Takings Clause of the Fifth Amendment.

The Fifth Amendment of the United States Constitution includes a provision known as the Takings Clause, which states that “private property [shall not] be taken for public use, without just compensation.” While the Fifth Amendment by itself only applies to actions by the federal government, the Fourteenth Amendment extends the Takings Clause to actions by state and local government as well.

The Takings Clause of the Fifth Amendment is one of the few provisions of the Bill of Rights that has been given a broader interpretation under the Burger and Rehnquist courts trend limiting governments interpretation of the Takings Clause. than under the Warren Court.

It is a clause near and dear to the heart of free market conservatives.

Only certain types of takings cases present serious interpretive questions. It is clear that when the government physically seizes property (as for a highway or a park, for example) that it will have to pay just compensation. It is also clear that serious, sustained physical invasions of property (as in the case of low overflying aircraft, for example) require payment of compensation equal to the difference between the market value before and after the invasion.

For example, when the government zones an area for residential use, the owner of a particular property might like to open a convenience store or dog kennel, which might bring a greater economic return than a residential structure. Until 1922, the Supreme Court did not consider such diminution of the value of a particular person’s property incidental to a general regulation as raising an issue under the Takings Clause. In that year, however, in a celebrated opinion by Justice Oliver Wendell Holmes, the Court held that if a regulation went “too far,” it could constitute a taking that would require just compensation by the government. Since that time the question has remained, how far is too far.

The difficult cases are generally those where government regulations, enacted to secure some sort of public benefit, fall disproportionately on some property owners and cause significant dimunition of property value. An initial question is whether the regulation interferes with a legitimate property right or whether the regulation merely reflects a “background understanding” of the limits of one’s property right.

For example, because one’s property right does not include the right to interfere unreasonably with another person’s property right – the definition of a private nuisance – a regulation that merely codifies that background understanding cannot go too far. The regulation deprives the person of nothing to which he has a right.

The Court has had a difficult time articulating a test to determine when a regulation becomes a taking.

It has said there is “no set formula” and that courts “must look to the particular circumstances of the case.” The Court has identified some relevant factors to consider:

  • the economic impact of the regulation,
  • the degree to which the regulation interferes with investor-backed expectations,
  • and the character of the government action.

Still, as cases suggest, there is a lot of room for argument as to how these various factors should be weighed.

In June 2005, the Supreme Court decided an important case involving the meaning of “public use” in the Fifth Amendment. In Kelo v City of New London, the Court, voting 5 to 4, upheld a city plan to condemn homes in a 90-acre blue-collar residential neighborhood. New London plans to give the land to a developer for $1, with a 99-year lease, to build a waterfront hotel, office space, and higher-end housing.

Justice Stevens, writing for the Court, found this donation of property to a developer to be a “public use.” Stevens said that the Court’s jurisprudence gave government “broad latitude” to determine what uses might be “public.” In a concurring opinion, Justice Kennedy indicated that the Court still stood willing to review on constitutional grounds takings that are arguably simply the city favoring one private owner over another, rather than takings based on a good faith analysis of the public interest. Private property shall not be taken for a public use, without just compensation.

The U.S. Supreme Court’s recent decision in Horne v. United States Department of Agriculture (Horne II) was a significant victory for property rights advocates, and an even more significant victory for opponents of the administrative state. In an 8-1 decision, the Court held that a government program that seeks to control market prices by seizing a portion of a farmer’s crop violates the Takings Clause of the Fifth Amendment.

This Federalist Society article By Brian T. Hodges, Christopher M. Kieser discusses and praises Horne v. United States Department of Agriculture, a recent Supreme Court decision. In broad terms, the Court reaffirmed that personal property and real property enjoy the same protected status under the Fifth Amendment. It clarified that when the government adopts a regulation that authorizes it to physically appropriate personal property, the regulation effects a taking—the fact that the owner might derive some ancillary benefit from the regulation is irrelevant to the question of whether a taking occurred.

Importantly, the Court also allowed property owners to challenge the imposition of such a regulation before the government takes their property, instead of having to seek compensation for it later. The decision is particularly notable in that it continued the Roberts Court’s trend toward a pragmatic and limited-government interpretation of the Takings Clause.

Background:

The U.S. Department of Agriculture declared that Hornes (the owner) were raisin handlers and thus subject to the marketing order.The Hornes refused to comply with the order. When government trucks showed up at their facility one morning in 2002, they denied entry and refused to set aside any raisins for the reserve. As a result, the government assessed almost $700,000 in fines and penalties against the Hornes—$480,000 for the value of the raisins and over $200,000 for not complying with the order to turn them over.

Rather than pay the fines, the Hornes defended themselves against the government’s attempt to enforce the fines and penalties, arguing that the demand that they surrender their raisins to the government was an unconstitutional attempt to take their personal property without compensation.

On this analys, their challenge was just the beginning of what would turn out to be a protracted legal battle that included two successful appeals to the Supreme Court of the United States. But, the proceedings started poorly for the challengers. The Hornes lost the enforcement action and lost again on administrative appeal before a federal district court.

Then the Ninth Circuit held that it lacked jurisdiction to even consider the Hornes’ takings arguments, explaining that the Hornes would have to pay the fines or surrender the demanded raisins, then sue in the Federal Court of Claims under the Tucker Act before any court could consider whether the marketing order violated the Takings Clause. But the Supreme Court unanimously reversed that decision, holding that because the AMAA authorized district courts to determine whether an enforcement action was lawful, the takings defense was properly before the court.

As the Court explained, “when a party raises a constitutional defense to an assessed fine, it would make little sense to require the party to pay the fine in one proceeding and then turn around and sue for recovery of that same money in another proceeding. So it remanded the Hornes’ takings claim to the Ninth Circuit for a determination on the merits.

On remand, the Ninth Circuit produced one of the worst property rights decisions in recent memory. First, contrary to decisions of the Supreme Court and several circuit courts, the Ninth Circuit held that the per se physical takings rule announced in Loretto v. Teleprompter Manhattan CATV Corp applies only to real property—not personal property like money, cars, or raisins. Because of this threshold conclusion, the court opted to subject the marketing order to the type of complex balancing test that is ordinarily employed in regulatory takings cases (as opposed to physical takings cases) to determine when a law goes too far in diminishing the value of property. Perhaps because the Ninth Circuit’s decision was such an outlier, the Supreme Court granted certiorari once again.

The Court granted certiorari on three discrete questions. The first was whether the “categorical duty” to pay compensation for a physical taking applies to personal property as well as real property. The second question asked the Court whether the government can avoid the duty to pay just compensation for a per se taking “by reserving to the property owner a contingent interest in a portion of the value of the property, set at the government’s discretion.” The final question for the Court was whether a requirement to “relinquish specific, identifiable property as a ‘condition’ on permission to engage in commerce effects a per se taking.”On this point, the government strongly defended the Ninth Circuit’s conclusion that the raisin reserve program was a constitutional “exaction” under Nollan and Dolan.

It made the sweeping claim that “[t]he government may condition the benefits provided by an orderly market on handlers’ compliance with the reserve requirement.” In other words, the government may take property so long as it is doing so to create an “orderly market” that will, in the government’s judgment, benefit the property owners.

The Hornes rephrased that argument in their brief, saying that “[U]nder the Ninth Circuit’s theory, the government can extract whatever property concessions it wants by effecting takings as a condition on the ‘government benefit’ of not being forbidden to do anything the government has power to forbid.”

On June 22, 2015, the Supreme Court gave the Hornes a total victory, ruling in their favor on all three questions. Eight justices, led by Chief Justice Roberts, agreed that the raisin reserve was a taking; only Justice Sotomayor dissented. But Justice Breyer, joined by Justices Kagan and Ginsburg, wrote separately to say he would have remanded the case for a calculation of damages/offset rather than excuse the Hornes from paying the fines altogether.

Writing for the majority, Chief Justice Roberts called the raisin reserve requirement a “clear physical taking.”He easily dismissed the Ninth Circuit’s distinction between real and personal property, noting that the Takings Clause “protects ‘private property’ without any distinction between different types.”As the Hornes had suggested in their brief, “[t]he principle reflected in the Clause goes back at least 800 years to Magna Carta, which specifically protected agricultural crops from uncompensated takings.” Eight justices therefore agreed that Loretto’s per se rule was the correct analytical framework to apply.

The same eight justices also rejected the government’s argument that providing a contingent interest in the proceeds from the seized property can avoid takings liability. The majority recognized that the government conflated the standards for physical and regulatory takings, noting that “when there has been a physical appropriation, ‘we do not ask . . . whether it deprives the owner of all economically valuable use’ of the item taken.” Instead, the fact that the government has permanently occupied private property is enough to effect a taking. No contingent interest in the proceeds can change that; at most, anything left over would count towards just compensation, not the question of liability.

The Supreme Court’s Horne decisions hold promise for advocates of property rights and limited government. Most immediately, the decisions embraced three common sense principles that will be extremely helpful for future takings litigants.

  • First, the Horne I opinion recognizes that an administrative order imposing penalties may be a cognizable constitutional injury, even when the terms of the order have not yet been enforced.
  • Second, the recent decision recognizes that remedies available under the Takings Clause are not limited to just compensation—in some circumstances, an order invalidating a government action may be the appropriate remedy.
  • And third, the Court held that a property owner does not need to surrender his or her property as a prerequisite to seeking judicial review of an unconstitutional agency order.

Horne II provides more precedent supporting the recently reinvigorated unconstitutional conditions doctrine. But, perhaps more important to the big picture, the Horne decisions continue a trend of the Roberts Court—support for clear, administrable rules that benefit property owners at odds with powerful government agencies. That is in stark contrast with the final term before the Chief Justice joined the Court, which included the infamous Kelo v. City of New London decision upholding a forced transfer of a private home to a corporation.

Read more on Horne v. United States Department of Agriculture: The Takings Clause and the Administrative State – here..

 

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