Rose Acre Farms, Inc. v. United States
Appeals court rejects argument that emergency health regulations issued to contain salmonella outbreaks are an unconstitutional taking of property, reversing a lower-court award of over $5 million to company responsible for multiple outbreaks and hundreds of cases of food poisoning
Status: A three-judge panel on the Federal Circuit Court of Appeals ruled in favor of the government on March 12, 2009
Discussion & Analysis: During the late 1980s, the Centers for Disease Control determined there was a growing problem with salmonella contaminating chicken eggs. Food poisoning from salmonella can cause nausea, vomiting, abdominal cramping, diarrhea, fever, and headaches. To contain the problem, the U.S. 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 Chicago convention 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, Rose Acre was still allowed to pasteurize and sell eggs from its contaminated farms in liquid form.
In 1992, Rose Acre sued the government, seeking compensation for its costs and losses incurred from complying with the regulations. After 15 years of litigation, the Court of Federal Claims ruled that the government’s application of the salmonella regulations resulted in a “regulatory taking” in violation of the Fifth Amendment, and awarded plaintiff $5.4 million. The court reached this determination by balancing three factors considered in regulatory takings cases: the economic impact of the regulation on Rose Acre; the extent to which the regulation interfered with Rose Acre’s investment-backed expectations; and the character of the governmental action. In analyzing the economic impact, the lower court relied not on the reduced value of Rose Acre’s eggs as a result of the regulation, but on the profits that Rose Acre lost. The court found that the first two (economic) factors weighed in favor of Rose Acre, and the third (public health) factor weighed in favor of the government. The court reached the remarkable conclusion that, “[o]n balance, plaintiff’s severe economic loss and reasonable investment expectation outweigh government’s attempt to prevent the spread of salmonella.”
A three-judge panel of the Federal Circuit Court of Appeals disagreed, and unanimously reversed the trial court. The panel identified major flaws in the trial court’s analysis. Most importantly, the trial court had erred in relying on “lost profits” as the sole measure for assessing the economic impact of the regulations on Rose Acre, rather than using “loss-in-value,” which is by far the more common approach in takings cases. Although the trial court accepted that the regulations had reduced Rose Acre’s profits by 219%, the appellate court pointed out that lost profitability by itself has little meaning because it is only a relative measure—its significance depends on the magnitude of the initial profit margin. Further, said the appellate court, the 219% figure only represents the impact on the parcel of eggs at issue rather than Rose Acre Farms as a going concern, which continued to operate at a profit over the relevant time period. By contrast, the evidence showed a “loss in value” in the eggs on the order of 10%, which the appellate court held “did not even approach the level of severe economic harm” that would tilt this factor in Rose Acre’s favor.
The appeals court also determined that the trial court had placed too little weight on the government’s need to protect the public through food-safety regulation. “[T]he character of the government’s act, protecting the public health by identifying diseased eggs and forcing their owner to remove them from the table market, weighs strongly against finding a taking here,” the court concluded.
The initial, radical ruling by the trial court illustrates how far the “regulatory takings” doctrine can be stretched. Here, a company that repeatedly contaminated the food supply in multiple states and was responsible for poisoning hundreds of people was almost 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. Had the lower court decision stood, government officials charged with protecting public health from avian flu, terrorist threats, and other sources of fast-spreading pathogens would have been forced to spend additional time and money considering how their actions may adversely affect business interests. Fortunately, the Federal Circuit corrected the error: “Although Rose Acre may feel otherwise, 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.”
Key Opinion: Rose Acre Farms, Inc. v. United States, 559 F.3d 1260 (Fed. Cir. 2009), petition for cert. filed, No. 09-342 (Sept. 17, 2009).