Horne v. U.S. Dep't of Agric.

• Decision Date: 09 May 2014
• Docket Number: No. 10–15270.,10–15270.
• Parties: Marvin D. HORNE and Laura R. Horne, dba Raisin Valley Farms, a partnership, and dba Raisin Valley Farms Marketing Association, aka Raisin Valley Marketing, an unincorporated association; Marvin D. Horne; Laura R. Horne; Don Durbahn, and the Estate of Rena Durbahn, Dba Lassen Vineyards, a partnership, Plaintiffs–Appellants, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

750 F.3d 1128

Marvin D. HORNE and Laura R. Horne, dba Raisin Valley Farms, a partnership, and dba Raisin Valley Farms Marketing Association, aka Raisin Valley Marketing, an unincorporated association; Marvin D. Horne; Laura R. Horne; Don Durbahn, and the Estate of Rena Durbahn, Dba Lassen Vineyards, a partnership, Plaintiffs–Appellants,

v.UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant–Appellee.

No. 10–15270.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Feb. 14, 2014.

Filed May 9, 2014.

Michael W. McConnell (argued), John C. O'Quinn and Joseph F. Cascio, Kirkland & Ellis LLP, Washington, D.C., and Brian C. Leighton, Clovis, CA, for Plaintiffs–Appellants.

Stuart F. Delery, Acting Assistant Attorney General, Joshua Waldman (argued) and Michael S. Raab, Attorneys, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C.; Benjamin B. Wagner, United States Attorney, and Benjamin E. Hall, Assistant United States Attorney, Fresno, CA, for Defendant–Appellee.

Appeal from the United States District Court for the Eastern District of California, Lawrence J. O'Neill, District Judge, Presiding.

Before: STEPHEN REINHARDT, MICHAEL DALY HAWKINS, and RONALD M. GOULD, Circuit Judges.

OPINION

HAWKINS, Senior Circuit Judge:

To ensure stable market conditions, the Secretary of Agriculture, administering a complex regulatory program, requires California producers of certain raisins to divert a percentage of their annual crop to a reserve. The percentage of raisins diverted to the reserve varies annually according to that year's crop output. Subject to administrative and judicial review, the Secretary can impose a penalty on producers who fail to comply with the diversion program. The program's goal is to keep raisin supply relatively constant from year to year, smoothing the raisin supply curve and thus bringing predictability to the market for producers and consumers alike. The diverted raisins are sold, oftentimes in noncompetitive markets, and raisin producers are entitled to a pro rata share of the sales proceeds less administrative costs. In some years, this “equitable distribution” is significant; in other years it is zero.

Eschewing any Commerce Clause or regulatory takings theory, Plaintiffs–Appellants Marvin and Laura Horne (“the Hornes”) challenge this regulatory program and, in particular, the Secretary's ability to impose a penalty for noncompliance, as running afoul of the Takings Clause of the Fifth Amendment. ¹ Specifically, the Hornes argue Defendant–Appellee the Department of Agriculture (“the Secretary”), charged with overseeing the diversion program, works a constitutional taking by depriving raisin producers of their personal property, the diverted raisins, without just compensation. The Secretary defends the constitutionality of the reserve requirement. Concluding the diversion program does not work a constitutional taking on the theory advanced by the Hornes, we affirm the judgment of the district court.²

FACTUAL AND PROCEDURAL BACKGROUND

A

Raisin prices rose rapidly between 1914 and 1920, peaking in 1921 at $235 per ton. This surge in prices spurred increased production, which in turn caused prices to plummet back down to between $40 and $60 per ton, even while production continued to expand. As a result of this growing disparity between increasing production and decreasing prices, the industry became “compelled to sell at less than parity prices and in some years at prices regarded by students of the industry as less than the cost of production.” Parker v. Brown, 317 U.S. 341, 364, 63 S.Ct. 307, 87 L.Ed. 315 (1943); see id. at 363–64 & nn. 9–10, 63 S.Ct. 307;see also Zuber v. Allen, 396 U.S. 168, 174–76, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969) (describing market conditions). See generally Daniel Bensing, The Promulgation of Implementation of Federal Marketing Orders Regulating Fruit and Vegetable Crops Under the Agricultural Marketing Agreement Act of 1937, 5 San Joaquin Agric. L.Rev. 3 (1995) (describing the history of the AMAA and the structure of the regulatory program it authorizes).

This market upheaval pervaded the entire agriculture industry, prompting Congress to enact the Agricultural Marketing Agreement Act of 1937, as amended, 7 U.S.C. § 601 et seq. (“AMAA”), to bring consistency and predictability to the Nation's agricultural markets. Pursuant to the AMAA, the Department of Agriculture implemented the Marketing Order Regulating the Handling of Raisins Produced from Grapes Grown in California, 7 C.F.R. Part 989 (“Marketing Order”), in 1949 in direct response to the market conditions described in Parker.

The Marketing Order ensures “orderly” market conditions by regulating raisin supply. 7 U.S.C. § 602(1). The Secretary has delegated to the Raisin Administrative Committee (“RAC”) the authority to set an annual “reserve tonnage” requirement, which is expressed as a percentage of the overall crop. ³See7 C.F.R. §§ 989.65– 66. The remaining raisins are “free tonnage” and can be sold on the open market. The reserved raisins are diverted from the market to smooth the peaks of the raisin supply curve. Id. at § 989.67(a). To smooth the supply curve's valleys, reserved raisins are released when supply is low. By varying the reserve requirement annually, the RAC can adapt the program to address changing growing and market conditions. For example, in the 2002–03 and 2003–04 crop years at issue here, the reserve percentages were set at forty-seven percent and thirty percent of the annual crop, respectively.

The operation of the Marketing Order turns on a distinction between “producers” and “handlers.” A “producer” is a “person engaged in a proprietary capacity in the production of grapes which are sun-dried or dehydrated by artificial means until they become raisins....” 7 C.F.R. § 989.11. By contrast, included in the definition of a “handler,” id. at 989.15, is any person who “stems, sorts, cleans, or seeds raisins, grades stemmed raisins, or packages raisins for market as raisins,” id. at 989.14.⁴ Raisin producers convey their entirecrop to a handler, receiving a prenegotiated field price for the free tonnage. Id. at § 989.65. Handlers, who sell free tonnage raisins on the open market, bear the obligation of complying with the Marketing Order by diverting the required percentage of each producer's raisins to “the account of the [RAC].” Id.§ 989.66(a). Handlers must also prepare the reserved raisins for market, and the RAC compensates them for providing this service. Id. at § 989.66(f).

The RAC tracks how many raisins each producer contributes to the reserve pool. When selling the raisins, the RAC has a regulatory duty to sell them in a way that “maxim[izes] producer returns.” Id. at § 989.67(d)(1). The RAC, which receives no federal funding, finances its operations and the disposition of reserve raisins from the proceeds of the reserve raisin sales. Whatever net income remains is disbursed to producers, who retain a limited equity interest in the RAC's net income derived from reserved raisins. See7 U.S.C. § 608c(6)(E); 7 C.F.R. § 989.66(h).

B

Dissatisfied with what they view as an out-dated regulatory regime, the Hornes set out to restructure their raisin operation such that the Marketing Order would not operate against them. Put another way, the Hornes came up with a non-traditional packing program which, in their view, the Secretary had no authority to regulate. Instead of sending their raisins to a traditional packer, against whom the reserve requirement of the Marketing Order would clearly operate, the Hornes purchased their own handling equipment to clean, stem, sort, and package raisins. The Hornes then performed the traditional functions of a handler with respect to the raisins they produced. The Hornes believed that, by cleaning, stemming, sorting, and packaging their own raisins, they would not be “handlers” with respect to the raisins they produced. In addition, the Hornes performed the same functions for a number of other producers for a per-pound fee. Similarly, by not acquiring title to the raisins of other producers but rather charging those producers a per-pound fee, the Hornes believed they did not fall within the regulatory definition of “handler” with respect to the third-party producers' raisins. With this set-up, the Hornes believed the requirements of the Marketing Order would not apply to them, relieving them of the obligation to reserve any raisins.⁵

C

The Secretary disagreed with the Hornes and applied the Marketing Order to their operation with respect to the raisins grown both by the Hornes and by third-party producers. At the end of protracted administrative proceedings, a U.S.D.A. Judicial Officer found the Hornes liable for numerous regulatory violations and imposed a monetary penalty of $695,226.92.⁶ The Hornes then sought review of that final agency action in federal district court pursuant to 7 U.S.C. § 608c(14)(B). In district court, the Hornes alleged they were not “handlers” within the meaning of the regulation and further alleged the agency's order violated the Takings Clause and the Eighth Amendment's prohibition against excessive fines. The district court granted summary judgment in favor of the Secretary on all counts. See Horne v. U.S. Dep't of Agric., No. CV–F–08–1549 LJO SMS, 2009 WL 4895362 (E.D.Cal. filed Dec. 11, 2009).

The Hornes appealed to this court. We affirmed the district court with respect to the Hornes' statutory claims, holding that even if the AMAA's definitions of “handler” and “producer” are ambiguous, the Secretary's application of the Marketing Order to the Hornes was neither arbitrary nor capricious, and it was supported by substantial evidence. Horne v. U.S. Dep't of Agric., 673 F.3d 1071, 1078 (9th Cir.2011) (“ Horne I ”). We also affirmed the district court's grant of summary judgment in favor of the Secretary on the Eighth Amendment claim. Id. at 1080–82. And we held we lacked...