Oral Argument in Horne v. Department of Agriculture

    Oral argument in Horne v. Department of Agriculture was lively, and the government got the worst of it.  The case involves a raisin marketing program by which the federal government orders packers of raisins (”handlers”) to cede title to a significant portion of their crop – anywhere from one-third to one-half – to the federal government.  The remaining portion (the “free tonnage”) may be sold at market prices but the portion requisitioned by the government (the “reserve tonnage”) is sold, exported, or given away by the federal government.  The proceeds from these dispositions of the reserve tonnage, after administrative expenses, are remitted to the producers.  But in recent years the amount the producers get back is either zero or less than their production costs. The Hornes, a family business, refused to give up the portion of their raisins that the government demanded and were assessed a penalty of nearly $700,,000.  After a prior trip to the US Supreme Court on a jurisdictional issue, the case was back today.
    Michael McConnell, for the Hornes, opened the argument by asserting that the case was all about the government’s forced taking of title to the raisins.  He conceded that a volume limit (perhaps of the sort famously at issue in Wickard v. Filburn) would be a use restriction analyzed under Penn Central, but argued that this case was a permanent dispossession, and thus a per se taking. Justice Sotomayor wondered whether this case was akin to Leonard v. Earle, in which the Court upheld a Maryland tax of 10% of the oyster shells taken by harvesters in Maryland waters.  McConnell distinguished Leonard by noting that the oysters were the state’s property prior to harvesting, but raisins (and their precursors, grapes) were never the government’s property until seized.  McConnell added that this was no tax but a seizure or imposition of a penalty equal to the market value of the raisins subject to seizure.  
    Justice Breyer contended that the nature of the program was to prop up prices for the free tonnage so there was a benefit to the producers from the seizure.  Perhaps, although McConnell disputed this, but in any case Justice Breyer’s point goes to just compensation, On that point, McConnell noted that the facts suggest that the drop in market prices from unregulated trade in raisins would be so small that there would be no benefit to producers, and thus no implicit in-kind compensation.  In any case the government’s regulations do not permit consideration of implicit in-kind compensation.
    Justice Kagan argued that this case was no different from a hypothetical government regulation that citizens surrender “records” permanently to the government. McConnell pointed out that, under Nixon v. GSA, historical records can’t be taken from private citizens without compensation. Justice Kennedy noted that even in the case of evidence seized for trial purposes (e.g., “a valuable diamond ring”) the government can’t keep it forever without compensation.
    Edward Kneedler, Deputy SG, faced a skeptical panel. Justice Scalia cut off his argument that the program benefited raisin producers and handlers by sarcasm: “These plaintiffs are ingrates, right?” Justice Scalia then elicited Kneedler’s concession that the government did not think there was any difference between seizures of personal and real property.  Kneedler argued that the government could validly attach conditions to entering the stream of commerce.  Justice Alito asked if the government could condition entry into the cellphone market on giving every fifth phone to the government. The Chief noted that such a program would arguably aid cellphone manufacturers by giving the phones to cell-less users, thus spurring demand.  What’s the difference between cellphones and raisins? Kneedler’s answer was that marketing orders have a long history.  The Chief replied that those programs usually involved volume limits but this was different because “you come up with the truck and you get the shovels and you take their raisins, preferably in the dark of night.”  Justice Sotomayor echoed Justice Alito’s concern about “every fifth cellphone,” to which Kneedler said this was different because it was a comprehensive regulatory program.  Kneedler eventually turned to his argument that this was no taking because the producers voluntarily sold their grapes to the handlers, and they had other options – wineries, table grapes. The Chief shot this down by observing that if a public school mandated pledging allegiance to the flag, it would be valid so long as the kid could go to a different school. Later on, Kneedler defended the program by suggesting that deference should be given to the congressional judgment in 1937 that this was for the benefit of producers.  Justice Scalia responded by noting that “central planning was thought to work very well in 1937, and Russia tried it for a long time.” Towards the end of Kneedler’s argument the Court voiced concern over how many programs might be affected by a decision finding this to be a taking.  “Scores,” said Kneedler.
    On rebuttal, McConnell made the point that benefit to the producers didn’t matter to the question of whether it was a taking.  Loretto’s apartment building was probably more attractive to tenants because of cable access, but it was still a taking. Argument ended on a lighter note when the Chief asked McConnell about the effect of the drought on California raisin growers. “It is not good. ... And I wonder if I will be able to take a shower when I go home.”  
    Based on oral argument – always a dangerous premise – the government will lose. 

Comments

[Ben Barros]

Interesting. I'll take a look at the oral argument transcript later today, but was there any discussion of the denominator problem? I understand that this case involved the Loretto per se rule, but did the government try to argue that the Court should look at the crop as a whole in considering whether it was a taking? On this front, I wonder what would happen if the government just ordered the farmers to destroy the excess part of the crop.

[Calvin Massey]

Ben,
The denominator problem did not really come up. The closest to it was the discussion about volume limits (which could include destruction of excess production -- in fact, at one point in the history of this program I think the excess raisins were destroyed). Both sides seemed to square off on the Loretto principle: If the raisins were permanently possessed by the government there is a taking, no matter how much of the crop is left to the handler. Kneedler argued that Loretto shouldn't apply because this program is designed to give something back to the producers, and I guess that is a back-door argument invoking the denominator problem.

[Ben Barros]

Thanks, Calvin. I was curious in part because I think that some of the Justices (Scalia, Thomas, Kennedy for sure) would like to take an opportunity to counteract the broad dicta in Tahoe Sierra and re-establish the denominator problem as a clearly open question. This case might give them that opportunity.

[John Echeverria]

I am quite certain it is incorrect to assert that "Justice Scalia then elicited Kneedler’s concession that the government did not think there was any difference between seizures of personal and real property." While Kneeedler's intial discussion of this issue was a litle confusing, at a later point in the argument he made crytal clear that the governemnt sees a "fundamental" difference netween real and personal property.

[Calvin Massey]

Here is the transcript, which makes it quite certain that Kneedler did make the concession I asserted:
Scalia: You used to say -- you used to say it's not a taking if it involves just personal property, only real estate. Are you still ...
Kneedler: That – that - that has not ...
Scalia: The government has abandoned that position?
Kneedler: That -- that has not been our position. We have -- we have -- we have not argued that personal property is not subject to the -- to the Just Compensation Clause such that if there were -- if the government came in aand -- and took someone's car or someone's --
Scalia: Took your raisins, for example?

To be fair, later on Kneedler did say that oyster shells (the Leonard case) and raisins were different from real property in that “they are fungible, their only value is for commercial sale” But that’s a slender reed upon which to build a distinction between real and personal property.

[John Echeverria]

This is the passage in which Kneelder draws a "fundamental" disitnction between real and personal property. Relying on Justice Scalia's opinion in Lucas, which is hardly a slender reed.

JUSTICE ALITO: Suppose the same sort of program were carried out with respect to real property. Would you -- would you provide the same answers? Suppose that property owners, owners of real property in a particular area, think that the value of their property would be increased if they all surrendered a certain amount of that property to the government for the purpose of producing a -- creating a park or for some other reason.
And so they -- they get the municipality to -- to set up this program, and one of them objects to surrendering this part of that person -- of his or her land. Would -- would that not be a taking?
MR. KNEEDLER: I think real property would be fundamentally different.
Alito: Well, why -- why would it be -- I thought you said you're not arguing that there's a difference between real property and personal property.
MR. KNEEDLER: We're -- we're not saying there's a categorical difference. But I think-- I think the Lucas decision is very instructive there, that when -- when the Court was talking about the ability to regulate real property, it said that there's a big difference between real property and personal property, at least personal property being used for commercial purposes, which might even be rendered valueless by virtue of governmental regulations.

[Calvin Massey]

The problem with reliance on Lucas is that the categorical rule in that case was the loss of all economically viable use. While it might be true that there are some instances in which the loss of all economically viable use of personal property does not come within the Lucas categorical rule (Mugler v. Kansas comes to mind) the same principle does not hold for cases involving personal property that has been permanently dispossessed from its owner. And that's what's at issue in Horne. So, we can agree on this much: (1) The government denies that there is a categorical distinction between personal and real property for purposes of the takings clause, (2) The government thinks there is a difference between real and personal property when it comes to application of the Lucas principle. But the government's problem in Horne is that Lucas isn't applicable and there has been no good argument made by the government that the Loretto principle applies only to real property.

[John Echeverria]

No, we do not agree. I intervened in this string to correct your statement that the government had conceded that it did not think there was any difference between
seizures of real property and seizures of personal property. The passage I quote represents an explicit statement by the government that it does believe seizures of real property and seizures of personal property are different. The government's position is consistent with precedent and common sense, in my view, but this case gives the court the opportunity to decide the issue. Other government most definitely did not concede the issue; it said there is a "fundamental" difference between real property and personal property when it comes to seizures.

[Calvin Massey]

OK. We don't agree. And it doesn't much matter whether we agree or not. What matters is what the Court will say.