Federal Circuit: You Can’t Mend a Broken Egg; USDA’s Regulation Controlling Salmonella in Eggs Held Not to Result in a Fifth Amendment TakingMarch 19, 2009
In a reversal of a U.S. Court of Federal Claims decision, the U.S. Court of Appeals for the Federal Circuit held in Rose Acre Farms, Inc. v. United States that an egg producer did not suffer a taking that requires compensation under the Fifth Amendment as the result of losses incurred under U.S. Department of Agriculture (“USDA”) regulations restricting interstate sale and transportation of poultry and eggs contaminated with Salmonella enteritidis (“SE”) . (The Fifth Amendment to the U.S. Constitution prohibits the taking of private property for public use without just compensation.)
Rose Acre Farms, Inc. dates back to 1992 when egg producer Rose Acre filed an action against the USDA claiming that the Department’s regulations that restrict eggs sales and layer chickens that test positive for SE effect a compensable “Taking” under the Fifth Amendment to the United States Constitution.
By way of background, the USDA, in its effort to stem the increase in SE outbreaks associated with consumption of table eggs (i.e., raw eggs sold in their shells), issued regulations that restrict the interstate sale of eggs and poultry from SE contaminated layer houses. Under the regulations, if an outbreak of SE disease in humans is traced to a certain house and the USDA determines that SE is present in the environment, then the eggs of this house may not be sold as table eggs; rather, they have to be diverted to breaker facilities where they are pasteurized. Breaker eggs (i.e., egg products that have been pasteurized) fetch a lower price.
In the early 90s, three of Rose Acre’s farms were linked to SE outbreaks. As a result, for 25 months, Rose Acre was required to sell part of its eggs as breaker eggs instead of as table eggs. A trial court ruled that Rose Acre was entitled to compensation under the Fifth Amendment Takings Clause, and concluded that Rose Acre was entitled to $9 million.
The Federal Circuit, in reversing the U.S. Court of Federal Claims decision, applied the three-prong test in Penn Central Co. v. New York City, 438 U.S. 104 (1978) to conclude that, on balance, a taking did not occur. First, the court concluded that Rose Acre’s economic impact was not severe (a 10% loss of the value of eggs diverted to the breaker egg market). Second, the court concluded that although promulgation of the USDA’s regulation interfered with Rose Acre’s reasonable investment-backed expectations, this factor was not dispositive of the outcome. Third, the court concluded that the character of the government’s actions “strongly favored” the government because the USDA’s regulation is a public health and safety measure. In sum, the court concluded that “the law of regulatory takings does not generally compensate property owners when a regulation’s economic impact is slight and temporary but the potential for physical harm to the public is significant.”