Ed note: This post originally appeared on Federal Regulations Advisor: Insight & Commentary on U.S. Government Regulatory Affairs.



The United States Supreme Court (SCOTUS) today ruled in Horne v. Department of Agriculture that the government must give just compensation for personal property actually taken in agency price support programs. Horne clarifies how the United States Constitution’s “Just Compensation” or “Takings” clause limits one regulatory program. Future litigation applying Horne’s teachings to other agency regulations may foist the government on the horns of a regulatory or fiscal dilemma.

Background: The Department of Agriculture (DOA) regulates agricultural marketing under 1930s legislation that predates the Administrative Procedure Act (APA), but operates under regulations promulgated by DOA under the APA. DOA has required, through regulations, that certain raisin producers and handlers divert each year a percentage of their annual crop to a reserve for which DOA might pay them some amount at a future date. The regulatory program seeks agricultural market price stabilization and DOA could (and did) impose penalties for failure to comply with the market diversion program. The long and short of the program is that DOA attempts to keep commodity supply relatively constant from year to year, smoothing the supply curve, and thus leveling commodity prices throughout the supply chain to consumers – i.e. DOA is a mandatory market manager.

Horne alleged that DOA deprived him of personal property by barring him from selling raisins other than through DOA’s reserve mechanism at a price DOA may later set. DOA, he alleged, violated the proscription of the Fifth Amendment to the United States Constitution: “nor shall private property be taken for public use, without just compensation.” Horne refused to give up his raisins and DOA fined Horne the fair market value of the raisins refused.

In an initial round of litigation, SCOTUS decided that the petitioners could raise the takings issue as a defense against the fines and civil penalties imposed by DOA. On remand, a panel of the United States Court of Appeals for the Ninth Circuit held that the program did not impose a compensable taking, but was a use regulation. Petitioners sought review again by SCOTUS, leading to today’s decision.

Decision: Horne presented SCOTUS with three issues, which eight Justices answered clearly:

1. SCOTUS held that the government’s “categorical duty” under the Fifth Amendment to pay just compensation when it “physically takes possession of an interest in property” applies to both real property and personal property (or chattels). Although past precedent may have caused some to consider the Just Compensation Clause to reach only real property, SCOTUS held that taking anyproperty might require just compensation.

2. SCOTUS held that the government may not avoid its categorical duty to pay just compensation for a physical taking of property by reserving to the property owner a contingent interest in a portion of the value of the property as set at the government’s discretion. Here, the raisin growers retained a contingent interest of indeterminate value, but that does not mean there has been no taking. Here the contingent value of the interest depended on the government’s discretion and in one year was worthless.

3. SCOTUS held that a governmental mandate to relinquish specific, identifiable property as a condition on permission to engage in commerce, at least in this case, effected a per se taking. Unlike other cases, DOA granted no special government benefit to engage in commerce and the toll was more than substantial (in one year 47% of the gross res). SCOTUS found this toll to be not a regulatory condition, but a taking.

How to determine “just compensation” in this case was a closer question, with a slim five-Justice majority noted that the penalty assessed against the petitioners included the dollar equivalent of the raisins that Horne refused to set aside. SCOTUS reiterated once again the “clear and administrable rule for just compensation”: “The Court has repeatedly held that just compensation normally is to be measured by ‘the market value of the property at the time of the taking.’” The slimmer majority took the view that the United States already calculated the amount of just compensation in this case when it fined the petitioners the fair market value of the raisins, as the lower court itself had noted. SCOTUS declined to permit the United States to disavow its own valuation.

In this instance, however, petitioners refused to relinquish their property and the United States proposed to fine them the equivalent amount – and relief from the fine and civil penalties made them whole. The minority of Justices would have remanded for further proceedings.

Impact: Horne might be considered an outlier, limited to its particular facts and the peculiar DOA marketing order structure – particularly, as SCOTUS emphasized, because the regulations provide for a physical appropriation of the commodity. Nonetheless, agencies and private parties need to considerHorne’s implications to other regulatory schemes.

Horne represents a breach of a regulatory wall – federal agency regulation of private property mayrequire just compensation. DOA, at least, must now and quickly rethink some of its agricultural marketing price support programs – Horne clearly bars DOA from taking crops without paying for them – effectively re-engineering a marketing system that has managed some food pricing for decades. Hornemay have broader implications to a number of different price support programs now administered by federal agencies and potentially significant near-term burdens on the public fisc for agency predation of private property.

All agencies need to take Horne seriously when proposing and promulgating regulations, for example, requiring the obsolescence of a specified type of property already in commerce. Further litigation may illustrate the depth of potential government liability for taking personal property by regulation – but post-regulatory compensation liability for the United States Treasury. In that analysis, just compensation equates to fair market value at the time of the taking, and should not reflect any effect of the taking in reducing the fair market value. Regulatory taking litigation is likely to be very fact-specific, but the fiscal risk is also likely to be high.

Finally, a technical word for those who believe Horne will substantially increase agency accountability. Unlike the waiver of fines and penalties imposed in Horne, just compensation for a taking normally derives from a court judgment against the United States. Such a judgment is paid from a permanent indefinite appropriation, the Judgment Fund, not the agency’s appropriation. Agency accountability will come from management, not litigation.

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