Takings in the Early 20th Century

This week we return to our series on the development of the law of physical takings. After our discussions on the 14th Amendment and Chicago, Burlington & Quincy Railroad Corp. v. City of Chicago, we are fairly caught up to the beginning of the modern era of Supreme Court doctrine on physical takings.

Recall that after CB&Q RR v. Chicago, the Takings Clause of the Fifth Amendment was held to bind state and local governments (it was “incorporated” against the states via the 14th Amendment). In that case, the Court decided that “due process” required substantively just outcomes, not just observance of legalistic procedures. Since then, the main stream of the Court’s physical taking doctrine has concerned another question.

At this point, another reminder is due: The Fifth Amendment states, “nor shall private property be taken for public use, without just compensation.” That is, it states that no property can be taken by the government, except for public use (that is, it cannot take property for private use). Further, it states that when government must take property for public use, it must compensate the owner for the taken property. Thus, after CB&Q RR v. Chicago these precepts bind the states (and by extension, local governments) as well as the federal government.

The text of the Fifth Amendment is fairly straightforward (unless you ask a lawyer, of course). As a result, there has been relatively little litigation on the Fifth Amendment, compared to the sexier amendments – especially the First (people seem to get much more excited about free speech and religion than government confiscation of property – at least until someone threatens their property!). The mainstream of the Supreme Court’s Takings doctrine since 1897 has concerned the meaning of “public use” – yes, lawyers consider that contestable. That is, the Court has sought to define what sorts of things count as “public uses” for which property can be taken from individuals.

For much of American history, public use was understood to mean actual use by the public. Land could be taken for things such as public roads, bridges, schools – that is, things that the public actually uses. Eminent domain was later used to gain lands and easements for railroads, which were private but heavily regulated by government due to their being “affected with public interest.” Over time, governments pushed at the limits of what “public use” might mean. This development continues today, but we’ll start with the beginning of modern public use doctrine.

Rindge Company et al. v. County of Los Angeles

In this case the County of Los Angeles used eminent domain to acquire property from a number of individuals and corporations in order to build a highway. Several of these property owners sued the county, alleging that the taking unlawfully deprived them of their property in violation of the 14th Amendment (recall that because of the way incorporation works, alleged rights violations by state or local governments fall under the 14th Amendment).

Justice Sanford, writing for the Court, argued that “The nature of a use, whether public or private, is ultimately a judicial question. However, the determination of this question is influenced by local conditions.” Still the Supreme Court held that “a taking of property for a highway is a taking for public use has been universally recognized, from time immemorial” so consideration of local conditions in this case is not terribly pressing. The owners in fact concede that taking for a genuine highway is a public use. Their argument is that the highway in question is not an actual highway, but rather a segment that does not constitute a road of necessity or convenience for the general public (that is, they are arguing that the road doesn’t really connect two places in the conventional sense). Importantly though, the Court held that “It is not essential that the entire community, nor even any considerable portion, should directly enjoy or participate in any improvement in order to constitute a public use.” That is, the Court held that entire public does not have to use the road (or any other public work) to satisfy the public use requirement, and implies that the work has only to be open to the public for their use. And further, since roads are frequently built in pieces, the seemingly incomplete nature of the road to be built does not render the taking invalid.

Very importantly, the Court also discusses the necessity of any given taking. Sutherland writes “The necessity for appropriating private property for public use is not a judicial question. This power resides in the legislature, and may either be exercised by the legislature or delegated by it to public officers.” That is, the Court will not second guess a legislatures’ decision to use eminent domain as opposed to some other theoretical method of obtaining property. [Put differently, the Court will not hear cases in which individuals allege that it is inappropriate to use eminent domain because some other less injurious method was available to the government.]

In summary, the Supreme Court here held that the determination of Public Use is a judicial question, but that Public Necessity is a legislative question. Thus, future challenges to uses of eminent domain will center on the uses to which legislatures want to put expropriated property. The case of Rindge Co. v. Los Angeles is important because it establishes in very clear language that the Public Use does not require that the entire public actually use that property to satisfy the Constitution. This holding will be very important in the future development of the Court’s Takings Doctrine.

Horne v. Department of Agriculture

The Supreme Court has agreed to hear a very interesting property rights case, Horne v. USDA, that concerns the taking of raisins.

Horne’s history begins all the way back in 1937, when Congress passed the Agricultural Marketing Agreement Act of 1937 (AMAA), which allows the Secretary of Agriculture to impose production quotas on products in an effort to protect farmers from fluctuations in the market. The production quotas are imposed on “handlers” – those who process and package the product for distribution to consumers. Such an order, “The Raisin Marketing Order of 1949”, required that a percentage of raisins must be turned over to the government every year to maintain a reserve tonnage. Yes, we have a strategic raisin reserve.

Fast forward a few decades, and we find Marvin and Laura Horne, who are raisin farmers in California. The Hornes were thus subject to the 1949 raisin marketing order. Under this order, a board of bureaucrats, the Raisin Administrative Committee, decides what the “proper yield” of raisins should be in order to meet a centrally agreed-upon price. The board estimates the size the annual crop, and then orders all raisin farmers to turn over a portion of their crop to the raisin handlers mentioned above. The handlers (also known as packers) then place the raisins reserve pool. These reserve raisins cannot be sold in the U.S., but the handlers can later sell them overseas at discounted prices, or into school lunch prices (there also a deeply discounted rate).

Under the AMAA, the farmers are supposed to receive a percentage of the money made from the sale of the reserve pool raisins. Profit margins dwindled over the years, however, and with them, the return to the farmers. 2003 marked a turning point in this story, when the farmers were forced to turn over forty-seven (47!) percent of their crop, and received a total of zero dollars in return.

The Hornes feared that their business couldn’t survive, giving up 47 percent of their produce for no money, so they reorganized their business. They began packing and selling their own raisins, hoping that doing so would allow them to circumvent the marketing order. [Many other raisin farmers followed the Hornes’ lead, and began to pack and sell their own raisins.] The government did not approve of this move. The USDA levied huge fines against the Hornes, and also charged them for the raisins that they had not surrendered. You can see a short (about 7 minute) video wherein the Hornes and their lawyer talk about the case, here.

The Hornes sued in federal court, alleging that the marketing order amounted to an unconstitutional taking in violation of the Fifth Amendment. The District Court in which the case was first heard, and then the Ninth Circuit on appeal both held that this was a matter of unpaid fines, and not a takings. The Supreme Court disagreed, holding (9-0) in Horne v. Department of Agriculture 569 U.S. ___ (2012) that there was a potential takings here, and the case could be adjudicated as such. In other words, the Takings Clause can be a valid defense in actions regarding government mandated transfers of funds. [To be very clear, the earlier case (decided in 2012) and the current case (to be heard on April 22, 2015) have the same name.]

By agreeing to hear the case again, this time on the merits (the substance of the dispute), the Supreme Court is agreeing to answer three important questions: first, does the recognized “categorical duty” under the Fifth Amendment to pay just compensation when “physically takes possession of an interest in property” apply to personal property, or only to real property? Second, can government avoid paying just compensation by “allowing” the owner to reserve a portion of the property’s value? And third, does a government mandate to hand over a specific property as a “condition” to engage in commerce amount to a per se taking?

These are very important questions – thus this is a very important case – for those of us interested in the politics and law of property. And the Court’s answer to these questions will reverberate far beyond the raisin farms of California, whichever way they decide. Oral arguments are scheduled for April 22, 2015. Tune in, as we’ll have commentary on the arguments as quickly as possible thereafter.

If you’re interested in hearing the arguments for yourself, you can find them here. If you’d like to read more about this case, SCOTUSBlog has some good coverage, and Oyez has a good summary of the 2012 decision.