Appendix — Rose Acre Farms, Inc. v. United States, 125 S. Ct. 2541 (2005) (No. 04-1149)

APPENDIX CONTENTS

Opinion, United States Court of Appeals

For the Federal Circuit (June 30, 2004) ....... cece la

Opinion, United States Court of

Federal Claims (March 20, OEE) ovsnntsnsnnnrvinsedssassasanpeses 36a

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UNITED STATES COURT OF APPEALS,

FEDERAL CIRCUIT

ROSE ACRE FARMS, INC.,

Plaintiff-Appellee,

v.

UNITED STATES,

Defendant-Appelliant.

No. 03-5103

DECIDED: June 30, 2004.

Rehearing and Rehearing En Banc Denied Oct. 22, 2004.

Before NEWMAN, MICHEL, and RADER,

Circuit Judges.

MICHEL, Circuit Judge.

Rose Acre Farms, Inc. ("Rose Acre") filed the present action

in the United States Court of Federal Claims in 1992, claiming

that United States Department of Agriculture ("USDA")

‘regulations that restricted egg sales from and imposed other

requirements on farms that tested positive for the presence of

salmonella bacteria effected a taking requiring compensation

under the Fifth Amendment. The trial court held that Rose

Acre was entitled to compensation for a taking of the eggs

affected by the regulations, Rose Acre Farms, Inc. v. United

States, 55 Fed. Cl. 643, 660 (2003), as well as for hens seized

for testing. /d. at 662. The court misapplied, however, the

standards governing regulatory takings claims under Penn

Central Transportation Co. v. New York City, 438 U.S. 104

(1978). In particular, the court incorrectly analyzed the severity

of the economic impact of the regulations and erroneously

concluded that the Penn Central factor pertaining to the

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character of the government's actions favored Rose Acre. The

court further erred in concluding that the regulations effected a

per se taking of Rose Acre's hens. Accordingly, we vacate and

remand for appropriate reconsideration.

BACKGROUND

I. ROSE ACRE'S OPERATIONS

Rose Acre is a family-owned business based in Seymour,

Indiana. It is primarily engaged in the production of table eggs,

which are raw poultry eggs sold in their shells. Between 1955

and 1990, Rose Acre grew from a single layer-hen farm with

1,800 hens to a highly integrated table-egg production business

consisting of eight layer-hen farms with millions of hens. Three

of Rose Acre's Indiana farms are at issue in this case, namely,

Cort Acres (in Cortland), White Acres (in White County), and

Jen Acres (in Jennings County).

The production units on each farm are individual layer

houses having varying capacities. In 1990, Cort Acres had

thirty-six layer houses, each of which contained approximately

70,000 hens, White Acres had twelve layer houses, each

containing approximately 125,000 hens, and Jen Acres had

twenty-two houses, twenty-one of which were in production

with capacities ranging from 67,320 to 112,000 hens.

The details of Rose Acre's vertically integrated production

system are set forth in the trial court's opinion. Rose Acre, 55

Fed. Cl. at 647. We note here, though, that all of the layer hens

in a given layer house at any one time are, as a result of Rose

Acre's production system, approximately the same age. Once

young hens capable of laying eggs are placed in a layer house,

production in that house normally continues uninterrupted for a

period of about fifty-seven to sixty weeks, until the hens therein

reach the end of their productive lives. When that cycle has

ended, the hens are removed and destroyed, and the house is

cleaned before new hens are introduced.

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To maximize its production and provide a consistent supply

of table eggs to the market, Rose Acre must carefully manage

its layer house population and depopulation schedules. The

trial court found that "[s]cheduling and timing ... are key

components of [Rose Acre's] business. An interruption in

[Rose Acre's] scheduling system affects the entire organization,

thus causing [Rose Acre] to be unable to supply eggs to its

customers." /d.

II. USDA'S SALMONELLA REGULATIONS

A. The Interim Regulations

In the late 1980s, the Centers for Disease Contro} ("CDC")

determined that the incidence and geographic spread of human

illness resulting from exposure to Salmonella enteritidis

serotype enteritidis ("SE") bacteria was increasing.’ In response

to the increase, the Animal Plant Health and Inspection Service

("APHIS"), a USDA division responsible for preventing the

spread of communicable diseases, determined that emergency

regulations were necessary to control the spread of SE in

poultry flocks. On February 16, 1990, USDA published interim

regulations that restricted the interstate sale and transportation

of eggs and poultry from flocks determined under the

regulations to be SE-contaminated. Poultry Affected by

! , ;

According to the trial court:

Salmonella is a gram negative rod-shaped microscopic

bacterium that is ubiquitous. There are more than 2,000

serotypes (strains) of salmonella, and it is most commonly

found in the intestinal tract of animals and birds. Persons

can be exposed to salmonella in many ways, but the most

likely exposure is through the consumption of raw or

undercooked foods of animal origin, such as meat,

poultry, milk or eggs. When a person becomes sick from

consuming salmonella, the condition is referred to as

salmonellosis. Symptoms in humans include nausea,

vomiting, abdominal cramps, diarrhea, fever and

headache.

Rose Acre, 55 Fed. Cl. at 648 n. 5.

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Salmonella Enteritidis, 55 Fed. Reg. 5576 et seq. (1990)

(codified at 9 C.F.R. §§ 82.30-82.36 (1991)). The interim

regulations were effective immediately upon publication,

USDA having "determined that there is good cause for

publishing this rule without prior opportunity for public

comment," namely, the need for "[i]mmediate action ... to

prevent harm to the egg-type chicken industry and the public."

Id. at 5580.

The interim regulations applied to "flocks," defined as "[a]l]

the poultry on one premises," 9 C.F.R. § 82.30 (1991), and

operated as follows. If "a Federal or State representative

determine[d] through epidemiologic investigation that [a] flock

[was] the probable source of disease in an outbreak of [SE-

caused] disease in humans or poultry," USDA designated the

flock as a "study flock." /d. § 82.32. A study flock was

subsequently designated a "test flock" if either (1) "one or

more" environmental test samples, i.e., "manure samples and

egg transport machinery samples ... collected and tested in

accordance with" procedures set forth in the interim regulations

tested positive for SE, or (2) "the person in control of the flock"

refused to allow or interfered with the collection of such

samples. Jd. § 82.32(b). At the time the interim regulations

were published, USDA believed that evidence of SE in layer

hens' environment meant that the hens were infected and would,

therefore, be more likely to produce SE-contaminated eggs. See

55 Fed. Reg. at 5576 (describing the "vertical" (hen to egg) and

"horizontal" (environment to hen) modes of SE transmission).

"Test flock" status triggered restrictions on the interstate

movement of eggs. Specifically, eggs from a test flock could be

moved interstate only for uses requiring pasteurization,” and

: According to Rose Acre, such uses include incorporation into products

such as cake mixes. The facilities that process and pasteurize eggs for these

uses are known as "breaker plants" and the eggs they process are known as

"breaker eggs."

aia A eek

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then only if the shipper obtained a permit and met other

conditions. 9 C.F.R. § 82.33(a) (1991). Thus, the interim

regulations prohibited the interstate shipment of test flock eggs

for sale as table eggs.

Specified numbers of the hens in test flocks were also

required to undergo blood and internal-organ testing. Jd. §

82.32(c). A test flock was designated an "infected flock" if the

organs of one or more hens tested positive for SE. Jd. Infected

flocks were subject to the same interstate transportation

restrictions as test flocks. /d. §-82.33(a). An infected flock

retained its "infected" designation until either (1) the flock was

retested in accordance with the regulations and no internal

organ tested positive for SE or (2) the houses that contained the

infected flock were depopulated, subjected to specified wet

cleaning and disinfecting procedures, and repopulated with a

new flock. Jd. § 82.32(c).

B. The Final Regulations

After USDA reviewed comments received from interested

parties following the publication of the interim regulations, it

published final SE regulations on January 30, 1991. Chickens

Affected by Salmonella enteritidis, 56 Fed. Reg. 3730 (1991)

(codified at 9 C.F.R. §§ 82.30-82.38 (1992)). The final

regulations incorporated all of the above requirements, but

authorized the imposition of restrictions on individual layer

houses as opposed to whole flocks. 9 C.F.R. § 82.33(a). A

provision conditioning release from "infected" status on a

successful post-cleaning inspection of a depopulated infected

house by a federal or state official was added. Jd. § 82.37.

Additional testing and retesting requirements were imposed on

all houses on the same premises as any infected house. Jd. §

82.38.

APHIS administered these SE regulations until mid-1995. A

total of thirty-eight flocks were restricted between 1990 and

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1994, resulting in over 1.3 billion eggs being diverted from the

United States table egg market to breaker plants.

III. ROSE ACRE TRACEBACKS

In 1990, after the interim regulations took effect, SE illness

outbreaks were traced to each of Cort Acres, White Acres and

Jen Acres. As a result of testing carried out in accordance with

the interim regulations, USDA first restricted the interstate

transportation of eggs from these three farms on October 5,

1990, November 27, 1990, and January 15, 1991, respectively.

In each case, Indiana officials similarly restricted the intrastate

transportation of eggs (except for uses requiring pasteurization)

shortly after receiving notice of the federal restrictions.

After "test flock" restrictions were imposed as a result of

environmental testing at each affected Rose Acre farm, USDA

conducted blood and organ testing as set forth in the

regulations. For organ testing, USDA employees physically

removed 60 hens (whose blood had tested positive) from each

house, killed them, and transported their carcasses to a USDA

laboratory in Ames, Iowa. As described above, a single positive

organ result in a given house resulted in an "infected house"

designation.’ No additional transportation restrictions were

imposed as a result of an "infected" designation; obtaining

release from restricted status, however, became more difficult.

At first, Rose Acre tried to obtain release through continued

organ testing of the hens in infected houses. For the most part,

however, Rose Acre had to depopulate, clean, and disinfect

infected houses, and then have those houses pass USDA

inspection. The trial court noted that in some cases, houses

were empty for long periods while awaiting inspection. Rose

Acre, 55 Fed. Cl. at 651. It also noted that USDA inspection

’ As noted above, by January 30, 1991, the regulations permitted the

imposition of restrictions on a house-by-house basis.

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officials did no more than visually examine the interior of

depopulated houses (after cleaning) with the aid of flashlights.

Id.

Rose Acre finally succeeded in obtaining release from the

restrictions imposed on Cort Acres, White Acres, and Jen Acres

on July 16, 1992, May 8, 1992, and October 30, 1992,

respectively. Thus, for a period of twenty-five months, Rose

Acre was unable to sell eggs as table eggs from one or more of

the three farms.

IV. ROSE ACRE'S LEGAL CHALLENGES

Shortly after its operations became subject to the federal and

state restrictions, Rose Acre filed an action in the United States

District Court for the Southern District of Indiana seeking a

declaration that the interim regulations were invalid. In that

action, Rose Acre contended that (1) the interim and final

regulations deprived Rose Acre of due process, (2) the interim

regulations were not promulgated in accordance with the

Administrative Procedure Act, (3) both sets of regulations

exceeded USDA's statutory authority, (4) the final regulations

could not be applied retroactively, (5) both sets of regulations

unlawfully delegated authority to state officials, (6) the

application of certain monitoring provisions was invalid, and

(7) it was entitled to compensation for eggs diverted to breaker

plants. Rose Acre Farms, Inc. v. Madigan, No. NA 90-175-C,

1991 U.S. Dist. LEXIS 8691, at *3-4 (S.D. Ind. June 5, 1991).

Ultimately, the United States Court of Appeals for the Seventh

Circuit held that the regulations were neither arbitrary nor

capricious and were promulgated within the authority of the

Secretary of Agriculture. Rose Acre Farms, Inc. v. Madigan,

956 F.2d 670, 675-77 (7th Cir. 1992) ("Rose Acre I"). It further

held that "[i]t is to the claims court that Rose Acre must go" to

pursue any claim for compensation. /d. at 674.

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Rose Acre filed the present action in the Court of Federal

Claims on October 13, 1992, alleging violations of 21 U.S.C.

§§ 114a* and 134a° (2000) and an uncompensated taking of its

eggs and hens. The trial court granted the government's motion

to dismiss Rose Acre's section 1 14a claim for failure to state a

claim, Rose Acre, 55 Fed. Cl. at 653, and held, after a two-week

trial, that section 134a provides Rose Acre no relief beyond that

available under the Fifth Amendment, id. at 662. The trial court

awarded Rose Acre compensation in the amount of

$6,165,297.72 for what it held was a regulatory taking of its

eggs diverted to breaker plants and a categorical taking of the

hens confiscated for internal-organ testing. Jd. at 664. The

court also awarded Rose Acre $2,414,744.81 in attorney fees

and expenses. /d. at 670.

+ 91 U.S.C. § 114a has since been repealed. Pub.L. No. 107- 171, tit. X, §

10418(a)(8) (May 13, 2002), 116 Stat. 508. It provided, in relevant part:

The Secretary of Agriculture, either independently or in cooperation with

States or political subdivisions thereof, farmers’ associations and similar

organizations, and individuals, is authorized to control and eradicate any

communicable diseases of livestock or poultry ... which in the opinion of the

Secretary constitute an emergency and threaten the livestock industry of the

country, including the payment of claims growing out of destruction of

animals (including poultry), and of materials, affected by or exposed to any

such disease, in accordance with such regulations as the Secretary may

prescribe.

: 21 U.S.C. § 134a has since been repealed. Pub.L. No. 107- 171, tit. X, §

10418(a)(17) (May 13, 2002), 116 Stat. 508. It authorized the seizure,

quarantine, and disposal of livestock or poultry to guard against the

introduction or dissemination of communicable disease and further provided,

in relevant part:

[T]he Secretary shall compensate the owner of any

animal, carcass, product, or article destroyed pursuant to

the provisions of this section.... Compensation paid any

owner under this subsection shall not exceed the

difference between any compensation received by such

owner from a State or other source and such fair market

value of the animal, carcass, product, or article.

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The government appeals, challenging the trial court's holding

that the government actions at issue here constituted a

regulatory taking and a categorical taking and the award of fees

and expenses (as based on an erroneous judgment that takings

occurred). We have jurisdiction pursuant to 28 U.S.C. §

1295(a)(3).

DISCUSSION |

A determination of whether a taking compensable under the

Fifth Amendment has occurred is a question of law based on

factual underpinnings. Alves v. United States, 133 F.3d 1454,

1456 (Fed. Cir. 1998). Thus, we review the trial court's legal

analysis and conclusions de novo and its findings of fact for

clear error. Bass Enters. Prod. Co. v. United States, 133 F.3d

893, 895 (Fed. Cir. 1998).

The trial court analyzed Rose Acres claim for compensation

for its diverted eggs under regulatory takings law and applied

the law of categorical takings to the claim for compensation for

the hens.

I. DIVERTED EGGS: REGULATORY TAKINGS CLAIM

Rose Acre acknowledged and the trial court recognized that

the government may regulate private property to some extent

without subjecting itself to takings liability. Rose Acre, 55 Fed.

Cl. at 656. Otherwise, "[g]overnment could hardly go on...."

Penn. Coal Co. v. Mahon, 260 U.S. 393, 413, (1922).

However, "if regulation goes too far it will be recognized as a

taking.” Jd. at 415.

The challenge, of course, is determining how far is "too far."

A regulatory takings claim " ‘arises from some public program

adjusting the benefits and burdens of economic life to promote

the common good,'" as opposed to a government appropriation

of private property for its own use. Tahoe-Sierra Pres. Council,

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Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 324-35

(2002) (quoting Penn Central, 438 U.S. at 124. When a takings:

claim arises from the former, it is necessary to determine

whether justice and fairness require that economic injuries

caused by public action be compensated by the government,

rather than remain disproportionately concentrated on a few

persons. Penn Central, 438 U.S. at 124-25. No per se rules or

"set formula[s]" govern such determinations; instead, courts

"engag[e] in ... essentially ad hoc, factual inquiries." /d. The

Supreme Court has, however, identified several factors having

particular significance, namely, the "economic impact of the

regulation on the claimant," "the extent to which the regulation

has interfered with distinct investment-backed expectations,"

and "the character of the governmental action." Jd. Application

of these Penn Central criteria is required where, as here, "less

than a ‘complete elimination of value’ " resulted from the

regulation at issue. Tahoe-Sierra, 535 U.S. at 330 (quoting

Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1019-20 n. 8,

(2002)).

The trial court held that each of these factors favored Rose

Acre, and, as a result, Rose Acre was entitled to compensation

for the revenue it lost as a consequence of the diversion of its

eggs to the breaker egg market. As to two of the three factors,

however, the trial courts analysis was incorrect. Remand for

reconsideration of the evidence under the applicable legal

standards, and for a weighing of those factors in accordance

with the standards set forth in Penn Central and its progeny to

determine whether compensation is required under the Fifth

Amendment, is, therefore, necessary.

A. Economic Impact

The government did not dispute that Rose Acre sold over

97% of the eggs it produced at the three farms as table eggs

before its sales were restricted. It also does not challenge the

trial court's findings that (1) after the restrictions were lifted,

lla

Rose Acre immediately returned to selling over 97% of its eggs

as table eggs, (2) both before and during the period of

restriction, Rose Acre sold 90% of its eggs in interstate

commerce and 10% in intrastate commerce, (3) Rose Acre

diverted over 57.5 million dozen eggs (nearly 700 million eggs)

to breaker plants during the restricted period, (4) the average

price Rose Acre and other sellers received for table eggs during

the restricted period was 59 cents per dozen, (5) the average

total cost for Rose Acre to produce a dozen eggs during the

period of restriction was 54.96 cents, (6) during the restricted

period, Rose Acre processed 33,753,843 dozen restricted eggs

in breaker plants it owned and sold 24,006,780 dozen restricted

eggs to breaker plants owned by others, and (7) Rose Acre

received an average of 46.64 cents per dozen for eggs processed

in its own breaker plants and an average of 41.46 cents per

dozen for eggs sold to outside breaker plants during the

restricted period. The government does, however, challenge the

trial court's finding that "[t]he economic impact of the diversion

was ... severe."

The trial court's analysis of the economic impact was limited

to (1) making the above-noted findings, (2) noting that

government witnesses testified that "the restrictions could mean

financial ruin for table egg producers," " '[b]reaker eggs are not

rewarding,’ " and "producers faced considerable revenue losses

from the required diversion of eggs," and that the government's

expert estimated Rose Acre's loss on breaker eggs to exceed

$9.2 million, and (3) favorably comparing Rose Acre's situation

to that of the plaintiff in Yancey v. United States, 915 F.2d 1534

(Fed. Cir. 1990), where we held that a USDA-imposed

quarantine had effected a taking of healthy breeder turkeys.

Rose Acre, 55 Fed. Cl. at 657-58. This analysis was

insufficient.

The trial court noted that a large number (57.5 million dozen)

of Rose Acre's eggs were, as a result of the restrictions, diverted

for sale at less than Rose Acre's average total cost of

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production. However, neither the testimony nor the econornic

data cited by the trial court appropriately gauge the severity of

the economic impact of the regulations on Rose Acre. The cited

testimony is not specific to Rose Acre, and the data--divorced

from any economic context-- represents only the first step in the

required analysis. Simply put, it is not possible to determine the

economic impact of a regulatory scheme applied to a private

actor without casting the appropriate absolute measures of the

effect of the regulation against the backdrop of relevant

indicators of the economic vitality of the actor. In the present

case, some of the eggs on some of Rose Acre's farms suffered a

reduction in value. In addition, while the reduction in value of

each affected egg was permanent, the period during which the

regulations had an impact on Rose Acre's operations was

relatively brief-- approximately two years--after which Rose

Acre reverted to its pre-regulation table-egg sales levels. The

trial court's opinion reflects no consideration of these factors.

Yet, an assessment of the severity of the economic impact of

the regulations on Rose Acre, in accordance with Penn Central

and its progeny, must take them into account.

In regulatory takings cases concerning diminished real estate

values, this concept is known as the "parcel as a whole." Penn

Central, 438 U.S. at 130-31. The Supreme Court has noted:

"Taking" jurisprudence does not divide a single ,

parcel into discrete segments and attempt to

determine whether rights in a particular segment

have been entirely abrogated. In deciding whether

a particular governmental action has effected a

taking, this Court focuses rather both on the

character of the action and on the nature and extent

of the interference with rights in the parcel as a

whole--here, the city tax block designated as the

"landmark site."

Id. The Court recently elaborated on this concept, stating:

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This requirement that "the aggregate must be viewed in its

entirety" explains why, for example, a regulation that prohibited

commercial transactions in eagle feathers, but did not bar other

uses or impose any physical invasion or restraint upon them,

was not a taking. Andrus v. Allard, 444 U.S. 51, 66, (1979). It

also clarifies why restrictions on the use of only limited

portions of the parcel, such as setback ordinances, Gorieb v.

Fox, 274 U.S. 603 (1927), or a requirement that coal pillars be

left in place to prevent mine subsidence, Keystone Bituminous

Coal Assn. v. DeBenedictis, 480 U.S. [470,] 498 [(1987)], were

not considered regulatory takings. Tahoe-Sierra, 535 U.S. at

327.

The methodologies used to determine how much of an

affected owners property constitutes the relevant "parcel" in real

estate takings cases are not, of course, directly applicable to a

case such as the present. Nonetheless, a determination of the

relative economic effect of the regulations is required. See Penn

Central, 438 U.S. at 130 ("[T]he submission that [the

claimants] may establish a taking simply by showing that they

have been denied the ability to exploit a property interest that

they heretofore had believed was available is quite simply

untenable.").

Rose Acre recognizes this, and thus defends the trial courts

finding that the economic impact was severe by arguing that the

relevant "parcel," or "denominator in the takings fraction,"

Palazzolo v. Rhode Island, 533 U.S. 606, 631 in this case was

each individual restricted egg, or, since all of the eggs in a given

affected house were restricted, each affected house. Based on

the difference between the revenue that would have been

obtained for those eggs but for the restrictions (found by the

district court to be 59 cents per dozen) versus that actually

obtained for those eggs in the breaker market during the period

of restriction (which the district court found to be 46.64 and

41.46 cents per dozen for the eggs processed in Rose Acres own

breaker plants and those sold to outside breaker plants,

ener |

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respectively), Rose Acre argues that the relevant diminution in

value was 26.1%.

The government, in contrast, argues that the relevant parcel

is the total combined production of the three affected farms. It

then argues that the 59 cent-per-dozen price found by the

district court to be the prevailing price of table eggs during the

period of restriction cannot properly be applied to either (1) the

total egg production of the three affected farms during the

period of restriction (if the governments denominator is used),

or (2) the egg production of the affected houses (if Rose Acres

"denominator" is used), because Rosé Acre argued (and the

district court found) that even before the regulations took effect

nearly three percent of Rose Acres eggs were sent to breaker

plants. The government bases its economic analysis, instead,

on a table-egg price of 57.62 cents per dozen, which takes into

account Rose Acre's three percent "baseline" breaker egg rate.

Given that 42.6 percent of the eggs produced by the three

affected farms were diverted to breaker plants during the period

of restriction, it argues that the appropriate diminution-in-value

figure for purposes of evaluating the severity of the economic

effect on Rose Acre is 10.6. Moreover, argues the government,

neither the 10.6 diminution it asserts nor the 26.1 diminution

asserted by Rose Acre comes close to the 77.2 diminution in

value suffered by the plaintiffs in Yancey, the case the trial

court regarded as analogous.

In Yancey, USDA imposed an emergency quarantine on

poultry in an effort to contain an outbreak of pathogenic Avian

Influenza, a highly contagious viral disease. 915 F.2d at 1536.

The Yanceys maintained a flock of turkey breeder hens and

toms for purposes of selling turkey hatching eggs in interstate

commerce. /d. Despite the fact that testing showed the turkeys

were not diseased, the Yanceys decided to sell their turkey flock

for meat after the quarantine was imposed, because of the

quarantine’s indefinite nature. Jd. This court affirmed a

decision that the Yanceys were entitled to compensation under

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the Fifth Amendment, id. at 1542, based on the 77% reduction

(from $91,616 to $20,887, the amount received from the

slaughter) in the value of their turkey breeder flock, id. at 1539.

We recognized in Yancey that comparable or even larger

diminutions in value had been held insufficient for takings

purposes in particular cases. See id. at 1541 (citing Euclid v.

Ambler Realty Co., 272 U.S. 365 (1926) (holding that a 75%

value diminution caused by a zoning law did not constitute a

taking), and Hadacheck v. Sebastian, 239 U.S. 394 (1915)

(holding that no taking resulted from an 87 1/2 % diminution in

value)). We rejected the notion that such cases set a minimum

value diminution that, as a matter of law, had to be

demonstrated for liability to lie. Jd. In so doing, we recognized

that "the modern Penn Central approach" requires a balancing

of "all the relevant considerations.” Jd.

Nonetheless, in apparent recognition of the significant

disparity between the diminution in value in this case, even

under Rose Acre's view of the appropriate denominator, and

that found in Yancey, Rose Acre argues in the alternative that

the trial court's finding as to economic effect should be

sustained based upon an analysis of the loss it says it suffered

on sales of the restricted eggs. Under this alternative

diminution-in-return (profit-based) approach, using the same

denominator and table-egg and breaker-egg prices on which it

relies in its above-described diminution-in-value calculation,

Rose Acre argues that it earned a return of -15.14% on breaker

eggs processed by its own breaker plants and a return of -

24.56% on eggs sold to outside breaker plants, compared with

the +7.35% return it would have received for those eggs had

they been sold as table eggs. These results are based on Rose

Acre's average total cost (fixed plus marginal) of producing an

egg destined for the table egg market across all of its farms,

ee

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which total cost, apparently undisputed by the government, is

54.96 cents per dozen.°

Rose Acre notes that resulting diminution in return (306%

and 434%, respectively, for breaker eggs it processed and those

sold to outside breaker plants, respectively), is much larger than

the 96% diminution we held sufficient to support a takings

holding in Cienega Gardens v. United States, 331 F.3d 1319

(Fed. Cir. 2003). Perhaps anticipating the government's

argument that a returns-based approach is better suited to

situations involving property, such as real property, that has the

ability to generate income over a long term, Rose Acre notes

that the Claims Court in Yancey cited the Yanceys' investment

loss in support of its conclusion that a compensable taking had

occurred:

Even considering the receipt of $21,496 from the

Commonwealth of Virginia, plaintiffs incurred a

substantial loss on their investment. Although

plaintiffs were able to mitigate their loss by

slaughtering the flock, there was no other

alternative, economically viable use for the flock

while the quarantine was in effect.

Yancey v. United States, No. 413-85C, slip op. at 17 (Cl. Ct.

Dec.12, 1988).

Again, however, whether the alternative (breaker) use here

was "economically viable" depends on the variables factored

into the analysis. The government, in addition to noting that the

59-cents-per-dozen table-egg price fails to account for the three

° The government objects to consideration of this alternative analytical

method on appeal, noting that Rose Acre did not present a profit-based

justification to the trial court. The government, however, fails to elaborate

on its contention that it "did not have an opportunity to develop the record

specifically to address these new arguments", and as Rose Acre notes, the

government does not contest the cost and price findings that underlie Rose

Acre's profits analysis.

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percent of eggs Rose Acre usually sends to breaker plants and

advocating use of a three-affected-farms "parcel," disputes the

propriety of relying on total cost. It argues, instead, that only

Rose Acre's marginal cost--the cosi of producing each egg over

and above Rose Acre's fixed, opeiaiion-wide costs--is the

appropriate basis for determining the return Rose Acre earned

on the restricted eggs. The government's values, it notes, result

in a 64.44% return for those eggs versus the 83.91% return

Rose Acre would otherwise have enjoyed (i.e., on sales as table

eggs). Even using Rose Acre's "parcel," application of the

marginai cost basis yields a profit of 42.03%--a lower return

than that achieved for the three affected farms as a whole, but a

positive one, nonetheless--and a diminution in return of 52%.

Still another potential measure of the impact of the restrictions

on Rose Acre is obtained using the 57.72 cent-per-dozen table-

egg price (to take into account the three percent of eggs Rose

Acre usually sent to breaker plants), the government's

"denominator" (the three affected farms), and Rose Acre's total

cost figure. These figures result in a -6.3% return on the breaker

eggs versus a +4.8% return Rose Acre would have enjoyed but

for the restrictions. The difference is a 231% diminution in

return.

All of which is to note that there are a number of different

ways to measure the severity of the impact of the restrictions on

Rose Acre. As noted above, the trial court's opinion does not

reflect consideration of these various alternatives, or explicitly

rest its conclusion that the impact was severe on any appraisal

of the effect of the restrictions relative to Rose Acre's relevant

unaffected property interests.

The trial court's discussion of the economic impact factor is

not entirely unrevealing, however. It suggests that the trial

court may have applied a profits-based analysis, as it quotes our

reference in Yancey to the observation of the trial court there

that " '[a]lthough plaintiffs were able to mitigate their loss by

slaughtering the flock, there was no other alternative,

ee ee

18a

economically viable use for the flock while the quarantine was

in effect.'" Rose Acre, 55 Fed. Cl. at 658 (quoting Yancey, 915

F.2d at 1539 (quoting Yancey, slip op. at 17 (emphasis added))).

By way of favorable comparison to Yancey, the trial court noted

that diversion of the restricted eggs to the breaker market "was

not an economically viable option for [Rose Acre] because it

was not able to recoup its investment in these diverted eggs."

Id. This language suggests that the trial court accepted Rose

Acre's contention that its total average cost provided the

appropriate basis for a returns-based calculation, for, as noted

above, only when the 54.96 cent-ner-dozen cost figure is used

do the calculations yield negative returns: -15.14% and -

24.56%, respectively, for the Rose Acre-breaker-plant- and

outside-breaker-plant-processed eggs, if the restricted houses

constitute the. "denominator," versus a -6.3% return if the

"denominator" is the three farms (taken together).

We reject the government's contention that a returns-based

analysis is per se less suitable than one based on diminution in

value in the present case. If anything, it appears that the latter is

less appropriate where, as here, the issue concerns the economic

impact, albeit temporary, of government regulations on a going

business concern. We need not choose, however, between these

two analytical modes. Several observations regarding their

proper use, though, are required.

The government challenges Rose Acre's returns-based

analysis, arguing that the relevant denominator is the combined

total egg sales from the three farms during the period of

restriction, but that profit should be figured using only the

marginal cost to Rose Acre of producing each individual egg in

the restricted houses. Rose Acre argues precisely the reverse,

asking that we look only at the revenue derived from the sale of

(breaker) eggs from the restricted houses, but determine its

profit using its total cost, including the (allocated) fixed costs it

incurs in producing eggs in all of the houses on all its farms.

19a

We believe neither is appropriate, as the inconsistency built into

each inaccurately prejudices the result.

Moreover, whether the economic impact is judged by value

decline or profitability decrease, an evaluation based on Rose

Acre's asserted "denominator"--the restricted houses--runs afoul

of the "parcel as a whole" principle announced in Penn Central

and illustratively applied in Keystone Bituminous. In the latter,

a Pennsylvania statute restricted (for subsidence purposes) the

amount of coal that could be removed from a given mine.

Keystone Bituminous, 480 U.S. at 476-77. The Supreme Court

specifically rejected the plaintiffs' contention that the restricted

coal--less than two percent of the total coal in the thirteen mines

they operated--was the relevant "denominator," noting:

[P]etitioners have sought to narrowly define certain

segments of their property and assert that, when so ~

defined, the Subsidence Act denies them

economically viable use....

Because our test for regulatory taking requires us to

compare the value that has been taken from the

property with the value that remains in the

property, one of the critical questions is

determining how. to define the unit of property

"whose value is to furnish the denominator of the

fraction." ...

The 27 million tons of coal [required to be left in

place] do not constitute a separate segment of

property for takings law purposes. Many zoning

ordinances place limits on the property owner's

right to make profitable use of some segments of

his property. A requirement that a building occupy

no more than a specified percentage of the lot on

which it is located could be characterized as a

taking of the vacant area as readily as the

OO a

20a

requirement that coal pillars be left in place.

Similarly, under petitioners' theory one could

always argue that a setback ordinance requiring that

no structure be built within a certain distance from

the property line constitutes a taking because the

footage represents a distinct segment of property

for takings law purposes.... There is no basis for

treating the less than 2% of petitioners’ coal as a

separate parcel of property. ...

When the coal that must remain beneath the ground

is viewed in the context of any reasonable unit of

petitioners’ coal mining operations and financial-

backed expectations, it is plain that petitioners have

not come close to satisfying their burden of proving

that they have been denied the economically viable

use of that property....

Id. at 495-99. The analogies to the present set of facts are

apparent. As in Keystone Bituminous (and as discussed more

fully below), the regulation at issue was an exercise of the

government's police powers, designed to protect the health and

safety of the populace. There, as here, the regulation reduced

the value of a portion of Rose Acre's property, even if only the |

three farms implicated by the 1990 tracebacks are considered.*

And, significantly, the restricted portion--the eggs here, the coal

” As noted, less than two percent of the owners' coal in Keystone Bituminous

was restricted, Keystone Bituminous, 480 U.S. at 495 compared with 42.6

percent of the eggs from the three farms here. However, in Keystone

Bituminous, the value of the restricted coal was entirely diminished, "since

[the coal] has no other useful purpose if not mined," id. at 496-97 whereas

the restricted eggs suffered an average reduction in value of 26.1%,

according to Rose Acre.

’ The government did not assert that the eight Rose Acre egg farms operating

in 1990 (taken together), constituted the relevant denominator, and neither

party advocated individual consideration of each of the three farms.

2la

in Keystone Bituminous--comprised fungible units of the

owner's stock of property.

Thus it would seem that the "parcel as a whole" rule applies

with even greater force here, where no unique attribute inherent

in the restricted portion provides a basis for distinguishing it

from the unrestricted portion, than might be the case with real

property. Rose Acre tries to overcome this fact by arguing that

the regulations were applied on a house-by-house basis. It is

true that the interstate and intrastate transport restrictions were

applied ultimately to individual houses, but the tracebacks that

resulted in the "study flock" designation at each of Cort Acres,

White Acres, and Jen Acres (triggering the environmental

testing that ultimately led to the identification of the restricted

"test houses") were, in accordance with the interim and final

regulations, directed to each farm as a whole. 9 C.F.R. §

82.32(a) (1991) (interim regulations); 9 C.F.R. § 82.32(a) (final

regulations). Additionally, as long as any one house on any

farm was designated as an "infected house," all other houses on

that farm were required to undergo testing for purposes of

monitoring. 9 C.F.R. § 82.38. Thus, as a matter of law, because

the regulations at issue applied to each farm as a whole, their

economic impact cannot be measured by considering the

restricted houses alone. Severance of the restricted property for

purposes of the economic analysis was held improper in

Keystone Bituminous, where the regulation at issue did not

include such premise-wide features. Here, then, such severance

is even less appropriate.

On remand, then, using the three farms (combined) as the

relevant "denominator," the tri] court must determine whether

the economic impact in this case is best measured by the value

decline (a 10.6% diminution) or profitability decrease (at most,

a reduction from a 4.8% profit to a 6.3% loss) caused by the

restrictions. Either conclusion marks only the first step in the

takings analysis, however, because, as discussed below, the

court must weigh the private and public interests reflected in the

22a

application of the three Penn Central criteria to the

circumstances of this case.

B. Reasonable Investment-Backed Expectations

The government assigns error to the trial court's conclusion

that this factor favored Rose Acre. As the trial court noted,

"{t]his factor limit[s] takings recoveries to owners who [can]

demonstrate that they bought their property in reliance on a

state of affairs that did not include the challenged regulatory

regime." Rose Acre, 55 Fed. Cl. at 658 (quoting Loveladies

Harbor, Inc. v. United States, 28 F.3d 1171, 1177 (Fed. Cir.

1994)).

The trial court noted that, although the poultry industry in

general is highly regulated, government experts previously

believed that salmonella could contaminate the interior.of a

shell egg only via a crack or break in the shell. Jd. at 659

(citing a government expert's testimony regarding the 1970s-era

belief held by the Food and Drug Administration and the CDC

that shell eggs were not associated with food-borne diseases).

Accordingly, prior to 1990, eggs were subject only to inspection

and restriction for evidence of potential environmental

contamination. See id. (citing 21 U.S.C. §§ 1031-1056).

The government seeks to define the field of relevant

regulation more broadly, citing to long-standing regulations —

aimed at preventing the spread of communicable diseases in

birds and poultry. See 21 U.S.C. §§ 111-135 (West 1972 &

Supp.1994); 9 C.F.R. Part 82. It argues that a new regulation

aimed at a specific, recently-recognized disease threat was not

unforeseeable in such an environment. But the SE regulations

were more than an extension of comparable regulations to a

new disease. They were grounded in new scientific

understanding (i.e., that salmonella could be transmitted from

hen to egg) and were unprecedented in their reliance on

environmental and hen testing. Accordingly, even accounting

for the history of regulation in the poultry and egg industries,

23a

we cannot agree that the trial court erred in concluding that this

factor favors Rose Acre.

C. Character of the Government's Action

The Supreme Court explained the need for inquiry into the

character of the government's action as follows: "[a] 'taking'

may more readily be found when the interference with property

can be characterized as a physical invasion by government, ...

than when interference arises from some public program

adjusting the benefits and burdens of economic life to promote

the common good." Penn Central, 438 U.S. at 124 (citation

omitted). The Penn Central majority cited with approval in this

regard a decision holding that no compensation under the Fifth

Amendment was due orchard owners ordered to cut down their

omamental cedar trees infected with cedar rust to protect

neighboring apple orchards. Jd. at 125-26 (citing Miller v.

Schoene, 276 U.S. 272 (1928)). This decision so héld based

solely on the power of the state to prevent impending harm to a

valuable public resource--the apple industry. Miller, 276 U.S.

at 279-80 ("[W]Jhere the public interest is involved preferment

of that interest over the property interest of the individual, to the

extent even of its destruction, is one of the distinguishing

characteristics of every exercise of the police power which

affects property."); see also Goldblatt v. Hempstead, 369 U.S.

590 (1962) ("Although a comparison of values before and after"

a regulatory imposition "is relevant, ... it is by no means

conclusive ...." (citation omitted)).

As noted above, Keystone Bituminous also sprang from a

police power regulation--action on the part of the

Commonwealth of Pennsylvania "to protect the public interest

in health, the environment, and the fiscal integrity of the area."

Keystone Bituminous, 480 U.S. at 488. The Court there noted

that "the nature of the State's interest in the regulation is a

critical factor in determining whether a taking has occurred."

Id. \t reaffirmed the principle that "no individual has a night to

use his property so as to create a nuisance or otherwise harm

24a

others," and noted that "the Takings Clause did not transform

that principle to one that requires compensation whenever the

State asserts its power to enforce it." /d. at 492.”

The trial court acknowledged these principles and the

government's reliance thereon. Rose Acre, 55 Fed. Cl. at 659-

60 (quoting Creppel v. United States, 41 F.3d 627, 631 (Fed.

Cir. 1994) ("If the regulation prevents what would or legally

could have been a nuisance, then no taking occurred. The state

merely acted to protect the public under its inherent police

powers.")).'° The court recognized that "{s]almonella may be

considered a nuisance," and that "the public has a strong interest

in eating safe food." /d. at 660. The court held, however, that

this "character" factor also favored Rose Acre because the

means chosen by the government were inappropriate. /d. ("A

regulation that burdens private property may ‘constitute a

” The Court in Keystone Bituminous held that the regulation at issue--the

Bituminous Mine Subsidence and Land Conservation Act, Pa. Stat. Ann.,

Tit. 52, § 1406.1 et seg. (Purdon Supp.1986)--"piainly seeks to further" a

"substantial" public interest, and that courts "in many [such] instances” have

held that no compensation is required. Keystone Bituminous, 480 U.S. at

492 & n. 22 (citing cases). Nonetheless, the Court expressly declined to “rest

[its] decision on this factor alone, because [the claimants] also failed to make

a showing of diminution of value sufficient to satisfy the test set forth in

Pennsylvania Coal [Co. v. Mahon, 260 U.S. 393 (1922)] and [the Court's]

other regulatory takings cases." Keystone Bituminous, 480 U.S. at 492.

0 The government's Commerce Clause powers are, of course, the source of

the regulatory authority in this case. See Wright v. United States, 14 Cl. Ct.

819, 824 (1988); Loftin v. United States, 6 Cl. Ct. 596, 611 (1984)

("[RJegulations promulgated under the authority of the commerce clause

often have the quality of police regulations" (citing Currin v. Wallace, 306

U.S. 1, 11-12 (1939)); Rose Acre, 55 Fed. Cl. at 660 n. 44) ("Unlike state

governments, the federal government has no inherent police power.” (citing

United States v. Morrison, 529 U.S. 598, 619 n. 8 (2000))). Rose Acre does

not challenge the government's authority to promulgate the regulations at

issue, that authority having been upheld by the Seventh Circuit. Rose Acre J,

956 F.2d at 675-77. It merely questions "whether the method of attaining the

sought-after goal was reasonably designed to attain it." Loveladies, 28 F.3d

at 1176.

25a

"taking" if [the burden is] not reasonably necessary to the

effectuation of a substantial public purpose.’ " (quoting Penn

Central, 438 U.S. at 127). Specifically, the trial court

concluded that "the SE regulations were misguided because

they relied on ineffective testing methods.... [T]he regulations at

issue went too far in protecting [the public] interest by

prohibiting the sale of [Rose Acre's] healthy eggs as table eggs."

Id.

In support of its conclusion that the regulations were

"misguided," the trial court noted (1) the government "never

sought to have the eggs tested, despite the fact that they were

the alleged sources of the SE outbreaks," (2) after Rose Acre

completed the wet cleaning procedures required in lieu of

achieving consecutive negative hen tests, "the government

never retested the environment or the hens," confining its

inspection to "a simple walk through of the houses with a

flashlight,” (3) SE is ubiquitous in the environment, and is

impossible to eradicate, and (4) SE-infected hens "shed" the

bacteria intermittently; a hen with SE, therefore, may never lay

an infected egg. Jd. at 655 & n. 29. It further found that

[The government] was aware in the late 1980's that

SE could exist inside an egg. In addition, the

scientific technology for testing the inside of eggs

existed at the time the regulations were enacted.

Such testing was used in the United Kingdom and

during [the government's] Pennsylvania Pilot

Project. The Project discovered that 99.9725% of

eggs were SE-free. It was possible, therefore, for

[the government] to test [Rose Acre's] eggs for the

bacterium. /d.

It is apparent from the foregoing, and from the trial court's

repeated contextual references to Rose Acre's "healthy eggs,""'

' See, e.g., Rose Acre, 55 Fed. Cl. at 656 ("[T]he regulations restricted

millions of plaintiff's healthy eggs by prohibiting their sale in the table egg

26a

that the court's misgivings about the regulations are primarily

based on its finding that a less-burdensome, alternative

regulatory scheme--egg testing--was feasible. See id. at 662

("[The government] never actually tested the eggs for SE,

despite the fact that [egg] testing was feasible and would have

been directed at the alleged source of the SE outbreaks"). The

government vigorously disputes this proposition. It cites to the

testimony of Dr. John Mason, director of the "SE Task Force"

established by USDA in 1990 to respond to the SE-related

public health emergency of the late 1980s, who noted that

"although some people had already done work to show that SE

could be found in eggs" by 1990, "eggs were not considered as

a practical basis for testing," 7r. Trans. at 712, and "there hadn't

been any experience with testing eggs as part of a regulatory

effort." Jd. at 759. Dr. Mason outlined the rationale underlying

the regulations, as follows:

It was, I think, considered that first testing the

environment, to find out if it was an environment,

market." (emphasis in original)); id. at 657 ("This testimony established that

plaintiff was forced to divert over 57.5 million dozens of its healthy eggs to

the breaker egg market." (emphasis in original)); id. at 658 ("Much like the

plaintiff in Yancey, who was forced to sell its breeder hens for slaughter, the

restrictions in this case made plaintiff sell its healthy eggs to a much less

profitable market." (emphasis in original)); id. at 659 ("Based on the facts, it

is quite reasonable for plaintiff to have had an investment-backed

expectation that its healthy eggs would not be restricted from sale as table

eggs." (emphasis in original)); id. at 660 ("It is true that the public has a

strong interest in eating safe food, however, the regulations at issue went too

far in protecting this interest by prohibiting the sale of plaintiff's healthy eggs

as table eggs." (emphasis in original)). According to the court, it emphasized

“healthy” because Rose Acre only sought compensation for its "SE-free

eggs,” based on "approximations of how many eggs probably were SE

infected.” Jd. at 656 n. 33. The court noted that "out of 20,000 eggs, the

parties estimate that only one to fourteen are SE positive.” Jd. (citing the

testimony of Dr. Eric Ebel, a USDA employee and former member of the

USDA's "SE Task Force"). Notably, however, Dr. Ebel published the "SE

Risk Assessment” study that includes this prevalence data in 1998--eight

years after the interim regulations were imposed. Tr. Trans. at 329-35.

27a

was a pretty good indication that you would find it

in the birds. And if you tested in the birds and

tested the tissues and it was found in the tissues,

which this would [sic] imply there was a good

chance it was getting into the ovaries and ovary

ducts, and you could be pretty sure that at some

point, it was going to get into the eggs.

Id. at 712. He described how USDA continued to investigate

how best to discern the extent of SE contamination in eggs after

the regulations were instituted, including testing the eggs of

"three or four flocks that had been implicated in an outbreak" to

determine whether USDA "could ... culture eggs in a practical

way and find SE in them." Jd. at 759. In fact, USDA found that

"in each case in flocks where the environment was positive and

the birds were positive, [it] could also isolate [SE] from the ~

eggs." Id. As the government observes, Dr. Mason's description

makes clear that USDA learned after the regulations were

issued that egg testing was feasible. Rose Acre's own expert,

Dr. Patricia Curtis, Director of the Poultry Products Safety and

Quality Peak of Excellence Program at Auburn University,

agreed:

Q Back in the 1990s, in the early 1990s, '90, '91,

there wasn't a good test for eggs; is that true?

[Dr. Curtis] Yes.

Q In the early 1990s, it wasn't feasible to test a

large number of eggs; is that true?

[Dr. Curtis] Yes.

Q It only became feasible to test eggs in the mid-

1990s; isn't that correct?

[Dr. Curtis] Somewhere along in there. I don't

know the exact date, yes.

Q Sometime after 1993, it became feasible to test

eggs; is that nght?

Pe ee ee

28a

[Dr. Curtis] Yes.

Id. at 550. Finally, the other research to which the trial court

cited-- testing in the United Kingdom and the government's "SE

Pilot Project"--took place during and after the egg testing

experiments Dr. Mason described.'? Accordingly, the trial

court clearly erred in findiny that egg testing was feasible at the

time the government imposed the restrictions at issue on Rose

Acre.

Rose Acre correctly notes that the government does not

contend that "some new technology was discovered between the

time USDA promulgated the SE Regulations in 1990 and when

it actually conducted egg testing for the first time in 1991."

Therefore, it argues, the trial court's finding that "[i]t was

possible ... for [the government] to test [Rose Acre's] eggs for

the bacterium" was not clearly erroneous. But the issue is not

whether a less restrictive alternative to the government action

existed or was "possible." It is whether there is a nexus

between the regulation and its underlying public purpose.

Nollan v. Cal. Coastai Comm'n, 483 U.S. 825, 837 (1987)

(noting that if the regulation at issue "utterly fails to further the

end advanced as the justification,” the "purpose then becomes

the obtaining of an easement to serve some valid governmental

purpose, but without payment of compensation").

Similarly, the trial court's finding that Rose Acre "shared a

disproportionate amount of the burden of the SE regulations,"

even if correct, is not relevant. That the source of the

contaminated eggs could not be determined in 70% of the

reported SE outbreaks during the relevant period does not

undermine the rationality of investigating identifiable sources.

As the court noted, Rose Acre is one of the largest egg

aa The trial court noted, earlier in its opinion, that the SE Pilot Project was

established in April 1992, which was just before the last of the restrictions at

issue were lifted at Cort Acres and White Acres, and six months before they

were lifted at Jen Acres. Rose Acre, 55 Fed. Cl. at 650 n. 8.

29a

producers in the United States, Rose Acre, 55 Fed. Cl. at 647,

and the three farms determined to have been sources of SE-

illness related contamination’ produced, according to Rose

Acre's own laying rate and hen capacity figures, millions of

eggs per day, id. at 647, 650-51 nn. 9, 11, and 12. Thus it is not

surprising or significant that more than one-half (700 million)

of the total (1.3 billion) eggs restricted pursuant to the

regulations were Rose Acre's.

Rose Acre repeatedly emphasizes the end result of the

regulatory scheme at issue--millions of its healthy eggs were

restricted. However, this assertion itself relies on scientific

understanding developed after the regulations were imposed

(vis the SE Pilot Project)'* and lifted (as reported in the 1998

"SE Risk Assessment"). Nowhere does Rose Acre argue (or did

it show) that the regulatory means were inconsistent with

knowledge t'e government possessed at the time they were

adopted or applied against Rose Acre. Nor does Rose Acre

contend that there was no nexus between those means and the

substantial public purpose underlying the regulations--

protecting the public against exposure to a potentially serious,

even fatal, food-borne illness. Accordingly, the trial court's

conclusion that the "character of the governmental action"

factor favors Rose Acre, whether treated as a question of fact

subject to review only for clear error or a question of law

considered de novo, cannot be sustained.'>

3 - -

Rose Acre’does not contest the validity of the three tracebacks to its

farms.

4 In addition to the data referenced in note 13, supra, the trial court cites to

prevalence data developed in the Pilot Project. See Rose Acre, 55 Fed. Cl. at

650 n. 8.

vs The government contends that the decision of the Seventh Circuit on Rose

Acre's challenge to the validity of the regulations precludes further inquiry

into the merits of the regulations, citing principles of collateral estoppel. We

disagree. The issues before the Seventh Circuit concerned whether the

government had the requisite authority to promulgate the regulations, and

Oy

30a

D. Balancing of the Penn Central Factors

The Penn Central test was "designed to allow ‘careful

examination and weighing of all the relevant circumstances.' "

Tahoe-Sierra, 535 U.S. at 322 (quoting Palazzolo, 533 U.S. at

636 (O'Connor, J., concurring)). Whether the regulations at

issue in this case went too far and, therefore, constituted a

taking, Pa. Coal, 260 U.S. at 415 is thus determined by

balancing their interference with Rose Acres right to use its

property in accordance with its reasonable economic

expectations against the substantiality of the governments

purpose and the nexus between that purpose and the means

unuertaken to achieve it. We leave that task to the trial court on

remand, but note several considerations that should feature in

the analysis.

First, as noted above, courts have traditionally rejected

takings claims in the absence of severe economic deprivation.

This hesitation stems from the very nature of a regulatory

takings claim. Such a claim, lacking the "typically obvious and

undisputed" predicate of a physical invasion or appropriation of

private property by the government, is in essence, a claim that

"a taking has occurred because a law or regulation imposes

restrictions so severe that they are tantamount to a

condemnation or appropriation." Tahoe-Sierra, 535 U.S. at 322

n. 17. In considering whether the economic deprivation here

was of the requisite severity, the court should also consider the

significance of the fact that the regulations restricted Rose

Acres operations temporarily--for a period of about two years--

after which Rose Acre returned to pre-restriction table egg sales

levels.

whether they were arbitrary and capricious so as to lack validity. Rose Acre

J, 956 F.2d at 674- 77. As discussed above, we deal here with the distinct

issue of consideration of "whether the regulation[s] appropriately advance[d]

a substantial government interest." Tahoe-Sierra, 535 U.S. at 323.

3la

Second, as of the time the restrictions were imposed, Rose

Acre made 10 of its table egg sales within the state of Indiana, a

fact noted but not further considered by the trial court. Rose

Acre, 55 Fed. Cl. at 652. As noted above, state, not federal,

officials were responsible for restricting intrastate sales.

However, the trial court appears to have attributed the state-

imposed restrictions to the federal government for purposes of

the takings analysis. Such attribution is proper, however, only

if the state officials were acting as agents of the federal

government or pursuant to federal authority. B G Enters., Ltd.

v. United States, 220 F.3d 1318, 1323-24 (Fed. Cir. 2000). The

regulations at issue provide no such authority, however, as they

authorize limitations only on interstate movement of eggs from

test and infected houses. 55 Fed. Reg. 5584; 56 Fed. Reg.

3741.'° Thus, unless a finding of agency or authority is

otherwise appropriate, the trial court must consider only the

actions of the federal government (and their effects) in

evaluating Rose Acres takings claim.

Only when all of the relevant criteria and circumstances are

considered, and considered together, can a conclusion be

reached as to whether compensation is required in this case. On

remand, then, the court must reevaluate the severity of the

economic impact in accordance with the disc zssion above, and

weigh that against the other Penn Central factors, taking into

account all of the above-noted considerations.

Il. DESTROYED HENS: CATEGORICAL TAKINGS CLAIM

The compensation the trial court awarded Rose Acre for the

hens taken for necropsy represents a small portion ($15,671.99)

of the total award. Rose Acre, 55 Fed. Cl. at 664. The

government nonetheless also appeals that aspect of the trial

© The regulations defined "[i]nterstate” as "[f]rom one State into or through

any other State" 55 Fed. Reg. 5582; 56 Fed. Reg. 3739.

32a

court's judgment, arguing that (1) a categorical takings analysis

is inapplicable and (2) the trial court's reliance on its finding

that the "testing procedures were flawed" in its treatment of the

"merits" of Rose Acre's claim as to its hens reveals that the

court's erroneous finding in this regard contaminated its

treatment of this claim, despite the court's invocation of the

"categorical" label. The trial court correctly rejected the

government's contention that a "per se" takings analysis is never

applicable when personal property is at issue.'’ Whether Rose

'” In its opening brief, the government notes that the trial court "rejected the

Government's demonstration that no categorical taking could be found in this

instance because categorical takings are limited to the taking of real

property." Government's Blue Brief, at 51 (citing Rose Acre, 55 Fed. Cl. at

661-62). When presented, recently, with the opportunity to so hold,

however, the Supreme Court declined. See Brown v. Legal Found. of Wash.,

538 U.S. 216 (2003). Brown involved a claim that a state law requiring the

deposit of certain client funds into "interest on lawyers’ trust accounts"

("IOLTA") to fund the provision of legal services for the poor effected an

uncompensated taking of the clients’ property in violation of the Fifth

Amendment. /d. at 228-29. The U.S. Court of Appeals for the Ninth

Circuit, sitting en banc, had held that "under the ad hoc approach applied in

Penn Central ... there was no taking because petitioners had suffered neither

an actual loss nor an interference with any investment-backed expectations,

and that the regulation of the use of their property was permissible." /d. at

231. Four Ninth Circuit judges had dissented on the ground that "the

majority's reliance on Penn Central was misplaced because this case

involves a 'per se’ taking rather than a regulatory taking." /d. The Supreme

Court noted that no taking could be found upon application of Penn Centra!

to the requirement that client funds be placed in an IOLTA account, noting

that such placement involves merely a transfer of principal and thus "had no

adverse economic impact on petitioners and did not interfere with any

investment-backed expectation." Jd. at 234. However, noting that the Ninth

Circuit dissenters regarded the subsequent transfer of interest from the

IOLTA account to the state fund administrators as akin to the "per se" taking

that occurred in Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S.

419 (1982), where the government had required landlords to allow television

cable companies to install cable facilities on their buildings, the Supreme

Court stated:

We agree that a per se approach is more consistent with the

reasoning in our ... opinion [in Phillips v. Wash. Legal Found.,

33a

Acre's claim for compensation for its hens should be so

resolved is not so clear, however.

What is clear is that had the regulations required Rose Acre

itself to kill and test the hens, no per se taking could be found.

See Seiber v. United States, 364 F.3d 1356, 1370 (Fed. Cir.

2004) (rejecting the applicability of per se treatment to a

logging permit denial that entirely (albeit temporarily)

destroyed the value of each affected tree even assuming each

individual tree represents a separate property interest before cut

from the land). The claimants in Seiber had invoked the

holding in Lucas that a categorical taking results where a

regulation prohibits all productive use of an entire parcel. /d. at

1368 (citing Lucas, 505 U.S. at 1015). Setting aside (for

purposes of decision) the issue of whether Tahoe-Sierra

completely bars per se treatment for a temporary interference

with property rights, we held that "the impact of an alleged

taking must be considered in terms of the 'parcel as a whole,’

whether analyzed by categorical or ad hoc standards." Id.

(citing the holding in Tahoe-Sierra, 535 U.S. at 329-32 "that the

Lucas per se rule only applies in the 'extraordinary case’ where

three prerequisites are met: the regulation must (1) permanently

deprive, (2) the whole property, (3) of all its value" (emphasis in

original)). Accordingly, because the permit denial in Seiber did

not affect "all of the timber on the two hundred-acre parcel," we

rejected the claimants’ categorical takings claim. /d. at 1370.

524 U.S. 156 (1998)] than Penn Centrals ad hoc analysis. As

was made clear in Phillips, the interest earned in the IOLTA

accounts "is the private property of the owner of the principal."

If this is so, the transfer of the interest to the Foundation here

seems more akin to the occupation of a small amount of rooftop

space in Loretto.

Brown, 538 U.S. at 235. Ultimately, though, the Court was not required to

decide which "type of taking" was involved, id. at 233, as it held that the

IOLTA program's exclusion of client funds that could have produced net

interest for their owners meant that no "just compensation" was due. Jd. at

240.

34a

The question, then, is whether the mere fact that government

officials carried out the testing (and the prerequisite seizure and

destruction of the hens) is enough to transform what could

otherwise qualify for takings compensation only if the Penn

Central standard were met into a categorical taking. We think

not. The Supreme Court has analyzed a takings claim that arose

in an analogous context as a regulatory takings claim. See

Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984). Monsanto

concerned a_ federal statute that required pesticide

manufacturers to register their products with thy government

prior to their sale in interstate or foreign commerce. /d. at 991.

Provisions of the statute authorized the Environmental

Protection Agency ("EPA") to publicly disclose certain data

submitted by registration applicants and, in some instances, to

consider data submitted by one applicant in support_of an

application submitted by another party for registration of a

similar chemical. /d. at 992-96. Monsanto challenged these

data-disclosure and data-consideration provisions on the ground

that they effected a taking of those of its submitted trade secrets

the government disclosed (or considered for the benefit of

others) without just compensation. /d. at 998-99. Thus, as in

the present case, the claim was that government officials, acting

pursuant to one aspect of an integrated regulatory .-heme

enacted for the benefit of public health and safety, deprived the

claimant of its interest in a portion of its relevant personal

property as a condition for permission to sell its product in

interstate commerce. After recognizing that Monsanto's heaith,

safety, and environmental data was cognizable as a property

right under Missouri law, id. at 1003-04, the Court

"confront[ed] the difficult question whether a ‘taking’ will occur

when EPA discloses those data or considers the data in

evaluating another application for registration" in accordance

with the Penn Central analytical framework. Jd. at 1004-14.

Here then, the same analysis must be employed to determine

whether Rose Acre is entitled to compensation under the Fifth

35a

Amendment for its hens. The trial court, on remand, must

evaluate the severity of the economic impact of the destroyed

hens on Rose Acre in accordance with the standards and

requirements discussed above in connection with its claim for

compensation for the eggs affected by the regulations. Further

inquiry into whether the regulations interfered with Rose Acre's

reasonable investment-backed expectations and furthmered a

substantial public interest need not be undertaken in light of our

above conclusions as to those issues, which apply with equal

force to the claim for compensation for the hens. However, the

court must ultimately weigh all the Penn Central factors, taking

into account all the relevant circumstances, as noted above, to

determine whether the Fifth Amendment requires compensation

for the hens.

CONCLUSION

In accordance with the foregoing, we remand for

reconsideration of the severity of the economic impact wrought

by the relevant (i.e., federal) restrictions on Rose Acre, and for

consideration of the significance of that impact in light of the

other relevant factors, namely the regulations’ interference with

Rose Acre's reasonable investment-backed expectations and

their furtherance of the substantial government health and safety

interest.

VACATED and REMANDED.

COSTS

No costs.

36a

UNITED STATES COURT OF FEDERAL CLAIMS

ROSE ACRE FARMS, INC., Plaintiff,

v.

The UNITED STATES, Defendant.

No. 92-710C.

March 20, 2003.

OPINION

FUTEY, Judge.

This regulatory takings case is before the court following a

trial on liability and damages. Plaintiff maintains that

regulations enacted by the United States Department of

Agriculture (USDA), which placed restrictions on chicken

farms suspected of selling sa/monella-infested eggs, caused a

taking of plaintiff's healthy eggs, hens, and hen houses at three

of its farms. Plaintiff argues the restrictions had a severe

economic impact on its operations, interfered with its

investment-backed expectations, and were not in the public's

best interests. Plaintiff asserts a general regulatory takings

claim for its healthy eggs and hen houses, and a categorical

takings claim for its hens tnat were destroyed for testing

purposes. Plaintiff seeks damages totaling over $40 million,

which includes a request for compound interest.

Defendant contends plaintiff failed to establish at trial that

the regulations resulted in a taking of its property. Defendant

argues that the diversion of plaintiff's eggs, the periods its

houses were unused while they were cleaned and inspected, and

the destruction of a small amount of its hens for testing, caused

plaintiff only minimal losses. Defendant also believes plaintiff

had no investment-backed expectations because the poultry

37a

industry is heavily regulated. In addition, defendant asserts the

regulations were a proper use of the government's police power

and were in the public's best interest. With respect to damages,

defendant maintains plaintiff's expert lacked credibility for

numerous reasons, and therefore, plaintiff is unable to prove

that it is entitled to any damage award.

FACTUAL BACKGROUND

I. PLAINTIFF'S OPERATIONS

Plaintiff, Rose Acre Farms, Inc., is a business incorporated

under the laws of the State of Indiana with its principal place of

business in Seymour, Indiana. Defendant, the United States of

America, is acting by and through its agent, USDA. The Animal

Plant Health and Inspection Service (APHIS), a division of

USDA, administered the regulations at issue. APHIS is

responsible for preventing the spread of communicable diseases

in poultry, to protect the livestock and poultry of the United

States.

Plaintiff is primarily a producer of poultry eggs for sale

throughout the central Midwest and Great Lakes regions. It

sells mainly table eggs, which are raw eggs sold in their shell.'

Plaintiff is one of the largest egg producers in the United States,

with production facilities and farms in Indiana and Iowa. The

three farms at issue in this case are located in Cortland, Indiana

(Cort Acres), White County, Indiana (White Acres) and

Jennings County, Indiana (Jen Acres).

Each of plaintiff's farms has numerous hen houses of varying

capacity. Plaintiff treats these houses as separate units, and

' Table eggs are different from breaker eggs, which are sold in liquid form

for use in products that require pasteurization, such as cake mixes. Table

eggs command a higher price for sale than breaker eggs

38a

such things as feed, labor, and "started pullets"’ are allocated

carefully among houses and farms. A disruption of one facility

can have repercussions across the entire operation.

Plaintiffs production methods are quite detailed. It is a

vertically integrated system, meaning that virtually all of the

functions required for egg production occur on plaintiff's

premises. This includes everything from purchasing breeder

chicks to the laying, processing, storage and shipment of eggs.

Specifically, plaintiff buys breeder chicks when they are one-

day old and raises them for an eighteen-week period. At

eighteen weeks, plaintiff moves the breeder chicks to a breeder

layer farm with accompanying roosters. At this farm, plaintiff

produces fertile eggs for the purpose of hatching. Plaintiff then

transports the fertile eggs to its own hatcheries. In a twenty-

one-day period, the eggs hatch to make day-old chicks.

Plaintiff then takes the day-old chicks to its pullet-raising

facility where they are kept for eighteen weeks. At eighteen

weeks, the pullets are sexually mature, meaning they are

capable of laying eggs. Plaintiff then transports the pullets to

layer farms, where they begin laying eggs. All of the laying

hens in a particular house are approximately the same age.

Layer hens peak in production at about twenty-eight weeks of

age. After this time, their productivity declines on a regular

basis until they reach the end of their productive life at seventy-

five to seventy-eight weeks of age. During the productive

cycle, they lay approximately 0.7 eggs per day. When the cycle

has ended, the hens are removed and destroyed.” The house

? Started pullets are chicks who are older than one day. They are known as

pullets until they sexually mature at approximately eighteen weeks.

* The productive life of a layer hen can be extended by molting. This is a

naturally occurring process that results from the reduction of light and feed

to the bird. The hen's reproductive system rejuvenates during this process,

thus allowing them to lay eggs until they are approximately 105 to 110

weeks of age. This process also improves both the interior and exterior

quality of the eggs produced by the hens.

ae a

39a

then receives a normal cleaning before new hens are introduced.

Plaintiff is able to take advantage of associated economies of

scale with this plan, and each farm can provide a consistent

supply of table eggs for the appropriate regional market.

Since there are multiple steps involved in producing layer

hens, plaintiff must plan for the placement of pullets in layer

houses approximately eighteen months in advance. Indeed,

much planning is involved in coordinating the timing of its

depopulation and repopulation schedules for each house on its

farms. Scheduling and timing, therefore, are key components of

plaintiff's business. An interruption in plaintiffs scheduling

system affects the entire organization, thus causing plaintiff to

be unable to supply eggs to its customers.

Plaintiff's operations are also premised on an "in-line"

facility. At an in-line farm, there is a grouping of layer houses

for the purpose of producing eggs. The eggs laid in the houses

are carried by a conveyor belt te the front of each house. A

cross-conveyor belt then carries the eggs from a number of

houses to a centrally located processing facility. At this facility,

eggs are put through a series of machines; including a washer,

dryer, candler, grader and packager; to clean, grade, sort and

package the eggs for eventual sale.*

Each of plaintiff's layer farms includes a number of layer

houses. For example, Cort Acres contains thirty-six separate

houses. In 1990, all of plaintiff's layer houses were made of

* Plaintiff's eggs are packaged in two types of containers: thirty-egg flats and

twelve-egg cartons. The flats generally are used for eggs sold to

institutional-type settings, such as restaurants, hotels and banquet halls, and

to outside breaking plants. Cartons generally are used for eggs destined for

grocery stores. The difference in packaging cost between cartons and flats is

two cents a dozen. Once eggs are placed in containers, they are further

packed into cases. Each case holds thirty dozen eggs. Plaintiff's cartons and

cases are imprinted with an expiration date and packing plant identification

number. Before 1990, plaintiff packaged approximately two-thirds of its

eggs in cartons and one-third in flats.

40a

wood and had dirt floors with an outside shell of steel. These

houses are two-story buildings, with the lower floor used to

collect manure from the hens who are housed on the upper

floor. Each layer house contains thousands of hens. For

example, at Cort Acres each house contains approximately

70,000 hens. They are kept in rows of wired cages.

Plaintiff also operates feed mills at each of its layer farms,

since feed for hens represents a very high percentage of

plaintiff's total cost of producing eggs. Farmers deliver corn

directly to plaintiff's farms, where it is stored in silos. Plaintiff

mills the corn with soybeans and other ingredients to produce a

nutritious meal for the hens. Feed is conveyed to the hens

through a series of augers. Water is also mechanically

delivered to the hens.

Il. THE 1989 TRACEBACK

In the late 1980's, the Centers for Disease Control (CDC)

determined there was a growing problem with Salmonella

enteriditis serotype enteritidis (SE) in chicken eggs.’ Indeed,

SE outbreaks originally were limited to the northeastern region

of the United States. Between April 9 and April 11, 1989,

however, an SE outbreak occurred in Knoxville, Tennessee.

Federal and state officials performed a traceback to plaintiff's

Jen Acre farm, which they believed to be the source of the SE.

In May 1989, the Indiana State Poultry Association (ISPA)

> Salmonella is a gram negative rod-shaped microscopic bacterium that is

ubiquitous. There are more than 2,000 serotypes (strains) of salmonella, and

it is most commonly found in the intestinal tract of animals and birds.

Persons can be exposed to sa/monella in many ways, but the most likely

exposure is through the consumption of raw or undercooked foods of animal

origin, such as meat, poultry, milk or eggs. When a person becomes sick

from consuming sa/monella, the condition is referred to as salmonellosis.

Symptoms in humans include nausea, vomiting, abdominal cramps, diarrhea,

fever and headache.

4la

arranged with plaintiff's president, Lois Rust, to test Jen Acres

for SE. Federal and _ state officials then performed

environmental, blood and organ testing. Said testing revealed

SE on an egg belt in House 7 and in an intestinal sample from a

hen in House 8. Plaintiff stored the eggs from these houses in

its holding cooler for approximately two weeks after the testing

revealed the presence of SE. On June 1, 1989, Houses 7 and 8

were retested-the samples of which came out negative.

After June 1, 1989, plaintiff received oral notification from

ISPA that the houses, after subsequent testing, were SE-

negative and were released from any restrictions or further

testing. ISPA also informed plaintiff that it could do what it

wished with the eggs from Houses 7 and 8. Plaintiff ultimately

decided to sell the eggs as breaker eggs. On July 12, 1989,

Houses 7 and 8 were retested. Again, the samples were

negative.

III. USDA'S SALMONELLA REGULATIONS

A. The interim regulations

On February 16, 1990, in response to the increasing SE

problem, APHIS, acting on behalf of the Secretary of

’ Agriculture (Secretary), determined that emergency regulations

were necessary to identify poultry flocks infected with SE and

to prevent the spread of this disease. The Secretary therefore

published interim regulations, effective immediately, that

restricted the interstate sale of contaminated eggs and limited

the interstate transportation of contaminated poultry. 9 C.F.R. §

§ 82.30-82.36 (1991). USDA claimed that notice and public

comment of the regulations could be waived because good

cause existed, under 5 U.S.C. § 553 (1996), for immediate

action to prevent harm to the industry and the general public.

55 Fed. Reg. 5580 (1990). The regulations were applied to

"flocks" defined as "{a]ll of the poultry on one premises." 9

C.F.R. § 82.30. The regulations did not define "premises," but

42a

USDA initially explained that the terms "flock" and "premises"

meant the entire farm or egg-producing facility.

The interim regulations also required the USDA to identify

an ¢gg-production flock as a "study flock" if "a Federal or State

representative determines through epidemiologic investigation

that the flock is the probable source of disease in an outbreak of

disease in humans or poultry caused by [SE]." 9 C.F.R. §

°82.32(a). | Shipping records or other evidence had to

substantiate that the probable source of the eggs was the

producer's flock. /d. If USDA designated a flock to be a study

flock, it then had to perform environmental testing for SE

pursuant to the regulations.° If one or more of the

environmental samples tested positive for SE, or if the entity in

control of the study flock refused environmental testing, the

interim regulations mandated that the study flock be designated

a "test flock." 9 C.F.R. § 82.32(b). The owner of a test flock

could not freely market the test flock's eggs or the test flock

itself. The regulations limited the test flock eggs to uses that

required pasteurization, and allowed the interstate sale or

shipment of the eggs only after the owner obtained a permit and

satisfied certain requirements. 9 C.F.R. § 82.33(a). The test

flock eggs could not be transported interstate for use as table

eggs. Also, live hens could be moved interstate from a test

flock if: (1) a permit had been obtained for interstate

movement; (2) the chickens were moved interstate to a

federally inspected slaughtering facility; and (3, the chickens

were slaughtered within twenty-four hours of arriving at a

federally inspected slaughtering facilitv. 55 Fed. Reg. 5584

(1990).

od

. USDA believed, at the time, that any evidence of SE in the environment

would indicate that the birds were infected, thus increasing the likelihood

that they would lay SE-infected eggs. To the present date, the scientific

community still does not fully understand all aspects of SE in eggs.

43a

The regulations also required the test flocks to undergo blood

and internal-organ testing. If the organs of one or more

chickens from the test flock tested positive for SE, the flock

was designated as an "infected flock." The regulations imposed

the same restrictions on interstate movement for infected flocks

that they did for test flocks and their eggs. 9 C.F.R. §§

82.32(c)(2), 82.33(a). Essentially, all hens, eggs, manure,

cages, coops, containers, troughs and other equipment were

quarantined and could not leave the house except "under seal."

A flock kept its designation as an infected flock until defendant

retested it and no internal organ received a positive result.

Before USDA retested and released a test flock or infected flock

from the applicable restrictions, the owner had to purchase

special equipment and disinfection chemicals and implement

specific disinfection procedures.

In March 1990, after the interim regulations went into effect,

defendant established the SE Task Force in Hyattsville,

Maryland. Thirty to forty people, mostly USDA veterinarians,

were brought in from the field to work with SE and its effects.

B. The final regulations

USDA published final SE regulations on January 30, 1991,

56 Fed. Reg. 3730 (1991) (codified at 9 C.F.R. § 82.30-82.38),

following the receipt of comments from interested parties.

These regulations incorporated most of the provisions of the

interim regulations and added several additional provisions. For

example, they used the term "house" to describe the

components of the flock to prevent the transmission of SE to

the other houses. The restrictions were therefore imposed on

separate poultry houses when the specific requirements were

met.

The final regulations also required retesting for additional

reasons. If there was an infected house on the premises, for

example, any other test house that had been released from test-

house status because of two negative organ tests had to undergo

44a

a third blood and organ test within forty-five to sixty days

following its release from test-house status. Also, if one house

on the premises was infected, all other houses on the premises,

except for test and former test houses, had to undergo

environmental testing until 120 days after the date the last

infected house had its infected status removed. In addition, if

an infected house was released from infected-house status, it

had to be retested within forty-five to sixty days following its

release. An infected house was released only after it-was either

depopulated, cleaned, washed, and disinfected, or internal organ

samples tested negative. USDA inspected the premises to

confirm that these procedures were properly performed. 9

C.F.R. §§ 82.32(e), 82.37.

USDA amended the final regulations in 1992 to alter the

retesting procedures. 57 Fed. Reg. 776 (1992). These

amendments allowed the flocks to be released from test or

infected status if they were depopulated and their houses were

cleaned, washed and disinfected. 57 Fed. Reg. 777. Also, the

administrator of APHIS was given the authority to periodically

retest a flock for eighteen months following its release from test

or infected status, or after it was repopulated.

Pursuant to the regulations, APHIS administered ! 'SDA's SE

traceback program until mid-1995. The traceback procedure

involved investigating an outbreak of SE and determining the

source of the eggs causing the incident. After an outbreak was

reported, it took state and local health departments an average

of two to three months to make official reports. By then it was

difficult to carry out an effective egg trace. Indeed, the eggs

containing the highest risk for humans usually had already been

distributed and consumed.

As of 1996, there were approximately 1,000 large flocks with

SE in the United States. Nevertheless, USDA restricted only

thirty-eight flocks between 1990 and 1994. In total, over 1.3

CT ore. TAT

45a

billion eggs were diverted pursuant to the regulations.’

Restricted eggs from plaintiff represented ™ >re than one-half of

this total.*

IV. SALMONELLA OUTBREAKS RELATED TO

PLAINTIFF

A. Tracebacks

Three separate outbreaks of SE contamination occurred in

1990 that were traced back to plaintiff's Cort Acres, White

Acres and Jen Acres farms. The first incident happened on

August 11, 1990, at a brunch wedding party in Versailles,

Kentucky. Forty-two guests became ill when they ate eggs

benedict with hollandaise sauce. The Kentucky Department for

Health Services, in conjunction with APHIS, traced the source

to eggs from plaintiff's Cort Acres facility.” USDA then

declared all thirty-six houses at Cort Acres to be a study flock.

USDA took environmental samples from the manure and egg

conveyor belts at Cort Acres, and also obtained eighteen

samples from each of the houses. Some of the houses tested

positive in at least one environmental sample. Based on these

. Defendant's witness, Dr. John Mason, testified that of the 1.3 billion

diverted eggs, approximately 0.3 percent were SE positive. Trial Transcript

(Tr.) at 802.

, The court notes that in November 1991, defendant formed a subcommittee

of the SE Working Group to organize the SE Pilot Project in Pennsylvania.

The Pennsylvania Pilot Project was established in Lancaster, Pennsylvania in

April 1992. Its stated objectives were to develop effective and efficient

monitoring for SE infection in layer flocks, with the ultimate goal of

preventing SE from contaminating eggs. The Project investigated the

prevalence of SE in eg7s by testing their internal contents. It determined that

in 10,000 eggs :uken from an environmentally SE-positive house, only 2.75

would contain SE.

: In 1990, Cort Acres had thirty-six houses, which were configured into four

quartiles with nine houses per quartile. Each house contained approximately

70,000 hens. Cort Acres' farm-wide capacity was 2.4 million hens.

46a

results, USDA declared plaintiff's entire farm at Cort Acres to

be a test flock. Plaintiff's interstate mov ment of the eggs from

that facility was therefore restricted, and its sale of the eggs was

limited to the pasteurization market. USDA eventually applied

the restrictions to only the specific houses at Cort Acres that

tested positive. In response to USDA's testing, the Indiana

State Board of Health notified plaintiff that it could no longer

distribute, transport, or move the chickens, eggs and associated

articles in intrastate commerce, except for pasteurization.'”

A second SE outbreak occurred on September 30, 1990, at

the Hyatt Regency hotel in Chicago, Illinois, where

approximately 400 people became ill from SE-infected bread

pudding at a True Value Hardware convention. The Chicago

Health Department and the Illinois Department of Public Health

jointly issued a report that traced the outbreak to eggs produced

at plaintiffs White Acres farm.'' USDA declared half of the

twelve houses at White Acres to be a study flock based on this

report. It then conducted environmental testing on the six

houses, which came back positive. On November 27, 1990,

USDA designated these six houses as a test flock, thus

restricting the interstate movement of their eggs and limiting

their use to pasteurization. USDA later conducted

environmental testing at the remaining six houses. Some of

these houses tested positive, so USDA identified the entire

flock as an infected flock and imposed the applicable

restrictions. On January 15, 1991, the Indiana State Egg Board

imposed restrictions on plaintiff's intrastate sales of the White

0 Cort Acres was suspected to be the source of an additional outbreak in

Asheville, North Carolina on September 22, 1990. Since Cort Acres was

already subject to investigation and restrictions, defendant did not notify

plaintiff of this incident.

. In 1990, White Acres had twelve houses, each of which contained

approximately 125,000 hens. White Acres’ farm-wide capacity was 1.5

million hens.

ee eee

47a

Acres eggs, determining that they could only be sold for

pasteurization.

A third SE outbreak occurred on October 25, 1990, in

Tennessee where seven people became ill when they consumed

banana pudding with meringue. The Tennessee health authority

determined that the suspect eggs originated from plaintiff's Jen

Acres facility.'* USDA conducted environmental testing,

which came back positive. It then restricted all of the Jen Acres

flocks in January 1991, thus preventing the interstate movement

of its eggs and limiting their sale to pasteurization markets. On

February 6, 1991, USDA declared Jen Acres an infected flock.

All of the houses at Jen Acres were subject to the restrictions.

On January 17, i991, the Indiana State Egg Board notified

plaintiff that it was imposing restrictions on the intrastate

movement of eggs from Jen Acres. Plaintiff was now only

permitted to sell them in intrastate commerce for pasteurization.

B. Plaintiff's response to the outbreaks

In addition, after houses were labeled test flocks at the three

farms, hens at these facilities were tested for the presence of SE.

USDA physically removed them from the houses, killed them,

and then transported the carcasses to a USDA laboratory in

Ames, Iowa. Once USDA labeled a house "infected," one

option for getting the house released was to re-test hens and

have them pass two consecutive organ tests. Plaintiff tried this

option, but in most cases was unsuccessful. A total of 6,741

hens were removed from plaintiff's houses for necropsy, a

procedure similar to an autopsy that tested for SE. Only 147 of

them (approximately 2.18%) tested positive.

Moreover, plaintiff had to depopulate, clean, disinfect and

get reinspected by USDA at all layer houses in order to be

. In 1990, Jen Acres had twenty-two houses, twenty-one of which were in

production. Each house had capacities ranging from 67,320 to 112,000

hens. Jen Acres' farm-wide capacity was 1.5 million hens.

48a

released from the restrictions. USDA required wet cleaning for

each house, which was more expensive and time consuming

than the traditional dry cleaning method. The wet cleaning

damaged the electrical wiring in most of plaintiff's houses, and

in fact was related to a fire that partially burned down the inside

of one of the houses. USDA's inspection after the wet cleaning

was limited to a visual examination with a flashlight. It did not

retest the environment or the hens. Sometimes the houses were

empty for long periods of time as they awaited USDA

inspection.

On May 8, 1992, USDA notified plaintiff that all remaining

White Acres houses had been released from the SE restrictions.

The Cort Acres facility was removed from the quarantine on

July 16, 1992. Jen Acres received iis reprieve on October 30,

1992. Thus, defendant applied the SE regulations to plaintiff

for over twenty-one months. During the entire restriction

period, defendant never tested any of plaintiff's eggs.

V. EFFECT OF THE RESTRICTIONS ON PLAINTIFF'S

OPERATIONS

Prior to the enactment of the regulations, over 97% of the

eggs plaintiff produced were sold as table eggs, and plaintiff

had invested approximately $82.2 million in its table egg

business. During the restricted period, plaintiff's primary

business purpose continued to be the production of table eggs,

although plaintiff was forced to divert millions of eggs to

breaker plants.'’ After the quarantine ended in mid-1992,

'3 A breaker plant separates an egg's liquid contents from its shell. The piant

then pasteurizes (or heats) the contents to kill any bacteria within the egg. A

USDA official must be present while the plant is in use. Before the

restriction period, plaintiff only sent eggs of inferior quality to breaker

plants. Less than three percent of its eggs met this criteria. Also, prior to the

restriction period, plaintiff had one small breaker plant at its Pulaski County

farm in northern Indiana. Most of plaintiff's breaker eggs, however, were

49a

plaintiff immediately returned to selling over 97% of its eggs as

table eggs. In addition, before and during the SE quarantine

period, plaintiff primarily sold eggs in interstate commerce.

Indeed, 90% of its eggs were sold in interstate commerce

leaving 10% for sale in intrastate commerce.

Also, in response to the SE quarantine, plaintiff decided to

build a breaker plant at Cort Acres in January 1991.

Construction of said plant was completed in May 1991. The

total cost of this project was approximately $6 million. Plaintiff

built the facility to minimize its losses, when it was restricted to

selling its eggs for pasteurization. Plaintiff also expanded its

Pulaski County breaker plant to accommodate restricted eggs

from White Acres.

In total, plaintiff diverted over 57.5 million dozens (nearly

700 million eggs) to breaker plants during the restricted period.

Plaintiff sold 24,006,780 dozen restricted eggs to outside

breaker plants. It also processed 33,753,843 dozen eggs in its

own breaking plants, and sold the resulting liquid product io

liquid-egg producers. The price plaintiff received for the

breaker eggs was always less than what it would have made if it

were selling table eggs. Indeed, the average cost for plaintiff to

produce a dozen eggs during the period of restriction was 54.96

cents. Plaintiff received, however, only 41.46 cents per dozen

for eggs sold to outside breaking plants, and 46.64 cents per

dozen for eggs processed in plaintiffs own breaking facilities.

The average price of table eggs during the restrictions was 59

cents per dozen. Furthermore, plaintiff had to purchase table

eggs from its competitors to cover some of its contractual

obligations to its customers. Plaintiff also had to store some of

its eggs in a commercial facility until it could identify a liquid

egg market to absorb them.

Moreover, started pullets that plaintiff had slated for

unrestricted houses had to be used to repopulate the restricted

sent to out-of-state breaker plants not owned by plaintiff.

50a

houses. Also, pullets in the unrestricted houses had to be

molted or left in production beyond normal production cycles,

resulting in a decline in production in unrestricted houses. This

upset the scheduling and timing of plaintiff's routine operations.

VI. PLAINTIFF'S CHALLENGES TO THE REGULATIONS

Plaintiff disagreed with the restrictions defendant imposed on

its farms, and thus, decided to challenge the SE regulations. On

December 28, 1990, plaintiff filed a complaint in the United

States District Court for the Southern District of Indiana

(District Court) seeking declaratory relief stating that the

interim regulations were invalid. Plaintiff amended its

complaint on February 18, 1991, to seek declaratory relief

finding the interim and final regulations invalid because: (1)

they both deprived plaintiff of due process; (2) the interim

regulations were not promulgated in accordance with the

Administrative Procedure Act; (3) both sets of regulations

exceeded the USDA's statutory authority; (4) the final

regulation couid not be applied retroactively; and (5) both sets

of regulations unlawfully delegated authority to state officials. '*

Plaintiff later amended its complaint again to include claims

that: (1) the application of certain monitoring provisions was

invalid and (2) it was entitled to compensation for eggs diverted

to pasteurization facilities, hard boiling, or export.'? The

District Court ruled against plaintiff, finding that: (1) defendant

had the authority to promulgate the interim and _ final

regulations; (2) the application of the regulations did not

deprive plaintiff of due process; and (3) the regulations were

not arbitrary or capricious. '° The District Court, however, did

'4 Defendant's Motion In Limine (Def.'s Mot.), Appendix (App.) at 13-17

(District Court Complaint). ‘

0 Id., App. at 19-21, 26 (Amendment to District Court Complaint).

Id., App. at 61 (Judgment of District Court).

Se A) ee Series

Sla

find the monitoring provision to be arbitrary and capricious, and

concluded that the SE regulations, as a whole, were invalid

because they explicitly contemplated no mechanism for

compensating restricted eggs or for chickens executed for

testing purposes.

Both parties appealed to the United States Court of Appeals

for the Seventh Circuit (Seventh Circuit), who reversed the

District Court's order invalidating the SE regulations. Rose

Acre Farms, Inc. v. Madigan, 956 F.2d 670, 672-74 (7th Cir.

1992). The Seventh Circuit held that plaintiff must instead seek

compensation under the Fifth Amendment or 21 U.S.C. § §

114a and 134a (1999) in the United States Court of Federal

Claims. The Seventh Circuit also determined that the

regulations were made within the authority of the Secretary and

that they were neither arbitrary nor capricious. /d. at 675-677.

Plaintiff then filed a complaint in this court on October 13,

1992, requesting 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 SE regulations; and (3)

losses from a decrease in egg production. Plaintiff's claims are

premised on the Fifth Amendment and 21 U.S.C. §§ 114a and

134a. Plaintiff seeks $21,589,015.38"” in damages, excluding

interest. This amount includes compensation for: (1) restricted

egg sales; (2) losses from layers taken for necropsy; (3) empty

house losses from depopulation through inspection; (4) reduced

production during restricted periods before required

depopulation; (5) reduced production during unrestricted

periods before required depopulation; (6) cleaning and

disinfection costs; (7) purchase of table eggs to cover

'7 plaintiff has amended the amount of its damages request numerous times.

This figure represents the costs plaintiff set forth at trial and in its post-trial

briefing. In addition, plaintiff actually requests a total of $21,589,015.85.

The court's calculation of plaintiff's listed expenses, however, results in a

total of 38 cents, not 85 cents.

52a

obligations; (8) storage costs for restricted eggs; (9) losses due

to disruption of overall business; and (10) interest.

Defendant filed a motion to dismiss 0.: January 3, 1995,

arguing that plaintiff had failed to state a claim upon which

relief may be granted and that the court lacked jurisdiction to

hear plaintiff's claim based on sections 114a and 134a. The

court dismissed plaintiff's claim under section | 14a, but denied

the remainder of defendant's motion in an unpublished decision

issued August 7, 1995. The parties then engaged in extensive

discovery. Following the pre-trial conference conducted on

October 10, 2001, defendant filed a motion in limine arguing

that plaintiff was precluded from challenging the regulations.

The motion also contested plaintiff's request for consequential

damages. On March 19, 2002, the court denied this motion

without prejudice, choosing instead to address it in the court’

post-trial opinion. Indeed, these arguments are considered

below. A trial was held in Washington, D.C. on April 30--May

10, 2002. Post-trial briefing was completed on July 1, 2002.

DISCUSSION

Plaintiff asserts the taking of three items during the period of

restriction, its healthy eggs, hen houses and hens. Plaintiff

raises a general regulatory takings claim for its eggs and houses,

and a categorical taking of its hens. It also cites relief under 21

U.S.C. § 134a, although it does not specify any particular

claims pursuant to this statute. Plaintiff seeks just

compensation for these items and various related costs.

Defendant maintains that plaintiff is unable to establish the

elements of a regulatory and categorical takings claim, thus

precluding any just compensation. Defendant also adds that

many of plaintiffs theones are attempts. to recover

consequential damages, which takings law does not allow.

: Prat ate le'e Ah AE 0 tate do ne a eh

53a

I. PRELIMINARY ISSUES

Before addressing the specifics of the parties' takings

arguments, it is important to comment on two underlying

issues: (1) plaintiff's actions in the "but-for" world, and (2) the

methodology implemented by the regulations. The

effectiveness of safe-handling instructions is also a key point.

The court's findings on these issues are necessary to fully

analyze the elements of regulatory takings.

A. The "but-for" world

A "but-for" world is a hypothetical scenario predicting what

would have happened if some outcome determinative factor had

not occurred. In the present case, the parties dispute the nature

of plaintiff's reaction to the SE tracebacks if defendant had

never enacted the regulations. Defendant maintains that

plaintiff would have acted the same in this but-for world. It

asserts that plaintiff would have used the same house cleaning

procedures and diversion method for its eggs. Defendant also

argues that adverse publicity and the threat of private lawsuits

would have persuaded plaintiff to follow these procedures.

Defendant emphasizes plaintiff's response to the 1989 traceback

to support its claim.

Plaintiff contends defendant's but-for world is flawed

because plaintiff did not voluntarily test and restrict its eggs

during the 1989 traceback. Plaintiff also claims that adverse

publicity and products liability lawsuits would not have affected

its reaction to the SE tracebacks. Plaintiff adds that the purpose

of the regulations was to change behavior. It questions the

point of having the regulations if its response would have been

the same.

After careful consideration of the parties' evidence, the court

concludes that plaintiff s response to the outbreaks would have

differed if there were no regulations. Plaintiff presented

persuasive evidence at trial that it would not have undergone

the same cleaning and disinfecting procedures for its houses if

54a

there were no regulations. The costs of these procedures were

quite expensive, and the regulations required plaintiff to "wet

clean," which is costly and destructive. Indeed, this procedure

damaged the electrical wiring in the houses, thus requiring new

wires to be installed. As Victor Rigterink, plaintiff's executive

vice president, testified, "Imposition of water into a house

which is wood certainly doesn't do any good. It also ruined the

electrical system in almost every house. We had to rewire

almost all of the houses after it was wet-cleaned. In fact, one of

them partially burnt down on the inside."'® Plaintiff never used

wet cleaning before the government ordered the procedure per

the regulations.

Plaintiff also made clear that it would not have diverted its

eggs to the breaker market after the 1989 traceback if the

government had not required such an action. Plaintiff offered

testimony at trial that defendant threatened to "mess «sth its

markets" if it did not follow procedures and divert its eggs in

1989.'? Plaintiffs employees emphasized that there was

nothing voluntary about restricting their eggs. For example,

plaintiff's president, Lois Rust, stated "I felt that we were forced

into agreeing to this .... He said that either do it or else.""” Mr.

Rigterink added "we felt seriously coerced to do so."”' In fact,

defendant's witness, Dr. Paul Aho, who claimed that plaintiff

voluntarily diverted its eggs during the 1989 traceback,

admitted that he had no personal knowledge of any egg

producer who diverted eggs voluntarily as the result of a

traceback.” Defendant's argument that plaintiff would have

voluntarily diverted its eggs after the three subsequent

- Tr. at 200.

"9 Td. at 975.

20 Id. at 75-76.

71 1g. at 261.

22 Td. at 1366.

55a

tracebacks, regardless of whether there were regulations in

place, is unpersuasive.

Morecver, plaintiff proffered evidence that the adverse

publicity to the tracebacks was irrelevant in terms of its

conduct. After the 1989 traceback, plaintiff briefly changed its

name on its cartons to a different house brand to avoid any

stigma attached to the title "Rose Acre."”? This change only

lasted for a few weeks, however, because plaintiff received

multiple phone calls from wholesalers asking that it return to

the Rose Acre brand.”* The familiarity of the Rose Acre name

was very important to plaintiff's customers.

Also, the threat of private lawsuits is not convincing

evidence that plaintiff would have diverted its eggs and

implemented wet cleaning if there were no regulations in place.

Indeed, plaintiff still encountered litigation when it was subject

to the regulation-imposed restrictions. Plaintiff simply turned

these claims over to its insurance carrier, and had little

involvement with them.”> It presumably would have reacted the

Same way in the but-for world. There is no reason to believe

that the threat of lawsuits would have persuaded plaintiff to

apply different cleaning procedures, or divert its eggs to the

breaker market.

B. Comments on the regulations

The Seventh Circuit has already determined the

constitutiona.ity of the regulations, nevertheless, the issue still

remains on whether they caused a taking of plaintiff's property.

USDA believed at the time of the tracebacks that if the hens'

environment contained SE, they too carried the disease.”° It

23 Td. at 252.

24 Wd at 251-52.

25 Td at 251.

26 Id. at 704-05.

56a

therefore concluded that the hens would lay eggs that were

infected.2’ The regulations' requirements were based

predominantly on this belief. Indeed, when SE was traced back

to a particular house, defendant ordered testing of its hens and

environment. Defendant never sought to have the eggs tested,

despite the fact that they were the alleged sources of the SE

outbreaks. If either the hens or the environment tested positive

for SE, the regulations imposed a strict ban on table egg sales in

interstate commerce. Plaintiff then had the option of retesting

the hens on two subsequent occasions or depopulating,

cleaning, disinfecting and then repopulating the houses.

Plaintiff generally chose the latter, and spent much time wet

cleaning and disinfecting the houses and repopulating with new

hens. After plaintiff completed the cleaning, defendant never

retested the environment or hens. Its inspection consisted of a

simple walk through of the houses with a flashlight. Again, the

eggs themselves were never tested.

The court believes that such requirements were misguided, at

best. The parties made clear at trial that SE exists everywhere in

our world, and it is impossible to eradicate.”* The fact that SE

was found in plaintiff's houses, therefore, does not indicate that

the eggs were infected too. Also, the fact that SE was found in

the hens does not necessarily implicate their eggs as well. The

phenomenon of intermittent shedding proves that the hens' eggs

could very well be SE-free.”” Regardless, testing of plaintiff's

hens resulted in a very low prevalence of SE-positives.

Moreover, defendant was aware in the late 1980's that SE

could exist inside an egg. In addition, the scientific technology

at

28 Td. at 993: Joint Exhibit (Jt.Ex.) 3.

2? “Intermittent shedding” is a theory explaining how an egg formed in the

reproductive tract of a hen may or may not acquire an SE bacterium while it

is developing. Tr. at 483. Indeed, a hen with SE may never lay an infected

egg. Tr. at 484.

S7a

for testing the inside of eggs existed at the time the regulations

were enacted. Such testing was used in the United Kingdom

and during defendant's Pennsylvania Pilot Project.’ The

Project discovered that 99.9725% of eggs were SE-free. It was

possible, therefore, for defendant to test plaintiff's eggs for the

bacterium. The court considers defendant's decision to test the

hens and the environment, and then to follow up said tests with

a simple walk-threugh of the houses with a flashlight, to be a

careless meiiod of preventing the further exposure of SE to

consumers.

C. Safe-handling instructions

The safe handling of an SE-infected egg eliminates the

bacterium before consumption. Safe handling involves such

things as thoroughly cooking an egg before consumption.

Instructions on the egg cartons explained this fact to users of the

product. As plaintiff emphasized during trial, there are many

possible sources of the SE outbreaks traced back to plaintiff's

farms. A restaurant worker's improper handling of the eggs

while preparing an egg-based food is a perfect example. As

defendant's witness, Dr. John Mason, admitted at trial,

emphasizing safe handling of the eggs would have been a very

effective way to deal with the SE outbreaks.*’ Considered in

light of the fact that defendant never tested plaintiff's eggs, the

court does not believe defendant has established that plaintiff

had an SE problem. Indeed, millions of plaintiffs eggs were

safely consumed during the period between the three SE

outbreaks and the time plaintiff's operations were restricted.

For example, approximately 90 million eggs were sold from

Cort Acres during this time.*” Despite this fact, the regulations

restricted millions of plaintiff's healthy eggs by prohibiting their

30 Tr at 758-60, 1077.

3! 1d. at 786.

32 Td. at 190.

58a

sale in the table egg market.*> The court will consider all of

these observations throughout its analysis of plaintiff's claim.

—

Il. TAKINGS ANALYSIS

Plaintiff is asserting a regulatory taking and a categorical

taking of its property. The main difference between the two is

the amount of the economical viable use of the property that has

allegedly been appropriated. This distinction results in the

application of different analyses. Compare Penn Central

Transp. Co. v. City of New York, 438 U.S. 104, (1978)

(applying a three-part regulatory takings test), with Palm Beach

Isles Assoc. v. United States, 231 F.3d 1354, 1357 (Fed. Cir.

2000) (explaining that it is unnecessary to consider whether

there was an investment-backed expectation).

A. Regulatory taking

A regulatory taking does not involve a physical invasion or

seizure of property. Instead, it 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.'" 767

Third Ave. Assocs. v. United States, 48 F.3d 1575, 1580 (Fed.

Cir. 1995) (quoting Penn. Coal Co. v. Mahon, 260 US. 393,

415 (1922)). The government need not make use of, or take

title in, the property at issue for a taking to occur because

"[g]overnmental action short of acquisition of title or occupancy

has been held, if its effects are so complete as to deprive the

owner of all or most of his interest in the subject matter, to

3 The emphasis on "healthy" eggs is important, as plaintiff concedes that it

is only seeking compensation for its SE-free eggs. Plaintiff calculates the

number of said eggs by using approximations of how many eggs probably

were SE infected-an amount that is considerably low. Indeed, out of 20,000

eggs, the parties estimate that only one to fourteen are SE positive. /d. at

331-335.

59a

amount to a taking." Ruckelshaus v. Monsanto Co., 467 U.S.

986, 1005 (1984) (quoting United States v. Gen. Motors Corp.,

323 U.S. 373, 378 (1945)); Aris Gloves, Inc. v. United States,

190 Ct. Cl. 367, 374, 420 F.2d 1386 (1970). While the United

States Supreme Court (Supreme Court) has found conclusively

that such regulatory takings may and do occur, it has not

instituted a "set formula" for determining when governmental

regulatory action becomes a compensable taking. Penn

Central, 438 U.S. at 124. Instead, because of the essentially

factual nature of a takings claim, each claim is analyzed on an

ad hoc, case-by-case basis. Ruckelshaus, 467 U.S. at 1006, 104

S.Ct. 2862 (quoting Kaiser Aetna v. United States, 444 U.S.

164, 175 (1979)). The Supreme Court nevertheless has

identified significant factors for consideration in these cases,

including: (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. Connolly v. Pension

Benefit Guar. Corp., 475 U.S. 211, 225 (1986) (quoting Penn

Central, 438 U.S. at 124). When one of these factors is so

overwhelming as to decide conclusively the validity of a

regulatory takings claim, that factor may dispose of the claim

altogether. Ruckelshaus, 467 U.S. at 1005.

Plaintiff maintains defendant took its healthy eggs and layer

houses by severely restricting their permitted use. Plaintiff

believes its evidence at trial established all three elements of the

regulatory takings analysis. Defendant contends plaintiff cannot

satisfy the elemenis because its response to the tracebacks

would have been the same regardless of whether the regulations

were in effect. Defendant also emphasizes that the poultry

industry is heavily regulated, so plaintiff cannot argue that it

had investment-backed expectations to the contrary.

60a

1. Eggs

A consideration of the Penn Central factors is the best

method for determining plaintiff's egg-related claim. Indeed,

the facts and circumstances of this case indicate that the

economic impact and plaintiff's investment-backed expectations

are quite significant.

a. Economic impact

This prong of the Penn Central test ensures that "not every

restraint imposed by government to adjust the competing

demands of private owners [will] result in a takings claim."

Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1176

(1994) (citing Penn. Coal, 260 U.S. at 413 ("Government

hardly could go on if to some extent values incident to property

could not be diminished without paying for every such change

in the general law.")). Plaintiff must show a serious financial

loss from the regulatory imposition. /d. at 1177. Specifically, it

must prove that the regulation denied the economically viable

use of its property. /d. (citing Agins v. Tiburon, 447 U.S. 255,

260 (1980); Nollan v. California Coastal Comm'n, 483 U.S.

825, 834 (1987)). This factor looks at the property's fair market

value and whether it has been reduced as a result of the

regulations. Florida Rock Indus., Inc. v. United States, 18 F.3d

1560, 1567 (Fed. Cir. 1994).

Plaintiff contends the economic impact of the SE regulations

was severe because they prevented plaintiff from selling healthy

eggs in the table egg market. Plaintiff instead ..ad to sell its

eggs to the less profitable breaker egg market. Defendant

argues that plaintiff only suffered a de minimis loss from this

action because plaintiff incurred cost savings from producing

breaker eggs. Defendant also asserts that plaintiff would have

undertaken the same actions when it discovered the subsequent

SE outbreaks, regardless of whether it was ordered to do so by

the regulations. In addition, defendant argues that plaintiff did

not bear a disproportionately heavier burden under the SE

6la

regulations because, without the regulations, plaintiff would

have been subject to legal action by persons who consumed the

infected eggs.

Plaintiff offered credible evidence at trial on the severity of

the economic impact of the regulations. This testimony

established that plaintiff was forced to divert over 57.5 million

dozens of its healthy eggs to the breaker egg market. If there

were no restrictions, plaintiff would have been able to sell these

eggs at a higher price in the table egg market, thus generating

higher revenue.

Indeed, the average cost for plaintiff to produce a dozen eggs

during the period of restriction was 54.96 cents. Plaintiff

received on average, however, only 41.46 cents per dozen for

eggs sold to outside breaking plants, and only 46.64 cents per

dozen for eggs processed in plaintiff's own breaking facilities.

Plaintiff does not always make at least 54.96 cents per dozen

when selling its eggs to the table market. Nevertheless, plaintiff

would have made more than 46.64 cents per dozen if permitted

to sell its product as table eggs. The average price of table eggs

during the restrictions was 59 cents per dozen.’ This is

significantly more than the 41.46 cents plaintiff received for its

eggs sold to outside breaker plants, and 46.64 cents it recovered

for eggs it processed in its own breaker facilities. Clearly the

regulations economically impacted plaintiffs operations in

more than just a minimal way.

Defendant's own witnesses at trial supported this conclusion.

For example, Dr. Mason, who headed the SE Task Force for

four years, testified that the restrictions could mean financial

ruin for table egg producers.” Dr. Arthur Hall added that

"[b]reaker eggs are not rewarding,"*° and Dr. Eric Ebel, a

34 1g. at 1575.

35 1. at 789.

36

Id. at 904.

62a

current USDA employee and a former member of the SE Task

Force conceded that:

The impact of the current S.E. program is severe for affected

producers. These managers [of restricted farms] incur losses in

revenue through the diversion of eggs to breakers, and expend

additional capital during downtime for cleaning and —

Bia ‘ 37

disinfection.

Dr. Ebel also acknowledged that producers faced

considerable revenue losses from the required diversion of eggs,

that breakers consistently provided lower returns than table

eggs, and that producers subjected to the regulations

experienced losses even more severe than if they had diverted

voluntarily.** Dr. Reiff, defendant's economic expert, calculated

that plaintiff's loss on breakers alone exceeded $9.2 million.”

This case is similar to Yancey v. United States, 915 F.2d

1534 (Fed. Cir. 1990), where a USDA-imposed quarantine was

found to have taken healthy breeder hens belunging to the

plaintiff. The quarantine prevented the plaintiff from using the

hens for breeding, thus forcing them to slaughter their hens and

sell the meat in order to recover some economic return. /d. at

1536. The Federal Circuit affirmed this court's determination

that the quarantine constituted a Fifth Amendment taking. /d. at

1542. The Federal Circuit concluded that "[a]lthough plaintiffs

were able to mitigate their loss by slaughtering the flock, there

was no other alternative, economically viable use for the flock

while the quarantine was in effect." Jd. at 1539.

In the present case, plaintiff sold over 97% of its eggs as

table eggs before the restrictions. The SE regulations forced

plaintiff to divert these eggs to the breaker market. This was

not an economically viable option for plaintiff because it was

37 Wt Ex. 44 at 4. Tr. at 322.

38 Ty at 325-27.

39 Td. at 1518.

ee ee ee

ss

eee, note eee ote ies BeOS +. Ores: Caer &

—— ee ON ee eee

eee

63a

not able to recoup its investment in these diverted eggs. Much

like the plaintiff in Yancey, who was forced to sell its breeder

hens for slaughter, the restrictions in this case made plaintiff

sell its healthy eggs to a much less profitable market. Indeed, as

the Seventh Circuit stated in its opinion on plaintiff's

constitutional challenge to the regulations, "[a]n ‘alternative’

that is less attractive financially than slaughter is the functional

equivalent of a command to destroy the animals.” Rose Acre

Farms, 956 F.2d at 672. The economic impact of the diversion

was indeed severe.

b. Investment-backed expectations

This factor "limit[s] takings recoveries to owners who [can]

demonstrate that they bought their property in reliance on a

state of affairs that did not include the challenged regulatory

regime.” Loveladies Harbor, 28 F.3d at 1177. The investment-

backed expectation "must be more than a ‘unilateral expectation

or an abstract need.'" Ruckelshaus, 467 U.S. at 1005-06

(quoting Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449

_U.S. 155, 161 (1980)). It must be reasonable. /d. at 1006.

Plaintiff maintains it reasonably expected that it could sell its

healthy eggs as table eggs in interstate commerce. The

restrictions imposed by the regulations prevented plaintiff from

distributing eggs in this manner. Plaintiff also emphasizes that

the regulations went into effect after it had heavily invested in

table-egg production. The SE regulations marked a departure

from the prior regulations governing plaintiff's egg-producing

operations. Plaintiff asserts the prior regulations gave plaintiff

no reason to expect that its "good" eggs would be condemned.

Defendant contends the poultry industry is highly regulated,

especially to control the spread of communicable diseases.

Defendant therefore argues that plaintiff knew it could be

subjected to stricter regulations at some point. Defendant also

maintains that plaintiff had no reasonable expectation to sell

SE-infected eggs in interstate commerce.

64a

Prior to 1990, the regulatory scheme governing the egg

industry was limited to egg-grading standards. 21 U.S.C. §§

1031-1056. These standards resulted from defendant's belief

that diseases, such as salmonella, generally existed outside of

the shell, and could only enter the egg through cracks.*” Thus,

eggs were "graded" to ensure that no such cracks existed. The

prevailing law before 1990 also compensated producers when

their eggs were destroyed by government mandate, even if these

eggs were contaminated. 21 U.S.C. §§ 114a, 134a. Defendant's

witness, Dr. Robert Tauxe, chief of the Foodborne and

Diartheal Diseases Branch at CDC, acknowledged at trial that

CDC and the Food and Drug Administration concluded in the

1970's that shell eggs were neither a hazardous food nor

associated with food-borne salmonellosis.*' Indeed, CDC

concluded that the egg grading standards "eliminated human

consumption of high-risk shell eggs."** In fact, raw eggs were

again considered safe to eat.** It was not until after the SE

regulations were enacted that CDC re-classified shell eggs as a

potentially hazardous food.

As defendant points out, the poultry industry in general is

highly regulated. Nevertheless, the issue of sa/monella in eggs

is not an area that experienced much regulation before 1990.

Based on the facts, it is quite reasonable for plaintiff to have

had an investment-backed expectation that its healthy eggs

would not be restricted from sale as table eggs. The result of

the SE regulations, however, was to restrict not only the SE

contaminated eggs, if there were any, but also plaintiff's SE-free

eggs. This change in the law was not foreseeable, considering

defendant's prior conclusion that the grading system eliminated

%° Id. at 692.

*! Id. at 673-74.

*2 Id. at 673.

ae

=—_— Uhm mee.

aa ieee oil iiion

65a

the problem of SE in eggs. This element of the regulatory

takings analysis favors plaintiff.

c. Character Te

The character factor requires the court to "consider the

purpose and importance of the public interest reflected in the

regulatory imposition." Loveladies Harbor, 28 F.3d at 1176. A

regulation that burdens private property may "constitute a

'taking' if [the burden is] not reasonably necessary to the

effectuation of a substantial public purpose." Penn Central,

438 U.S. at 127. The fundamental purpose of the Takings

Clause is to "bar Governnient from forcing some people alone

to bear public burdens which, in all fairness and justice, should

be borne by the public as a whole." Armstrong v. United States,

364 U.S. 40, 49 (1960). The regulations at issue can be

examined under the lens of state nuisance law. "If the

regulation prevents what would or legally could have been a

nuisance, then no taking occurred. The state merely acted to

protect the public under its inherent police powers." Creppel v.

United States, 41 F.3d 627, 631 (Fed. Cir. 1994).

Plaintiff argues that defendant overreacted to the isolated SE

outbreaks by enacting scientifically unsupported regulations.

Plaintiff maintains the regulations were based on a flawed

premise--that if hens or their environment tested positive for

SE, the eggs were presumptively positive. Plaintiff argues the

regulations "went too far" and were not in the public's interest.

Defendant contends its actions were a proper exercise of the

government's police power. Defendant also maintains that

conduct promoting the health and safety of the public does not

constitute a taking. Defendant analogizes the salmonella

outbreaks to nuisance law. In addition, defendant asserts the

public has a compelling interest in controlling the spread of SE.

As discussed above, the court concludes the SE regulations

were misguided because they relied on ineffective testing

methods. Salmonella may be considered a nuisance, but

66a

defendant has not established that the sa/monella epidemic was

largely the result of plaintiff's eggs. It is true that the public has

a strong interest in eating safe food, however, the reguiations at

issue went too far in protecting this interest by prohibiting the

sale of plaintiff's healthy eggs as table eggs.

Moreover, plaintiff shared a disproportionate amount of the

burden of the SE regulations. APHIS administered USDA's SE

traceback program until mid-1995. In 70% of the reported SE

outbreaks, a probable source could not be determined. As of

1996, there were more than 1,000 large flocks with SE in the

United States, nevertheless, USDA restricted only thirty-eight

of them between 1990 and 1994. In total, over 1.3 billion eggs

were diverted, pursuant to the regulations. Restricted eggs from

plaintiff represented more than one-half of this amount

(approximately 700 million). The Federal Circuit has asked the

pertinent question "has the Government acted in a responsible

way, limiting the constraints on property ownership to those

necessary to achieve the public purpose, and not allocating to

some number of individuals, less than all, a burden that should

be borne by all?" Florida Rock Indus., 18 F.3d at 1571. The

answer to this question is "no."

The court therefore concludes that the SE regulations posed

an unlawful taking of plaintiff's healthy eggs. Plaintiff is

entitled to just compensation for the loss of these eggs.

2. Houses

Plaintiff also argues that its restricted hen houses were

temporarily taken while being wet cleaned and awaiting

4 The court also finds unpersuasive defendant's argument premised on the

government's police power. Unlike state governments, the federal

government has no inherent police power. United States v. Morrison, 529

U.S. 598, 619 n. 8 (2000) ("[ T]he principle that ‘[t}he Constitution created a

Federal Government of limited powers, while reserving a generalized police

power to the States, is deeply ingrained im our constitutivnal history.’ ")

(citations omitted).

67a

reinspection. Plaintiff maintains their use was severely limited,

which disrupted plaintiff's entire operation. Plaintiff seeks

compensation for loss of production, overall disruption costs,

and cleaning and disinfection costs. Defendant contends that

plaintiff cannot claim there was a temporary taking because the

houses themselves were not restricted. Defendant asserts that

requiring houses to be tested, cleaned, disinfected, and

monitored did not interfere with plaintiff's property nights. In

addition, defendant argues plaintiff is merely seeking

consequential damages with this claim, which takings law

precludes.

Since plaintiff is only alleging that its houses were taken for

certain periods of time, plaintiff is raising a temporary

regulatory takings claim. Indeed, it regained full use of the

houses after the restrictions were lifted. This is in contrast to its

claim for healthy eggs, which were taker: permanently because

the specific eggs that were regulated, totaling nearly 700

million, could not be used again after they were sent to the

breaker plants. The question of whether or not there has been a

temporary regulatory taking depends on the particular

circumstances of the case. Tahoe-Sierra Preservation Council,

Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302, 336

(2002).

As a preliminary matter, the court must separate plaintiff's

actual takings claim from its allegation of consequential

damages. indeed, plaintiff's assertions of loss of production,

overall disruption costs, and cleaning and disinfection costs are

merely consequences of the regulations.*° These consequential

damages are not recoverable. Yuba Natural Resources, Inc. v.

United States, 904 F.2d 1577, 1581 (Fed. Cir. 1990) (citing

Kimball Laundry Co. v. United States, 338 U.S. 1, 7 (1949));

see also General Motors Corp., 323 U.S. at 379, Yancey, 915

* In fact, it is debatable whether plaintiff's claim for the taking of its houses

is an actual takings claim or just another request for consequential damages.

68a

F.2d at 1542; Georgia-Pacific Corp. v. United States, 226 Ct.

Cl. 95, 147, 640 F.2d 328 (1980); Foster v. United States, 2 Cl.

Ct. 426, 445 (1983).

What remains, therefore, is plaintiff's allegation that the

regulations caused a taking of its layer houses during the

periods of cleaning, disinfection and inspection. Specifically,

plaintiff argues the extra time it took to wet clean the houses, as

opposed to plaintiff's normal practice of dry cleaning, served as

a taking of the houses for those particular days. On average,

restricted houses sat empty for forty-six days while unrestricted

houses were empty for five days.”° Plaintiff also alleges that the

period of nonuse while they waited for government inspection

constituted a taking. The court is not convinced.

The court has stated that it believes the regulations were

misguided because they required tes*ing of the en. ironment but

not the eggs. Nevertheless, the court does not believe that

longer cleaning times and the periods awaiting inspection

constitute a valid claim for the taking of plaintiff's houses. As

the Supreme Court recently stated, "[a] rule that required

compensation for every delay in the use of property would

render routine government processes prohibitively expensive or

encourage hasty decisionmaking." Tahoe-Sierra Preservation

Council, 535 U.S. at 335. The court concludes that the facts

and circumstances of this case preclude a finding that plaintiff's

houses were taken by the regulations and/or their effect.*”

* Plaintiff's Exhibit (Pl.'s Ex.) 318; Tr. at 1235, 1576-77.

*” The court does not explicitly discuss the Penn Central factors in this

section because it believes the facts and circumstances as a whole prove

there was no taking. The Penn Central test is premised on a facts and

circumstances analysis. Tahoe-Sierra Preservation Council, 535 U.S. at

336. The parties seem to agree with this approach, as they do not

specifically discuss the Penn Central factors in relation to this claim.

Regardless, the court believes that fairness and justice do not dictate that the

public bear the burden of the expenses plaintiff incurred from the cleaning,

disinfection, and inspection of its houses. Ruckelshaus, 467 U.S-at 1005,

airing

69a

B. Categorical taking

A categorical taking is one in which a// economically viable

use has been taken by the regulatory imposition. Palm Beach

Isles Assoc., 231 F.3d at 1357. This takings claim is distinct

from a general regulatory taking which "prohibits or restricts

only some of the uses that would otherwise be available to the

property owner." /d. There is no need for the property owner to

prove an investment-backed expectation for a categorical

takings claim. /d. at 1364. Indeed, a categorical taking is akin

to a physical taking. /d. at 1357.

Plaintiff contends that defendant's appropriation of 6,741 of

its hens for SE testing constitutes a categorical taking. Plaintiff

emphasizes that the existence of SE in the hens, which was

limited to only a small amount of those tested, did not prove

that SE actually existed in plaintiff's eggs. Defendant maintains

that categorical takings claims apply to real property, which is

not at issue in this case.

Contrary to defendant's assertions, a categorical taking is not

limited to real property. Indeed, courts have found the principle

to apply to personal property as well. Armstrong, 364 U.S. at

46-48 (government's seizure of boats on which plaintiff held

mechanics lien a taking); Nixon v. United States, 978 F.2d

1269, 1284-85 (D.C. Cir. 1992) (seizure of former president's

papers a taking). Defendant's attempt to preclude plaintiff's

claim with such a superficial statement of the law is

unsuccessful.

As for the merits of plaintiff's categorical takings claim, the

court has already concluded that defendant's testing procedures

were flawed. Said testing focused on the hens and their

environment. Defendant never actually tested the eggs for SE,

(determining that when one of the Penn Central factors is so overwhelming

as to decide conclusively the validity of a regulatory takings claim, that

factor may dispose of the claim altogether).

70a

despite the fact that such testing was feasible and would have

been directed at the alleged source of the SE outbreaks.

Plaintiff offered testimony at trial that proved SE can exist ina

hen and still not contaminate the eggs it produces.** Because

the court believes defendant's testing methods were misguided,

and since defendant did appropriate 6,741 of plaintiff's hens for

this testing, the court concludes that defendant did categorically

take said hens. Plaintiffis entitled to just compensation for this

taking.

C. 21 U.S.C. § 134a

Plaintiff also asserts in Count II of its complaint that it seeks

compensation under 21 U.S.C. § 134a, which allows for the

seizure, quarantine, and disposal of livestock or poultry to guard

against the introduction or dissemination of communicable

disease. The statute provides certain payment provisions for

these activities. Defendant argues the statute is inapplicable

because the Secretary did not declare an "extraordinary

emergency" related to SE.

Section 134a states, in pertinent part:

[T]he Secretary shall compensate the owner of any

animal, carcass, product, or article destroyed

pursuant to the provisions of this section. Such

compensation shall be based upon the fair market

value as determined by the Secretary, of any such

animal, carcass, product, or article at the time of

the destruction thereof. Compensation paid any

owner under this subsection shall not exceed the

difference between any compensation received by

such owner from a State or other source and such

fair market value of the animal, carcass, product, or

article.

48 Ty at 482-83.

Tla

The court interprets this statute as applying only to plaintiff's

egg and hen-related claims. The court has concluded that

pursuant to the Fifth Amendment, plaintiff is entitled to

compensation for these items. Section 134a does not provide

plaintiff any ~ dditional relief.”

Ill. JUST COMPENSATION

The court has concluded that plaintiff is entitled to just

compensation for the taking of its healthy eggs and hens.

Indeed, plaintiff "is to be put in the same position monetarily as

[it] would have occupied if [its] property had not been taken."

Almota Farmers Elevator & Warehouse Co. v. United States,

409 U.S. 470, 473-74 (1973) (citation omitted). Plaintiff seeks

the following compensation: (1) $7,376,050.77 for restricted

egg sales; (2) $15,671.99 for losses from layer hens taken for

necropsy; (3) $2,987,460.05 for empty house losses from

depopulation through inspection; (4) $1,432,034.44 for reduced

production during restricted periods before required

depopulation; (5) $2,769,134 for reduced production during

unrestricted periods before required depopulation; (6)

$2,158,307.93 for cleaning and disinfection costs; (7)

$44,574.82 for purchase of table eggs to cover obligations; (8)

$70,656.78 for storage costs for restricted eggs; (9)

$5,961,550.64 for losses due to disruption of overall business;

and (10) interest. The total of these amounts, excluding

interest, is $22,815,441.42. After accounting for revenue

plaintiff received for the sale of its breeder eggs and started

pullets, which equals $1,226,426.04,” the total amount plaintiff

seeks is $21,589,015.38, plus interest.

9 x ; .

” The court notes that plaintiff has not set forth any specific claims related

to section 134a, and does not mention this statute in its post-trial briefing.

°° The treatment of this revenue in relation to plaintiff's costs is discussed

below.

72a

A. Consequential damages

A threshold issue related to plaintiff's damages request is the

determination of consequential damages. Defendant argues that

takings law does not provide for the recovery of said damages,

which may result from the actual taking. Plaintiff maintains

that the damages it seeks are not consequential.

Not all losses that plaintiff suffers as a result of a taking are

compensable under the Fifth Amendment. United States ex rel.

Tennessee Valley Authority v. Powelson, 319 U.S. 266, 281

(1943). "It is a well settled principle of Fifth Amendment

taking law ... that the measure of just compensation is the fair

value of what was taken, and not the consequential damages the

owner suffers as a result of the taking." Yuba Natural

Resources, 904 F.2d at 1581 (citing Kimball Laundry Co., 338

U.S. at 7); see also General Motors Corp., 323 U.S. at 379;

Yancey, 915 F.2d at 1542; Georgia-Pacific Corp., 226 Ct. Cl. at

147, 640 F.2d 328; Foster, 2 Cl. Ct. at 445. Examples of costs

that are not recoverable because they are consequential are

destruction of the business, frustration of contract or business,

the cost of compliance with the regulations, the losses sustained

by the owner because of the difficulty of finding other premises,

moving costs, and expenses incurred in having to readjust

manufacturing operations. See, e.g., Mitchell v. United States,

267 U.S. 341, 345 (1925); Atlas Corp. v. United States, 15 Cl.

Ct. 681, 688 (1988), aff'd, 895 F.2d 745, 755-56 (Fed. Cir.

1990), cert. denied, 498 U.S. 811 (1990); Klein v. United

States, 179 Ct. Cl. 910, 915, 375 F.2d 825 (1967), cert. denied,

389 U.S. 1037 (1968).

The court concludes that plaintiff's request for damages to

cover: (1) reduced production during restricted periods before

required depopulation; (2) reduced production during

unrestricted periods before required depopulation; (3) cleaning

and disinfection costs; (4) purchase of table eggs to cover

obligations; (5) storage costs for restricted eggs; and (6) losses

73a

due to disruption of overall business; is an attempt to recover

consequential damages, and therefore, is denied. Specifically,

the reduced production costs and losses due to the disruption of

its overall business are claims related to the frustration of its

business. Plaintiff cannot recoup these expenses. Klein, 179

Ct. Cl. at 915, 375 F.2d 825. Also, its request for cleaning and

disinfection costs is an example of expenses it incurred while

complying with the regulations. These too are not recoverable.

Atlas, 15 Cl. Ct. at 688. The same is true for the storage costs

and the purchase of table eggs to cover obligations, which were

incidental expenses related to the restrictions.

In addition, the court notes that plaintiff is not entitled to

damages for losses related to plaintiff's empty houses. This

description pertains to most of the costs plaintiff asserts. The

court has concluded that plaintiff does not have a viable takings

claim for the temporary impediment to its use of the layer

houses.

B. Losses from restricted egg sales

The court does believe, however, that plaintiff has asserted a

valid takings claim for the diversion of its healthy eggs during

the time of restriction. Plaintiff seeks $2,641,635 for the eggs it

was forced to process in its own breaker facility. Plaintiff asks

for $4,734,415.77 for the healthy eggs it sold to outside

breakers. The total amount for the losses of the diverted eggs is

$7,376,050.77. This figure takes into account the revenue

plaintiff received from selling the eggs as breaker eggs. Said

revenue is subtracted from the overall expenses plaintiff

incurred.”' The $7,376,050.77 is the total after making this

subtraction.

Defendant argues the amount plaintiff requests is inaccurate,

because plaintiff's expert witness, Dr. Richard Just, made

5! 1d. at 1196.

74a

numerous critical errors in his analysis.’ Defendant contends

Dr. Just incorrectly assumed that plaintiff would not have

responded in the same way to the SE tracebacks if the

regulations were not in effect. Defendant also claims Dr. Just

overstated the hens' laying rate that would have occurred in the

but-for world. Defendant further asserts that Dr. Just fails to

account for eggs produced at unrestricted houses. In addition,

defendant believes Dr. Just applied incorrect farm-wide

productivity data to his analysis.

As for defendant's claim that plaintiff's response to the

tracebacks would have been the same if there were no

regulations, the court has already concluded that plaintiff

presented credible evidence to the contrary. The court restates

this fact to emphasize that Dr. Just's assumptions on plaintiff's

actions in the but-for world are accurate.

Moreover, the court found Dr. Just's testimony at trial very

credible. For example, Dr. Just made clear that he applied a

layer rate of 0.70475 per hen each day for his farm-wide

productivity data.°> The court has made the factual finding that

approximately 0.7 is an accurate representation of the laying

rate, pursuant to credible testimony plaintiff presented. Dr.

Just, therefore, did not err when he used 0.70475 in his farm-

wide productivity data. He also emphasized that he accounted

for hens that were not laying because of special circumstances

such as remodeling of the houses. In addition, the court

believes that Dr. Just did not overstate the hen's laying rate in

the but-for world, and that he properly considered the effect of

eggs produced at unrestricted houses.

52 ae a

Some of the alleged errors defendant raises in iis briefs are no longer

pertinent because the court has already discounted them. The court,

therefore, only addresses defendant's arguments that still have relevance.

93 Ty at 1595.

54

Tr. at 1596.

75a

The court concludes that Dr. Just's calculations are credible

and that they accurately reflect plaintiff's damages related to the

taking of its healthy eggs. Plaintiff is therefore entitled to

$7,376,050.77 for the loss of said eggs.

C. Losses for hens taken for necropsy

Plaintiff also seeks $15,671.99 for its hens defendant took for

necropsy. The court has held that plaintiff's categorical takings

claim for these hens is valid. Defendant has focused on

challenging the takings portion of plaintiff's claim related to the

birds. It has set forth no specific arguments questioning the

accuracy of the $15,671.99 amount. Since defendant appears to

not challenge this sum, and because the court believes Dr. Just

accurately determined this figure, the court concludes that

plaintiff is entitled to $15,671.99 as just compensation for the

hens taken for necropsy.

D. The effect of plaintiff's revenue for breeder eggs and started

pullets

As mentioned above, plaintiff seeks total losses of

$21,589,015.38, excluding interest. Plaintiff reached this

amount after subtracting $1,226,426.04 of revenue it received

from breeder eggs and started pullets sales. Piaintiff originally

sought $22,815,441.42, excluding interest, before making this

subtraction.

If the court were awarding plaintiff all of the damages it

seeks, the treatment of this revenue would not be an issue

because Dr. Just properly considered it in his report. The court,

however, is only allowing plaintiff to recover $7,376,050.77 for

the taking of its healthy eggs and $15,671.99 for the taking of

its hens for necropsy. The total of these amounts is

$7,391,722.76. The court must therefore consider how the

revenue plaintiff received from the breeder eggs and started

pullets affect: this award. °

76a

Before making this determination, it is worth noting that Dr.

Just also included in his reports revenue from the sale of eggs

purchased to cover obligations. This amount has already been

accounted for, however, in plaintiff's calculation of eggs

purchased to cover obligations, which the court has concluded

is only a consequential damage.”° Plaintiff originally requested

$664,579.12 for this expense. In its post-trial briefing it

reduced the figure to $44,574.82, because it subtracted the

revenue made from the eggs purchased to cover obligations.”°

Thus, only the revenue from the breeder eggs and started pullets

still needs to be taken into account.

If this revenue can be related to a specific cost plaintiff

incurred, then it may not affect the total amount the court

awards plaintiff. For example, the revenue plaintiff received

from the sale of the eggs purchased to cover obligations was

offset by the costs plaintiff incurred from initially buying these

eggs. There is a clear correlation between the expense and the

revenue. This is not the case, however, with the breeder eggs

and started pullets. There is no clear corresponding expense

that can be offset by this revenue.

The lack of a clear nexus between the revenue und a specific

expense does not mean the revenue should be ignored. Indeed,

plaintiff sold its breeder eggs and started pullets as an attempt

to minimize its losses during the restriction period.°’ Much of

these losses were a result of the restriction of plaintiff's healthy

eggs. The court therefore believes the amount plaintiff receives

for the taking of its healthy eggs should be offset by the revenue

plaintiff earned by the sale of the breeder eggs and started

pullets. Thus, the $7,391,722.76 plaintiff has established as its

damages from the taking of its healthy eggs should be reduced

>> Id. at 1229.

56 bi's Ex. 318: Tr. at 245.

7 Fe at 1230.

77a

by the $1,226,426.04 plaintiff received as revenue. This leaves

an amount of $6,165,296.72.

E. Interest

Plaintiff therefore is entitled to $6,165,296.72, plus interest

computed from the date of the taking to the date of payment.

The parties dispute, however, the type of interest plaintiff

should receive. Plaintiff argues that compound interest is

appropriate compensation for the time value of its commercial

property taken. Plaintiff also believes it sufficiently replaces

the investment opportunities plaintiff lost when defendant took

said property. Defendant disagrees claiming that plaintiff

should receive simple interest equivalent to the rate used for

government borrowing.

In general, interest on a claim against the government may be

awarded only pursuant to a contract or if it is expressly

provided for by an Act of Congress. 28 U.S.C. § 2516(a)

(1994). An exception to this rule, however, arises when a

taking entitles a claimant to just compensation under the Fifth

Amendment. United States v. Alcea Band of Tillamooks, 341

U.S. 48, 49 (1951); Whitney Benefits, Inc. v. United States, 30

Fed. Cl. 411, 414 (1994). Indeed, plaintiff is entitled to interest

computed from the date of the taking to the date of payment by

defendant. Formanek v. United States, 26 Cl. Ct. 332, 341 n.

11 (1992). Moreover, compound interest may be necessary "to

accomplish complete justice" under the just compensation

clause of the Fifth Amendment. Dynamics Corp. of Am. v.

United States, 766 F.2d 518, 520 (Fed. Cir. 1985). The court

considers whether the taking affected plaintiff's investment

opportunities when determining if compound interest is

appropriate. Whitney Benefits, Inc., 30 Fed. Cl. at 415-16.

After careful review of the facts and circumstances of this

case, the court concludes that plaintiff is only entitled to simple

interest, calculated using the 52-week treasury bill rate.

Although plaintiff has requested that the Contract Disputes Act

78a

(CDA) rate be used, there is no statutory mandate for CDA

rates. NRG Co. v. United States, 31 Fed. C'. 659, 665 (1994).

While it is common to-use CDA rates, the court has opposed

them where they would provide "a windfall to property owners

well in excess of their economic loss." /d. at 670.

Just compensation should ensure that the owner "is placed in

as good a position pecuniarily as he would have occupied if the

payment had coincided with the appropriation." Kirby Forest

Indus., Inc. v. United States, 467 U.S. 1, 10 (1984). Neither

compound interest nor CDA rates are appropriate, because the

court does not believe that the taking of plaintiff's healthy eggs

and hens significantly affected its investment opportunities.

The court has found that the application of the regulations at

issue was "misguided, at best." The court recognizes, however,

that the important ends of public health and safety were the

purposes of these regulations. Plaintiff must be compensated

for the unreasonable application of such laws, but some costs

attend even to their proper enforcement. A company engaged in

the production and distribution of food cannot expect to be fully

indemnified against such costs. Under these unique

circumstances, awarding plaintiff the lesser 52-week treasury

bill rate, calculated as simple interest, is fully "just." Said

simple interest began to accumulate on October 5, 1990, which

was the date plaintiff's healthy eggs were first restricted.”*

IV. ATTORNEY FEES AND EXPENSES

Plaintiff has filed a motion for the award of attorney fees and

expenses. The Uniform Relocation Assistance and Real

Property Acquisition Policies Act of 1970(URA), 42 U.S.C. §

654(c), provides reimbursement in takings cases brought under

the Tucker Act for "reasonable costs, disbursements, and

expenses, including reasonable attorney ... fees, actually

*§ Joint Supulation Of Events at 2.

79a

incurred because of" such proceeding. A total of $2,759,216.71

is sought, including $30,908.36 in supplemental fees related to

the preparation of the URA motion. This amount includes

$2,245,527.63 in attorney fees, $298,486.36 in expert and

consultant fees, and $215,202.72 in expenses.

Defendant "does not dispute that, pursuant to the URA,

[plaintiff] is entitled to reimbursement for the amount of

reasonable attorneys’ fees and costs that it actually incurred in

successfully advancing its claims against the United States."°”

Defendant objects, however, to the amount claimed by plaintiff,

arguing that only $1,562,753.50 is allowable as reasonable costs

and expenses.

A. Attorney Fees

Relying on Florida Rock Indus. v. United States, 9 Cl. Ct.

285 (1985), plaintiff contends that "the Court should defer to

the market's aiscipline and treat the fees and other expenses that

[plaintiff] actually paid as presumptively reasonable." Indeed,

when addressing the reasonableness of attorney fees,

[t]he court is reluctant to second-guess counsel's

time allocation for what has proved to be a winning

case. Plaintiff was entitled to hire competent

counsel, and counsel, in turn, had the responsibility

to undertake all reasonable efforts in securing a

victory. What constitute reasonable efforts cannot

be defined with precision; it is a matter of

professional judgment as to which the court will

allow great leeway. In a case such as this, the risk

of abuse is minimal because plaintiff has no

assurance of recovering and must assume it will

»? Defendant's Opposition To Plaintiff's Motion For Award Of Attorneys'

Fees And Expenses (Def.'s Opp'n) at 2.

®° Rose Acre's Memorandum In Support Of Motion For Fees And Expenses

(P1.'s Mot.) at 2.

eer i

80a

bear the full cost of the litigation. Plaintiff can

therefore be expected to exercise control over the

time spent and the rates charged.

Florida Rock, 9 Cl. Ct. at 288-89.

Defendant asserts, however, that "plaintiff has the burden of

proving a reasonable fee"®' and argues that the court should use

the lodestar method in calculating an appropriate fee award.

That method consists of "determining first the reasonable hours

expended and then multiplying that figure by each attorney's

reasonable hourly rate." Town of Grantwood Village v. United

States, 55 Fed. Cl. 1, 3 (2003). The lodestar formula is

routinely used, but the court has stated that "where there is a

bona fide contractual arrangement whereby the client has

committed to pay the amount billed by the attorneys ... the court

should not second-guess the workings of the market in

determining the reasonableness or appropriateness of the fees

and expenses." Florida Rock, 9 Cl. Ct. at 288. This reasoning

is particularly persuasive where plaintiff has not only actually

incurred and committed to pay, but has in fact paid all of the

fees and expenses submitted for the court's review. The court

accepts this standard, absent a showing of abuse such as fees

that are “excessive, redundant, or otherwise unnecessary.”

Hensley v. Eckerhart, 461 U.S. 424, 434 (1983). Plaintiff,

however, still has the "burden of demonstrating that the amount

sought for attorneys’ fees and costs meets statutory

requirements." Preseault v. United States, 52 Fed. Cl. 667,670

(2002) (citing Hensley, 461 U.S. at 437).

The relevant component of the URA states that "reasonable"

attorney fees and expenses "actually incurred because of" this

proceeding shall be reimbursed to plaintiff. 42 U.S.C. §

4654(c). Although plaintiff is accorded great leeway with

respect to what constitutes a "reasonable fee," it can recover no

fees or expenses that were not incurred "because of" the takings

*' Def.'s Opp'n at 4.

8la

claim or those that were not "actually incurred.” Further, where

“plaintiff has failed to prevail on a claim that is distinct in all

respects from his successful claims, the hours spent on the

unsuccessful claim should be excluded in considering the

amount of a reasonable fee." Hensley, 461 U.S. 424 at 440. In

other words, "plaintiff should not recover for time spent

litigating issues as to which it did not prevail." Florida Rock, 9

Cl. Ct. at 289.

Defendant alleges each of these deficiencies with respect to

various aspects of plaintiff's motion. It is argued that certain

fees were not a part of the present litigation and therefore not

"because of" this proceeding; that certain fees were not

"actually incurred;" and that certain fees and expenses are

unreasonable because they are redundant or unsubstantiated.

The court will consider each of these arguments.

1. Pre-Litigation Fees

Defendant objects to $23,075.21 in fees incurred prior

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