Monday, July 20, 2015

The Line Between Regulatory Takings and Physical Appropriations

By Michael Dorf

My latest Verdict column deconstructs the best line in last month's decision in Horne v. Dep't of Agriculture: "Raisins are not dangerous pesticides; they are healthy snacks." The majority opinion finds a government marketing order requiring raisin growers (and "handlers," which I treat as identical for simplicity) to set aside a potentially large subset of their raisins for the government is a Taking of the "physical appropriation" variety. In an earlier blog post I criticized Justice Sotomayor's dissent as in tension with her majority opinion--released the same day--in Los Angeles v. Patel.  In the column, I juxtapose the Horne majority, written by CJ Roberts, with his dissent a few days later in Obergefell v. Hodges. Whereas the Obergefell dissent's multiple comparisons of the majority opinion in that case to Lochner v. New York seem misplaced, the implicit reweighing of government policy with respect to economic regulation in Horne is much more Lochnerian.

Here I want to make three additional points.

1) I share the apparent view of the Horne majority that the raisin marketing order is bad policy--perhaps even counterproductive. I note in my column the theory behind agricultural supply limits as price supports. But there are theoretical grounds for challenging any such measures and this particular program seems especially poorly designed. By demanding a percentage of each farmer's raisins--rather than limiting acreage under cultivation or raisins that may be sold on the market by each farmer--the program creates incentives for each individual farmer to grow as many raisins as possible, so as to maximize the number of raisins each can sell after the government takes its share. The cumulative impact of this policy would be to increase the total number of raisins grown, not to limit it.

2) But a stupid or counterproductive policy does not, ipso facto, fail the conventional rational basis test for economic regulation, so long as a court can hypothesize any set of facts under which the policy would make sense. In his partial concurrence/partial dissent, Justice Breyer urges a remand for the calculation of the difference between: a) the price that the Hornes' remaining raisins fetched after subtracting those set aside for the government; and b) the price that the Hornes' total quantity of raisins (without any set aside for the government) hypothetically would have fetched in the ostensibly glutted market that would have existed absent the marketing order. In offering this formula, Justice Breyer and the two Justices who join him indicate that it is at least possible that the marketing order worked as a price support. Moreover, under the "imaginary world" approach, we could imagine that the marketing order was actually designed to increase the supply of raisins. If it's counterproductive of its purported aim, then, by hypothesis, it is rationally related to producing the contrary aim! To be sure, there is some SCOTUS authority for the proposition that even under rational basis scrutiny a challenged law cannot be upheld as rationally furthering a goal that the government specifically disavows. In any event, my main point is not that the marketing order definitely survives rational basis scrutiny. My point is simply that to the extent that the Court was driven by disagreement with the policy of the marketing order, it ought to have applied the rational basis test.

3) The foregoing analysis and the Verdict column could be criticized on the ground that the rational basis test applies to laws challenged under substantive due process or equal protection where there is no ground for heightened scrutiny, but that Horne involves an enumerated right--the Fifth Amendment right against uncompensated Takings. I have no quarrel with the abstract principle. If the government appropriates Oliver's land in order to build a municipal sewage treatment plant, the government must pay Oliver the fair market value of the land, notwithstanding the fact that using Oliver's land for a sewage treatment plant is rationally related to a legitimate governmental purpose. And I have no difficulty with extending that principle--as the Court does in Horne--to personal property. If the government appropriates Olivia's (hitherto unknown) 1776 original copy of the Declaration of Independence to display in a public library, that's rationally related to a legitimate governmental purpose too, but again the government has to pay Olivia the fair market value of her copy of the Declaration.

I don't think that raisins are different from other personal property. The difficulty is one of categorization. Although reasonable minds can differ, to me the marketing order looks more like regulation than appropriation. Suppose that, instead of requiring growers to set aside raisins for the government's account, the government forbade them from selling more than their allotted percentage. Maybe that's a bad idea, but it would pretty clearly be a permissible price-support regulation as a matter of economic substantive due process. The wheat quota upheld against a federalism challenge in Wickard v. Filburn is one of many examples of this sort of regulation.

How might objecting raisin growers attack a percentage quota on how many raisins they could sell? They could try to characterize it as a Taking but to do so they would have to argue either that the regulation destroyed all economically viable use of their raisins (a losing argument because it covers fewer than half their raisins), goes "too far" (a nebulous standard that is very hard to meet), or is insufficiently related to the government objective (a losing argument given the precedents and the obvious connection between supply and price).

Because a percentage quota on selling the "excess" raisins would be valid under both substantive due process and the Takings Clause, it is hard to argue that it is worse for the government, instead of making growers destroy the excess raisins, to use them in ways that serve other purposes that do not undermine the price support (e.g., nourishing raisin-hungry people who can't afford to buy raisins; selling raisins in isolated markets; etc) and rebating any net proceeds to the raisin growers.

And indeed, the majority in Horne does not argue that the marketing order is worse than a direct prohibition. Instead, it relies exclusively on the logic of Loretto v. Teleprompter, which treats "physical appropriations" as categorically different from mere regulatory Takings. Whether that distinction holds up should depend on whether the government wants the private raisins for public use and is disguising a naked raisin grab as a price stabilization measure (in which case the marketing order is a Taking) or is principally aiming at price stabilization but then doesn't want to see the excess raisins go to waste. The distinction tracks Jed Rubenfeld's insightful 1993 Yale Law Journal article, Usings. To my mind, the fact that the government appoints raisin growers to make the disposition decision and rebates any proceeds to the growers shows that the marketing order is of the latter sort--a mop-up effort after the primary stabilization measure rather than a disguised raisin grab. The best evidence for the contrary view is the stupid design of the marketing order as a price support--using a percentage rather than a total numerical cap. But on balance I think that shows only stupidity, not duplicity.

That said, I would have less difficulty with the Horne opinion if it confronted this question directly, rather than simply concluding from the fact that the government formally takes title to the excess raisins that the marketing order is a Loretto-style Taking. If in future cases the Court holds the line there, then I think Horne is harmless--and maybe even beneficial, because, as I've said, I agree that the marketing order is bad policy. But it's not obvious that this will happen. In Loretto itself, the government did not take title to the small piece of real property on which the cable equipment was placed, after all. Moreover, lawyers are clever beasts. Expect representatives of business interests and wealthy property owners to work their darnedest to recast hitherto unsuccessful regulatory Takings claims as physical appropriations claims, even when the government doesn't take title to the property in question. And expect these lawyers to find a fair number of Justices who are sympathetic to this recharacterization.


Joe said...

What do you think of Sotomayor's dissent?

Michael C. Dorf said...

I don't much like her dissent. She says that Loretto would apply if the Hornes were left with nothing but they're left with a residual claim for their pro rata share of the net proceeds of the raisins. But that seems to conflate a conventional regulatory takings claim with a Loretto claim. I agree with her that under a conventional regulatory takings claim they'd need to show destruction of all economically viable use of the property, but that's not the standard under Loretto. So we get to the same bottom line (although I'm more tentative about it) by quite different routes.

Shag from Brookline said...

Regarding Mike's response to Joe that includes this:

"I agree with her that under a conventional regulatory takings claim they'd need to show destruction of all economically viable use of the property, .... "

In a regulatory taking, would this showing by the "takee" be determined as of the time of the taking or as determined over time by subsequent events? Whether a regulatory or physical taking, aren't their serious issues on calculating fair value of what was taken? Did Breyer address this?

Has Lochner been rehabilitated?

t jones said...

1. Since Scalia was fine in the ACA case with a formula which inevitably produces a "subsidy" of $0, shouldn't he be even more ok with a "taking" for which the compensation could well be greater than $0?
2. Is there any indication the Court will just overturn Wickard v. Filburn, rather than killing it by degrees as they appear to be doing?