California Eminent Domain Report

In June of last year, the U.S. Supreme Court issued a unanimous opinion in Horne v. Department of Agriculture holding that California raisin handlers could assert a takings claim as an affirmative defense to an enforcement action filed by the United States.  I am happy to point out that in our analysis of the Supreme Court's decision, we explained that "[n]o court has yet found that the Hornes were subject to an unconstitutional taking; rather, the Supreme Court merely held that the jurisdictional argument relied on by the Ninth Circuit to avoid a decision on the merits was contrary to law."  (See our June 12, 2013 E-Alert for a further discussion of the Supreme Court's decision.)  Last Friday, approximately 11 months after the Supreme Court remanded the matter to the Ninth Circuit for a decision on the merits, the Ninth Circuit issued a published opinion concluding that the actions by the Government did not rise to the level of a regulatory taking.  In reaching this conclusion, the Ninth Circuit found that the actions by the Government were most appropriately analyzed under the standards set forth in Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374.  

As a quick refresher, the Agricultural Marketing Agreement Act of 1937 ("AMAA") and the California Raisin Marketing Order (the "Marketing Order"), promulgated by the Secretary of Agriculture under the authority of the AMAA, impose reporting and reserve requirements which are enforced through the imposition of civil penalties.  In 2006, an Administrative Law Judge found that the Hornes were raisin "handlers," and as such subject to the requirements under the AMAA and the Marketing Order.  The Administrative Law Judge further found that the Hornes failed to comply with applicable reporting and reserve requirements, and ordered the Hornes to pay in excess of $200,000 in civil penalties, in excess of $8,000 in assessments, and almost $500,000 for their failure to hold the necessary raisins in reserve.  On appeal, the Federal District Court upheld the decision by the Administrative Law Judge, finding that as for the Hornes' takings claim, the reserve requirement merely constituted an "admission fee" not a taking.  

Now we flash forward to last Friday, and the Ninth Circuit's opinion.  While the Government again attempted to avoid a decision on the merits, this time asserting that the Hornes lacked the necessary injury for purposes of standing, the Ninth Circuit quickly dismissed these arguments and found the the Hornes had standing to pursue their Fifth Amendment claim.  Turning to the merits, the Ninth Circuit then discussed what type of standard should be applied to the Hornes' takings claim.  The Ninth Circuit first concluded that because the Government neither seized any raisins from the Hornes' land nor removed any money from the Hornes' bank account, the Government's actions had to be analyzed under "the doctrinal thicket of the Supreme Court's regulatory takings jurisprudence." 

Turning to the regulatory takings issue, the Ninth Circuit then explained that as the Hornes intentionally declined to pursue a Penn Central claim, they were left with only three possible standards:  (1) a regulation resulting in the permanent physical invasion of real property; (2) a regulation depriving an owner of all economically beneficial use of his property; or (3) a condition on the grant of land use that either fails to bear a sufficient nexus or rough proportionality to the specific interest the government seeks to protect.  The Ninth Circuit found that as the Marketing Order operated against personal, rather than real, property, and because the Hornes conceded that they did not lose all economically beneficial use of their property, the best analytical framework was the "nexus" and "rough proportionality" standard set forth in Nollan v. California Coastal Commission, supra, 483 U.S. 825 and Dolan v. City of Tigard, supra, 512 U.S. 374.

Applying this framework, the Ninth Circuit concluded that there was an adequate nexus, as the AMAA and Marketing Order were intended to establish and maintain orderly marketing conditions and keep consumer prices stable, and the undisputed facts demonstrated that "by smoothing the peaks and valleys of the supply curve, the program has eliminated the severe price fluctuations common in the raisin industry prior to the implementation of the Marketing Order, making market conditions predictable for industry and consumers alike."  The Ninth Circuit also concluded that the Marketing Order's reserve requirements were proportional to its goals, because under the Marketing Order "[t]he percentage of raisins to be reserved is revised annually to conform to current market conditions."  Accordingly, as the nexus and rough proportionality elements were satisfied, the Ninth Circuit held that the Government's actions did not rise to the level of a taking.

In conclusion, after a brief moment in the sun, the Hornes were left high and dry.  (Sorry, just couldn't resist.)