In a February 2014 decision, Horne v. USDA, 750 F.3d 1128 (9th Cir. 2014), the Ninth Circuit was faced with the question of whether a federal program which imposed a penalty to California raisin producers who did not divert a percentage of their annual crop to a reserve constituted a taking under the Fifth Amendment. The Ninth Circuit held that while the Hornes had standing to sue, ultimately the reserve requirements and the penalty provisions did not constitute a taking under the Fifth Amendment.
In an effort to keep raisin supply relatively consistent from year to year, the Secretary of Agriculture administers a complex regulatory program which requires that California producers of certain types of raisins divert a percentage of their annual crop to a reserve. The percentage that must be diverted varies annually based upon production. Subject to administrative and judicial review, the Secretary can impose a penalty on producers who fail to comply with the diversion program. The raisins that are diverted are sold and the raisin producers that contribute are entitled to a pro rate share of the proceeds less administrative costs.
The Hornes argued that this regulatory program “works a constitutional taking by depriving raisin producers of their personal property, the diverted raisins, without just compensation.” The USDA disagreed and filed for summary judgment. The District Court granted summary judgment in favor of the USDA. The Hornes appealed that decision to the Court of Appeals for the Ninth Circuit.
On appeal, the panel of judges from the Ninth Circuit first reviewed the issue of whether the Hornes had standing to bring a Fifth Amendment Takings claim. The panel held that the Hornes had standing because “[t]he need to pay a penalty is obviously traceable to its imposition, and a favorable merits determination in this litigation would redress the Hornes' alleged injury, thereby satisfying the Lujan requirements.”
The Ninth Circuit then reviewed the merits of the Horne’s Fifth Amendment takings claim. Takings claims require a two-step inquiry. First, the court must determine whether a “taking” has occurred; that is, whether the complained-of government action constitutes a “taking,” thus triggering the requirements of the Fifth Amendment. Second, the court must determine whether the government provided just compensation to the property owner. Before either of these inquiries can be made, the court must identify the property that has been allegedly taken. In this case, the property interest was more complex. The Hornes did not divert the raisins, so their property was not technically taken. But as a result of failing to comply with the program the Hornes faced a $700,000 penalty. The Ninth Circuit reviewed case law and came to the conclusions that the regulatory program or “Marketing Order” “specifically linked a monetary exaction (the penalty imposed for failure to comply with the Marketing Order) to specific property (the reserved raisins). The Hornes faced a choice: relinquish the raisins…or face the imposition of a penalty.” The panel determined that “[i]f the Secretary works a constitutional taking by accepting…reserved raisins, then, under the unconstitutional conditions doctrine, the Secretary cannot lawfully impose a penalty for non-compliance. But if the receipt of reserved raisins does not violate the Constitution, neither does imposition of the penalty.”
The Ninth Circuit then turned to the issue of identifying which of the categorical takings case lines, if any, the regulatory program implicated. There are three categories of regulations which work a categorical or per se taking with each category having a representative case. The first is Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 427-38, 102 S. Ct. 3164, 73 L. Ed. 2d 868 (1982), which holds that permanent physical invasions of real property work a per se taking. The second, represented by Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015, 112 S. Ct. 2886, 120 L. Ed. 2d 798 (1992), teaches that regulations depriving owners of all economically beneficial use of their real property also work a per se taking. The third line of cases, represented by Nollan and Dolan, articulate that a condition on the grant of a land use permit requiring the forfeiture of a property right constitutes a taking unless the condition (1) bears a sufficient nexus with and (2) is roughly proportional to the specific interest the government seeks to protect through the permitting process. The Hornes argued that the regulatory program was a Loretto taking. However, in making its determination, the Ninth Circuit noted that the raisins were personal, rather than real property and “as the Supreme Court stated in Lucas, the Takings Clause affords less protection to personal than to real property.” The panel determined that because the raisin producers were entitled to a pro rata share of the diverted raisin proceeds, the Hornes did not lose all economically valuable use of the personal property. And, the panel noted that Lucas is limited to cases that involve land and also found “no reason to extend Loretto to govern controversies involving personal property.”
The Ninth Circuit decided to apply the Nollan/Dolan rule because they “believe it serves to govern this use restriction as well as it does the land use permitting process.” The panel found that the regulatory program “further[s] the end advanced as [its] justification” and therefore satisfies the Nollan nexus requirement. Next, the panel found that the regulatory program satisfied the Dolan rough proportionality requirement because “[t]he percentage of raisins to be reserved is revised annually to conform to current market conditions” and that was “enough to ensure the means of the Marketing Order's diversion program is at least roughly proportional to its goals.”
Ultimately, the Ninth Circuit affirmed the District Court’s decision and held that “the Marketing Order's reserve requirements—and the provisions permitting the Secretary to penalize the Hornes for failing to comply with those requirements—do not constitute a taking under the Fifth Amendment.” In conclusion the Court noted that the Hornes’ frustration with the regulatory program was understandable but that “the courts are not well-positioned to effect the change the Hornes seek, which is, at base, a restructuring of the way government regulates raisin production.” The Court stated that “it is Congress and the Department of Agriculture to which the Hornes must address their complaints.”
The Hornes appealed the Ninth Circuit decision and on January 16, 2015, the Supreme Court announced that it will hear the Horne’s appeal. This will be the Hornes’ second time in front of the Supreme Court. In June 2013, the Supreme Court unanimously ruled that the Hornes had a right to challenge the regulatory program in federal court -- they didn't have to go to the Court of Federal Claims first -- and sent the case back to the Ninth Circuit. The Supreme Court will rule on the Hornes most recent appeal by June 30, 2015.