California, if you weren't already aware, produces raisins. Lots of raisins. It accounts for 99.5% of the U.S. crop and 40% of the world crop.
Since the 1920's, supply has exceeded demand by 30 to 50 percent. Since the 1940's, the USDA has regulated the raisin industry to even out the fluctuation in supplies and prices by creating "annual reserve pools" that remove extra raisins from the market. Those regulations, in the form of "marketing orders," require raisin "handlers" (those who process and pack agricultural goods for distribution) to set aside a certain percentage of raisins from the domestic open market, upon pain of civil and criminal penalties if they do not. The reserve raisins can only be sold for resale in export or secondary markets, with the proceeds used to pay for administration of the regulatory program (naturally), and any balance being distributed among raisin "producers."
In Horne v. U.S. Dep't of Agriculture, No. 10-15270 (July 25, 2011), the U.S. Court of Appeals for the Ninth Circuit dealt with raisin farmers' claims that these regulations worked a taking of their property. Their first claim was that because they altered the nature of their business, they were no longer "handlers," but had become "producers," and were not subject to the reserve requirement. Read pages 9466 to 9467 if you are interested why the court concluded they qualify as "handlers," and were required to fork over between 30% and 47% of their crop to the reserve.
The more interesting part of the opinion is the court's treatment of their takings claim. The plaintiffs asserted that the reserve requirement was a 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). The Ninth Circuit acknowledged their "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." Slip op. at 9469.
The court recognized that a simple physical appropriation 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." Slip op. at 9569-70. But the reserve requirement in the USDA marketing orders are not the same thing:
But a forcible taking is not what the Raisin Marketing Order accomplishes. 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).
Slip op. at 9470 (emphasis original). 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 plaintiffs 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.'" Slip op. at 9472 (quoting Cal-Almond, Inc. v. United States, 30 Fed. Cl. 244, 246 (1994)).
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). See slip op. at 9473-74. 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)'." Slip op. at 9474 (quoting Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1027-28 (1992)). Personal property is different than real property, and the right to sell personal property is subject to the government's power to regulate the market.
We're not sure if this differentiation holds up, or whether it is just another form of the "notice" defense the Court rejected in Palazzolo v. Rhode Island, 533 U.S. 606 (2001) (but which the Ninth Circuit recently upheld in Guggenheim). For example, what if the government adopted a regulation requiring that upon sale of land that's used as rental property, an owner donate a percentage of it to some public purpose? Would the fact that the owner is choosing to sell the land versus develop it a valid distinction, or is there something just fundamentally different about personal property that renders it subject to regulation to the point of nonexistence? It's an interesting question, and we're asking it rather than staking out a position since we haven't quite settled on the answer.
Finally, the court seemed to mix apples and oranges (or should that be raisins and prunes?) when it applied the "economic wipeout" test from Lucas and "parcel-as-a-whole" analysis to the plaintiffs' raisins. The court concluded that the regulations couldn't be a taking because the USDA did not require the plaintiffs to surrender their entire crop. Apparently, the court forgot that the plaintiffs only argued that the regulations resulted in a physical taking, not a Lucas per se taking, or a Penn Central ad hoc regulatory taking. Rather than muddle it up with with fruitless (sorry) analysis of whether the regulations take one raisin or millions, the court should have just stuck to holding that the right to sell raisins in a highly-regulated commercial market is not "property" and it therefore was not taken. That would be better than this confusing and ultimately unnecessary passage, since in physical takings, the Court has noted that it really doesn't matter how much of the property is being taken, or what is left over. See, e.g., Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) (the cable box had a minimal footprint).
What really drove the opinion is on page 9475. The USDA regulations actually benefit the plaintiffs economically, by making the market for non-reserve raisins more profitable. It's pretty much the same vibe that drove the Stop the Beach Renourishment case: a court likely won't look kindly upon a takings case where the plaintiffs appears ungrateful for government help, even when they profess not to want it. See this for the vibe reduced to a cartoon.
Thanks to the Constitutional Law Prof Blog for alerting us to this opinion.
