Ninth Circuit Says USDA Raisin Reserve Requirements Not an Unconstitutional Taking

May 12, 2014 | Kristine A. Tidgren

Horne v. USDA, No. 10-15270, 750 F.3d 1128 (9th Cir. May 9, 2014), cert. granted,  No. 14-275, 2015 U.S. LEXIS 623 (U.S. Sup. Ct. Jan. 16, 2015).

Overview

In a case leaving the Ninth Circuit to impliedly question the continuing raison d’etre for the raisin regulations at issue, the Ninth Circuit Court of Appeals has found that reserve requirements in the Marketing Order Regulating the Handling of Raisins Produced from Grapes Grown in California, 7 C.F.R. Part 989 (Marketing Order), do not violate the Takings Clause of the Fifth Amendment to the United States Constitution.

Background

The Marketing Order was implemented in 1949 in response to the Agricultural Marketing Agreement Act of 1937, which sought to bring consistency and predictability to the nation’s agricultural markets.  The Marketing Order, which is administered by the USDA, grants a Raisin Administrative Committee (RAC) the authority to set an annual “reserve tonnage” requirement, a set percentage of a raisin producer’s crop that it must divert from the market to the control of the RAC. In the crop years at issue in this case, 2002-03 and 2003-04, the RAC set the reserve percentages at 47 percent and 30 percent respectively.  The RAC, which is funded solely through the proceeds of the reserve raisin sales, sells the diverted raisins (often in noncompetitive markets such as schools) and gives the producers their pro rata share of the proceeds after administrative costs are deducted. In some years this “equitable share” is significant. In other years, it is zero.

Raisin Growers’ Complaint

The plaintiffs were raisin growers who believed that the exaction of a percentage of their raisin crop each year constituted an unconstitutional taking without just compensation in violation of the Fifth Amendment.  In response, they restructured their operation in an attempt to make the Marketing Order inapplicable to them. After lengthy administrative proceedings, the USDA ruled that the Marketing Order applied to the plaintiffs’ restructured organization and imposed penalties of $695,226.92 against the plaintiffs. The plaintiffs then filed their action against the USDA, arguing that the USDA’s order violated the Takings Clause’s prohibition against excessive fines. After years of procedural litigation, the United States Supreme Court ruled that the federal district court did have jurisdiction over the action. After the United States District court for the Eastern District of California granted summary judgment for the USDA, the question of whether the Marketing Order’s reserve requirements constituted an unconstitutional taking finally came before the Ninth Circuit.

Ninth Circuit Analysis

The Ninth Circuit affirmed the federal district court’s judgment, finding that the Marketing Order regulations passed constitutional muster under a Nollan/Dolan regulatory takings analysis.

The court first ruled that the nexus and rough proportionality rule of Nollan/Dolan applied because application of the Marketing Order to the plaintiffs was similar to a conditional grant of a land use permit requiring the forfeiture of a property right. Such action constitutes a “taking” unless the condition (1) bears a significant nexus with and (2) is roughly proportional to the specific interest the government seeks to protect through the permitting process. Under the nexus requirement of Nollan v. California Coastal Commission, 483 U.S. 825 (1987), the court found that the raisin reserve program furthered the end advanced as its justification- to obtain orderly market conditions. The court also found that the Marketing Order satisfied the proportionality requirement of Dolan v. City of Tigard, 512 U.S. 374 (1994) because the RAC annually revised the percentage of raisins to be reserved to conform to current market conditions. As such, the RAC ensured that its program did not overly burden the producer’s ability to compete while reducing (for the producer’s benefit) the potential instability of the raisin market. 

Conclusion

The court ended its analysis by stating:

“While the [plaintiffs’] impatience with a regulatory program they view to be outdated and perhaps disadvantageous to smaller agricultural firms is understandable, the courts are not well-positioned to effect the change the [plaintiffs] seek, which is, at base, a restructuring of the way government regulated raisin production. The Constitution endows Congress, not the courts, with the authority to regulate the national economy. Accordingly, it is to Congress and the Department of Agriculture to which the [plaintiffs’] must address their complaints. The courts are not institutionally equipped to modify wholesale complex regulatory schemes such as this one.”

The plaintiffs no doubt tried petitioning Congress and the USDA, but found no relief. They invested years in costly, protracted litigation, and came up dry. At least for now, these decades-old federal regulations will continue to govern the California raisin industry.