The United States Supreme Court ruled that the United States government cannot take a citizen’s raisins without paying for them.  Horne v. Department of Agriculture, __ US__ (June 22, 2015). Standing alone, the ruling is unsurprising.

Taking raisins without paying had been occurring for years - many years - under the Agricultural Marketing Agreement Act of 1937.  The Secretary of Agriculture publishes marketing orders for particular agricultural products with the aim of maintaining stable markets.  Under these orders, a reserve requirement is established and a group of raisin growers and others in the raisin business acting as the Raisin Administrative Committee ( the “RAC”) set the percentage allocation of reserves each year.    Reserve raisins are transferred to the government without compensation.   The RAC disposes of the reserved raisins by gift or sale.  The growers retain an interest in the net proceeds, if any.  The Hornes refused to transfer the reserved raisins to the government.

The Taking

In an 8 to 1 decision, the Supreme Court had little trouble concluding that a per se taking occurred.  The government physically took possession of an interest in private property.   The facts that (1) raisins are personal property and (2) the owners continue  to possess an interest in net proceeds were irrelevant. 

Two observations:

  1. No matter the longevity, proper purpose or general acceptance of a government program, taking physical possession of an interest in private property is potentially a per se taking. 
  2. Taking physical possession of an interest in private property in exchange for a valuable governmental benefit, such as a development permit, is a voluntary exchange – not a taking.  But not all governmental benefits – such as an orderly raisin market - are sufficient to avoid a taking.   

Just Compensation

Of the eight Justices finding a taking, five concluded that the just compensation was the fair market value of the raisins.  The calculation of just compensation was easy.  The government had levied a fine in the amount of the fair market value of the raisins. The Hornes’ just compensation was relief from the fine and associated civil penalty.

The other three Justices concluded that enhancement of the fair market value of the raisins caused by the marketing order – controlling the supply of raisins – should be deducted from the fair market value of the raisins.  These Justices observed that the benefit of the marketing order could equal the fair market value of the raisins, causing the taking to not violate the Constitution –just compensation had been paid.

Two observations:

  1. After litigating this case since 2004, the Hornes avoided the fine and civil penalty and kept the reserve raisins.
  2. Had the government not established the fair market value of the raisins by its fine, the case might have been remanded for determination of just compensation. 

Implications

  1. per se taking occurs when the government takes physical possession of an interest in private property unless the government grants a valuable economic benefit, such as a permit or a license.  What constitutes a valuable economic benefit is uncertain.   
  2. Governmental programs may enhance the fair market value of private property by regulating supply.  For example, a government may regulation the number of raisins in the marketplace or size and number of shopping centers in a town.  Whether these enhancements to fair market value of property reduce the amount of just compensation is uncertain.   
  3. If taking of physical possession of a property interest and calculation of just compensation is as nuanced as Horne indicates, then non-physical takings – regulatory takings – are understandable more complex.