"It's Frank's world, we just live in it."
- attributed to Dean Martin, about Frank Sinatra
A narrowly drawn opinion from the Supreme Court in Horne v. Dep't of Agriculture, No. 14-275, argued in April and to be decided by the Court sometime before the Term ends this month, could attract more than the needed five Justices to form a bare majority, and the initial reports from the arguments agree that the Hornes' takings argument appeared to gain traction with at least a couple of Justices from the Court's left bloc. Combined with the property-friendly Justices and Justice Kennedy (who appeared to view the government's arguments with great skepticism), they could put the Hornes well over the top.
There may be much more at stake, however, if any part of the government's arguments -- a full-throated defense of the overweening regulatory state -- are accepted.
Earlier today, I spoke to the ABA Section of State and Local Government Law's Land Use Committee about the oral arguments and the case. My remarks are reprinted below. The merits and amicus briefs filed in the case are available here. The sound recording of the arguments is posted above, and the argument transcript is posted here.
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Horne is one of those cases that could easily be overlooked because it’s not a traditional regulatory takings or inverse condemnation case in which a property owner is asserting a positive claim that the government has either physically harmed, or overregulated her real property such that it is the equivalent of the exercise of eminent domain, and seeks just compensation as the remedy.
Here, the takings claim arose as a defense by the Hornes to what Justice Kagan characterized as “perhaps the world’s most outdated law” the first time the case went up to the Supreme Court. They assert the USDA cannot 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 want those fines to be voided, and are not – at least now – asking for 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 in the U.S. Court of Federal Claims exclusively, and were not required to only seek just compensation as their remedy. They could, the Court held, raise a takings defense, and were not limited to the ridiculous process that the Ninth Circuit would have required them to pursue: which was pay the fines in the District Court, and then later seek for those fines to be reimbursed as just compensation by way of a Tucker Act claim in the Court of Federal Claims. The CFC was, in the Ninth Circuit’s view, the only court with subject matter jurisdiction to consider a takings claim against the federal government, even when it is raised as a defense.
As a regulatory enforcement action, 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, and I won't go into great detail on how it works. But here’s the short version.
The statute is one of those New Deal-era price controls designed to pump up the price of raisins by limiting supply through something called a “raisin marketing order.” I won’t get into the statute’s technical distinction between a raisin “producer” (essentially, someone who grows raisins) and raisin “handlers” (who buy raisins from the producers, and who manage the sale further down the supply chain), but suffice it to say that the raisin marketing order requires producers to physically reserve a certain percentage of their yearly crops “for the account of” the Raisin Administrative Committee, an agent of the USDA.
The Raisin Administrative Committee, in turn, controls the sale of these “reserve tonnage raisins” and keeps the proceeds for itself, or distributes them to the handlers. The bottom line is that producers are 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 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 in the USDA’s regulatory appeals process. The Hornes sought judicial review in the U.S. District Court under the APA.
Thus, their takings defense: you can’t do this USDA, because you are physically taking our raisins and in effect turning them over to someone else for public benefit or use, all without just compensation.
So after the Supreme Court rejected the Ninth Circuit’s jurisdictional dodge, it sent the case back to the Ninth Circuit for a decision on the merits. That court again pulled another fast one, however. It held that this was not a taking because – get this – raisins are personal property and not real property, and thus were 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 decision was so ridiculous that the government didn’t even defend it, and although regulatory takings nerds were a bit surprised that the Supreme Court granted cert again simply because this was the second time up (and a single grant of cert is rare, much less two in one case), we kind of were not all that surprised given the low-hanging curve ball which the Ninth Circuit’s rationale 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.
I was able to attend the Supreme Court’s oral arguments in late April, and came away with some distinct impressions.
First, and here’s the bottom line up front: I’m pretty sure that the Hornes argument has secured more than the five justices needed for them to win, and indeed, they may get a few more than a bare majority if the questioning – and the government’s responses – are any indication. Some Court observers have even suggested that this may be another unanimous Court, although I have some reservations about that.
But all you need is five.
I think that at least this many justices will view the reserve requirement as a physical taking, subject to the per se rules of Kaiser Aetna and Loretto. Despite arguing otherwise in its briefs, the government admitted during argument that title to the reserve tonnage raisins was transferred to an agent of the government – the Raisin Administrative Committee – meaning this is a physical occupation.
And what of the Ninth Circuit’s ruling that the physical takings rules don’t apply because raisins are not real property? The government – wisely, in my view because it would have been hard to make with a straight face – did not defend this rationale at either the cert or merits stage. So I think all of the Justices will agree that there’s no distinction between personal and real property for purposes of applying the Court’s categorical takings rules. No Justice seemed prepared to defend the Ninth Circuit on this one.
So the question is whether there are any other rationales that would support the Ninth Circuit’s ruling.
And here is where I think it gets particularly interesting. Because the government’s response was what I would call a full-throated defense of the regulatory state. Hobbes’ Leviathan, if you will.
You recall that apocryphal statement, attributed to Dean Martin, that “it’s Frank [Sinatra’s] world – we just live in it?” Well, that’s how I viewed the government’s argument. The federal government is permitted to control the markets and establish the ground rules for entry, exit, and participation. Yes, you can grow raisins, but if you want to sell them, you must play by the rules we set. The markets are their world, and people like the Hornes who actually produce things – well, they just live in it.
The SG attempted to characterize the regulatory scheme as simply an “in kind tax,” and “just a standard regulation.” It argued that these regulations benefitted the Hornes, and that they were free to do other things with their grapes if they didn't like the raisin regulations and government seizure. Nothing to see here, folks, move along.
And while this elicited a strong reaction from certain usual suspect Justices – Justice Scalia remarked that “[c]entral planning was thought to work very well in 1937, and Russia tried it for a long time” – but Justice Breyer picked up on the government’s argument, and noted that the Hornes may be “free riders” – they benefited from the price increases which have been attributed to the Raisin Marketing Orders, but are ungrateful and not willing to take the bitter with the sweet. On one hand, they enjoy the fruits (so to speak) of the price controls in the form of higher prices for their raisins, while at the same time are challenging the very program from which they benefit.
The Los Angeles Times picked up on this characterizing the Hornes' challenge as "[t]he case [which] could unravel one of the last New Deal-era programs that allows farmers to band together with government backing to prop up prices." There is a huge difference, however, between a program that allows farmers to voluntarily “band together” and a coercive mandatory requirement that if you want to sell raisins that you grow, you’ve got to agree to give up a portion of your crop.
Three of the Court’s prior cases were on the Justices’ minds.
First, Leonard & Leonard v. Earle, 279 U.S. 392 (1929). In that case, 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. This case, hardly mentioned in the government’s merits brief, played a key role at oral argument, because in the government's view, it meant the Court long ago upheld these type of regulations as a tax, even though the USDA has never before argued the raisin marketing order was a “tax.” After all, the same tactic worked in the ACA case, so why not here?
Professor McConnell, the Hornes’ lawyer, attempted to distinguish the Leonard case, arguing that there’s a difference between wild oysters grown on state-owned sea beds (for which the oyster harvesters needed a state license), and raisins grown on private land. The regulatory police power hawk commentators certainly have picked up on the thread, arguing this mean “game over, man, game over.” Whether that distinction gains any traction, we shall see.
Second, the Justices focused on Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984). There, the Court upheld a requirement that Monsanto turn over trade secrets to the government and disclaim any takings claim in return for the privilege of selling certain products. Again, on its face, this seems like a good case supporting the government.
Professor McConnell also sought to distinguish the case, arguing that later opinions such as Nollan cut back on that ruling by concluding that the certain rights – in Nollan, the right to use and develop one’s own property – could not be characterized as a government benefit. And here, he argued, the right to sell raisins that you grow is not some “government benefit.”
The third case which played into the arguments was Yee v. City of Escondido, 503 U.S. 519 (1992). That was a takings case which held that owners of mobile homes which were put up for rent do not have a physical takings claim because they voluntarily opened up their properties to the renters. Nobody forced them to rent their properties. Thus, they could not argue that the rent controlled tenants occupying their land. This case’s rationale, if affirmed by the Court, could support the government’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.” No one is forcing them to sell their raisins.
Justice Alito proposed the most evocative hypothetical of the day, when he asked whether it would be okay for the government to require cell phone manufacturers, as a condition of selling them, to set aside one out of every five phones for a give-away.
Is there any is there any limit to that argument? There are some examples in the briefs that are pretty startling. Could the government say to a manufacturer of cellphones, you can sell cellphones; however, every fifth one you have to give to us? Or a manufacturer of cars, you can sell cars in the United States, but every third car you have to give to the to the United States.Tr. at 28-29.
And this I think sums it up. My guess is that more than five but perhaps less than all – forgive me, fans of Justice Sotomayor, but her questions in this and other takings cases, and particularly her solo dissent in the Brandt rails-to-trails case last Term give me scant hope that she “gets” takings law at all – will find the government's argument that such set asides are not takings persuasive.
The number of Justices signing on to the majority opinion will also depend, I think, on the remedy. If they get tied up is issues of measuring compensation – which, in my view are irrelevant given the procedural posture of the case – then we might not see unanimity.
The government argued this wasn’t a taking because on the whole, the Hornes are better off under the regulations than not; they actually come out ahead. This is another version of the “free rider” argument outlined by Justice Bryer earlier.But I believe that the Court will successfully avoid that quagmire. Because the Hornes are not seeking just compensation as a remedy (and indeed, in the District Court, they are jurisdictionally barred), merely the voiding of the fines. If they want compensation after all of this, they can -- somewhat ironically given the first Supreme Court decision -- pursue compensation for the taking of their raisins in the Court of Federal Claims.
Overall, I predict that the Court will adhere to its recent general trend in takings cases and issue a narrow ruling which reverses the Ninth Circuit and ends the case. It will not craft new takings doctrine, and will, yet again, affirm the existing rules: physical occupations and wipeouts of all property (personal and real) means you apply the Kaiser Aetna, Loretto, and Lucas rules. Everything else, you go Penn Central. You want declaratory or injunctive relief (or, what I call “you can’t do that” relief), you can go to the District Court. For just comp, you go to the CFC. And oh, file your CFC claim first under Tohono, even if it makes no sense.
Let me wrap up with this thought on how this case is one that every land use lawyer needs to understand, however it comes out. Yes, I know this is about raisins, and reading and understanding the regulatory scheme is a chore. But the Court’s opinion will refine takings doctrine, if not clarify it. (I am not sure that is possible, frankly.) But anything helps, and this decision certainly will.
Stay tuned. A decision is forthcoming this month.
