Horne v. Dept. of Agriculture: Private Property Rights Trump Government's Raisin Reserve

by: Anthony F. Della Pelle
13 Jul 2015

The U.S. Supreme Court (“SCOTUS”) recently delivered its decision in Horne v. Dept. of Agriculture on the issue of the reserve requirement for raisins under the Agricultural Marketing Agreement Act of 1937 (“AMA”).  Our fellow Owners Counsel colleagues from New York and California, Michael Rikon and Robert Thomas, have kept a close watch on the case and offered a great summary which can be read here and here.

The AMA authorizes the Secretary of Agriculture to promulgate “marketing orders” which help maintain stable markets for a particular agricultural product.  The Raisin Administrative Committee was established to set forth the required allocation of raisins to the Government, free of charge.  Once the raisins are seized by the Government, they may be sold in non-competitive markets, dated, or disposed of in a way consistent with the program, and any profits that are left over after deducting the Government’s expenses is distributed back to the raisin growers (profits are rarely ever left over however).  Relevant to the present case, the Raisin Committee directed raisin growers to set aside 47% of its crop to be allocated to the Government in 2002-2003, and 30% in 2003-2004.  The Hornes, who are raisin handlers and growers, refused to meet the reserve requirement (the Government actually sent trucks to Hornes’ facility one morning to pick up the allocated raisins and the Hornes refused entry).  Needless to say, the Government fined the Hornes the market value of the missing raisins as well as additional civil penalty.

SCOTUS ultimately agreed with the Hornes that the Government’s reserve requirement of raisins was a physical appropriation of personal property which was a “clear physical taking.”  Citing to the Magna Carta (which recently celebrated its 800th birthday in June), SCOTUS reiterated the long-standing principle of just compensation for takings in private property.  SCOTUS noted the historical context of the clause by stating that the “colonists brought the principals of Magna Carta with them to the New world, including that charter’s protection against uncompensated takings of personal property.”  The Takings Clause was “probably adopted in response to the “arbitrary and oppressive mode of obtaining supplies for the army, and other public uses, by impressment, as was too frequently practised during the revolutionary war, without any compensation whatsoever.” Blackstone’s Commentaries, Editor’s App. 305-306 (1803).  SCOTUS found “nothing in this history [which] suggests that personal property was any less protected against physical appropriate than real property.”

The Government contended that raisins are “fungible goods whose value is derived from revenue from their sale” and thus the raisin reserve requirement was not a taking because the raisin growers retain the most important property interest (i.e. the net proceeds).  SCOTUS however was not persuaded.  The Government cannot “avoid the 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, set at the government’s discretion.”  “The fact that the growers retain a contingent interest of indeterminate value does not mean there has been no physical taking, particularly since the value of the interest depends on the discretion of the taker, and may be worthless. . .”

The Government further claimed that there was no taking here because raisin growers voluntarily participate in the raisin market.  The Government suggested that the raisin growers can either “plant different crops,” or “sell their rain-variety grapes as table grapes or for use in juice or wine.”  SCOTUS flat-out rejected the Government’s argument as a matter of law.  Furthermore, SCOTUS did not deem the reserve requirement to be a voluntary exchange in light of the Government required reserve requirement of 47% for one year, and 30% in the year thereafter.  “Selling produce in interstate commerce, although certainly subject to reasonable government regulation, is similarly not a special governmental benefit that the Government may hold hostage, to be ransomed by the waiver of constitutional protection.”

As is the case for any takings under the Fifth Amendment, the Government must pay just compensation.  In the instant matter, measuring just compensation was easily determined by SCOTUS given that the Government had already calculated that amount when it fined the Hornes the fair market value of the raisins when they failed to meet the reserve requirement.  “The Government cannot now disavow that valuation.”

Justice Breyer, joined by Justice Ginsburg and Justice Kagan, dissented the majority’s rejection of the Government’s request for a remand to determine just compensation.  In the dissent, Justice Breyer noted that the purpose of the reserve requirement is to maintain stability in the prices of raisins, and, in part, may enhance the price of the raisins on the open market.  Similar to a partial taking of real property, Justice Breyer argued that the Court should have remanded the case to determine the set off between the value of the raisins taken and the value of any benefits conferred by the reserve requirement.  If “the value of the raisins taken exceed the value of the benefit conferred,” the reserve requirement would be a taking without just compensation.  However, if “the benefit might equal or exceed the value of the raisins taken,” in which case the reserve requirement does not effect a taking without just compensation.

Given the Government’s regulations on various other agricultural products, what sort of fall-out may this decision have on other Government price-support programs?  After fighting the Government for more than a decade, the U.S. Supreme Court’s decision was a victory for plaintiffs.  Raisin growers will no longer have to abide by the reserve requirements and raisin consumers can also rejoice in the fact that the SCOTUS has deemed raisins as a “healthy snack.”  Unfortunately, the Government’s raisin reserve is sure to dry up now.