June 22, 2015

"Raisin Case" Could Have Broad Impact

Holland & Knight Regulatory Litigation Blog
Paul J. Kiernan

The U.S. Supreme Court's decision in the "Raisin Case" (Horne v. Department of Agriculture) has implications far beyond the vines of Fresno. The court may not have broken new ground with its opinion, but the way in which it has analyzed physical takings will affect agricultural and other programs everywhere.

In order to maintain an orderly market in raisins, the government directs growers to set aside a certain amount of their annual crop. That set-aside is shipped to "raisin handlers" who dispose of the raisins in ways that further the stability of the market, with the growers possibly receiving a portion of the proceeds when the raisins are subsequently sold or used. In 2002, the Hornes refused to set aside any portion of their crop. They were assessed a fine equal to the market value of the missing raisins and an additional penalty for disobeying the order to turn over the raisins. The Hornes argued that they could not be penalized because the program amounted to a taking of their personal property without payment of just compensation in violation of the Fifth Amendment.

The court held, first, that the government has a "categorical duty" to pay just compensation when it physically takes property, regardless of whether the property is real property or personal property (like raisins). This holding is an affirmation of long-standing principles that distinguish physical takings from regulatory takings. Under the Constitution, as Chief Justice Roberts wrote, the government has a "categorical duty to pay just compensation when it takes your car, just as when it takes your home."

Second, the court held that the government's duty to the grower was not satisfied by simply reserving to the grower a contingent interest in a portion of the value of the property taken. Again, once there is a physical taking, there is a duty to pay. The growers were deprived of all of their interest in those particular raisins.

Third, and perhaps more far-reaching, the court held that the mandate to turn over some raisins as a condition for growing raisins in the first place is a taking. The government had argued that if the Hornes did not want to have a portion of their crop taken for this program, they could plant different crops or do something else with their grapes. But, the court stated, "Let them sell wine," is not a constitutionally permissible defense of the program. The government can condition the right to do certain things upon compliance with mandates—like requiring manufacturers of pesticides to disclose health and safety risks. But "[s]elling produce in interstate commerce…is not a special governmental benefit that the government may hold hostage, to be ransomed by the waiver of constitutional protection."

The court held that the Hornes were not required to pay the assessed fine and penalty and then file suit to recover the money. And the Hornes were not required to prove how they were harmed by the program (that is, weighing the benefits to the raisin market of having the program in determining what they should be paid). No, the court held, owners of property physically taken by the government should be paid the fair-market value of the property when it was taken. The court's vote on whether the program was a taking for which compensation was required was 8-1. Some of the justices dissented on the question of how compensation should be calculated but there was near unanimity on the question of whether this kind of mandatory set-aside triggered Fifth Amendment scrutiny.

Going forward, agricultural and similar programs will certainly face new challenges based on Horne. And parties subject to regulatory restrictions may try to recast their claims as physical deprivations in order to come under Horne's more hospitable analysis.

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