Rose Acre Farms, Inc. v. United States
Court rules that emergency health regulations issued to contain salmonella outbreaks resulted in an unconstitutional taking of property, and awards over $5 million to a company responsible for multiple outbreaks and hundreds of cases of food poisoning
Status: Government has appealed lower court ruling in plaintiff’s favor to the Federal Circuit (No. 2007-5169)
Discussion & Analysis: During the late 1980s, the Centers for Disease Control determined that there was a growing problem with the bacterium salmonella entertidis contaminating chicken eggs. Previously confined to the Northeast, salmonella outbreaks were occurring elsewhere (including a 1989 outbreak in Knoxville that was eventually traced back to one of Rose Acre’s factory farms in Indiana). Food poisoning from salmonella can cause nausea, vomiting, abdominal cramping, diarrhea, fever, and headaches. To contain the problem, the US Department of Agriculture issued emergency regulations in 1990 to identify contaminated flocks and restrict the sale and transport of contaminated eggs and poultry.
That same year, three new salmonella outbreaks occurred: an incident at a wedding brunch in Kentucky that sickened 42 people; an incident at a convention in Chicago that made 400 people ill; and an incident in Tennessee that made seven people sick. In each instance, state and federal health officials traced the contamination back to eggs that had originated at factory farms owned by Rose Acre Farms, one of the largest egg producers in the United States. Under the regulations, all three farms had to be “depopulated,” cleaned, and re-inspected—however, plaintiff was still allowed to pasteurize and sell eggs from its contaminated farms in liquid form. Plaintiff was subject to the regulations for approximately 21 months.
In 1992, plaintiff sued the federal government, claiming that it should be compensated for its costs and losses incurred from complying with the regulations. After 15 years of litigation, including two trials and an appeal to the Federal Circuit, the Court of Federal Claims ruled that the government’s application of the salmonella regulations to plaintiff resulted in a regulatory taking in violation of the Fifth Amendment, and awarded plaintiff $5.4 million plus interest. The court reached this determination based on its balancing of three factors that are considered in regulatory takings cases: the economic impact of the regulation on the plaintiff; the extent to which the regulation interfered with plaintiff’s distinct investment-backed expectations; and the character of the governmental action. In analyzing the economic impact, the court relied not on the reduced value of plaintiff’s eggs as a result of the regulation, but on the profits that plaintiff lost by complying. Not surprisingly, the court found that the first two (economic) factors weighed in favor of plaintiff, and the third (public health) factor weighed in favor of the government. The court then concluded that, “[o]n balance, plaintiff’s severe economic loss and reasonable investment expectation outweigh government’s attempt to prevent the spread of salmonella.”
This radical ruling illustrates how far the “regulatory takings” doctrine can be stretched. Here, a company that repeatedly contaminated the food supply in multiple states and is responsible for poisoning hundreds of people is awarded millions of dollars simply for complying with the law by cleaning up its contaminated facilities—even while the company was allowed to continue selling its eggs (albeit in a less-profitable form). As a result of this decision, government officials charged with protecting public health from avian flu, terrorist threats, and other sources of fast-spreading pathogens may now be forced to spend additional time and money considering how their actions may adversely affect business interests.
The government has appealed this decision to the Federal Circuit, which, in an earlier ruling in the same litigation, had already rejected much of the lower court’s takings analysis.
Key Opinion: Rose Acre Farms, Inc. v. United States, 75 Fed. Cl. 527 (Fed. Cl. 2007), on remand from Rose Acre Farms, Inc. v. United States, 373 F.3d 1177 (Fed. Cir. 2004), vacating Rose Acre Farms, Inc. v. United States, 55 Fed. Cl. 643 (Fed. Cl. 2003).
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