Horne: Supreme Court Says Seizures of Personal Property Are Subject to a Per Se Rule

The U.S. Supreme Court issued its decision today in Horne v. Department of Agriculture, reversing the Ninth Circuit and ruling that the Hornes are not subject to monetary fines for violating the Department’s raisin marketing order.  The fines were invalid, the Court ruled, because compliance with the marketing order would have resulted in a taking of private property without compensation under the Takings Clause. The Court split along depressingly predictable partisan lines, with four justices (you know who they are) joining an opinion for the Court written by Chief Justice John Roberts, and four other justices (you know who they are) dissenting in whole or in part.  Many people will have interesting things to say about this case, which will deserve continued study, but here is a brief recap and a few initial observations. 

The Horne case arose from an incredibly arcane Department of Agriculture marketing program designed to prop up raisin prices for the benefit of the raisin industry.  In years of excess production, raisin producers must “reserve” a portion of their raisin crop and turn it over to the Raisin Administrative Committee (the ‘RAC”), a government-created group run by representatives of the raisin industry.  The RAC sells reserve raisins in foreign markets, donates them to charity, or disposes of them in some other fashion. The raisin producers sell the balance of their crop in the open market, at prices which are inflated by the limitation on the market supply of raisins created by the “reserve” requirement.

Virtually everyone who has studied the raisin marketing program in connection with this case has characterized it as “silly” or even “ridiculous.”  This perception has made the government’s challenge of rebutting the takings argument a challenging one.  The case arose from the Hornes’ ill-fated redesign of their marketing practices to avoid the “reserve” requirement so that they could sell all their raisins at market prices.  The Department responded by imposing fines on the Hornes for not complying with the marketing order.  The Hornes challenged the fines in federal District Court on the ground that compliance with the reserve requirement would have amounted to a taking.

Today’s decision is the second decision by the Supreme Court in this case in the last two years.  The Ninth Circuit initially ruled that it lacked jurisdiction because the Hornes should have pursued their takings argument through a claim for monetary compensation in the U.S. Court of Federal Claims.  The Supreme Court reversed, ruling that the special statutory provisions governing judicial review of the raisin program bar a suit for just compensation under the Takings Clause in the claims court.  Accordingly, the Court ruled that the Hornes’ suit challenging the fines based on the Takings Clause could proceed in federal District Court and, on appeal, in the Ninth Circuit.  On remand from this ruling, the Ninth Circuit rejected the Hornes takings argument on the merits.   The U.S. Supreme Court has now reversed the Ninth Circuit again.

Chief Justice John Roberts addressed in turn the three issues presented in the petition for certiorari.  The first question was “[w]hether the government’s ‘categorical duty’ under the Fifth Amendment to pay just compensation when it physically takes possession of an interest in property applies only to real property and not to personal property.”  The Court’s answer was an unequivocal “no.”  In what can charitably be described as a cursory analysis that ignored a good deal of modern precedent indicating that alleged appropriations of interests in personal property are not subject to a per se rule, the Court concluded that the “text [and] history of the Takings Clause,” as well as our “precedents,” justify applying to appropriations of personal property the same per se rule that applies to appropriations of real property.  Invoking a heavy dose of intuition, Chief Justice asserted that people “do not expect their property, real or personal, to be actually occupied or taken away.”  Really?  Says who?  Says he.

One of the doctrinal obstacles Justice Roberts had to overcome in reaching this conclusion was the Court‘s explicit differentiation of real from personal property in the famous case of Lucas v. South Carolina Coastal Council.  In Lucas, the Court said that a total denial of all economically viable use of real property constitutes a “per se” taking.  But, the Court said, “in the case of personal property, by reason of the State’s traditionally high degree of control over commercial dealings , [a property owner] ought to be aware of the possibility that new regulation might even render his property economically worthless (at least if the property’s only economically productive use is sale or manufacture for sale.)”  On its face, therefore, Lucas is a strong precedent for saying that a per se rule that applies to realty may well not apply to personalty.  Moreover, Lucas justified the new per se rule announced in that case by saying that a denial of all economically viable use of property is “equivalent” to an “appropriation” of private property.   If the Lucas rule rests on an analogy to appropriations, and the Lucas Court differentiated between personalty and real property, it seemed to logically follow that the Court’s rules governing appropriation takings also should differentiate between these two types of property.  No such luck.  Instead, the Chief Justice invoked the sharp distinction between physical takings and regulatory takings described in Tahoe-Sierra, and said that while the distinction between real and personal property may make sense in the regulatory takings context it does not make sense in the physical takings context.

The practical implications of the Court’s sweeping new per se rule are difficult to predict but potentially very troubling.  Do FDA seizures of adulterated drugs fall within the scope of this new rule?  Does the removal of starving or abused animals from the care of neglectful owners constitute a per se taking of personal property?  How about the federal law depriving convicted felons of the right to own weapons?  It seems unlikely that the Court intends for its new per se rule to apply in these types of cases, but it is difficult to see anything in the Court’s opinion to cabin the new per se rule to avoid such results.  In a later section of the opinion, the Court distinguished Horne from Ruckelshaus v. Monsanto Co., in which the Court rejected a takings challenge to an EPA rule requiring a pesticide manufacturer to turn over health and safety data as a condition of receiving a permit to sell commercial products.  “Raisins are not dangerous pesticides; they are a healthy snack,” Chief Justice Robert wrote.  A case about “the sale of hazardous substances,” he said, is “hardly on point” with a case about raisins.  Fair enough, but how are citizens and regulators supposed to know whether a product offered for sale is sufficiently “dangerous” to escape the clutches of the Court’s new per se rule?  Moreover, even if the Court were ultimately to embrace a “hazardous commercial products” exception to its new per se rule, how would that be of any use in addressing the animal cruelty or gun cases?

At the doctrinal level, Horne threatens to make a hash of so-called per se takings analysis.   Those who remember in detail the Lucas case will recall that the State of South Carolina sought to defend its coastal regulations on the ground that the legislature had adopted them to protect the public from harm.  Justice Scalia rejected the relevance of the legislature’s harm-prevention goals, characterizing the distinction between benefit-conferring and harm-preventing regulation as a meaningless parlor game.  The harm prevention goal of regulation could defeat a per se takings claim, the Lucas Court said, only if the threatened harm rose to the level that  the government could show that the owner had no property right to engage in the activity to begin with under “background principles” of property or nuisance law.  It seems extraordinarily unlikely that all of the common sense exceptions that will need to be created under the new Horne per se rule can fit into the background concepts category.  Instead, what the Court seems to be saying is that when the legislature says a personal property interest is “dangerous” (whatever that means), and a court agrees, the per se takings rule does not apply.  But at that point the courts will not actually be applying a per se rule, but instead (dare we say it) delving into the kind of analysis of “character” of the government action appropriate under Penn Central analysis.

The second two issues from the cert petition addressed by the Court can be described more quickly.  The second issue was whether the government could avoid the “categorical duty” to pay compensation by pointing out that under the marketing order raisin producers had a contingent interest in the profits (if any) that the RAC reaped by disposing of the reserve raisin.  The Court rejected this argument, concluding that a contingent profit interest from the ultimate sale of the raisins “does not mean there has been no physical taking.”  (To give this argument some credit, Justice Sotomayor, in a solitary dissent, concluded that the existence of the contingent profit interest precluded extending the Court’s per se rule for physical taking of real property to personal property, at least in this case.)

The final issue raised in the petition for certiorari was “[w]hether a government mandate to relinquish specific, identifiable property as a ‘condition’ on permission to engage in commerce effects a per se taking.”  The Court’s answer “at least in this case, [was] no.”  The Court stated that, in general, neither permission to build on land nor to engage in commerce can be viewed as the granting of a privilege that will support characterizing as a voluntary exchange a government demand that would otherwise amount to a taking.  As discussed, the Court acknowledged that it had employed different reasoning in the Monsanto case, but distinguished that case on the ground it involved ‘hazardous substances.”  In short, the Court ruled that the reserve requirement could not be defended as a justified exchange for the privilege conferred on the Hornes of selling raisins.  The Court’s “at least in this case” answer suggests that appropriations of certain commercial products will not be subject to the per se rule; but how broad that exception might turn out to be and whether it could even fit within the per se takings template remains to be seen.

Last but not least, the Court rejected the argument of the Solicitor General that, a minimum, the case should be remanded to determine whether the Hornes’ case might still fail on the ground that the Hornes were not entitled to just compensation. (If the Hornes could not justifiably claim that the order would have taken their property “without compensation” they could not defend against the fines imposed on them for violating the order on the ground that it would have resulted in an uncompensated taking).   The government argued that since the primary purpose of the program was to keep the market price of non-reserve raisins elevated, any loss the Hornes suffered as a result of any taking of their reserve raisins may have been offset by the benefit they received from the increased prices for non-reserve raisins.  Justice Breyer, in dissent, with support from Justices Kagan and Ginsburg, embraced the government’s argument.  But the Chief Justice, speaking for the Court, rejected it:   He acknowledged the case law establishing the doctrine of special off-setting benefits in takings cases, but concluded that these cases “do not create a generally applicable exception to the usual compensation rule, based on asserted regulatory benefits of the sort at issue here.”  The Chief Justice’s opinion leaves us to wonder precisely why it is that the doctrine of offsetting benefits does not apply in this type of case.

Two other points are worthy of note.  In an earlier post on this blog, I noted the debate among the justices during oral argument about the potential significance of the Court’s 1929 decision in Leonard & Leonard v. Earle.  I suggested that the Horne case might have the surprising effect of reinvigorating the venerable, but much maligned, doctrine of public ownership of wildlife.  As I explained in my earlier post, Leonard appeared to be on all fours with the Horne case and a powerful precedent for upholding the Ninth Circuit, at least until Mike McConnell, counsel for the petitioners, pulled a surprising rabbit out of his hat.  Leonard, he argued, was not on point because the denial of the claim turned on the fact that the case involved oysters and oysters are ferae naturae, a form of public property.  While there are arguments against this reading of the Leonard decision (including the fact that the Supreme Court opinion in Leonard offers no support for this reading), Chief Justice Roberts bought the argument: “The oysters, unlike raisins.” he explained “were ferae naturae that belonged to the State under state law, and no individual had any property rights in them other than such as the state may permit him to acquire.”   In 1979, in Hughes v. Oklahoma, the Supreme Court, after a series of earlier decisions disparaging the public ownership doctrine, famously remarked that the public ownership doctrine was merely a “19th century fiction.”  But, with Horne, the public ownership has apparently come roaring back to life.  The decision will provide powerful support for government regulations relating to fish and wildlife, and it will bolster the efforts of various scholars and litigators to promote the public ownership doctrine as a defense to takings claims arising from wildlife-protecting regulations.

Lastly, a collateral issue lurking in the Horne case was whether property owners should, in general, be allowed to raise the Takings Clause not only as a  basis for seeking compensation for a taking but also as a basis for an injunction to prevent a taking from occurring.  In property law terms, the question is whether the Takings Clause establishes only a “liability rule” or a “property rule” as well.  As discussed, the Supreme Court previously ruled that the Hornes could block the program and defend against the fines for violating the marketing order, but that ruling was arguably based on the special circumstance that in this particular case the Hornes were barred from pursuing a claim for compensation in the U.S. Court of Federal Claims.  In this second go round before the Court, petitioners and several of their amici argued that the Court should take the opportunity in this case to indicate that takings claimants, in general, should have the option to sue to enjoin a taking rather than sue for compensation, if that is the relief they prefer.  Others (including your faithful scrivener) argued that the Court should affirm that the exclusive remedy for a taking is a suit for just compensation, at least if that remedy is actually available in the particular case.  Justice Robert’s opinion appears to endorse the latter understanding, and offers no encouragement for advocates of the broader theory of takings remedies.

More to come, no doubt.