Category Archives: Case Law

Horne v. Department of Agriculture: No More Taking Raisins Without Just Compensation

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This week, the United States Supreme Court found that the United States Department of Agriculture could not take a portion of California raising growers’ crop for a market stabilization program without paying just compensation under the Takings Clause of the United States Constitution.

The Hornes, California raising growers, were required to set aside a portion of their crop under the Department of Agriculture’s “marketing order”. The marketing order called for raisin growers to set aside as much as 47% of their crop in a particular year. These raisins would then be allocated to best stabilize the market. If they were sold, profits would be returned to the Hornes. But often, the raisins were just given away.

The Hornes argued that the reserve requirement constituted a taking of their property, for which the Constitution requires just compensation. The Ninth Circuit Court of Appeals agreed, but on the basis that it was an unconstitutional condition, where the government “imposed a condition (the reserve requirement) in exchange for a Government benefit (an orderly raisin market)”. This doctrine emerged out of land-use cases, where local governments have significant discretionary authority over authorizing permits and can condition the granting of a permit on certain conditions, so long as the conditions have a “rough proportionality” to and “essential nexus” with the impact of a proposed development. If they do not, the condition is an unconstitutional taking.

The application of this doctrine to the raisin reserve requirement feels a bit forced (as it did in the recent decision of the U.S. District Court for the Northern District of California, concerning enhanced relocation payments for tenants displaced by the Ellis Act). The allocation of personal property for a broader public purpose is a deprivation of rights, and this doctrine – mixed with some analytical gymnastics to find the existence of a discretionary benefit – allows recourse for the property owner.

The Supreme Court streamlined the takings analysis by expanding the application of “per se taking” jurisprudence to personal property: “Nothing in the text or history of the Takings Clause, or our precedents, suggests that the [per se] rule is any different when it comes to appropriation of personal property. The Government has a categorical duty to pay just compensation when it takes your car, just as when it takes your home.”

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Inclusionary Housing Ordinance Prevails over Takings Challenge in CBIA v. City of San Jose

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“As a general matter, so long as a land use restriction or regulation bears a reasonable relationship to the public welfare, the restriction or regulation is constitutionally permissible.”

In California Building Industry Association v. City of San Jose, the California Supreme Court upheld the City of San Jose’s inclusionary housing ordinance against a takings challenge.

The inclusionary housing ordinance imposed a citywide requirement that developers commit 15% of new units to price limits: they must be sold as “affordable units” to lower income purchasers. (Alternatively, developers could avail themselves of alternatives for compliance, like building a greater number of units off-site or paying an “in lieu fee” for the city’s affordable housing fund.)

Generally, economic/land use regulations are given deference by the courts, where “a party challenging the facial validity of a legislative land use measure ordinarily bears the burden of demonstrating that the measure lacks a reasonable relationship to the public welfare”. Courts will find these regulations constitutional so long as they have a real and substantial relationship to the public welfare and are not “confiscatory”.

The California Building Industry Association urged the court to adopt a heightened standard of judicial review. If the city of San Jose conditioned the granting of permits upon the exacting of a benefit unrelated to mitigation of the harm inflicted by the proposed development, it would constitute an unconstitutional condition and a taking of property without just compensation.

The California Supreme Court found that the inclusionary housing price limits fell within the “municipalities’ general broad discretion to regulate the use of real property to serve the legitimate interests of the general public and the community at large”. It found that the inclusionary housing ordinance did not constitute an “exaction” – where a city conditions discretionary approval upon the surrendering of a property right, unrelated to the project, in a manner that would, on its own, constitute a taking of property.

While the ordinance required developers to, e.g., commit certain units to under market prices, the court found that this manner of price constraints was similar to many other, constitutional applications of police power affecting pricing and profitability, like zoning particular types of businesses, imposing height and density restrictions, and and instituting rent control.

On the subject of rent control, the court took note of an interesting provision of the inclusionary housing ordinance that applied to newly constructed residential units. In Palmer/Sixth St. Properties, L.P. v. City of Los Angeles, the Second District Court of Appeals found that the Costa-Hawkins Rental Housing Act preempted a Los Angeles inclusionary housing ordinance that required a certain portion of newly constructed rental units to be offered below market, as affordable housing units. The San Jose City Council, aware of Palmer, included a similar provision, but made it self-executing in the event that the case was judicially overturned or the law was legislatively modified.

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