At 10 a.m. Wednesday, the Supreme Court will hold one hour of oral argument on the second stage in a case it considered two years ago, testing the government’s duty, if any, to pay farmers when it keeps a part of their annual crop off the market in order to boost prices for that commodity.  Arguing in favor of such a duty, and representing a California raisin producer in Horne v. Department of Agriculture, will be Michael W. McConnell, a Stanford law professor who is appearing in the capacity of a private lawyer with the firm of Kirkland & Ellis LLP.  The federal government will be represented by Deputy U.S. Solicitor General Edwin S. Kneedler.

Background

Even as Congress debates whether the time has come to cast aside the system of farm subsidies and crop marketing controls that the federal government has used for nearly eighty years to bolster America’s agricultural industry, the Supreme Court reopens a case raising a basic constitutional question: In trying to manage supply and demand to raise crop prices, is the government taking farmers’ property from them, triggering a duty to pay them the market value?

When the case was last before the Court in March 2013, Justice Elena Kagan mused about whether the program at issue is “just the world’s most outdated law.”  The Court won’t be settling that issue in the case of Horne v. Department of Agriculture, but it could be taking a major step to revise how one program is to operate, with a potential impact on others.  One of the uncertainties, in fact, is whether this case is actually about only one crop, no matter how important the constitutional issue may be.

One of the basic causes of the Great Depression in the 1930s was the total collapse of the farm economy.  With crop prices plummeting, but with no relief from their debts, farmers were as hard hit as factory workers.  For the farmers, President Franklin Roosevelt’s administration, with big majorities to support it in Congress, fashioned a series of laws designed to smooth out the wild price fluctuations of the commodity markets.  The result was a thoroughly managed agricultural economy, designed on the simple premise that crop prices go up if the government keeps some of an annual crop from reaching the market.

Beginning in 1949, the government applied that approach to the raisin industry in California, which grows nearly one hundred percent of this form of dried grapes that Americans consume, and about forty percent of the world market.  A committee made up of raisin farmers decides each year how much of a crop is to be set aside in a “reserve pool,” and thus not sold on the market.  The raisins in the pool may later be used for school lunch programs or exported but, if there is anything left over in proceeds, it is divided up among the raisin producers.

For nearly thirty years, the family that operated Raisin Valley Farms in California — Marvin and Laura Horne — took part in the program, but then grew uncomfortable with being managed by the marketing order and refused to put aside some of their crop in the years 2003 and 2004.   In trouble with the Agriculture Department, they were ordered to pay a penalty of $483,843.53, based on an estimated loss to the marketing committee to have that available to pay the costs of running the scheme and selling some of the crop for non-market uses.

Going to court, the Hornes contended that the government had physically seized a part of their raisin crop for its own use — a typical “public use,” they argued, that always requires the government to pay “just compensation” for the lost market value.  They sued under the Fifth Amendment’s just compensation, or “takings,” clause.

They lost in lower federal courts.  When their case reached the Supreme Court the first time, it was bogged down in a dispute over which court had the authority to decide their “takings” claim — the regular district court or the Court of Federal Claims.  In a ruling in June 2013, the Supreme Court unanimously cleared the way for the Hornes to take their plea to a regular district court.  They lost again, both in that court and in the U.S. Court of Appeals for the Ninth Circuit.

The Ninth Circuit ruled that their “takings” claim should be judged not as if the government had physically taken over some of their raisins, but as if it had only sought to regulate their marketing.  Along the way toward that ruling, the Ninth Circuit said that government interference with private uses of personal property — here, the raisin crop — is judged by a more tolerant standard than actual seizures of real property, like land.

Because the Ninth Circuit found that the Hornes derived some benefit from the set-aside program — the prices for raisins would be boosted in general, benefiting them as well, and there was a theoretical possibility that the Hornes might get a share of the proceeds, if there were any, from disposition of the reserve pool of raisins —  it ruled that there had been no taking.   The marketing order itself did not amount to a seizure, nor did the financial penalty amount to a separate “taking,” the Ninth Circuit declared.

The Hornes returned to the Supreme Court, and the Justices agreed on January 16 to decide three questions the family had proposed: do government seizures of personal (moveable) property get the same “just compensation” protection as those of real (fixed) property; could the government avoid that duty by leaving the Hornes with some chance — even if only theoretical — of getting some of the ultimate proceeds of selling the raisins in the pool; and did the marketing order’s mandate to give up part of their crop in order to put any of their crop on the market amount to a “taking” on its own?

The family’s brief on the merits repeatedly describes the Ninth Circuit’s ruling as having categorically barred automatic compensation for government take-overs of movable property, although the lower court’s opinion does not quite put it so flatly.  In essence, the Hornes suggested that the broader reading of the appeals court is the more faithful one, thus setting them up to argue vehemently against a new and unprecedented denial of protection of private property rights.

The family protested the Ninth Circuit’s view that they retain some “theoretical right” to proceeds when the reserve pool of raisins ultimately might be sold as an exaggeration at a minimum.  But in any event, they argued that such a view contradicts long-standing “takings” doctrine providing that a mere retention of an interest in property does not deprive its owner of protection if that property is “occupied” as a result of a direct government order — here, the raisin marketing regime.

On the third issue, the family contended that the forced turnover of a part of the two years of raisin crops was an “extortionate demand” by the government that can never be justified as a mere restriction on the use of one’s private property, as a condition for putting some of the rest of their crop on the market.

“The panel’s errors,” the family contended, “are distinct, but they all threaten the same effect: They convert forced transfers of property ownership to the government into mere regulatory restrictions, subject only to weak balancing tests.  A government seizure of personal property, according to the panel, is never more than a regulatory act. And under the panel’s reasoning, the government could structure virtually any taking of any property whatsoever — even an explicit confiscation of title and possession — as mere regulation, effectively eviscerating the per se takings rule that has protected property rights in the United States for centuries.”

The Department of Agriculture’s merits brief introduced a new thrust in the government’s defense of the raisin set-aside program: a description of the raisins as a “fungible” form of personal property, not unique in any way and of value only if it can generate revenue when sold.  As a purely commercial product, with its highest value coming from being sold, the owner simply has no right to possess it a “critical property interest,” the government said.

The Hornes were not required to put their raisins up for sale at all, the government argued, but they voluntarily chose to do so.  Having done that, they retained no interest in it as property except in the proceeds it may bring upon sale.

Markets for farm crops have long been subject to extensive government regulation, the government noted, and it has long had a legitimate interest in “ensuring orderly market conditions and fair prices for producers,” justifying the imposition of public controls as a condition for participating in such a controlled market.  In that kind of commercial setting, the government asserted, a categorical analysis of the marketing order as a physical seizure is unwarranted.

As for the family’s back-up argument that a “taking” has occurred even if the Hornes retained some interest in their reserved raisins, the government argued that the program simply does not transfer the raisins to government ownership, because it is obliged to sell them at prices and in a way that maximizes potential proceeds for the growers.    And, even if no proceeds result, the growers have benefited in the meantime by the effect of the set-aside program in evening out price fluctuations.

As a final argument, the government told the Court that the Hornes could still assert a plea for “just compensation” under the federal Tucker Act.

Should the Court opt to rule that the Hornes have suffered a “taking,” the government said, the Court should not simply wipe out the financial penalty.  It may be that, on close examination of the actual value the raisins might have had if not put into the reserve pool under the marketing order, that the Hornes suffered no loss, it said.  And, with the reserve program boosting raisin prices,  it could be that the Hornes realized more than they lost, it suggested.

The Hornes have drawn the support of the Federal Circuit Bar Association and property law scholars, worried over the impact on “takings” law generally of treating personal property differently from real property; and from three states, conservative and libertarian advocacy groups, other California raisin growers, and business trade associations.

The federal government’s amicus support is limited numerically, coming from other California raisin farmers who are content with the managed market system, and from the International Municipal Lawyers Association, worried over expanding automatic compensation obligations so as to interfere with a variety of local government initiatives to remove property that may be a threat to public health or safety.

Posted in Horne v. Department of Agriculture, Featured, Merits Cases

Recommended Citation: Lyle Denniston, Argument preview: Regulation or confiscation?, SCOTUSblog (Apr. 21, 2015, 3:58 PM), http://www.scotusblog.com/2015/04/argument-preview-regulation-or-confiscation/