The U.S. Supreme Court Confirms That The Constitution Requires The Government To Pay Just Compensation When It Directly Appropriates Personal Property

June 29, 2015 | Bulletin No.

It is generally understood that the Fifth Amendment of the United States Constitution requires the government to pay just compensation if it takes a person’s real property.  Must the government also pay just compensation if it takes personal rather than real property? 

The United States Supreme Court, in the case of Horne v. Department of Agriculture (June 22, 2015, Case No. 14-275) __ U.S. __, confirmed that the answer is yes; the government must pay just compensation when it directly takes property regardless of whether the taking involves real or personal property.

Case Background

In Horne, growers of raisins challenged an order by the federal government that they turn over a portion of their raisin crop to the government.  The government issued this order based upon a market stabilization program administered by the United States Department of Agriculture.  Under this program, the government required raisin growers to annually give it a portion of their crop free of charge.  In two recent years cited by the Court, the government required the growers to give 30 percent of their crop in one year and 47 percent in another year.  The government would then sell the raisins in non-competitive markets or donate the raisins to charitable causes.  The grower actually gave the government title to the raisins, but the growers retained an interest in any residual profit after the government sold the raisins and deducted administrative expenses.  In two recent years, these proceeds were less than the cost of production in one year and nothing in another year.

In 2002, the Hornes refused to set aside, or reserve, any raisins as demanded by the government.  As a result, the government imposed a fine of $480,000 based upon the market value of the raisins and a $200,000 civil penalty.  The Hornes refused to pay arguing that the demand to turn over the raisins was an unconstitutional taking of their property.  After extensive litigation, the Ninth Circuit Court of Appeals determined no taking occurred since the government properly imposed the reserve requirement in exchange for a government benefit (an orderly raisin market).   The Supreme Court, however, disagreed with the Ninth Circuit.

Court's Decision

In its decision, the Supreme Court first addressed “[w]hether the government’s ‘categorical duty’ under the Fifth Amendment to pay just compensation when it ‘physically takes possession of an interest in property’ . . . applies only the real property and not to personal property.”  In response, the Court stated “[t]he answer is no.”  The Court noted that nothing in the text or history of the Takings Clause suggests a different rule when the government appropriates personal rather than real property.  “The Government has a categorical duty to pay just compensation when it takes your car, just as when it takes your home.”  In the Horne case, there was a direct appropriation of the raisins since the government obtained title to them.  The Court did suggest, however, that the result might be different if the case had involved a regulatory taking which impacted the raisins rather than a direct physical appropriation of the raisins.

The Court also addressed whether the government could avoid its duty to pay the property owner by reserving to the owner a contingent interest in a portion of the property’s value, set at the government’s discretion.  Again, the Court stated that the answer to this question was no.  This is especially true since the contingent interest may be worthless.  While property owners subject to a regulatory taking may not be entitled to compensation if they retain some economic value, that inquiry does not apply to cases of physical appropriation.  The owner is entitled to compensation once a physical appropriation occurs.

Finally, the Court rejected the government’s argument that no taking occurred since the growers chose to voluntarily participate in the raisin market. As the Court summarized, “[s]elling produce in interstate commerce, although certainly subject to reasonable government regulation, is . . . not a special governmental benefit that the Government may hold hostage, to be ransomed by the waiver of constitutional protection.”  Any physical taking of the crop must be accompanied by just compensation.

The Hornes were entitled to the market value of the raisins as just compensation for their taking by the government.  The government had previously determined the crop’s market value when it imposed a fine based upon that valuation.  Thus, the Court determined the Hornes should simply be relieved of the obligation to pay the fine and the associated civil penalty.

What This Means To You

This case confirms that the U.S. Constitution requires the government to pay just compensation for personal property that it physically appropriates.  This is the same rule that applies when the government physically appropriates real property.  However, whether this same rule applies to a regulatory taking of personal property remains to be determined by future litigation.  At least as to physical appropriations, the Court has provided clear guidance to both governmental entities and property owners.

Questions?

If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult:

William T. Chisum or Jennifer A. Scott | 916.321.4500