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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0557%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2005

## Text

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

la

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

2a

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.

3a

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.

4a

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

5a

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

6a

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.

7a

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.

8a

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.

9a

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,

10a

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

12a

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:

13a

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 |

14a

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

15a

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

l6a

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.

17a

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

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0557%3A2. Public record. Not legal advice.