The Grapes of Wrath Part 2 - A Return to Horne
In June 2013, the U.S. Supreme Court issued a unanimous opinion in Horne v. Department of Agriculture (2013) 133 S.Ct. 2053, holding that California raisin handlers could maintain a takings claim as an affirmative defense to an enforcement action filed by the United States. While the Supreme Court's decision breathed momentary life into the takings claim, it did not eliminate the possibility that the U.S. courts of appeals would nonetheless declare the claim dead on arrival.
How does a takings claim go all the way to the U.S. Supreme Court and still leave the matter in doubt? The answer is actually quite simple, and not uncommon when dealing with courts of last resort. Although the Supreme Court addressed a jurisdictional challenge to the takings claim — rejecting the argument that the Hornes were required to first assert their takings claim in the Court of Federal Claims pursuant to the Tucker Act — it declined to address the merits of the takings claim. Instead, the Supreme Court remanded the matter back to the lower court so that it could grapple with the merits. Approximately 11 months later, the Ninth Circuit issued a claim-crushing decision, concluding that the actions by the government did not rise to the level of a taking.
A Bit of Background
If you missed the Supreme Court's decision last year, here is a quick summary of the operative regulatory framework and relevant facts.
Toward the latter part of the Great Depression, Congress passed the Agricultural Marketing Agreement Act of 1937 (AMAA), and the secretary of agriculture promulgated the California Raisin Marketing Order. The intent behind the AMAA and the marketing order was to insulate farmers from competitive market forces that resulted in unreasonable fluctuations in supplies and price.
In order to stabilize the market, the AMAA and the marketing order impose a number of regulatory obligations on "raisin handlers," including imposing reporting and reserve requirements that are enforced through the imposition of civil penalties.
After producing raisins in California for almost 30 years, the Hornes, in an attempt to avoid the limitations and requirements imposed by the AMAA and the marketing order, expanded the scope of their operations and contracted with other raisin growers to clean, stem, sort, and, in some cases, box and stack other growers' raisins for a fee.
In 2001, the U.S. Department of Agriculture notified the Hornes that despite their attempts to avoid the AMAA and marketing order, they were still operating as "raisin handlers," and thus subject to the reporting and reserve requirements. The Hornes disagreed with the Department of Agriculture; they refused to comply with any of the reporting or reserve requirements or pay any assessments. As a result, the Department of Agriculture initiated an enforcement action against the Hornes.
In 2006, an administrative law judge found that the Hornes qualified as "raisin handlers," and were thus subject to the AMAA and marketing order's requirements. The administrative law judge further found that the Hornes failed to comply with applicable reporting and reserve requirements, and ordered the Hornes to pay more than $200,000 in civil penalties, $8,000 in assessments, and almost $500,000 for their failure to hold the necessary raisins in reserve. On appeal, the federal district court upheld the decision by the administrative law judge. With respect to the Hornes' takings claim, the district court found that the reserve requirement merely constituted an "admission fee," not a taking.
On appeal, the Ninth Circuit held that the takings claim was not ripe due to the Hornes' failure to comply with the Tucker Act, and it was this ruling that the Supreme Court reversed, holding that the Hornes were not required to comply with the Tucker Act in order to pursue a takings claim. The Supreme Court sent the case back to the Ninth Circuit for further proceedings.
The Ninth Circuit's Decision On Remand
Now that we have a general understanding of the relevant facts, let's flash forward to 2014 and the Ninth Circuit's most recent opinion. In light of its prior success in convincing the Ninth Circuit to avoid a decision on the merits, the government decided to try its luck a second time.
Instead of relying on the Tucker Act, however, this time the government asserted that the Hornes lacked the necessary injury for purposes of standing. But this time, the Ninth Circuit did not take the bait. The Ninth Circuit quickly dismissed the government's procedural arguments and found that the Hornes had standing to pursue their Fifth Amendment takings claim on the merits.
Turning to the merits, the Ninth Circuit then discussed what type of standard should be applied to the Hornes' takings claim. The Ninth Circuit concluded that because the government neither seized any raisins from the Hornes' land nor removed any money from the Hornes' bank account, the government's actions had to be analyzed under "the doctrinal thicket of the Supreme Court's regulatory takings jurisprudence."
The Ninth Circuit then stated that as the Hornes intentionally declined to pursue a Penn Central takings claim,[1] they were left with only three possibilities: (1) a regulation resulting in the permanent physical invasion of real property; (2) a regulation depriving an owner of all economically beneficial use of his property; or (3) a condition on the grant of land use that either fails to bear a sufficient nexus or rough proportionality to the specific interest the government seeks to protect.
The Ninth Circuit explained that under the marketing order, the Hornes faced a choice: "relinquish the raisins ... or face the imposition of a penalty." Thus, as the marketing order operated against personal, rather than real, property, and because the Hornes conceded that they did not lose all economically beneficial use of their property, the Ninth Circuit concluded that the best analytical framework for the takings claim was the "nexus" and "rough proportionality" standard set forth in Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374.
Applying the Nollan/Dolan framework, the Ninth Circuit concluded that an adequate nexus existed, as the AMAA and the marketing order were intended to establish and maintain orderly marketing conditions and keep consumer prices stable, and the undisputed facts demonstrated that "by smoothing the peaks and valleys of the supply curve, the program has eliminated the severe price fluctuations common in the raisin industry prior to the implementation of the marketing order, making market conditions predictable for industry and consumers alike."
The Ninth Circuit also found that the marketing order's reserve requirements were proportional to its goals, because under the marketing order, "[t]he percentage of raisins to be reserved is revised annually to conform to current market conditions." Accordingly, as the nexus and rough proportionality elements were satisfied, the Ninth Circuit held that the government's actions did not rise to the level of a taking.
Lessons Learned
The first lesson, which is really more of a reminder than a lesson, is that the courts are not always the best avenue to facilitate change. In this case, the Ninth Circuit was presented with a specific issue: Does the program established by the AMAA and the marketing order result in a taking?
Although there are intimations throughout the decision that the Ninth Circuit may not believe the Depression-era program is structured in a manner that necessarily reflects current realities, it also states unapologetically that "it is to Congress and the Department of Agriculture to which the Hornes must address their complaints."
The second takeaway, and perhaps the more interesting of the two for practitioners, is that when a court analyzes the issue of rough proportionality in the context of a program-level challenge, the "individualized determination" requirement is lessened.
In Dolan v. City of Tigard, supra, 512 U.S. at p. 391, the U.S. Supreme Court stated that rough proportionality requires an "individualized determination" that the condition imposed is "related both in nature and extent to the impacts" of the activity.
But in Horne, the Ninth Circuit made a point of differentiating the program-level challenge asserted by the Hornes from the adjudicative decision that was addressed in Dolan v. City of Tigard, stating that "[i]ndividualized review makes senses in the land use context because the development of each parcel is considered on a case-by-case basis." Thus, while an individualized determination is still required, the individual, at least with respect to program-level challenges, may now be an entire category or class of similarly situated persons.
[1] In Penn Central Transportation Co. v. City of New York (1978), 438 U.S. 104, 124, the Supreme Court identified an ad hoc framework for determining whether a regulation results in a taking: (1) the severity of the regulation's economic impact on the claimant; (2) the extent to which the regulation interferes with distinct investment-backed expectations; and (3) the character of the government action.