Property owners prevail in raisin takings case

The Supreme Court has just issued its decision in Horne v. Department of Agriculture, the raisin takings case. As most observers predicted after the oral argument, the ruling is a victory for the property owners - a very important one.

Horne involves a challenge to the forcible appropriation of large quantities of raisins by the federal government. The forced transfer is part of a 1937 program that requires raisin producers, in some years, to turn over a large portion of their raisin crop to the government so as to artificially reduce the amount of raisins on the market, and thereby increase the price. Essentially, the scheme is a government-enforced cartel under which producers restrict output for the market so as to inflate prices. The Hornes claim that the appropriation of their raisins amounts to a taking that requires "just compensation" under the Fifth Amendment.

I. Why Forcible Appropriation of Raisins is a Taking.

The Court ruled in favor of the property owners by an 8-1 margin on the most significant issue at stake: whether the government's appropriation of the raisins is a taking. Only Justice Sonia Sotomayor dissented.

This is an extremely important result, because it rejects the government's dangerous argument that the Takings Clause offers less protection for personal property than for real property (the legal term for property in land), which had been embraced by the Ninth Circuit lower court decision. For reasons elaborated in detail in an amicus brief I joined along with other constitutional law and property scholars, the government's position on this issue was deeply at odds with the history and original meaning of the Takings Clause. Indeed, as the Court notes, the Clause was adopted in part as a reaction to abusive British confiscation of personal property during the colonial era and the Revolutionary War.

Here is the key passage on that issue, from Chief Justice John Roberts' majority opinion:

There is no dispute that the "classic taking [is one] in which the government directly appropriates private prop­erty for its own use…." Nor is there any dispute that, in the case of real property, such an appropriation is a per se taking that requires just compensation….

Nothing in the text or history of the Takings Clause, or our precedents, suggests that the rule is any different
when it comes to appropriation of personal property. The Government has a categorical duty to pay just compensa­tion when it takes your car, just as when it takes your home. (citations omitted).

The Court further emphasized that "[t]he reserve requirement imposed by the Raisin Com­mittee is a clear physical taking. Actual raisins are trans­ferred from the growers to the Government." That makes it an automatic per se taking, that requires compensation. Indeed, if anything qualifies as a taking of private property, it is a situation where the government takes physical control of the property in question and, as Roberts puts it, "Raisin growers subject to the reserve requirement thus lose the entire 'bundle' of property rights in the appropri­ated raisins- 'the rights to possess, use and dispose of' them."

The majority also rejected the government's argument that there was no taking because the Hornes and other raisin growers sometimes receive part of the proceeds of the government's sale of the appropriated raisins in international markets. As the majority opinion explains, "The fact that the growers retain a contingent interest of indeterminate value does not mean there has been no physical taking, particularly since the value of the interest
depends on the discretion of the taker, and may be worth­less, as it was for one of the two years at issue here." While the money paid to the owners of the raisins might reduce the amount of compensation they are due, it does not change the fact that their property has been physically seized by the government, which means that a taking has occurred.

In her dissenting opinion, Justice Sotomayor claims that there was no per se taking because the owners did not really lose "all" their property rights, given that they might still benefit from some of the proceeds of the sale of the raisins. If this argument had prevailed, it would set a very dangerous precedent. The government could often avoid takings liability simply by reserving to the owners some right to a small fraction of the proceeds from the sale or other disposition of their property.

The Court also rejects the government's claims that no taking has occurred because the Hornes and other growers are "voluntary" participants in the government's set-aside raisin cartel program, and actually benefit from it.

II. The Question of Compensation.

The justices split 5-3 on a second issue at stake in the case: compensation. The five most conservative justices ruled that the Hornes are entitled to over $483,000 in compensation: the amount at which the federal government itself previously assessed the fair market value property when it imposed a fine on the Hornes for failure to turn over the raisins. Fair market value is the usual standard for determining compensation under the Takings Clause. The three liberal justices who agreed with majority on the personal property issue would have preferred to remand the case to the lower court to determine compensation. In a partial concurring opinion written by Justice Stephen Breyer, they contend that the amount of compensation should be reduced by deducting the benefits the Hornes would have gotten from the set-aside program had they complied with it. Potentially, those benefits could have been so large as to offset their losses entirely, thus resulting in a situation where no compensation would actually be due. Justice Sotomayor did not explicitly address the compensation issue in her dissenting opinion, though I suspect she might well have agreed with Breyer had she reached the issue.

I believe that both sides have some strong arguments on the issue of calculation of compensation. I may blog about it in greater detail later. But, whatever one thinks about the compensation issue, the Court's holding on the question of whether a taking has occurred is an important victory for property owners. It ensures that personal property gets the same level of protection as real property under the Takings Clause, and that the government cannot avoid takings liability by giving owners a small share of the proceeds from the disposition of their property.

The ruling also calls into question a number of other similar agricultural cartel schemes run by the federal government. In addition to property owners, consumers of agricultural products are likely to benefit from the decision, if these cartel schemes can no longer operate. Freer competition between producers in these agricultural markets will increase the amount of goods sold, and thereby lower prices. Lowered food prices are of particular benefit to poor and lower-middle class consumers, who generally spend a higher proportion of their income on food than the affluent do.

Horne is one of the rare cases that that has gone to the Supreme Court twice. In 2013, a unanimous court rejected the federal government's claim that the property owners should not even be allowed to present their Takings Clause argument in federal court without first paying some $483,000 in fines and pursuing various likely futile administrative remedies.

NOTE: I will try to follow up with additional posts on this important takings case, when time permits. However, my wife and I are expecting the birth of our first child later today. So I may not be able to blog again until tomorrow, or later in the week.
SPECIAL UPDATE: Since the baby note has attracted some attention on Twitter and elsewhere, I should perhaps mention that I am not somehow neglecting my wife and soon-to-be-born child. There are long lulls in the labor process during which there is little for the prospective father to do but slowly go crazy… or blog. Also, my wife has a longstanding interest in takings issues, and she wanted this post to get written.

UPDATE: I have made a slight revision to this post to reflect the fact that Justice Sotomayor's dissent does not explicitly address the compensation issue.

UPDATE #2: Robert Thomas of the Inverse Condemnation Blog has a helpful round-up of reactions to the decision here. If you haven't yet gotten your fill of raisin takings commentary, check it out!