Hands Off the Raisins

The Supreme Court uproots a preposterous government program.

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It's not every day that a justice of the U.S. Supreme Court compares the long-term actions of the federal government to the misdeeds of the Soviet Union. But it happened on April 22, 2015, when the Court heard oral arguments in the case of Horne v. United States Department of Agriculture.

At issue was the U.S. Department of Agriculture's (USDA) attempt to force a pair of California raisin farmers named Marvin and Laura Horne to surrender a portion of their annual crop (or its cash equivalent) to the federal authorities for the ostensible purpose of creating an "orderly" domestic raisin market. "These programs go back to the 1930s, when the agricultural industry in this country was in serious trouble," Deputy Solicitor General Edwin Kneedler told the Court. He implored the justices to leave the confiscatory practice in place.

"Central planning was thought to work very well in 1937," scoffed Justice Antonin Scalia in response, "and Russia tried it for a long time."

Scalia had a point. Central planning was thought to work very well in 1937, the year in which Congress passed the Agricultural Marketing Agreement Act. That sweeping New Deal law empowered the secretary of agriculture to fix prices, set production quotas, and otherwise attempt to plan the entire agricultural economy of the United States of America. Twelve years later, invoking its powers under the 1937 law, the USDA started requiring California raisin farmers to hand over part of each year's crop, free of charge, to a federal entity known as the Raisin Administrative Committee (RAC).

The Supreme Court of 2015 wasn't buying it. On June 22, Chief Justice John Roberts led the Court in vindicating the Hornes' rights and rejecting the government's byzantine scheme. "Raisins are not dangerous pesticides" in need of intrusive federal control, Roberts observed. "They are a healthy snack."

It was a major victory for property rights and a welcome rebuke to regulatory overreach. But Horne v. USDA is more than just the story of small farmers fighting back against big government. It's also the story of a federal regulation so preposterous and unconstitutional that when it finally landed before the Supreme Court, a majority of the justices practically laughed it out of the building.

Fruits of the New Deal

On July 2, 1932, Franklin Delano Roosevelt took the stage at the Democratic National Convention in Chicago to accept his party's nomination for the presidency of the United States. "I pledge you, I pledge myself, to a new deal for the American people," Roosevelt declared.

At the heart of Roosevelt's ambitious agenda was what he called "a desirable first step in the reconstruction of agriculture." Farmers, he felt, were harvesting too many crops and raising too much livestock. The market was saturated, prices were plummeting, and the entire agricultural sector appeared to be on the verge of collapse.

Roosevelt proposed a bold solution. In exchange for lucrative federal goodies such as subsidies, loans, price supports, and tariffs, he explained to the Democratic faithful, farmers would be expected to toe a new line set by the best and brightest in Washington. "I am sure," Roosevelt said, "that the farmers of this Nation would ultimately agree to such planning of their production as would reduce the surpluses."

Less than a year later, FDR was living in the White House. His dream of central planning was made real via the Agricultural Adjustment Act of 1933. This far-reaching piece of federal legislation empowered the secretary of agriculture to fix prices, set quotas, and bring about a "reduction in the acreage or reduction in the production for market, or both, of any basic agricultural commodity." Sometimes the New Dealers used the law to tell farmers how many crops they were permitted to grow. Other times they told farmers not to grow any crops at all. Some farmers were even paid to burn crops or slaughter livestock. Whatever the means, the end was always the same: Create an "orderly" market by restricting the number of agricultural goods available for sale. Never mind the fact that millions would go hungry during the Great Depression while the federal government destroyed food and induced artificial scarcity.

Because planning the entire agricultural economy is a big job, the New Dealers turned to their friends in big agribusiness for help. Specifically, under the terms of both the Agricultural Adjustment Act and the Agricultural Marketing Agreement Act, the secretary of agriculture was authorized "to enter into marketing agreements with processors, producers, associations of producers, and others engaged in the handling of any agricultural commodity or product."

What's a marketing agreement? It's a partnership between the secretary of agriculture and a small handful of agribusiness leaders. Here's how the scheme typically works.

Farmers plant the crops. Packing companies—or "handlers"—buy crops from farmers and then sort them, seed them, stem them, package them, and otherwise prepare them for sale to the public. The marketing agreement is made between the government and the handlers. Together they decide how much the farmers are permitted to grow, how much the farmers will be paid for what they grow, and how much the handlers get to charge consumers for the final product. This arrangement carries the force of law.

In other words, it's a government-enforced cartel. New Deal advisor Rexford Tugwell admitted as much in his 1968 memoir The Brains Trust. The packing companies, Tugwell explained, "would accept the responsibility for paying farmers higher prices. But this would not be bad; they would pass on the increases to consumers. In return, they asked only one favor: exemption from prosecution under the antitrust laws."

They got what they wanted. In the words of the Agricultural Marketing Agreement Act, "the making of any such agreement shall not be held to be in violation of any of the antitrust laws of the United States."

Take the Raisins, Leave the Constitution

Which brings us back to California raisin farmers Marvin and Laura Horne. In 1949, the Department of Agriculture issued a "Marketing Order Regulating the Handling of Raisins Produced from Grapes Grown in California." The order required raisin handlers to surrender a certain percentage of each year's crop to the federal authorities. Those surrendered raisins would be known as the "reserve" and they would become the property of the Raisin Administrative Committee, an arm of the USDA staffed by bureaucrats and handlers selected by the secretary of agriculture.

The bottom line was the same as before: Create an "orderly" market by controlling the production and sale of goods. Except this time the farmers weren't told how much to grow; instead, the handlers were told how much of the crop they were required to give to the government. Once the government had title, the RAC was authorized to use the raisin reserve for various purposes of its own. For example, it could give the raisins away for free to school lunch programs. Or it could sell the raisins to exporters for resale in foreign markets and use the proceeds to fund its own operations. If any proceeds remained after that, the handlers would get a pro rata cut.

Here's a concrete example. In 2003–04, the RAC demanded 30 percent of the crop, which amounted to more than 89,000 tons of raisins. It gave away 2,312 tons to school lunch and other government programs and it sold 86,732 tons for export. The RAC pocketed $111,242,849 from that sale, or $1,249.30 per ton. It then spent all of the proceeds on its own operations. In return, raisin growers got nothing.

From the feds' point of view, this might make sense. Raisins are kept off the domestic market, prices are tightly controlled, and a government agency makes a few bucks along the way. But there's a major problem with the government's approach. According to the Fifth Amendment to the U.S. Constitution, the government must pay just compensation when it takes private property for a public use. And as far as Marvin and Laura Horne were concerned, the raisin marketing order was nothing less than an uncompensated taking of their valuable property. "It was a theft," Marvin Horne told Reason TV in July 2013. "The reserve was nothing but highway robbery."

So beginning in 2002, the Hornes fought back. First, they reorganized their business in order to take advantage of what they believed to be a legal loophole. Under the 1949 raisin marketing order, handlers are the ones required to surrender the yearly reserve. To avoid this requirement, the Hornes stopped doing business with traditional handlers and instead purchased new equipment that allowed them to sort and package all of their raisins on their own. Newly reorganized as farmer-handlers, the Hornes maintained that they were now exempt from the law and therefore refused to set aside any reserve raisins in 2002–03, and again refused to set aside any reserve in 2003–04. They sold all of their crops on the open market during those years.

The federal government was not pleased. The USDA demanded the reserve raisins or their cash equivalent and in 2004 initiated legal proceedings against the Hornes. As a legal defense, the Hornes argued that the government's entire program was unconstitutional under the Takings Clause of the Fifth Amendment.

A series of preliminary victories for the government followed. The Hornes lost first in 2006 before an administrative law judge, who ruled that they counted as handlers and were therefore bound by the marketing order. The Hornes next lost in 2009 before the U.S. District Court for the Eastern District of California, which rejected their constitutional defense. In 2012, they lost twice before the U.S. Court of Appeals for the 9th Circuit. First a three-judge panel rejected their Takings Clause arguments. Then, when the Hornes petitioned to have the case reheard by a full panel of 9th Circuit judges, the court switched gears and decided that it had no jurisdiction to rule on their Takings Clause claims in the first place. "We find no constitutional infirmity in either the Raisin Marketing Order or the Secretary's application of it to the Hornes," the 9th Circuit ruled, "and indeed lack jurisdiction to find such an infirmity on takings grounds."

That dual loss at the 9th Circuit set the stage for the Hornes' ultimate triumph before the U.S. Supreme Court.

'The World's Most Outdated Law'

On March 23, 2013, the Supreme Court met to consider whether the Hornes were entitled to mount a Takings Clause defense against the USDA's confiscatory program. It quickly became apparent that the Hornes were going to get their day in federal court. Indeed, several of the justices seemed ready to rule on the legality of the raisin program right then and there.

"What exactly is being taken from the handlers?" Justice Sonia Sotomayor asked Michael McConnell, the Stanford law professor and former federal judge representing the Hornes.

"It is our legal position, or it will be our legal position on the merits," McConnell answered, "that when the government takes a specific legal property, a res, or its monetary equivalent, that that is a taking of the res itself."

It was a good answer. The only problem was that Sotomayor was not supposed to be asking that sort of question at this stage of the case. The Supreme Court was only supposed to determine whether the 9th Circuit had jurisdiction to hear a Takings Clause defense, not decide whether a taking had actually occurred. Yet there was Sotomayor, just three minutes into the proceedings, impatiently diving into the merits of the case anyway.

And that wasn't the half of it. Twenty minutes later, when Assistant to the Solicitor General Joseph Palmore stood at the lectern, he all but threw in the towel on the fight over jurisdiction.

"Mr. Palmore," asked Justice Elena Kagan, "would anything be wrong—with a—with a disposition of this Court that went something like this: Everybody agrees that this is not a jurisdictional issue, including the government, so [the 9th Circuit] got that wrong….And now the 9th Circuit can go and try to figure out whether this marketing order is a taking or it's just the world's most outdated law."

"That would certainly be an available option," Palmore conceded.

A few minutes later, Chief Justice John Roberts returned to Kagan's question. "I do want to clarify that you have no objection at this point for reversing the 9th Circuit on the ground that they erred" on the question of jurisdiction, Roberts said.

"I'm not going to resist that too strenuously," Palmore conceded again.

And that was that. Although Palmore still had a few minutes of argument time left on the clock, his case was effectively over. Less than three months later, the Supreme Court made it official. "The petitioners raised a cognizable takings defense," observed the 9–0 majority opinion of Justice Clarence Thomas, "and the 9th Circuit erred in declining to adjudicate it." The case of Horne v. USDA was remanded back down to the 9th Circuit "for further proceedings consistent with this opinion."

Revenge of the Raisins

In May 2014 the 9th Circuit issued its new decision on remand. Once again, it ruled in favor of the USDA. And once again, the 9th Circuit's erroneous judgment set the stage for a property rights victory at the high court.

According to the 9th Circuit, the USDA "did not authorize a forced seizure of the Hornes' crops, but rather imposed a condition on the Hornes' use of their crops by regulating their sale." In other words, despite the fact that the government was obviously trying to take title to the Hornes' raisins, the 9th Circuit refused to acknowledge that any sort of taking was going on in the first place. The court then compounded its error by claiming that the Hornes had no real case because the Fifth Amendment "affords more protection to real than to personal property."

In legal terms, real property refers to land, buildings, and other immovables. Personal property refers to non-fixed items such as crops, cash, and livestock. What that means in practical terms is the 9th Circuit ignored over 200 years of constitutional history to reach the ridiculous conclusion that the Fifth Amendment "affords more protection" to a farmer's land than it does to a farmer's crops. That outlandish claim was probably enough by itself to guarantee another round of scrutiny by the Supreme Court.

To nobody's surprise, the Hornes promptly filed an appeal. Even less surprising, the Supreme Court agreed to take the case, scheduling oral arguments for April 2015.

'Sounds Like a Taking to Me'

In order to finally prevail on the merits, the Hornes needed to persuade a majority of the justices that the federal government wanted to take their raisins without paying just compensation for them. When oral arguments commenced on April 22, 2015, a majority of the Court appeared more than willing to be persuaded.

"In this case the government literally takes possession of the raisins," observed Michael McConnell, once again serving as the Hornes' lawyer. That's different from other forms of agricultural regulation, he told the Court, such as when the government places a limit on the amount of raisins that farmers are permitted to grow. "Instead, they're told to set aside the raisins and give them to the government. So here there is a taking" of physical property.

Even Justice Stephen Breyer, normally a staunch ally of government regulation, seemed inclined to agree with that assessment. Assume I "have some raisins in my basement," Breyer said. "I'm in this program. The government comes with a shovel and some burlap sacks; it takes the raisins. I would say, well, sounds like a taking to me."

Up next at the lectern was Deputy Solicitor General Edwin Kneedler. He faced the unenviable task of explaining why the government's attempt to take raisins should not technically count as an attempt to take raisins. The argument did not go down smoothly.

"Petitioners isolate just one feature of a comprehensive program regulating the commercial marketing of a fungible agricultural product," Kneedler told the Court in his opening statement.

"You say it's one little feature of an overall program," Justice Antonin Scalia shot back in response. "That little feature happens to be the taking of raisins."

"Is there any limit to [your] argument?" Justice Samuel Alito asked Kneedler. "Could the government say to a manufacturer of cellphones, you can sell cellphones; however, every fifth one you have to give to us?"

"You can do what you've done in most other marketing orders, which is not take their raisins," Chief Justice John Roberts upbraided Kneedler a few minutes later. "This is different because you come up with the truck and you get the shovels and you take their raisins, probably in the dead of night."

It was not the federal government's finest day in court.

'This Case Has Gone on Long Enough'

Two months later, in a decision so obvious as to be almost anticlimactic, the Hornes emerged triumphant on all counts. "The reserve requirement imposed by the Raisin Committee is a clear physical taking," wrote Chief Justice John Roberts for an 8–1 majority. "Actual raisins are transferred from the growers to the Government. Title to the raisins passes to the Raisin Committee." It was a textbook example of a government taking that triggers the Fifth Amendment.

The Court was equally blunt in dismissing the 9th Circuit's half-baked claim that personal property deserves less constitutional respect than real property. "The Government has a categorical duty to pay just compensation when it takes your car, just as when it takes your home," Roberts observed.

Only Justice Sotomayor was willing to cast her lot entirely with the USDA. "The government may condition the ability to offer goods in the market on the giving-up of certain property interests," she asserted in her dissent. Sotomayor was unable to attract even a single additional vote in support of her position.

In the end, it was the chief justice who got the final word: "This case, in litigation for more than a decade, has gone on long enough."