Summary of a Recent
Judicial Development in
Environmental Law

Preventing Disease Outbreak Does Not Shield Government
from Takings Liability

Eric H. Foy
National AgLaw Center Research Associate

Summary of Decision

In Rose Acre Farms, Inc. v. United States, 75 Fed. Cl. 527 (Fed. Cl. 2007), the United States Court of Federal Claims entered judgment for the plaintiff, holding that the plaintiff was entitled to compensation for a taking of eggs affected by United States Department of Agriculture's (USDA) regulations that placed restrictions on chicken farms suspected of selling salmonella-infested eggs, as well as for hens seized for testing.

Background

The plaintiff was an egg producer that sold its eggs throughout the central Midwest and Great Lakes regions. Id. at 529. In the late 1980s, the Centers for Disease Control and Prevention (CDC) discovered a growing problem with Salmonella enteriditis in chicken eggs. Id. On February 16, 1990, the Animal and Plant Health Inspection Service (APHIS) determined that emergency regulations were necessary to quell the spread of the disease. Id. The Secretary of Agriculture published interim regulations that restricted the interstate sale of contaminated eggs and limited the interstate transportation of contaminated poultry. Id. Additionally, the regulations also required the USDA to identify an egg production flock to study. Id. Any USDA designated study flock was tested for the disease. Id. If one or more of the samples tested positive, or if the entity in control of the study flock refused testing, the interim regulations mandated that the study flock be designated a test flock. Id. at 530. The owner of a test flock could not freely market the test flock's eggs or the test flock itself. Id.

After the regulations went into effect, three outbreaks of the disease were linked to the plaintiff's farms. Id. Over a 21 month period, the defendant applied the interim regulations to the plaintiff's farms, but it never tested the plaintiff's eggs. Id. at 531. Due to the restrictions which the defendant placed on the plaintiff's eggs, the plaintiff had to divert nearly 700 million eggs to breaker plants during the restricted period, it had to sell 24,006,780 dozen restricted eggs to outside breaker plants, it had to process 33,753,843 dozen eggs in its own breaking plants, and it sold the resulting liquid product to liquid-egg producers. Id. The interim regulations caused the plaintiff to suffer substantial economic losses. Id.

Arguments

On October 13, 1992, the plaintiff filed a complaint in the instant court arguing that it was entitled to the following: (1) an amount equal to the value of the birds and eggs taken as a result of the restrictions; (2) the cost of compliance with the interim regulations; and (3) losses from a decrease in egg production. Id. On August 29, 2002, the instant court held in favor of the plaintiff awarding it $6,165,297.72 plus simple interest for the lost egg sales and the taking of hens for necropsy. Id. at 532. The defendant appealed the decision to the Federal Circuit, which remanded the case with an instruction to reconsider the severity of the economic impact of the regulations on the plaintiff and the significance of that impact in light of the Penn Central factors. Id.

Analysis and Holdings

The court began its analysis by discussing the definition of a regulatory taking. Id. It stated that a regulatory taking "concerns action that affects an owner's use of property, and is based on the general rule that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking." Id. Although the Supreme Court has identified specific cases when a regulatory taking has occurred, it has not instituted a set formula; therefore, each claim must be analyzed on an "ad hoc, case-by-case basis." Id. Three significant factors a court should consider include: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action. Id.

To determine the economic impact of the interim regulations on the plaintiff, the court used a diminution-in-return approach because it felt the approach was the most accurate to measure the economic impact of government regulations on a going business concern. Id. When using the plaintiff's calculations, the diminution in return for the regulatory period was 219.2 percent. Id. at 533. The court found that this was a substantial loss, and it stated, "because the regulations had a severe, albeit temporary, economic impact on plaintiff's business, the court finds that this factor weighs heavily in favor of the plaintiff." Id. at 535. The court also, albeit without much discussion, held that the interim regulations interfered with the plaintiff's reasonable investment-backed expectations. Id. However, the court found that the character of the governmental action factor weighed in favor of the defendant because the interim regulations were effective to achieve some legitimate public purpose. Id. at 536. To reach its decision, the court balanced the factors and held that the "plaintiff's severe economic loss and reasonable investment expectation outweigh[ed] government's attempt to prevent the spread of salmonella. Id.

The case was decided on February 22, 2007.