July 01, 2015 Urban Lawyer

Recent Developments in Exactions & Impact Fees

by W. Andrew Gowder, Jr.

W. Andrew Gowder, Jr. is a Shareholder, Pratt-Thomas Walker, P.A., Charleston, South Carolina. J.D. cum laude, Wake Forest University School of Law; B.A., summa cum laude, Phi Beta
Kappa, Wofford College. Mr. Gowder is the Immediate Past Chair of the American Bar Association’s Section of State and Local Government Law. He focuses his practice on land use, state and local government, business litigation, business entity formation and governance.

This past term the United States Supreme Court again heard arguments in a case in which they had rendered a decision at the conclusion of the 2013 Term — Horne v. USDA.1 As I reported in last year’s recent developments article,2 the Supreme Court in that opinion decided that the Hornes, raisin growers in California, had standing to challenge in the United States District Court, rather than the Court of Claims, the program that required them to divert a share of their raisins from the open market in order to control prices and supply.3 The Court remanded the case to the Ninth Circuit to review the case on the merits.4 The Ninth Circuit did so, analyzing the Hornes’ challenge as an exaction under the Nollan and Dolan line of cases.5 Rather than ad- dressing the program as an exaction, the Supreme Court held that the raisin program of the USDA effected a physical, per se taking.6

This article will begin by reviewing Horne and then will review other cases decided over the last 12 months that address exactions and impact fees under the analysis developed by the Supreme Court in the Nollan and Dolan cases.7

I.  Horne v. USDA

This case came to the Ninth Circuit on remand from the United States Supreme Court, to review the findings of the district court in light of the Supreme Court’s opinion.8 As background, in the 1920s and 1930s, a widely varying raisin supply resulted in substantial price fluctuations in the raisin market ranging from $40 to $235 per ton.9 To respond to this problem, Congress passed the Agricultural Marketing Agreement Act of 1937, which authorized the Department of Agriculture to pass a Marketing Order regulating the raisin supply.10 A Raisin Administrative Committee (RAC), created by the legislation, set an annual reserve tonnage of raisins—a percentage of the overall crop.11 The reserve tonnage was diverted from the market by the RAC and the rest — the “free tonnage” — was available to be sold by producers.12 By definition, “producers” grow the raisins and “handlers” process the raisins.13 Handlers are bound by the Marketing Order, producers are not.14

The Hornes, raisin farmers, decided to take on both the producer and handler functions in an attempt to get around the regulation.15 The Secretary of Agriculture took issue with this, and fined them.16 The fine worked its way through the courts and the Ninth Circuit found that the Hornes were producers and had to take their claim to the Court of Federal Claims, not to the United States District Court.17 The United States Supreme Court disagreed and said that the Hornes raised their claim as “handlers” and as such had standing to assert a takings claim against the agency in District Court.18 Based on the record at the district court (which had granted summary judgment to the agency on all counts) the Ninth Circuit reviewed the trial court decision de novo.19

The Ninth Circuit articulated the issue as whether a federal program under which California producers of raisins had to divert a percentage of their annual crop to a reserve, and which allowed the Secretary of Agriculture to impose a penalty on producers who failed to comply with the diversion program, constituted a taking under the Fifth Amendment.20

After an analysis using the Nollan and Dolan tests as a framework, the court decided that (1) there was a “sufficient nexus between the means and ends of the Marketing Order” and (2) the goal of eliminating the severe price fluctuations common in the raisin industry prior to the implementation of the reserve requirement was at least roughly proportional to the end of stabilizing the domestic raisin market.21

In beginning its analysis, the court quickly decided that the Hornes had standing to challenge the penalty, since they were the ones being penalized.22 The next task was to identify the property that was being taken. The court looked to the Supreme Court’s Koontz23 decision from the previous Term and decided to analyze the constitutionality of the penalty against the backdrop of the reserve requirement; if the Secretary works a taking by accepting the reserved raisins, then under the unconstitutional conditions doctrine, the Secretary cannot lawfully impose a penalty for noncompliance.24 The court observed that no raisins were seized from the Hornes’ land and no money was removed from their account, so, this situation had to be addressed as a regulatory taking.25

The Hornes argued that the Loretto line of cases applied, since the diversion of the raisins from the open market was more like a permanent physical invasion of real property than anything else, but the Secretary of Agriculture countered that the regulation was more like an exaction in a land development setting and so the Nollan and Dolan cases should applied.26

The court held that “the Marketing Order does not fall within the ‘very narrow’ scope of the Loretto rule.27 Further, “the Marketing Order operate[d] on personal, rather than real property.”28 Citing the Lucas29 decision, the court said that takings claims “afford[] less protection to personal than to real property.”30 There is less protection for commercial personal property — “over which the government exerts a ‘traditionally high degree of control’ ” — than for real property, and the Loretto case expressly only applied to real property.31

Here, the court observed that the regulatory framework was “carefully crafted to ensure the Hornes are not completely divested of their property rights” in the reserve raisins.32 In fact, they reserve rights to proceeds from the sale of reserve raisins, though at times that share may be zero.33 Nevertheless, they have an equitable stake in reserves that fund the administration of an industry committee that represents raisin producers and stabilizes the field price of raisins.34

Consequently, the Ninth Circuit believed that Nollan/ Dolan applied in this fact situation, though in footnote 18 of the opinion, the court noted that Nollan/ Dolan may not apply on all use restrictions on personal property, but they are applicable here “given the significant but not total loss of the Hornes’ possessory and dispositional control over their reserved raisins.”35

Having decided which test to apply, the court then quickly concluded that the regulatory legislation provided a nexus between orderly market conditions/ stable prices and controlling the raisin supply through the Marketing Order.36 Rough proportionality was assured by the program’s annual adjustment of the reserve requirement by RAC in more or less actual proportion to the end of stabilizing the market.37 By annually modifying the extent of the reserve requirement to keep pace with changing conditions, the RAC reduces the potential instability of this particular market, to the producer’s benefit, while ensuring that its program does not overly burden the producer’s ability to compete.38

In summary, the court observed that the Hornes may have a point that, in the second decade of the twenty-first century, the program may be a historic anachronism and no longer needed.39 The court, however, stated that reform or elimination of the program is a legislative, regulatory task and not one suited to the courts, which are not equipped to modify wholesale complex regulatory schemes such as this one.40

The Supreme Court disagreed on both which analysis to employ and the result, reversing the Ninth Circuit after determining that the program effected a physical, per se taking of the Horne’s property.41

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