Rose Acre Farms, Inc. v. U.S., 03-5103.

• Decision Date: 30 June 2004
• Docket Number: No. 03-5103.,03-5103.
• Parties: ROSE ACRE FARMS, INC., Plaintiff-Appellee, v. UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

373 F.3d 1177

ROSE ACRE FARMS, INC., Plaintiff-Appellee, v. UNITED STATES, Defendant-Appellant.

No. 03-5103.

United States Court of Appeals, Federal Circuit.

DECIDED: June 30, 2004.

COPYRIGHT MATERIAL OMITTED

Robert R. Clark, Sommer Barnard Ackerson, PC, of Indianapolis, IN, argued for plaintiff-appellee. Of counsel were Thomas A. Barnard, Michael D. Chambers and Geoffrey Slaughter.

Sheryl L. Floyd, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With her on the brief were Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, and Claudia Burke, Attorney. Of counsel on the brief was Margaret Breinholt, Attorney, United States Department of Agriculture, Office of General Counsel, of Washington, DC.

Timothy J. Dowling, Community Rights Counsel, of Washington, DC, for amici curiae Center for Science in the Public Interest, et al. With him on the brief was Jason C. Rylander.

Before NEWMAN, MICHEL, and RADER, Circuit Judges.

MICHEL, Circuit Judge.

Rose Acre Farms, Inc. ("Rose Acre") filed the present action in the United States Court of Federal Claims in 1992, claiming that United States Department of Agriculture ("USDA") regulations that restricted egg sales from and imposed other requirements on farms that tested positive for the presence of salmonella bacteria effected a taking requiring compensation under the Fifth Amendment. The trial court held that Rose Acre was entitled to compensation for a taking of the eggs affected by the regulations, Rose Acre Farms, Inc. v. United States, 55 Fed.Cl. 643, 660 (2003), as well as for hens seized for testing. Id. at 662. The court misapplied, however, the standards governing regulatory takings claims under Penn Central Transportation Co. v. New York City, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). In particular, the court incorrectly analyzed the severity of the economic impact of the regulations and erroneously concluded that the Penn Central factor pertaining to the character of the government's actions favored Rose Acre. The court further erred in concluding that the regulations effected a per se taking of Rose Acre's hens. Accordingly, we vacate and remand for appropriate reconsideration.

BACKGROUND

I. Rose Acre's Operations

Rose Acre is a family-owned business based in Seymour, Indiana. It is primarily engaged in the production of table eggs, which are raw poultry eggs sold in their shells. Between 1955 and 1990, Rose Acre grew from a single layer-hen farm with 1,800 hens to a highly integrated table-egg production business consisting of eight layer-hen farms with millions of hens. Three of Rose Acre's Indiana farms are at issue in this case, namely, Cort Acres (in Cortland), White Acres (in White County), and Jen Acres (in Jennings County).

The production units on each farm are individual layer houses having varying capacities. In 1990, Cort Acres had thirty-six layer houses, each of which contained approximately 70,000 hens, White Acres had twelve layer houses, each containing approximately 125,000 hens, and Jen Acres had twenty-two houses, twenty-one of which were in production with capacities ranging from 67,320 to 112,000 hens.

The details of Rose Acre's vertically integrated production system are set forth in the trial court's opinion. Rose Acre, 55 Fed.Cl. at 647. We note here, though, that all of the layer hens in a given layer house at any one time are, as a result of Rose Acre's production system, approximately the same age. Once young hens capable of laying eggs are placed in a layer house, production in that house normally continues uninterrupted for a period of about fifty-seven to sixty weeks, until the hens therein reach the end of their productive lives. When that cycle has ended, the hens are removed and destroyed, and the house is cleaned before new hens are introduced.

To maximize its production and provide a consistent supply of table eggs to the market, Rose Acre must carefully manage its layer house population and depopulation schedules. The trial court found that "[s]cheduling and timing ... are key components of [Rose Acre's] business. An interruption in [Rose Acre's] scheduling system affects the entire organization, thus causing [Rose Acre] to be unable to supply eggs to its customers." Id.

II. USDA's Salmonella Regulations

A. The Interim Regulations

In the late 1980s, the Centers for Disease Control ("CDC") determined that the incidence and geographic spread of human illness resulting from exposure to Salmonella enteritidis serotype enteritidis ("SE") bacteria was increasing.¹ In response to the increase, the Animal Plant Health and Inspection Service ("APHIS"), a USDA division responsible for preventing the spread of communicable diseases, determined that emergency regulations were necessary to control the spread of SE in poultry flocks. On February 16, 1990, USDA published interim regulations that restricted the interstate sale and transportation of eggs and poultry from flocks determined under the regulations to be SE-contaminated. Poultry Affected by Salmonella Enteritidis, 55 Fed.Reg. 5576 et seq. (1990) (codified at 9 C.F.R. §§ 82.30-82.36 (1991)). The interim regulations were effective immediately upon publication, USDA having "determined that there is good cause for publishing this rule without prior opportunity for public comment," namely, the need for "[i]mmediate action ... to prevent harm to the egg-type chicken industry and the public." Id. at 5580.

The interim regulations applied to "flocks," defined as "[a]ll the poultry on one premises," 9 C.F.R. § 82.30 (1991), and operated as follows. If "a Federal or State representative determine[d] through epidemiologic investigation that [a] flock [was] the probable source of disease in an outbreak of [SE-caused] disease in humans or poultry," USDA designated the flock as a "study flock." Id. § 82.32. A study flock was subsequently designated a "test flock" if either (1) "one or more" environmental test samples, i.e., "manure samples and egg transport machinery samples ... collected and tested in accordance with" procedures set forth in the interim regulations tested positive for SE, or (2) "the person in control of the flock" refused to allow or interfered with the collection of such samples. Id. § 82.32(b). At the time the interim regulations were published, USDA believed that evidence of SE in layer hens' environment meant that the hens were infected and would, therefore, be more likely to produce SE-contaminated eggs. See 55 Fed.Reg. at 5576 (describing the "vertical" (hen to egg) and "horizontal" (environment to hen) modes of SE transmission).

"Test flock" status triggered restrictions on the interstate movement of eggs. Specifically, eggs from a test flock could be moved interstate only for uses requiring pasteurization,² and then only if the shipper obtained a permit and met other conditions. 9 C.F.R. § 82.33(a) (1991). Thus, the interim regulations prohibited the interstate shipment of test flock eggs for sale as table eggs.

Specified numbers of the hens in test flocks were also required to undergo blood and internal-organ testing. Id. § 82.32(c). A test flock was designated an "infected flock" if the organs of one or more hens tested positive for SE. Id. Infected flocks were subject to the same interstate transportation restrictions as test flocks. Id. § 82.33(a). An infected flock retained its "infected" designation until either (1) the flock was retested in accordance with the regulations and no internal organ tested positive for SE or (2) the houses that contained the infected flock were depopulated, subjected to specified wet cleaning and disinfecting procedures, and repopulated with a new flock. Id. § 82.32(c).

B. The Final Regulations

After USDA reviewed comments received from interested parties following the publication of the interim regulations, it published final SE regulations on January 30, 1991. Chickens Affected by Salmonella enteritidis, 56 Fed.Reg. 3730 (1991) (codified at 9 C.F.R. §§ 82.30-82.38 (1992)). The final regulations incorporated all of the above requirements, but authorized the imposition of restrictions on individual layer houses as opposed to whole flocks. 9 C.F.R. § 82.33(a). A provision conditioning release from "infected" status on a successful post-cleaning inspection of a depopulated infected house by a federal or state official was added. Id. § 82.37. Additional testing and retesting requirements were imposed on all houses on the same premises as any infected house. Id. § 82.38.

APHIS administered these SE regulations until mid-1995. A total of thirty-eight flocks were restricted between 1990 and 1994, resulting in over 1.3 billion eggs being diverted from the United States table egg market to breaker plants.

III. Rose Acre Tracebacks

In 1990, after the interim regulations took effect, SE illness outbreaks were traced to each of Cort Acres, White Acres and Jen Acres. As a result of testing carried out in accordance with the interim regulations, USDA first restricted the interstate transportation of eggs from these three farms on October 5, 1990, November 27, 1990, and January 15, 1991, respectively. In each case, Indiana officials similarly restricted the intrastate transportation of eggs (except for uses requiring pasteurization) shortly after receiving notice of the federal restrictions.

After "test flock" restrictions were imposed as a result of environmental testing at each affected Rose Acre farm, USDA conducted blood and organ testing as set forth in the regulations. For organ testing, USDA employees physically removed 60 hens (whose blood had tested positive) from each house, killed them, and transported their carcasses to a USDA laboratory in Ames, Iowa. As described above, a single positive organ result in a given house resulted in an "infected house" designation.³ No...