwhelmingly. The line the Court is unwilling to cross, however (with the sole exception of Justice Sotomayor) is when those market controls require someone to physically surrender things. Like raisins. Like a small portion of the space on a rooftop for a cable box. And so forth.
- Ground Rules: Horne should leave takings lawyers doing what they’ve always done in these type of cases: property advocates will seek the physical take or its equivalent in the regulatory requirement, while police power advocates will argue that it’s only regulation, and not the physical invasion as in Loretto (permanent occupation), Kaiser Aetna (public easement for navigation), and now Horne (taking title and possession).
- Future issues: The next case may be right around the corner, the California Supreme Court's "workforce housing" case. Was it an "exaction" that imposed a physical taking, or a mere "economic regulation" reviewed under rational basis? Did San Jose's requirement force developers to allow occupation of their property, as alleged by the plaintiffs? What about rent control -- does Yee's rationale that a physical occupation isn't really a physical occupation if the owner "voluntarily" opened up their land to renters survive Horne (and the Court's noticeable lack of citation to Yee)? And what of other, similar agriculture programs -- can the government get around Horne simply by rewriting the reserve tonnage requirements as prohibitions on sale without requiring a transfer of title, and thus mere regulatory restrictions on use that do not impose a physical occupation?
Our final thought on Horne is it says something that a case like this -- and the pervasiveness of the regulatory Leviathan -- dragged on for so long, and took two property owner trips to the Supreme Court before the government was compelled to let go of a program that nearly everyone laughs at when they find out about it.