The United States Supreme Court, in midst of considering cases on same-sex marriage and the death penalty, recently heard oral arguments in a matter that the Wall Street Journal has called the “Incredible Raisin Heist.”

Horne v. USDA centers on a federal program designed to stabilize the market price of raisins by requiring some raisins to stay off the market. Marvin and Laura Horne, two raisin farmers in Fresno, California, claim that this constitutes a federal taking of property and, thus, triggers the “just compensation” requirement under the Fifth Amendment of the U.S. Constitution.

Photo Courtesy of Reason.com. The Hornes

Photo Courtesy of Reason.com
Marvin and Laura Horne, the plaintiffs in Horne v. USDA

The program, which dates back to the Great Depression, has its roots in the Agricultural Marketing Agreement Act of 1937 (“AMAA”) that granted the U.S. Department of Agriculture (“USDA”) the authority to regulate the sale of agricultural produce through marketing orders. The California Raisin Marketing Order of 1949 being one of those orders. This marketing order created the Raisin Administrative Committee (“RAC”) and required raisin handlers – not producers – to retain a certain amount of raisins in reserve, effectively controlling the supply of raisins on the market in order to bolster the market price of the product.

“The way the order operates is that the producer submits the raisins to the handler,” explained Edwin Kneedler, the lawyer for the federal government, during oral arguments to the Supreme Court on April 22. “The handler then divides them into two categories. The handler is required by the order to maintain and separate the reserve raisins, which can be later sold by the RAC. The proceeds of those sales are pooled and distributed back to the producers.”

The reserve amount varies from year to year depending on the market. Raisin handlers have had to reserve more than 30% of their raisins some years and no raisins at all other years. The California raisin industry accounts for 99.5% of the domestic supply of raisins and 40% of the world’s supply, according to the government’s brief.

“These programs go back to the 1930s, when the agricultural industry in this country was in serious trouble. And particularly in California, prices were below costs of production,” said Kneedler.

The Hornes complied with the marketing order for decades until they decided to try to find a way around the program in 2002. That year, they changed the structure of their business to eliminate a third-party raisin processor, and, instead, found a way to package their own products for sale in an effort to circumvent the RAC reserve requirement, which applies only to raisin handlers. Despite this scheme, The RAC categorized the Hornes as handlers rather than producers. Consequently, the Hornes were fined nearly $700K for refusing to turn over their raisins.

The Hornes appealed this enforcement action to an Administrative Law Judge, who upheld the fine and classified them as raisin handlers. The Hornes then appealed their case to a federal district court, which granted summary judgment in favor of the USDA. They appealed again to the 9th Circuit Court of Appeals, which found the Hornes liable for defying the California Raisin Marketing Order but ruled that it did not have the authority to determine whether the marketing order reserve requirement constituted a taking under the Fifth Amendment. The Ninth Circuit court reasoned that takings claims against the federal government must first go through the Court of Federal Claims. The Supreme Court reversed this decision in 2012 and ruled that the circuit court did have jurisdiction over the takings claim and that the Hornes’ case must be considered in their capacity as handlers, not producers.

Three years later, the Hornes have again made their way to the U.S. Supreme Court, but, this time, the Court will be deciding on the substance of their takings claim. The Ninth Circuit most recently ruled that the Hornes’ case does not trigger the “just compensation” requirement of the Fifth Amendment. The court classified the raisins as personal property and reasoned that just compensation clause applies mostly to real property, not personal property (real property being land and/or permanent-to-semi-permanent fixtures on that land and personal property being everything else that is relatively more “movable”). The court analyzed the marketing order as a constitutional use restriction, rather than a taking, but still discussed the bolstered price of raisins that may have resulted from the marketing order as a form of compensation for a taking if there had been one.

During oral arguments to the Supreme Court in April, the justices seem to have explored this line of reasoning as well.

“The Constitution doesn’t forbid takings. It says what you have to do is pay just compensation,” Justice Stephen Breyer said. “Now, we’ll give you what it cost you to take your raisins. What it cost you is, in fact, the difference between what you receive given the program and what you would receive without the program. That difference works in your favor. It gives you money. It doesn’t take money. So there is no compensation due. In fact, if we were to have compensation, you should pay us, the government.”

To that comment, the Hornes’ attorney, Michael McConnell, responded with what he called a practical point and a conceptual point. His “practical” point referenced a price analysis in order to show that the Hornes could have made more money from the sale of their raisins without the marketing order than with it during the years the Horns were in violation of the marketing order.

McConnell also added, “Now, the conceptual point is that this is a per se taking. And it’s if…if there were benefits, such as I don’t believe that there were, if there were, that would at most go to whether there was implicit in-kind compensation for the taking, which would go to the question of compensation.”

Kneedler argued that the raisin marketing order does not constitute a taking because the order requires only raisin handlers to put raisins on reserve. The raisin producers, he said, voluntarily choose to enter those raisins into the stream of commerce by sending their raisins to a handler. Those raisins, therefore, can be subject to regulations that govern the stream of commerce, according to Kneedler’s argument.

“I think the government can attach reasonable conditions on entering a stream of commerce,” he said.

This point did not seem to bode well with the justices.

“Is there any limit to that argument? There are some examples in the briefs that are pretty startling,” Justice Samuel Alito said. “Could the government say to a manufacturer of cellphones, you can sell cellphones; however, every fifth one you have to give to us? Or a manufacturer of cars, you can sell cars in the United States, but every third car you have to give to the United States.”

Kneedler retorted that those examples differ from the Hornes’ case because the marketing order is part of a comprehensive federal regulatory program, and his response spurred another round of questions from the justices.

“The rationale, I mean, the government can come up with a rationale to justify those examples really easily,” Chief Justice John Roberts said, implying that the marketing order ultimately serving the “good of the people” does not necessitate the physical taking of raisins. “And, you can do what you’ve done in most other marketing orders, which is not take their raisins. Instead, say, look, you can only plant, you know, 63 percent of your acreage this year, or you can only produce, you know, 28 tons. That’s how most of them work…This is different. This is different because you come up with the truck and you get the shovels and you take their raisins, probably in the dark of night.”

Kneedler responded by reiterating the comprehensiveness of the program, but his point did not seem to have resonated among the justices.

“Central planning was thought to work very well in 1937,” Justice Scalia said. “And, Russia tried it for a long time.”

The justices posed some poignant questions during oral arguments, and a decision on whether the Raisin Marketing Order constitutes a federal taking is expected by June.

Co-authored by Justin Hodge and Ayla Syed.

If you have any questions about this blog, please feel free to contact Justin Hodge at jhodge@jmehlaw.com