New Deal-Era Law Violates Taking Clause
June 23, 2015
By: Ara Jabagchourian
In a 5-4 decision on Monday, the U.S. Supreme Court has held that a New Deal agricultural program that requires farmers to set aside portions of their crop for the account of the government is a violation of the Takings Clause of the Fifth Amendment. The case of Horne v. Department of Agriculture involved a Fresno farmer who refused to set aside a portion of his raisin crop.
During the wave of New Deal legislation, the Agricultural Marketing Agreement Act of 1937 authorized the secretary of agriculture to promulgate “marketing orders” for the purpose of stabilizing markets for particular agricultural products. The law was instituted to resolve the classical “farmer’s dilemma” which led to plummeting prices when market prices increased the previous season. In the case of raisins, the marketing order required growers in certain years to give a percentage of their crop, free of charge, to the government — though the growers were still entitled to proceeds from any sales made by the government, minus costs. The percentage was determined by the Raisin Administrative Committee, an entity consisting of growers and others in the raisin business who are appointed by the secretary of agriculture.
Growers typically ship their crop to “handlers,” who physically separate the crop due to the government. The handler then pays the grower only for the remaining crop. The government takes title to the reserve raisins and decides how to dispose of it. This includes selling them in non-competitive markets, donating them to charity, and disposing of them in by “any other means” consistent with the raisin program.
The Hornes are growers as well as handlers of both their own and other growers’ raisin crops. In 2002, the Hornes refused to set aside the 47 percent demanded by the government. When the government sent in trucks to collect, the Hornes refused entry. In response, the government fined them over $480,000 (market value of the raisins) plus $200,000 in civil penalties. Efforts by the government to collect these fines triggered the litigation.
The case first made it up to the Supreme Court on the issue of jurisdiction. The lower courts held that they did not have jurisdiction to consider the Hornes’ defense that the fines were an unconstitutional taking under the Fifth Amendment. The Supreme Court reversed and remanded. The 9th U.S. Circuit Court of Appeals then held that the reserve requirement was not a per se taking because “the Takings Clause affords less protection to personal than to real property,” noting that the grower still maintains interest in the proceeds of any sale of the reserve.
The case went back to the Supreme Court, this time on the specific issue of whether the reserve program violates the Takings Clause, which in part provides, “nor shall private property be taken for public use, without just compensation.” The court said the clause does not make a distinction between different types of “private property.” This principle dates back 800 years to Magna Carta, the court noted, “which specifically protected agricultural crops from uncompensated takings.”
The Supreme Court then looked to its own jurisprudence on the issue. In Pennsylvania Coal Co. v. Mahon (1922), the court held that the takings clause applied to “regulatory taking” that went “too far,” expanding the scope of the clause beyond mere direct takings. In Penn Central Transp. Co. v. New York City (1978), the court held that an “ad hoc” factual inquiry was required to determine when the government regulation went “too far.” The factual inquiry considered several factors, including the economic impact of the regulation, its interference with reasonable investment-backed expectations, and the character of the government action.
The 9th Circuit had relied on Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). InLucas, the Supreme Court was looking into restrictions related to the use of shorefront property. However, the Supreme Court held that Lucas is inapplicable here because it “was about regulatory takings, not direct appropriations” — the point being that it did not matter what type of property was involved, “people still do not expect their property, real or personal, to be actually occupied or taken away.” Despite the fact that a regulatory limit on production and a direct appropriation may have the same economic impact on the grower, “[t]he Constitution … is concerned with means as well as ends.”
The Supreme Court also dealt with whether the government can avoid the 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. The government argued that since the growers were entitled the net proceeds of any sales made (after the deduction of costs), no taking occurred. The court rejected this, holding that when there is a physical appropriation, the government has a categorical duty to compensate the former owner.
A third issue the court considered was whether the government’s mandate to relinquish property as a condition to engage in commerce effects a per se taking. The government argued that raisin growers voluntarily choose to participate in the raising market. If they do not like it, they can “plant different crops” or “sell their raisin-variety grapes as table grapes or for use in juice or wine.” But the court found such an argument to be wrong as a matter of law: “property rights cannot be so easily manipulated.” In concluding on this point, the court stated “Raisins are not like oysters: they are private property — the fruit of the growers’ labor — not ‘public things subject to the absolute control of the state.’”
Given that the government had already assessed a market value on the crop, the court said the case need not be remanded, that the government shall pay the fair market value of the raisins, and that the Hornes are relieved from paying any fines assessed against them.
The Supreme Court’s analysis focused on the manner in which the taking occurred, an actual direct appropriation through a reserve program. Had it been through another method, such as a restriction on production, the result may have been different. The decision will have drastic impacts on the Department of Agriculture’s ability to stabilize prices and is a large win for laissez faire approach to agricultural economics in the United States.