At 10 a.m. next Wednesday, the Supreme Court will hold a one-hour oral argument on the legal path that a company is to take to test the government’s assessment of a sizable fine for violating a federal agency’s order, when the company claims that the fine is an invalid “taking” of property.  A group of California vineyard operators will be represented in the case of Horne v. U.S. Department of Agriculture (docket 12-123), by Michael W. McConnell, a Stanford law professor and former federal appeals judge who is in the case for the law firm of Kirkland & Ellis.  Representing the Department of Agriculture will be Joseph R. Palmore, an Assistant to the U.S. Solicitor General.

Background

Since the Great Depression, one of the government’s customary ways to bolster the prices that farmers get for their crops has been to require that some of the harvest be kept off the market: the less the supply, the better the price probably will be, given the laws of economics.   This is still going on for some crops, and the Supreme Court will encounter such a policy this Term in a marketing program that limits the amount of the annual production of California raisins (dried grapes) that can be sold in regular commercial channels.

The case reached the Court in the form of a significant test of the constitutional doctrine — technically, the “takings” concept — that the government cannot take away private property to serve a public purpose, unless it pays for it.  That is embodied in the Fifth Amendment’s Just Compensation, or Takings, Clause.

Consumers in America and around the world provide a huge market for California raisins: the state’s raisin industry supplies almost one hundred percent of U.S. consumption, and about forty percent of the world market.   But, historically, the industry has suffered some of the same price woes as other agricultural industries that over-produce.

In 1949, after an increase in production by California processors caused raisin prices to drop from $135 a ton to between $40 and $60, a cooperative federal-private marketing program was set up.   An order issued to implement that program seeks to stabilize raisin prices by keeping some of the annual crop off the market, putting it into what is called a “reserve pool.”  The amount put aside each year is determined by a committee whose members are named by the Agriculture Secretary from nominees by the industry.

The marketing limitation applies to “handlers” — packers and producers of raisins that head to market — and not on the grape-growers in their capacity as original producers.  The growers, through, dry out the grapes that become raisins, and then typically sell them to a handler.  When a handler receives raisins from a grower, the crop is divided into two groups: one called “free tonnage,” which the handler can then send to the market without restriction; the other is called “reserve tonnage.”

The raisins that are set aside in the reserve pool, by the committee’s annual order, cannot be sold on the open market.  The committee retains control over those raisins, and can sell them in non-competitive markets, or use them for government programs such as school lunches and stimulation of exports.  If it sells any, the proceeds go to pay the costs of running the reserve pool, but if there is any profit beyond that, the growers recieve a share of it.

The case now before the Supreme Court arose when a group of operators of vineyards in California’s Fresno and Madera Counties, who believed that the marketing order was unfair and out of date, were accused by the Agriculture Department of setting up an arrangement to circumvent the marketing limitation and the reserve pool arrangement.   Rather than selling their raisins to handlers, the Department argued, they set up their own processing operations, and processed for market not only their own raisins but those sold to them by other growers.  The growers then grouped into an association that put the raisins on the market.

The Department contended that, in two crop years (2003 and 2004), this operation sold more than three million pounds of raisins outside the marketing order.  The growers defended themselves by arguing that the order did not apply to them, because they were producers.  The Department rejected their claim, treating the growers as having acted as handlers, and imposed a civil penalty of $483,843.53.   That was based on an estimated loss to the marketing committee for the failure of the growers to put the designated share of their crop into the reserve pool.

The growers filed a legal challenge in a regular U.S. District Court, claiming — in addition to the argument that they were outside the marketing order — that the requirement that they transfer part of their crop each year to a government-run pool was a “taking” of their property.  Further, they argued that the civil penalties were an “excessive fine” in violation of the Eighth Amendment.

The district court ruled for the Department of Agriculture, and the Fresno and Madera growers went on to the U.S. Court of Appeals for the Ninth Circuit.  A three-judge panel of that court ruled that these growers were handlers required to obey the reserve pool order, that this requirement was not a “taking,” and that the civil penalties did not violate the Eighth Amendment.

The growers sought reconsideration, and the panel agreed to do so.   Deciding the case anew, the panel again found that these growers were handlers who had to obey the reserve pool arrangement, and that there was no Eighth Amendment violation in the civil penalties.

But, responding to a new argument the Department had made at that stage, the panel concluded that neither the district court nor it had any authority to decide the growers’ claim that their property had been subjected to an invalid “taking.”   This claim, the panel concluded, was premature, not “ripe.”  It was, that court said, the kind that had to be pursued not in a regular district court, but in a specialized federal court that hears claims against the federal government — the Court of Federal Claims.   The panel, for this purpose, treated the growers as “producers,” not as handlers. If they were treated as handlers, their “takings” challenge would be proper in a regular district court in response to a financial penalty by the Department.

Now facing the need for their lawyers to start all over in a different court on a basically different theory of relief, the Fresno and Madera growers filed their appeal in the Supreme Court last July.

Petition for certiorari

The vineyard operators asked the Court to decide two issues — one closely tied to the Takings Clause issue, and one on which of two federal courts provided the proper channel for their challenge.

On the first, they asked the Court to rule that a “direct transfer of funds mandated by the government” — here, the Department’s civil penalties — could be challenged under the Takings Clause before those assessed had to pay it, rather than having to pay the money and then challenge it in the special Court of Federal Claims.

On that point, the growers argued that the Ninth Circuit decision conflicted with rulings of five other federal appeals courts, as well as with Supreme Court precedent.

On the second issue, they asked the Court to rule that the regular federal courts did have the authority to review the growers’ “takings” challenge.  They argued that the penalties were assessed on a theory that they were “handlers,” but were being treated as growers for purposes of resolving the federal court to which they were obliged to go with their challenge.  A “handlers” challenge, by law, has to go to a regular district court, they noted.  On that point, the petition said there was a conflict between the Ninth Circuit and the Federal Circuit, the specialized court oof appeals that (among other cases) handles appeals from the Court of Federal Claims.

Alhough the bottom line of the case is about court jurisdiction, and about when a claim of “takings” is “ripe” for judicial review, the growers’ petition put a heavy emphasis on their argument that the government, by ordering them to make a cash payment to the government, had taken their property in violation of the Fifth Amendment.  Any time the government imposes a penalty in the form of money damages, the petition contended, a “takings” claim is available because in demanding money, the government “had already determined that no ‘just compensation’ will be forthcoming.”  So, at that very point, a claim of a “taking” should be allowed as a defense to the fine’s imposition, the growers asserted.

That kind of challenge, they argued, is entirely different from what happens when a private entity seeks to sue the government to try to compel the government to pay money damages.   It is also different from an attempt to get a court order to stop the government from taking “tangible property.”

On their second point, the growers argued that they were mistreated, in a “Kafkaesque” fashion, by first being treated as “handlers” for purposes of their obligation to pay a civil penalty, and then being treated as “producers” for purposes of their right to sue to challenge the civil penalty order.  “Nothing in law or logic” supports that approach, the petition said.

Moreover, their filing added, the court of appeals engaged in several ”curious procedural twists,” refusing to order new briefing and argument after the government brought up the jurisdictional point, and barring the growers from seeking a new en banc hearing after the panel’s second decision shunting their “takings” challenge to the Court of Federal Claims.  “With all respect,” the petition said, “it is intolerable for a panel of a United States Court of Appeals to treat a party in this fashion.”

The growers’ petition had the support of various business and free-market advocacy organizations.  Their amicus brief emphasized the need to cut back on what they argued was the Ninth Circuit’s “overbroad reading” of Supreme Court precedents on when a “takings” claim had matured to the point that it can be challenged in court.  The brief contended, as the growers had, that “when the government’s demand of money from a property owner allegedly violates the Takings Clause, the takings claim is ripe immediately — without the owner’s having to pay the money and file a separate suit to get it back.”

In response, the Department of Agriculture urged the Court to deny review, arguing that the Ninth Circuit’s ruling was correct and that there was no conflict among lower courts on the issues in dispute.  If the growers want to pursue “just compensation,” the brief in opposition contended, the Tucker Act sets up a procedure — through the Court of Federal Claims — for that kind of claim against the government.

But, the brief went on, the growers should not now be claiming that the civil penalties constituted the ”taking” of which they were complaining.  Throughout the case in lower courts, the Department recalled, the vineyard operators had “consistently framed their Just Compensation Clause claim” on the requirement that they set aside the physical property of raisins in the government-run reserve pool.  They wanted more money for the set-aside portion of their crop, and that is where they focused their legal claim, the Department’s brief said.

The difference in the claims, the Department asserted, is what makes sense of treating the growers as “handlers” for purpose of the civil penalties, and as “producers” for purposes of their demand for more money for the raisins due to be set aside in the reserve pool.

Briefs on the merits

Undaunted by the government’s attempt to suggest that the growers were only after more money for their “reserve” raisins, the growers’ brief on the merits is dominated by its assault on the “enforcement action” taken against them, not on the set-aside of part of their crop yields in 2003 and 2004.

What the government is attempting to force them to do, their brief argued, was to commit them to a court system to seek relief for some government action that “has not yet taken place.”   What they want instead, they argued, was the right to “interpose a constitutional defense to an enforcement action brought by the government at the time and in the forum of the government’s own choosing.”

The document provided an extensive history of the Takings Clause, which, the growers insisted, shows that the provision has been available — “from the earliest cases” — to try to fend off a government enforcement action that has already occurred.  Parties could also use that Clause as an offensive weapon, to seek a court order to provide them with relief when there was no adequate relief in the form of money.

The brief also made an argument in favor of the review procedures that they prefer to follow — those set up explicitly for challenges to Department of Agriculture’s marketing orders.  That was the mode of review they had always sought, the brief said; it was the government that switched litigating positions.

The Department of Agriculture, in its brief on the merits, was similarly undeterred by the arguments on the other side.  It insisted that what the growers were actually pursuing was “after-the-fact compensation” for their reserve raisins, not the avoidance of the cash penalties under the marketing enforcement decree.

There is a process especially created for “obtaining after-the-fact compensation” from the government, and that is provided through the Court of Federal Claims, under the federal Tucker Act, the government brief contended.   The special review procedure that the growers want to invoke, according to that filing, “regulates handlers, not producers,” and sets up a route through which a handler may go to get review of any civil penalties that are imposed.

Addressing directly the growers’ Takings Clause argument — that is, that they are seeking to block a cash transfer to the government – the Department’s brief said that the growers had a good reason not to pursue that argument as this case went through lower courts.  “This Court,” the brief said, “has never held that a requirement to pay money from unidentified sources can be challenged as a physical taking.”

In fact, the government filing said, the payment obligations imposed on the growers “were not the dollar-for-dollar equivalent of the just compensation they would have received if, hypothetically, they had complied with the reserve requirement and then successfully contended in a Tucker Act suit that the requirement resulted in a taking of the raisins they produced.”

It also disputed the growers’ claim that they could bring their “takings” claim not as an affirmative legal claim, but rather as a defense to the enforcement action taken against them.

The growers drew amici support from the same advocacy groups who had been with them at the petition stage, and picked up, in addition, a group of constitutional law scholars arguing strenuously against the Court’s precedents on when a “takings” claim is “ripe” for judicial review. The growers also gained at the merits stage the support of the state of Texas, and the U.S. Chamber of Commerce.

The Department of Agriculture was supported by another raisin industry component, the marketing cooperative of 750 farmers allied as the Sun-Maid Growers of California, which touts itself as “the largest single marketer of raisins in the world.”  It, too, operates under the raisin marketing order and its brief stressed its members’ obedience to the order; its brief basically treats the challenging growers as mavericks.   The Department also has the support of the International Municipal Lawyers Association, arguing the need to maintain the “integrity” of the Fifth Amendment “takings” process.

Analysis

This is another of those cases before the Court where the outcome may follow quite easily from the Court’s choice of which of two different theoretical boxes is the right one for this dispute.   If it sees the case as a controversy over the government’s use of a “bait-and-switch” strategy to thwart a serious challenge to its marketing program enforcement, the growers could be well on their way to winning.  The growers’ lawyers have done quite a good job of portraying this as a David-and-Goliath contest; here and there, the filings portray these vineyards as small parts of the raisin industry.

But if the Court sees the case as one more in a lengthy line of pleas to relax its hard line against “premature” claims for just compensation under the Takings Clause, the Agriculture Department could be home free.   The Court has steadfastly refused to budge on requiring those who claim a “taking” to go through the proper channels before they can mount a definitive claim for compensation.

The case, as it was being readied for the Court, moved a considerable distance away from the legalities of the decades-long programs for shoring up agricultural prices.  In fact, the back-and-forth categorization of the growers, as the controversy moved along, between “handlers” and “producers” is not likely to clarify legal responsibilities under these farm crop marketing schemes.   In the end, the case began to appear, in some significant ways, as a case that turns on its special facts.

But the larger potential of the case, to draw the Court deeply into the history and meaning of the Fifth Amendment Takings Clause, gives it the promise of producing a major new precedent.  It could, indeed, clarify not only when claims under that Clause are, or are not, premature, but also determine whether there is anything to the growers’ quite novel argument that the Clause is a weapon against government enforcement actions through monetary fines.

Posted in Horne v. Department of Agriculture, Analysis, Featured, Merits Cases

Recommended Citation: Lyle Denniston, Argument preview: A vintage “takings” case, SCOTUSblog (Mar. 17, 2013, 12:28 AM), http://www.scotusblog.com/2013/03/argument-preview-a-vintage-takings-case/