Horne v. Department of Agriculture: Supreme Court Hands Down Major Win for Constitutional Property Rights

You may never look at raisins the same way again.  The highest court in the United States just handed individual citizens a major win in terms of personal property rights, striking down one of FDR’s New Deal programs by depriving the Federal Government of a power it has illegitimately exercised for decades.  The case was called Horne et al., v. Department of Agriculture.  It stemmed from The Agricultural Marketing Agreement Act of 1937, which gave the Secretary of Agriculture authority to issue “marketing orders” for the purpose of maintaining stable markets in specific commodities.

One of these marketing orders created something known as the Raisin Administrative Committee that required raisin farmers in this country to contribute a percentage of their harvest to a government-run raisin reserve without any easily measured, overt compensation.  This allowed the government to maintain a reasonable price for raisins by artificially inflating the market value under the theory that a totally free raisin market would result in a boom-and-bust cycle that bankrupted farmers, eventually leading to raisin shortages as people fled from production.  After estimating the consumption it believes the domestic markets can absorb, the government gets rid of the reserve raisins by either dumping them in noncompetitive markets at fire sale prices, donating them, or outright destroying them.  If money is made from these activities, the government subtracts program administration fees and returns any surplus to the farmers.  The raisin committee itself is made up of forty-seven members, most of whom are farmers or packers.

The government argues that farmers benefit from the program because the remaining raisins they are allowed to sell are sent to market at prices substantially higher than they would otherwise be able to achieve, keeping them in business.  It also contends that no one is forced to give up their property because the farmers could always sell another crop.  If farmers don’t contribute their required quota, but benefit from the higher price that everyone else made possible, they are fined the entire market value of the crops as they are effectively mooching off the complying farmers, plus penalties.

Most of the burden and benefits of the setup fall on the State of California as it produces 99% of the domestic raisin crop and 40% of the global raisin crop according to The Los Angeles Times. In some years, the government demands no raisin reserves.  In others, it outright confiscates shocking amounts of farmers’ harvest.  In 2002-2003, for reference, it took 47% of raisin crops without paying the farmers for them.  The following year, it took 30%.  Around this time, a farmer named Marvin and Laura Horne refused to turn over their crop, saying the whole thing was illegal and they wouldn’t comply, turning away government trucks that came for them.  The government initially fined them $480,000 for the raisins they wouldn’t give up for free, plus $200,000 for disobedience (it appears, from some sources, that other charges were added along the way).  The Hornes took the government to court, saying the entire scheme was unconstitutional under a the 5th Amendment, which says in black and white (emphasis added):

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

The economic argument is that the “just compensation” in this case came in the form of higher, more stable market prices the farmers got to enjoy; prices that otherwise wouldn’t exist.  The 9th Circuit agreed with this line of reasoning, saying that would-be farmers knew upfront that the government imposed a condition in the form of a reserve requirement and gave an offsetting benefit in the form of an orderly market; that “just as a landowner was free to avoid the government condition by forgoing a permit, so too the Hornes could avoid the reserve requirement by ‘planting different crops.'”

The Supreme Court wasn’t buying it.  The justices rejected the idea, pointing out that if any other personal property is seized, such as real estate in eminent domain, the government is required to pay the former owner a fair price.  The government physically took the raisins from the farmers, punishing them if they didn’t hand over the fruit of their labor.  It gave them nothing in return at the time of the confiscation other than a vague promise that they might, sometimes, maybe, receive some form of money back if there was any left and a second-order effect of a higher price on their remaining raisin crop.

How did the individual justices rule?  It’s complicated but the general breakdown approximates:

• 5 of the Supreme Court Justices – Chief Justice Roberts, plus Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito said that the government was acting unconstitutionally, and that the Hornes should not have to pay the fine and associated civil penalties assessed against them when they refused to comply with the program.
• 3 of the Supreme Court Justices – Justices Stephen Breyer, Elena Kagan, and Ruth Bader Ginsburg said that the government was acting unconstitutionally but that the lower court needs to go back and figure out the financial benefit, if any, the Hornes received by selling their raisins at the higher price other complying farmers made possible for them under the program before calculating the adjusted fines and penalties they should pay to make it fair to everyone.  That way, the farmers who were in effect subsidizing the Horne family operations while this unconstitutional program was going on aren’t treated like suckers for playing by the rules.
• 1 of the Supreme Court Justices – Justice Sonia Sotomayor – dissented with the entire ruling, saying, in effect, the government didn’t take the Horne’s property but was merely regulating the raisin market as it is entitled to do under the Constitution.  Part of the concern she has is that the majority opinion doesn’t treat the retained equity rights in any raisin disposition proceeds as “substantial or certain enough to count”, which will create a significant administration problem for future court cases.  She asks, “How, after all, are courts, governments, or individuals supposed to know how much a property owner must be left with before this Court will bless the retained interest as sufficiently meaningful and certain?” [so as not to violate the new precedent].  She thinks the clarity of the previous Loretto test, in which there had to be “a total destruction of all property rights” to constitute a “per se taking; anything less does not”, made a lot more sense; that now, the courts have created a logistical nightmare.

(Again, it’s more nuanced than that but that’s the big picture.  The technical answer is, “ROBERTS, C. J., delivered the opinion of the Court, in which SCALIA, KENNEDY, THOMAS, and ALITO, JJ., joined, and in which GINSBURG, BREYER, and KAGAN, JJ., joined as to Parts I and II. THOMAS, J., filed a concurring opinion. BREYER, J., filed an opinion concurring in part and dissenting in part, in which GINSBURG and KAGAN, JJ., joined. SOTOMAYOR, J., filed a dissenting opinion.”)

Personally, I find this case painful because my inner economist can’t help but agree with the 9th Circuit.  Consumers are better off because of the setup.  Farmers are better off because of the setup.  The government is better off because of the setup.  Heck, charities and poor people are better off because of the setup.  When you account for second and third order effects, everybody wins, all things considered.

The problem is, the government doesn’t have the right to exercise this power, so regardless of the benefits, I find it intolerable.  Thus, I would have ruled with the middle group of three justices, striking down the raisin theft but not dismissing the penalty outright because the Horne farming operation did most likely experience a significant profitability increase over the free market conditions that would have existed absent the administration of the program.  For the sake of basic fairness, there must be some sort of equitable adjustment so they don’t benefit at the expense of other farmers, who, in effect, were subsidizing their constitutional challenge by allowing them to enjoy higher revenues with none of the offsetting costs.  The court could have gone back, done a time value of money adjustment, maybe even knocked off a bit from the discount rate to compensate them for the trouble of having to challenge what turned out to be a constitutional overstep by the government.  It would have been the fairest thing to do.

You can read the decision for yourself directly at the Supreme Court’s website [PDF].

Now for Wickard v. Filburn to be overturned; the idea that a free man, on his own land, using his own labor, can be prohibited by the government from growing food to feed himself, his family, and his livestock despite having no intention of selling in the market place, all because his failure to be a consumer to a third-party producer has an effect on that third-party producer’s profitability, strikes me as profoundly evil.