This post does not constitute legal advice.
The current term of the U.S. Supreme Court is coming to an end and the Court is releasing its final decisions. From time to time, the Supreme Court considers issues impacting agriculture and this term the Court considered in Horne v. USDA the Agricultural Marketing Agreement Act of 1937 and whether the act creates a taking of private property without just compensation.
Before we start, Tiffany Lashmet has a good overview up on the Texas Ag Law Blog. And you can read the full opinion here.
The Agricultural Marketing Agreement Act of 1937 created marketing orders (for certain crops) to help stabilize markets. Under the marketing orders, producers are able to sell a percentage of their crop and are required to give a percentage of their crop to the government to be disposed through noncompetitive markets, etc. I could go into a long description of the facts, but honestly The Daily Show’s Jason Jones actually does a fair job at laying out the facts (mind you in a comical way so if you are easily offended you can always read an overview at NPR).
The Decision
Here’s a quick overview of takings law. The Fifth Amendment of the U.S. Constitution requires the government to pay just compensation when taking private property. Takings come in two forms: 1) categorical/per se takings and 2) regulatory takings. Categorical/per se takings occur when there has been a physical appropriation of the property. A regulatory taking happens when a regulation severely limits your rights in the property.
In Horne, the Court was required to resolve three questions:
Does the Fifth Amendment’s requirement to pay just compensation only apply to a categorical taking of real property and not to personal property?
Can the government avoid paying just compensation for a physical taking of property when a contingent interest is reserved with the original owner?
Is the government, as a requirement to participate in a market, requiring you to give up identifiable property, thus creating a categorical taking?
Let’s take a look at each question.
For Question 1, the Court found there was no distinction with the Fifth Amendment between real property and personal property with a categorical taking. Nothing in previous decisions suggested that personal property should be treated differently than real property under the Fifth Amendment. The Court also found the reserve requirement in the marketing order was a clear physical taking of private property and the owner lost all rights in the reserve raisins.
For Question 2, the Court found the government could not avoid paying just compensation by providing the property owner with a contingent interest in the property set at the government’s discretion. Looking at the raisin reserve, the owner of the raisins would get any net proceeds returned after the deduction of expenses and subsidies for exporters. The fact that a grower might receive some indeterminate value did not mean there was not a categorical taking. The issue in takings cases is whether there has been a physical appropriation of the property. The indeterminate value that may be paid to the grower would be a factor in just compensation.
For Question 3, the Court said requiring a party to give up property to participate in a market constituted a categorical taking. Here, USDA had argued that if the growers did not like the terms of the marketing order, the growers could always choose not to participate in the raisin market. The growers, according to USDA’s arguments, could always enter the table grape or wine markets. The Court rejected this argument and held the requirement to give up a certain percentage of raisins to participate in the raisin market to be a taking.
The final issue was how to calculate just compensation, and this is where the majority differed. USDA had argued that just compensation should be based on the value of the reserve raisins minus the value of the price support program. Three justices agreed with this approach, but five justices rejected it, finding that the traditional rule for valuing just compensation should be the value of the raisins at the time of the taking. According to the five justices, USDA had already calculated just compensation for the taking at $483,843.53 and could not now argue a different formula to calculate just compensation.
What Happens Now?
If you have an interest in takings cases then this case provides some interesting analysis to help with future cases. I will not bore you with any of that. The major implication is how USDA (specifically the Agricultural Marketing Service) will handle marketing orders after this decision. USDA has around 20 marketing orders for other crops. Marketing orders can be argued to provide for orderly markets, help ensure stable prices, and prevent overproduction. Others see them as no longer necessary and antiquated relics of Depression era farm policy. How all this plays out will be interesting to watch over the coming months.