Petition for Writ of Certiorari — Rose Acre Farms, Inc. v. United States

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Supreme Court. |! S.

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09-342 SEP 17 2009

No. 09-

OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

ROSE ACRE FARMS, INC.,

Petitioner,

UNITED STATES,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

PETITION FOR A WRIT OF CERTIORARI

JOHN B. NALBANDIAN ROBERT R. CLARK

TAFT STETTINIUS & Counsel of Record

HOLLISTER LLP GEOFFREY SLAUGHTER

425 Walnut Street MICHAEL D. CHAMBERS

Suite 1800 TAFT STETTINIUS &

Cincinnati, Ohio 45202 HOLLISTER LLP

(513) 381-2838 One Indiana Square

Suite 3500

Indianapolis, Indiana 46204

(317) 713-3500

September 17, 2009

th OR AD ave

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON,D C 20002

QUESTIONS PRESENTED

1. Should this Court resolve the prevailing con-

fusion over what constitutes the proper denominator

in the takings fraction under Penn Central Trans-

portation Co. v. City of New York, 438 U.S. 104

(1978)?

2. Should the severity of a regulation’s economic

impact on a going business concern be measured by

diminution in value or diminution in return?

3. Should this Court resolve the confusion among

lower courts concerning whether the purpose of a

government regulation is still a relevant considera-

tion under the “character” prong of Penn Central, in

light of this Court’s repudiation of the “substantially

advances a legitimate state interest” test in Lingle v.

Chevron U.S.A., Inc., 544 U.S. 528 (2005)?

(i)

RULE 29.6 CORPORATE

DISCLOSURE STATEMENT

Rose Acre Farms, Inc. has no parent corporation,

and no publicly held company owns 10 percent or

more of its stock.

TABLE OF CONTENTS

QUESTIONS PRESENTED.................cceceeeeeeeeeee

RULE 29.6 CORPORATE DISCLOSURE

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CONSTITUTIONAL AND REGULATORY

PROVISIONS INVOLVED...................cceeeeeeee

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Bi, WBC TUCOWS occ cccscccseccssceccsccssescsecsse

1. General Background on the Egg

er isa caiaordas ina picsakeesenehasasienvents

2. Rose Acre’s Table-Egg Business .........

3. The USDA Regulations and Their

Application to Rose Acre .....................

B. Procedural HIStory ...........cccccssssccssscssecseccees

1. Initial Proceedings in the Court of

I nis jostcensesasiscecntaccesedanes

2. ‘Initial Proceedings in the Federal

i a sacaniaadebees

3. Retrial in the Court of Federal

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4. Second Appeal to Federal Circuit.......

REASONS FOR GRANTING THE WRIT..........

(111)

iI.

TABLE OF CONTENTS—Continued

LOWER COURTS REMAIN’ FRAC-

TURED OVER WHAT CONSTITUTES

THE PROPER DENOMINATOR FOR

MEASURING THE ECONOMIC

IMPACT OF A GOVERNMENT REG-

A siesnvassacencasssttesicnebinsse caavcunetiaves

A. Lower courts are divided over how

to measure the takings fraction

BN TAR EAE OO SETAE

1. Unity of Ownership School ............

2. Reasonable Expectation School .....

3. Government Conduct School..........

B. This case is a strong vehicle for

answering the lingering denominator

Si hicnkina sirescadenteansnecmcisaumanimances

THE COURT # £ALSO SHOULD

CLARIFY THE PROPER METRIC FOR

ASSESSING ECONOMIC IMPACT

FOR A GOING BUSINESS CONCERN ..

A. Lower courts are divided over

whether to use diminution in value

or diminution in return to calculate

economic impact for a going business

cca Le err eee

B. This case is a strong vehicle for

answering the lingering question of

the proper economic metric.................

Page

TABLE OF CONTENTS—Continued

Ill. THIS COURT MUST CLARIFY THE

CONFUSION AMONG LOWER COURTS

REGARDING THE ONGOING RE-

LEVANCE OF PENN CENTRAL’S

“CHARACTER” PRONG AFTER LINGLE

A. Courts are divided over whether

a regulation’s purpose still forms

a valid part of Penn Central’s

“character” inquiry after Lingle..........

B. This Court’s jurisprudence on the

role of the “character” inquiry has

been inconsistent ................0..ceeeeseeeeeees

C. The Federal Circuit erred in

considering the ‘public health”

purpose of the USDA regulations as

part of the character inquiry...............

IIs iccnlsdsacinrvsvapatonsssieenabantaishsnsarcereers

APPENDIX

APPENDIX A — Opinion, United States

Court of Appeals for the Federal Circuit

gE Se ee

APPENDIX B — Opinion, United States

Court of Appeals for the Federal Circuit

Ed pedpuabidaniinasusipenn

APPENDIX C — Opinion, United States

Court of Federal Claims (July 11, 2007) .....

APPENDIX D — Opinion, United States

Court of Federal Claims (March 20, 2003)..

APPENDIX E—9 C.F.R. §§ 82.30-82.36

NINE oi te saiceesaciedesconsnandencscssrssncinsduvandlaetammeaaea

Page

TABLE OF AUTHORITIES

CASES

Agins uv. City of Tiburon, 447 U.S. 255

Am. Sav. & Loan Ass’n v. Marin County,

653 F.2d 364 (9th Cir. 1981).....................

Armstrong v. United States, 364 U.S. 40

er airas neil adden acusanecsanendsndeaseents

Bevan v. Brandon Twp, 475 N.W.2d 37

aise. ci cecadeanenestooeniens

Brown v. Legal Found. of Washington, 538

a cia netshailane

Buhmann v. Montana, 201 P.3d 70 (Mont.

2008), petition for cert. filed. sub nom.

Wallace v. Montana, 77 U.S.L.W. 3645

Page

(U.S. May 11, 2009) (No. 08-1395) ......25, 26, 27

Burnet v. Coronado Oil & Gas Co., 285

oc i csc csncsensnworenneneiees 18

Ciampitti v. United States, 22 Cl. Ct. 310

ETERS SAAR 17

Cienega Gardens v. United States, 331

F.3d 1319 (Fed. Cir. 20038)...............000000.. 22

Cienega Gardens v. United States, 503

F.3d 1266 (Fed. Cir. 2007)............. 22, 23, 26, 28

City of Gaylord v. Maple Manor Invest-

ment, LLC, 2006 WL 2270494 (Mich. Ct.

Mi ekxinasscereccssessscecsvsncsvexsevees 26

Deltona Corp. v. United States, 657 F.2d

IE TE BED sca ccsniconeneuaseneadersscexensnes 16

Dep’t of Agriculture & Consumer Servs. v.

Mid-Growers, Inc., 521 So. 2d 101 (Fla.

(ae CERRO on A 18

Dist. Intown Prop. Ltd. P’ship v. District of

Columbia, 198 F.3d 874 (D.C. Cir. 1999). 17

vil

TABLE OF AUTHORITIES—Continued

Page

Fed. Power Comm'n v. Hope Natural Gas,

lie 21

Florida Rock Indus., Inc. v. United States,

791 F.2d 893 (Fed. Cir. 1986), vacated

on other grounds, 18 F.3d 1560 (Fed.

Gilly: SUI icadcsaiadinsniainapeiceensniiocieunmmnrasicansss 18

Jones v. Zoning Hearing Bd. of Town of

McCandless, 578 A.2d 1369 (Pa. 1990).... 17

K&K Constr., Inc. v. Dep’t of Natural Res,

575 N.W.2d 531 (Mich. 1998)................... 16

Kafka v. Montana Department of Fish,

Wildlife and Parks, 201 P.3d 8 (Mont.

IN ea Re 27

Kimball Laundry Co. v. United States, 338

nn ae 22

Lingle v. Chevron U.S.A., Inc., 544 U.S.

tis <i cusensccudlandanvenbonsl i, 12, 13, 14

Loveladies Harbor, Inc. v. United States,

28 F.3d 1171 (Fed. Cir. 1994)................... 17, 18

Lucas v. South Carolina Coastal Council,

Be ee Pe Pidsscnsacsnsacesesctecscdvesesces 15, 20

First English Evangelical Lutheran Church

of Glendale v. County of Los Angeles,

California, 482 U.S. 304 (1987)................ 21, 22

Machipongo Land & Coal Co. v. Penn-

sylvania, 799 A.2d 751 (Pa. 2002)............ 17

Mann v. Ga. Dep’t of Corr., 655 S.E.2d 740

ne a a sccaaaaneanaiite 25, 27

Monongahela Navigation Co. v. United

States, 148 U.S. 312 (1899)................ccc000 22

Palazzolo v. Rhode Island, 533 U.S. 606

SUNN acon cocnccdedentbumsseeeceesteesaaencsaressanient ieee 14, 15

vill

TABLE OF AUTHORITIES—Continued

Page

Penn Central Transp. Co. v. City of New

York, 366 N.E.2d 1271 (N.Y. 1977), affd

on other grounds, 438 U.S. 104 (1978)..... 16-17

Penn Central Transportation Co. v. City of

New York, 438 U.S. 104 (1978)................ passim

Phillips v. Washington Legal Found., 524

I a eo adeaeee 15

Ruckelshaus v. Monsanto Co, 467 U.S. 986

RESTS ae ee er AUP A 15

Small Property Owners of San Francisco v.

City & County of San Francisco, 47 Cal.

Rptr. 3d 121 (Cal. App. 2006)................... 26

Tennessee Scrap Recyclers Ass’n_ v.

Bredesen, 556 F.3d 442 (6th Cir. 2009).... 25-26

Twain Harte Assocs., Ltd. v. Tuolumme

County, 265 Cal. Rptr. 737 (Cal. Ct. App.

(ERE SERS et ROR Oe Be ee 18

Vulcan Materials Co. v. City of Tehuacana,

369 F.3d 882 (5th Cir. 2004).............0....... 18

Wensmann Realty, Inc. v. City of Eagan,

734 N.W.2d 623 (Minn. 2007).............. 25, 27, 30

STATUTES AND REGULATIONS

2B U.S.C. § 1254(1).ccccccccccscscscsssssesserseseeeeees 4

28 U.S.C. § 1295(a)(B)....cccccccseccesesesesesseseeesees 18

9 CLF.R. § 82.32(a) ..ccccccccccscscesserseevessseseseseeen 6

9 C.F.R. §§ 82.30-82.36 (1991) ......cccccccecceee. 4

C.A. App. 282, 527, 540, 911 .....ccccccceeseeeee 5

SECONDARY AUTHORITIES

John E. Fee, Unearthing the Denominator

in Regulatory Taking Claims, 61 U. Chi.

Bas ee SE CED cntickcctseresaconcsvnsencesensises 16

TABLE OF AUTHORITIES—Continued

Dwight H. Merriam, Rules for the Relevant

Parcel, 25 U. Haw. L. REV. 353 (2003) .....

Petition of Rose Acre Farms, Inc. for

Rehearing En Banc, 2009 WL 1368236,

at *1 (Apr. 27, 2009), reh’g en banc

denied, (Fed. Cir. May 20, 2009)..............

John D. Echeverria, Making Sense of Penn

Central, 39 ENVTL. L. RPTR. NEws &

ANAL YRIS LOGTE COs sicech tccceccevesseccceveces.

Dale A. Whitman, Deconstructing Lingle:

Implications for Takings Doctrine, 40 J.

MARSHALL L. REV. 573 (2007)..............0000.

Page

IN THE

Supreme Court of the Anited States

No. 09-

ROSE ACRE FARMS, INC.,

Petitioner,

UNITED STATES,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

PETITION FOR A WRIT OF CERTIORARI

INTRODUCTION

This case presents recurring and important issues

in takings jurisprudence. Both state and federal

courts are in substantial disarray over the legal

standards governing regulatory takings challenges

under this Court’s watershed decision from a genera-

tion ago in Penn Central. The upshot is an appalling

state of unpredictability for both government author-

ities and property owners confronting Fifth Amend-

ment takings issues. This case presents an attractive

vehicle for addressing this vital area of constitutional

law.

Here, the federal government, through the United

States Department of Agriculture (“USDA”), prohi-

bited Rose Acre Farms, a family-owned farming busi-

ness, from selling nearly 700 million healthy eggs as

table eggs for an extended two-year period. The

result of this exercise of federal power was Rose

Acre’s forced sale of eggs below the cost of production

and, as a result, a vast economic loss. The USDA’s

regulations were largely experimental, based not on

sound science, but on the untested and unrebuttable

presumption that even the slightest trace of the

ubiquitous salmonella bacteria in an egg-producing

hen or hen environment would translate into salmo-

nella-contaminated eggs. The agency was profoundly

wrong. The record in this case established (i) that

the USDA’s assumption of a connection between

contaminated hens and contaminated eggs was

seriously flawed and (ii) that no Rose Acre egg was

ever shown to contain salmonella.

On two separate occasions, the United States Court

of Federal Claims found the USDA’s actions to consti-

tute a taking of Rose Acre’s property, requiring

the payment of more than $5 million dollars in

compensation and more than $2 million in fees and

costs. And on two separate occasions, the United

States Court of Appeals for the Federal Circuit

reversed. In the process, the Federal Circuit

reconfirmed the existence of deep confusion within

the lower courts—including that court—about the

meaning and application of this Court’s Penn Central

test, and reinforced existing conflicts on legal issues

that warrant this Court’s review. Indeed, during

the most recent appellate oral argument in this

case, Chief Judge Michel observed that lower

courts struggle to decide the kinds of significant,

recurring constitutional issues presented here

because “the guidance from above is not always

crystal clear in this Fifth Amendment taking area,

as I think probably many lawyers have observed

before me.” Oral Arg. 32:53-33:01, available at

http://oralarguments.cafc.uscourts.gov [case number

2007-5169]. Chief Judge Michel’s frustration is note-

worthy, since he and his Federal Circuit colleagues

hear virtually all takings cases (those in excess of

$10,000) against the United States.

At issue in this case is whether a property owner is

entitled to just compensation when the government

destroys or severely restricts healthy and economi-

cally productive private property in an effort to

protect the public health. The question here is not

whether the government has the power to take such

action. That power is undisputed. Rather, the issue

is whether a private farming business alone must.

bear the cost of that action. The Court should grant

the petition and clarify the contours of its Penn Cen-

tral test—the cornerstone of its modern regulatory

takings doctrine.

OPINIONS BELOW

The Federal Circuit’s most recent decision is

reported at 559 F.3d 1260 (Fed. Cir. 2009) and

reprinted in the Appendix (“App.”) at la-49a. The

Court of Federal Claims decision is unreported and

reprinted in the Appendix at 9la-119a. The Federal

Circuit’s initial decision is reported at 373 F.3d 1177

(Fed. Cir, 2004) and is reprinted in the Appendix at

50a-90a. The trial court’s first decision is reported at

55 Fed. Cl. 643 (2003) and is reprinted in the Appen-

dix at 120a-180a.

JURISDICTION

The Federal Circuit issued its most recent decision

on March 12, 2009, and denied a timely petition for

rehearing en banc on May 20, 2009. Pet. App. 1a.

The Chief Justice extended the time to file this

petition to September 17, 2009. This Court has

jurisdiction under 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND REGULATORY

PROVISIONS INVOLVED

The Fifth Amendment provides in pertinent part:

“(NJor shall private property be taken for public use,

without just compensation.” The pertinent USDA

regulations are published at 9 C.F.R. §§ 82.30-82.36

(1991) and reproduced in the Appendix at 181a-193a.

STATEMENT

A. Factual Background

1. General Background on the Egg

Business

The egg business is highly competitive with razor-

thin profit margins. The business consists of two

principal markets: the table-egg market and the

breaker-egg market. The table-egg market—through

which whole eggs are sold directly to end users—

is the more profitable for most egg producers. The

breaker-egg market—through which eggs are sold in

liquid form, often for use in secondary products such

as cake mixes—is considerably less profitable and is

usually reserved for lower-quality eggs not suitable

for sale as table eggs. Pet. App. 98a, n.9. Table eggs

typically command a considerably higher price than

breaker eggs. Id. at 93a, n.2. At all times relevant to

this case, an egg sold in the breaker market fetched a

price lower than Rose Acre’s average cost of produc-

ing the egg. Id. at 99a.

2. Rose Acre’s Table-Egg Business

Rose Acre is a family-owned business in Indiana

that specializes in the production of table eggs. The

business began with a single farm in 1955. By 1990,

Rose Acre was a highly integrated table-egg produc-

tion business that operated eight farms in Indiana

and Iowa with millions of hens producing billions of

eggs per year. Jd. at 3a. As of 1990, Rose Acre sold

more than 97 percent of these eggs in the profitable

table-egg market, and sent only eggs of inferior qual-

ity to the breaker market. Jd. at 98a.

3. The USDA Regulations and Their

Application to Rose Acre

The USDA promulgated its regulations in an effort

to protect the public from salmonella enteritidis (SE)—

a strain of bacteria that is ubiquitous and impossible

to eradicate. Id. at 4a-5a, 143a. Individuals can be

exposed to SE in several ways, but the most common

is through the consumption of raw or undercooked

foods of animal origin, such as meat, poultry, milk, or

eggs. It is undisputed that eggs are a nutritious and

economical food and a low-risk source of SE.’ Also

undisputed is that the proper handling of eggs—

thorough cooking, for example—eliminates even the

slight risk of SE contamination.

1 The low incidence of SE in shell eggs was confirmed by

scientific information that the USDA obtained both during and

after it applied the SE regulations to Rose Acre, beginning in

October 1890. For example, USDA’s SE Risk Assessment—a

comprehensive analysis of the public-health effects of consum-

ing SE-infected shell eggs and egg products—predicts that only

one in 20,000 eggs will contain SE. By comparison, one in ten

chicken breasts purchased at the supermarket today contains

salmonella. And in 1995, one in five store-bought chicken

breasts contained salmonella. See C.A. App. 282, 527, 540, 911.

Nonetheless, in response to an increase in illnesses

resulting from SE exposure, the USDA published

interim regulations designed to restrict the interstate

sale of potentially contaminated eggs and to limit the

interstate transportation of potentially contaminated

poultry. See id. at 18la-193a. Final regulations were

published on January 30, 1991. See id. The final

regulations imposed restrictions only on individual

hen houses, rather than all poultry from an individ-

ual farm; otherwise, they did not differ materially

from the interim regime.

Acting pursuant to these regulations in late 1990

and early 1991, the USDA designated flocks at

three Rose Acre farms (known as Cort Acres, White

Acres, and Jen Acres) to be “study flocks” after eggs

produced at these farms were believed to be

“the probable source” of an SE outbreak. 9 C.F.R.

§ 82.32(a); Pet. App. 185a. Under the “study flock”

designation, the USDA conducted environmental

tests (of manure and the egg-transport machinery

in the hen houses) at the three Rose Acre farms.

Because the “study flock” designation did not trigger

restrictions on the sale of eggs, Rose Acre continued

to sell eggs in the table-egg market while the USDA

conducted environmental tests and awaited lab

results. Several weeks later, after one or more hens

from the study flock tested SE-positive, the USDA

designated these flocks as “test flocks,” which imposed

severe restrictions on egg sales. These restrictions

prohibited Rose Acre from selling as table eggs any

eggs produced in any hen house with a positive SE

test. Jd. at 94a-95a. During the period between the

reported outbreaks and the eventual quarantine of its

eggs, Rose Acre sold more than 200 million eggs as

table eggs without a single reported incidence of SE

illness attributed to its eggs.

Further testing by the USDA revealed that at least

one hen in the designated “test flocks” was SE-

positive, resulting in the entire flock at that house

being designated as “infected” and then quarantined.

To accomplish this testing, the USDA entered Rose

Acre’s hen houses, physically removed 6,741 hens,

slaughtered them, and transported the carcasses to a

laboratory for testing by an autopsy procedure. Out

of the millions of hens in the restricted houses, only

147 hens tested positive for SE. And there is no

evidence even those hens would lay SE-positive eggs.

Id. at 143a.

The USDA’s restrictions proved to be economically

devastating to Rose Acre. The problem is that the

breaker market—the next best commercial alterna-

tive permitted under the Regulations—is a vastly

inferior market for a business that specializes in the

production of table eggs. Rose Acre suffered a

negative return on its investment when it sold its

restricted eggs. During the restricted period, the

price for a dozen eggs in the breaker market was

between 8 and 13 cents /ower than Rose Acre’s cost of

producing them. By contrast, the price in the table-

egg market was approximately 4 cents above its

production costs.’

The USDA’s restrictions lasted for an extended

period of two years, resulting in a total economic

? The average cost for Rose Acre to produce a dozen eggs

during the restricted period was 54.96 cents. Pet. App. 135a,

148a. Rose Acre received, however, only between 41.46 and

46.64 cents per dozen for eggs sold to the breaker market. The

average price for table eggs during this period was 59 cents

per dozen. /d. These prices—measured in the hundredths of a

single penny—underscore the razor-thin profit margins in the

egg market. Jd.

impact to Rose Acre of more than $20 million. Jd. at

160a-161a. Rose Acre’s financial losses on the sale of

restricted eggs alone exceeded $5 million. Jd. at

112a, 163a-164a. According to Rose Acre’s expert,

and as the trial court found, the Regulations caused a

diminution in profit of 219 percent on eggs at these

farms during the period of restriction. Jd. at 108a.

This is “equivalent to losing 100% of profits over 3%

years.” Id. Such a loss is “a very substantial impact,

and hard to imagine, how a business can survive,

especially ... with thin profit margins as Rose Acre

had.” Id.

It was not until October 1992 that USDA released

the last of Rose Acre’s houses from the restrictions.

Id. at 133a-134a. By that time, 70 of Rose Acre’s hen

houses—amounting to more tnan 5 million hens—

had been restricted by the Regulations, and Rose

Acre had been forced to divert almost 700 million

eggs to the breaker-egg market. After USDA lifted

its restrictions, Rose Acre immediately returned to

selling over 97 percent of its eggs as table eggs. Id. at

98a-99a.

B. Procedural History

1. Initial Proceedings in the Court of

Federal Claims

Rose Acre filed this takings action in the Court of

Federal Claims in 1992. Rose Acre contends that the

USDA effectuated a taking under the Fifth Amend-

ment when it restricted the sale of healthy eggs to

the breaker market, forcing Rose Acre to sell

hundreds of millions of its healthy eggs below the

cost of production. Extensive discovery followed, and

the court held a bench trial in April and May 2002.

After reviewing the evidence and applying this

Court’s takings jurisprudence, Judge Futey awarded

Rose Acre $6.1 million in compensation and $2.4

million in fees and costs.

Specifically, the trial court found that the USDA’s

prohibition on the sale of healthy eggs in economi-

cally viable markets effected a regulatory taking that

required just compensation under the Fifth Amend-

ment. In the process, Judge Futey determined that

the financial impact of these actions on Rose Acre

was severe, as demonstrated by the trial record, and

by the testimony of USDA witnesses.

2. Initial Proceedings in the Federal

Circuit

The Federal Circuit reversed and remanded. The

court began by disagreeing with the trial court’s

regulatory takings analysis under Penn Central.

According to the Federal Circuit, when assessing the

economic impact of the USDA regulations, the

relevant “denominator” in the takings fraction should

have been Rose Acre’s three farms combined—

although the USDA applied the regulations only to

individual hen houses and restricted the sale of indi-

vidual eggs. Id. at 73a, 95a. This choice of denomi-

nator alone significantly deflated the relevant

economic impact of the USDA regulations.

The court of appeals also disagreed with the

methodology by which to analyze the underlying,

largely uncontested economic data. The court rejected

the Government’s argument that diminution in

value® was the only appropriate measure of the

%’ Diminution in value (also known as diminution in revenue)

compares the value of property before the taking with the value

remaining after the taking.

regulations’ economic impact on Rose Acre, and

suggested that diminution in return‘ was the pre-

ferred metric:

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 [diminution in value] is less appropriate

where, as here, the issue concerns the economic

impact, albeit temporary, of government regula-

tions on a going business concern.

Id. at 70a.

As a result, the Federal Circuit vacated the trial

court’s finding on economic impact and ordered the

court to reconsider this factor. The court affirmed

the trial court’s conclusion that the reasonable

investment-backed expectations factor favored Rose

Acre, id. at 74a-75a; reversed the trial court’s conclu-

sion that the character of the regulatory action

favored Rose Acre, id. at 75a-83a; and instructed the

trial court to reweigh the three Penn Central factors

on remand to determine whether a compensable

taking had occurred, id. at 83a-85a, 89a-90a. This

Court denied certiorari.”

*Diminution in return (also referred to as diminution in

profit) compares the expected return (or profit) of a firm absent

a government-imposed restriction with the actual return the

firm experienced with the restriction.

° In the first petition, the parties vigorously contested whether

the interlocutory posture of this case made it a proper vehicle

for certiorari in light of the Federal Circuit’s remand for further

proceedings. This time, the finality of the decision below leaves

no doubt that the Questions Presented are squarely at issue

here, given the court of appeals’ outright reversal, without a

3. Retrial in the Court of Federal Claims

On remand, the trial court heard additional expert

testimony relevant to the Penn Central factors. The

court determined that legal and economic principles

warranted use of the diminution-in-return approach

for measuring economic impact, given the disruption

of profits to Rose Acre, a going business concern. It

also found that fundamental economic principles

called for use of total costs—not hypothetically avail-

able incremental costs—in calculating diminution in

return. And it found that the temporary (two-year)

nature of the USDA restrictions was severe because

the diminution in return was equivalent to losing all

of Rose Acre’s expected profits for more than three

years.

As for the other Penn Central factors, based on law-

of-the-case principles, the trial court felt bound to

follow the Federal] Circuit’s determination that the

character prong favored the Government, although

Judge Futey believed this Court’s intervening deci-

sion in Lingle had actually vindicated his initial

determination of the character factor for Rose Acre.

And the trial court had no reason to reconsider Rose

Acre’s reasonable investment-backed expectations.

The court then weighed the three Penn Central

factors and again held that Rose Acre had suffered a

taking. Judge Futey awarded Rose Acre $5.4 million

as just compensation, plus $3.2 million in fees and

costs.

4. Second Appeal to Federal Circuit

The Federal Circuit again reversed. Reflecting

apparent confusion within that court, the panel this

remand, of the trial court’s second determination that Rose Acre

suffered a taking of its property. Pet. App. 48a-49a.

time concluded that economic impact should be

measured using diminution in value after all, despite

the Federal Circuit’s own prior suggestion that dimi-

nution in return was the preferred metric for a going

business concern like Rose Acre—a statement that

the Federal Circuit now described as “unfortunate

dicta.” Id. at 22a. According to the Federal Circuit,

one problem with diminution in return that the trial

court failed to address is that “the vast majority

of takings jurisprudence examines, under Penn

Central’s economic impact prong, not lost profits but

the lost value of the taken property,” id. at 16a, citing

an academic article and several cases from this Court

and lower courts for its conclusion—all of which pre-

date the Federal Circuit’s initial Rose Acre decision in

2004. Id. at 16a-17a (citing authorities).

In addition, the Federal Circuit again embraced its

previous definition of the relevant parcel as Rose

Acre’s “three farms as a whole rather than each indi-

vidual hen house.” Jd. at 15a. Based on the 10.6 per-

cent diminution in the value of Rose Acre’s eggs, the

Federal Circuit concluded that the trial court clearly

erred in finding the economic impact of the Regula-

tions to have been severe, thus ignoring the 219

percent diminution in Rose Acre’s return on its

investment in the eggs. Although the court of appeals

allowed that Rose Acre’s monetary loss was “not

insignificant,” it nevertheless held that this factor

“does not strongly favor Rose Acre.” /d. at 31a.

With respect to Penn Central’s “character of the

government’s action” factor, the Federal Circuit

focused almost exclusively on what it thought were

the strong public health and public policy justifica-

tions for the regulations. The court suggested that

this Court’s decision in Lingle, which rejected the

“substantially advances” formula, might have changed

the landscape, as other courts have found, concerning

whether public purpose was relevant in regulatory

takings cases. But the Federal Circuit concluded

that Lingle had left unchanged a court’s ability to

inquire into government purpose, especially the

“consideration of the health and safety aspect of the

regulations.” Jd. at 39a.

With that in mind, the court recounted its version

of the history of food regulation, tracing back to

ancient times. The court’s bottom-line conclusion

was that the Government’s stated goal of protecting

public health “weigh[ed] strongly against finding a

taking” in this case. Jd. at 43a. In so doing, the

Federal Circuit all but ignored the trial court’s

finding that the character of the Government’s action

here weighed in favor of a taking because the burden

of the regulations fell disproportionately hard on

Rose Acre and similarly situated egg producers.

REASONS FOR GRANTING THE WRIT

After seventeen years of litigation, Rose Acre’s

claim for relief has been thwarted by a pair of

Federal Circuit decisions that have proved deeply

hostile to the property rights protected by the Fifth

Amendment’s Just Compensation Clause. The deci-

sions are characterized by shifting legal standards

and inconsistent application of the Constitution, with

no compensation awarded for government action that

severely restricted healthy and economically produc-

tive private property in an effort to protect public

health. Although takings cases are necessarily fact

intensive and involve ad hoc inquiries, there are

time-honored rules of law that should be stable, reli-

able, and applied consistently. The current, confused

state of this Court’s takings Jurisprudence does not

lend itself to a clear, consistent, and predictable

application of these important legal principles.

This case squarely presents legal issues on impor-

tant and recurring constitutional questions that have

divided the lower courts. The first issue concerns the

prevailing confusion over what constitutes the rele-

vant “parcel as a whole” against which to measure

the severity of a governmental restriction on the use

of private property. The second issue relates to the

proper metric—diminution in value or diminution

in return—for measuring a regulation’s economic

impact on a going business concern like Rose Acre.

Finally, the third issue relates to Penn Central’s

elusive “character” prong and, specifically, whether

this Court’s decision in Lingle forecloses considera-

tion of the purpose of governmental action as part of

a regulatory takings analysis. This Court should

grant the petition and clarify the prevailing uncer-

tainty in this crucial area of constitutional law.

I. LOWER COURTS REMAIN FRACTURED

OVER WHAT CONSTITUTES THE

PROPER DENOMINATOR FOR MEASUR-

ING THE ECONOMIC IMPACT OF A

GOVERNMENT REGULATION.

This case squarely presents “the difficult, persist-

ing question of what is the proper denominator in the

takings fraction.” Palazzolo v. Rhode Island, 533

U.S. 606, 631 (2001). The proper “denominator” or

“parcel” or “takings fraction,” whatever the label, all

refer to the total property against which the plain-

tiffs loss must be measured in assessing the severity

of the economic impact of a governmental restriction—

an inquiry that focuses not merely on what the prop-

erty owner has lost, but also considers what he has

retained,

In Palazzolo, the Court acknowledged that since

defining the denominator as the “parcel as a whole”

in Penn Central, this Court and lower courts have

struggled to define what precisely constitutes the

“parcel as a whole.” Jd. Previously, the Court in

Lucas v. South Carolina Coastal Council, 505 U.S.

1003 (1992), admitted that this uncertainty in defin-

ing the denominator of the takings fraction “has

produced inconsistent pronouncements by the Court,”

id. at 1016 n.7, to say nothing of the inconsistent

rulings from lower courts. In both Palazzolo and

Lucas, however, the Court declined to address the

question because it was either unnecessary, id., or had

not been argued below, see Palazzolo, 533 U.S. at 631.

This case is an attractive vehicle for addressing

this “denominator” issue. The issue is squarely pre-

sented and extensively analyzed in a pair of pub-

lished appellate decisions below. And it is precisely

this question on which lower courts have reached

inconsistent results: what constitutes the “parcel as a

whole” when the government destroys the economic

value of private property as part of a scheme

designed to regulate public health.°

®* This Court has addressed takings issues most frequently in

the context of real property, but the personal property interests

at issue here are equally protected by the Fifth Amendment.

See, e.g., Phillips v. Washington Legal Found., 524 U.S. 156, 167

(1998); Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1004 (1984).

The question of how to define the “whole parcel” does not vary

significantly depending on whether the question turns on the

land, the produce of the land, or intangible property with no

reference to any physical space. E.g., Ruckelshaus, 467 U.S. at

1005 (applying Penn Central test to intellectual property);

Brown vu. Legal Found. of Washington, 538 U.S. 216, 235 (2003)

1é

A. Lower courts are divided over how

to measure the takings fraction

denominator.

The Court’s lack of guidance on the denominator

issue has led to a patchwork of conflicting approaches

across jurisdictions and even sometimes within

the same jurisdiction on this fundamental Fifth

Amendment question. See John E. Fee, Unearthing

the Denominator in Regulatory Taking Claims, 61 U.

CHI. L. REV. 1535, 1545 (1994) (“Instead of employing

a consistent methodology, however, the courts have

used a variety of fact-specific and often inconsistent

methods to define the relevant parcel.”). See also

Dwight H. Merriam, Rules for the Relevant Parcel, 25

U. Haw. L. REv. 353, 353 (2003) (noting “the many

definitions of the ‘relevant parcel”). For the most

part, courts have applied three different approaches

for determining the denominator, and the choice

among them often dictates whether the governmental

action was a taking. The three competing schools can

be summarized as follows.

1. Unity of Ownership School

Some courts define the “whole” parcel by looking to

unity of ownership, measuring the “parcel as a

whole” based on all contiguous property or all nearby

property owned by the plaintiff. See, eg., K&K

Constr., Inc. v. Dep’t of Natural Res., 575 N.W.2d 531,

537 (Mich. 1998); Deltona Corp. v. United States, 657

F.2d 1184, 1192 (Ct. Cl. 1981); Penn Central Transp.

Co. v. City of New York, 366 N.E.2d 1271, 1276-77

(applying per se rule for physical invasions of land to taking of

money). It is noteworthy that the Government has not argued

for a different denominator analysis for personal property and

real property.

(N.Y. 1977), affd on other grounds, 438 U.S. 104

(1978). Courts often apply this approach as an

unstated assumption without fully exploring its

propriety or considering other options. See, e.g.,

Bevan v. Brandon Twp., 475 N.W.2d 37, 42 (Mich.

1991); Jones v. Zoning Hearing Bd. of Town of

McCandless, 578 A.2d 1369, 1371-72 (Pa. 1990).

Under this unity-of-ownership approach, the takings

question turns not on what the government has

taken, but on the other assets the plaintiff happens to

own. This is the approach used by the court of

appeals in this case.

2. Reasonable Expectation School

Other courts define the “whole” parcel by consi-

dering the owner’s reasonable expectations, as shaped

by its property rights under state law. Courts

applying this standard look to several factors,

including the degree of contiguity, the dates of acqui-

sition, the extent to which the owner has treated the

parcel as a single unit, the extent to which the

restricted lot benefits the unrestricted lot, the timing

of transfers, the owner’s reasonable investment-backed

expectations, and the owner’s plans for development.

See, e.g., Dist. Intown Prop. Ltd. P’ship v. District

of Columbia, 198 F.3d 874, 880 (D.C. Cir. 1999);

Loveladies Harbor, Inc. v. United States, 28 F.3d

1171, 1181 (Fed. Cir. 1994); Am. Sav. & Loan Ass'n v.

Marin County, 653 F.2d 364, 372 (9th Cir. 1981);

Ciampitti v. United States, 22 Cl. Ct. 310, 318-19

(1991); Machipongo Land & Coal Co. v. Penn-

sylvania, 799 A.2d 751, 768-69 (Pa. 2002).

3. Government Conduct School

Other courts, finally, hold that the government

regulation itself determines the relevant parcel. See,

e.g., Vulcan Materials Co. v. City of Tehuacana, 369

F.3d 882, 891 (5th Cir. 2004); Florida Rock Indus.,

Inc. v. United States, 791 F.2d 893, 904 (Fed. Cir.

1986), vacated on other grounds, 18 F.3d 1560 (Fed.

Cir. 1994); Twain Harte Assocs., Ltd. v. Tuolumme

County, 265 Cal. Rptr. 737, 744-45 (Cal. Ct. App.

1990); Dep’t of Agriculture & Consumer Servs. v. Mid-

Florida Growers, Inc., 521 So. 2d 101, 104 (Fla. 1988).

Under this approach, the court looks at how the

regulatory action defines the relevant parcel. Thus,

the regulation may “creat[e] separate parcels for

‘taking’ purposes” if it targets or affects only a subset

of the larger property under the plaintiffs control.

Twaine Harte, 265 Cal. Rptr. at 744. The focus here

is principally on what the government has done,

rather than how much property the plaintiff happens

to own, or the manner in which state laws otherwise

regulate affected parcels.

The prevailing disagreement among the lower

courts should not continue. Indeed, this disagree-

ment persists not only among courts throughout the

country, but also within the Federal Circuit—the one

court charged with exclusive jurisdiction over appeals

from takings cases brought against the United

States. See 28 U.S.C. § 1295(a)(3) (Federal Circuit

has exclusive jurisdiction over final decisions of

United States Court of Federal Claims). Compare

Florida Rock, 791 F.2d at 904 (using government-

conduct approach to find taking of 98-acre tract

of land, even though tract was only small portion

of owner’s 1,560-acre purchase), with Loveladies

Harbor, 28 F.3d at 1181 (endorsing “flexible approach”

that accounts both for how government’s action

affects property, and for some of property owner's

actions and reasonable expectations), and Rose Acre,

Pet. App. 73a (employing unity-of-ownership approach

in holding that relevant denominator consists of all

eggs produced on the “three farms (combined),”

although USDA regulations targeted only certain

flocks and hen houses). See also id. at 23a

(reaffirming that correct parcel is all 135 million

dozen eggs produced on Rose Acre’s three affected

farms during period of restriction).

Although takings questions are “essentially ad hoc,

factual inquiries,” Penn Central, 438 U.S. at 124, the

pressing issue here is the lingering and continued

disagreement over the /egal framework for analyzing

such facts. To paraphrase Justice Brandeis, when it

comes to property rights, it is more important that

the law be settled than that it be settled one way or

another. See Burnet v. Coronado Oil & Gas Co., 285

U.S. 393, 406 (1932) (Brandeis, J., dissenting).

B. This case is a strong vehicle for

answering the lingering denominator

question.

In the decision below, the Federal Circuit’s choice

of the legal theory underlying the denominator effec-

tively disposed of the appeal. In the first trial, Judge

Futey determined that Rose Acre suffered a com-

pensable taking because the USDA’s order prohibited

Rose Acre from selling nearly 700 million healthy

eggs in the table-egg market. In so doing, the trial

court considered the relevant denominator to be all

the eggs within affected houses, thereby essentially

adopting the government-conduct approach. The

Federal Circuit, however, disagreed with this conclu-

sion and measured the denominator based on all eggs

produced on Rose Acre’s three affected farms.’ Thus,

7 In the second appeal, the Federal Circuit reaffirmed its law-

of-the-case determination that the whole “parcel” consists of the

the Federal Circuit chose the first of the competing

denominator theories, thereby deflating the perceived

economic impact of the USDA regulations. As this

Court suggested in Lucas, this constituted “an

extreme—and . . . unsupportable—view of the rele-

vant calculus.” 505 U.S. at 1016 n.7. Had the court

employed either of the other denominator theories—

either by looking at Rose Acre’s reasonable expecta-

tions about its eggs or by looking at how the USDA

order governed the use of eggs based on the hen

house—the court would have rightly limited its

purview to the affected eggs themselves.

The result of the Federal Circuit’s decision is that

the Fifth Amendment means something different

depending on whether a business is large or small.

Here, if Rose Acre had owned only the restricted

houses, it would have established the taking of its

property since the denominator in the takings

fraction would have been essentially the same as the

restricted property. But because Rose Acre owned

greater holdings, with more hen houses, the denomi-

nator is misleadingly large, thus deflating the rele-

vant economic impact and immunizing the same

government conduct from constitutional redress. The

constitutional test should not turn on the other

resources of the affected property owner. The Federal

Circuit’s approach thus transforms the Takings

Clause into a de facto “deep pockets” rule, while

simultaneously insulating government regulation

from meaningful scrutiny when it targets plaintiffs

with more assets. This view is inconsistent with a

fair construction of the Takings Clause, which

protects private property owners, large and small,

eggs produced on the three restricted farms, and not all three

farms as a business. Pet. App. 23a.

from bearing public burdens that “in all fairness and

justice, should be borne by the public as a whole.”

Armstrong v. United States, 364 U.S. 40, 49 (1960).

The Court should grant certiorari to resolve the

question of the appropriate denominator theory.

II. THE COURT ALSO SHOULD CLARIFY

THE PROPER METRIC FOR ASSESSING

ECONOMIC IMPACT FOR A GOING

BUSINESS CONCERN.

There also exists an untenable division in the lower

courts, including within the Federal Circuit, over the

proper metric for measuring economic impact.

A. Lower courts are divided over whether

to use diminution in value or diminu-

tion in return to calculate economic

impact for a going business concern.

For over sixty years, the Court has accepted dimi-

nution in rate of return as an appropriate measure of

economic impact in takings cases. Indeed, this Court

in Penn Central rejected the takings claim there

based in part on its conclusion that the plaintiff could

obtain “a ‘reasonable return’ on its investment.” 438

U.S. at 136. Similarly, in Fed. Power Comm’n v.

Hope Natural Gas, 320 U.S. 591, 603 (1944), this

Court recognized that utility regulations producing

a confiscatory rate of return would themselves be

takings—without even discussing whether dimi-

nution in value of the affected utility must be

considered. In addition, in First English Evangelical

Lutheran Church of Glendale v. County of Los

Angeles, California, 482 U.S. 304 (1987), this Court

held that “the Just Compensation Clause of the Fifth

Amendment requires that the government pay the

landowner for the value of the use of the land during

this period.” Id. at 319 (emphasis added). Cf.

Kimball Laundry Co. v. United States, 338 U.S. 1, 8

(1949) (finding that proper measure of compensation

for government’s temporary use of laundry facility

was rental profits likely to have been earned, rather

than difference between property’s market value on

date of taking and date of return); Monongahela

Navigation Co. v. United States, 148 U.S. 312, 328

(1893) (holding that when taking of tangible property

deprives owner of ability to earn profit from collecting

tolls on railroad franchise, just compensation

requires payment to cover loss in profits); Cienega

Gardens v. United States, 331 F.3d 1319, 1343 (Fed.

Cir. 2003) (finding that plaintiffs suffered a taking

when they sustained a 96 percent diminution in their

expected return).

However, recent decisions from the Federal Circuit,

including the decision below in Rose Acre, have

rejected this well-established method for assessing

economic impact. For example, in its latest decision

in Cienega Gardens v. United States, 503 F.3d 1266

(Fed. Cir. 2007), the Federal Circuit rejected the

return-on-equity approach, finding instead that the

regulations’ economic impact must be assessed by the

diminution in lifetime value of the property. Jd. at

1280-82. The Federal Circuit continued its rejection

of the return-on-equity method in the Rose Acre

decision. Pet. App. 22a-31a.

B. This case is a strong vehicle for

answering the lingering question of

the proper economic metric.

The decision below in Rose Acre leaves the Federal

Circuit itself divided over the proper yardstick for

measuring economic impact. In 2004, the first Rose

Acre panel suggested that rate of return was. the

more appropriate measure for assessing the economic

impact of a temporary application of a regulation to

an ongoing business. /d. at 70a.

But in 2009, the Federal Circuit made an abrupt

about-face, concluding in the decision below that “it is

clear that assessing the severity of the economic

impact in this case by looking only at the percentage

decrease in profits does not provide a sufficiently

accurate view.” Id. at 16a. Instead, the court gave

“primary weight . . . to the diminution in value,” id.

at 3la, because eggs are a “discrete asset, the market

value of which is readily ascertainable.” Jd. at 30a.

Of course, eggs were just as much a “discrete asset”

with a “readily ascertainable” market value in 2004

as in 2009. Thus, the costly and time-consuming

remand for a second trial (and subsequent appeal)

proved to be a pointless undertaking; the Federal

Circuit’s rejection of Rose Acre’s takings claim in

2009 was premised on uncontroverted facts estab-

lished in the first trial and well known to the first

Rose Acre panel in 2004. Although the court’s 2009

decision tried to distance itself from what it termed

“unfortunate dicta” in its first decision regarding

diminution in return, it left the holding in Cienega

Gardens intact. This split over the proper metric for

measuring economic impact is unlikely to be resolved

unless this Court intervenes, in light of the Federal

Circuit’s denial of rehearing en banc on this very

question.

The confused state of takings jurisprudence,

including within the sole appellate court that hears

takings claims against the Government, cries out for

clarification and resolution by this Court. The Court

should grant certiorari to resolve the question of the

proper metric for assessing economic impact for a

going business concern like Rose Acre.

Il. THIS COURT MUST CLARIFY THE

CONFUSION AMONG LOWER COURTS

REGARDING THE ONGOING RELEV-

ANCE OF PENN CENTRAL’S “CHARAC-

TER” PRONG AFTER LINGLE.

Finally, this Court’s review is necessary to resolve

the uncertainty among lower courts over the meaning

of the “character” inquiry in light of Lingle. In

Lingle, the Court explicitly rejected the idea that the

“substantially advances a legitimate state interest”

formula from its decision in Agins v. City of Tiburon,

447 U.S. 255 (1980), could be a stand-alone test for

regulatory takings. By rejecting the Agins formula-

tion, Lingle called into question the ongoing role that

the “character” factor from the Penn Central test

should play. And not surprisingly, in Lingle’s after-

math, lower courts have grown increasingly divided

over how to assess the character of governmental

action challenged as a regulatory taking. In this

case, despite Lingle’s strong statements regarding

the impropriety of measuring the importance of the

government’s purpose in taking the property, the

court of appeals not only considered but relied heav-

ily on the government’s public-health justifications.

A. Courts are divided over whether a

regulation’s purpose still forms a valid

part of Penn Central’s “character”

inquiry after Lingle.

In Lingle’s aftermath, lower courts have fractured

over whether and to what extent the announced

governmental purpose continues to factor into the

takings inquiry under Penn Central’s “character of

government action” factor.

Some courts have renounced or rejected any

consideration of governmental purpose in light of

Lingle. For example, in Buhmann v. Montana, 201

P.3d 70, 92 (Mont. 2008), petition for cert. filed sub

nom. Wallace v. Montana, 77 U.S.L.W. 3645 (U.S.

May 11, 2009) (No. 08-1395), the Montana Supreme

Court found that the trial court had erred in its

character analysis because it had “inquired into the

purposes and propriety” of the state law.®

Similarly, in Wensmann Realty, Inc. v. City of Ea-

gan, 734 N.W.2d 623, 639 (Minn. 2007), the Minne-

sota Supreme Court, in light of Lingle, found that the

character inquiry should no longer focus on the

“merit” of the government action but on “whether the

regulation is general in application or whether the

burden of the regulation falls disproportionately on

relatively few property owners.” See also Mann uv.

Ga. Dep’t of Corr., 653 S.E.2d 740, 745 (Ga. 2007)

(“[E]ven assuming, arguendo, that the substantiality

of the public purpose advanced by a regulation

[protecting children from recidivist sex offenders] is

still pertinent to a takings challenge, but see Lingle,

we cannot overlook the significant adverse economic

impact of [the regulation] on appellant.”).

Standing in sharp contrast to these cases are

courts, like the court of appeals below, that continue

to inquire into whether a challenged regulation

advances a legitimate public purpose. For example,

the Sixth Circuit in Tennessee Scrap Recyclers Ass’n

® The petition filed in Wallace—which remains pending—

raises issues similar to the Lingle question that Rose Acre is

asserting here.

v. Bredesen, 556 F.3d 442 (6th Cir. 2009), as part of

the character analysis, considered the importance of

the regulation’s purpose and held that character

favored the government because “it was passed for a

legitimate public purpose, the prevention of metal

theft.” Jd. at 457. Similarly, in Cienega Gardens, the

Federal Circuit defined the character prong as

consisting of “the precise action that the government

has taken and the strength of the governmental inter-

est in taking that action.” 503 F.3d at 1279 (empha-

sis added).

In Small Property Owners of San Francisco v. City

& County of San Francisco, 47 Cal. Rptr. 3d 121, 136

(Cal. App. 2006), the court held that the proper focus

of the character inquiry should be on “the nature

rather than the merit of the governmental action.”

But in examining the nature of the governmental

action, the court focused on whether the action

served the “public good.” And in City of Gaylord uv.

Maple Manor Investments, LLC, 2006 WL 2270494,

at *7 (Mich. Ct. App. Aug. 8, 2006) (unpublished), the

court, in analyzing the character prong, noted that

it had “found that the City’s regulations are a

legitimate exercise of its police power.”

Even the courts that have rejected consideration of

governmental purpose as part of Penn Central’s

character analysis have presented different views of

what is relevant to that analysis. In Montana, the

Buhmann court rejected the trial court’s consider-

ation of purpose but affirmed the court’s determina-

tion that the character factor weighed against finding

a taking. In so doing, the Montana Supreme Court

relied on its character prong analysis from a compa-

nion case to Buhmann that involved the same state

laws, Kafka v. Montana Department of Fish, Wildlife

and Parks, 201 P.3d 8 (Mont. 2009). In Kafka, the

court determined that the character analysis inquires

into the “magnitude or character” of the burden,

which the Kafka court (and hence Buhmann)

determined was minimal in that case. The Kafka

court noted that the economic burden fell “squarely”

on the shoulders of the plaintiff property owners but

that the magnitude of the burden’s intrusiveness was

what was most important. Jd. at 30-31. By contrast,

the Minnesota Supreme Court in Wensmann Realty,

relying on language in Lingle regarding burden

allocation, determined that the key to the character

analysis was whether the burden fell “dispropor-

tionately on relatively few property owners.” 1734

N.W.2d at 639. And finally, the Mann court in

Georgia suggested strongly that the character prong

is simply a dead-letter. 653 S.E.2d at 745.

This confusion in the lower courts concerning the

proper interpretation of the character prong after

Lingle is untenable. Among other things, it leads to

disparate outcomes for similarly situated takings

plaintiffs. Courts in jurisdictions that continue to

consider the purpose for a regulation are far more

likely to find that the character of governmental

action favors the government, and thus unlikely to

find a compensable taking. Compare, e.g., Rose Acre,

Pet. App. 39a (finding no taking and invoking “the

public health and safety aspect of the [USDA] regula-

tions” in support of its conclusion that character

prong “do[es] not favor Rose Acre”) with Wensmann

Realty, 734 N.W.2d at 640-42 (focusing on reg-

ulation’s disproportionate application, and not on

purpose behind it, in concluding that Penn Central’s

character factor favored property owner).

And there is no reason to believe that the Federal!

Circuit, which handles all federal takings issues, will

reexamine its approach without prodding from above.

That court employed the same approach in 2007 in

Cienega Gardens, 503 F.3d at 1279, and again in

2009 in Rose Acre, Pet. App. 42a-45a—both times

treating the purpose of the governmental action as a

central factor in upholding the regulations against a

Takings Clause challenge. In addition, the court

recently rejected Rose Acre’s petition asking the full

Federal Circuit to rehear this precise question: “Is

the ‘public-health’ purpose of a regulation a valid

takings consideration after Lingle?” Petition of Rose

Acre Farms, Inc. for Rehearing En Banc, 2009 WL

1368236, at *1 (Apr. 27, 2009), reh’g en banc denied,

(Fed. Cir. May 20, 2009).

Given the importance for both the Government and

private property owners alike of having clear stan-

dards for adjudicating takings cases, it is appropriate

for this Court to resolve the confusion now.

B. This Court’s jurisprudence on the role

of the “character” inquiry has been

inconsistent.

The division in the lower courts over the proper

focus of the character prong can be traced to incom-

plete, and sometimes contradictory, guidance from

this Court regarding the role of the character inquiry.

In Penn Central itself, this Court, discussing what

the “character of the governmental action” captured,

explained:

A “taking” may more readily be found when the

interference with property can be characterized

as a physical invasion by government, see, e.g.,

United States v. Causby, 328 U.S. 256 [ } (1946),

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. Thus, from the begin-

ning, the Court presented mixed signals regarding

the “character” inquiry. The above explanatory

statement first suggests a focus on the effect of the

taking (i.e., whether it is a “physical invasion”), but

then moves on to the purpose or reason behind the

government intervention (i.e., whether it is a “public”

program that serves the “common good”).

Recently, however, the Court in Lingle called into

question any inquiry into government motives or

purposes as part of the takings analysis. Lingle,

instead, suggested that the sole focus in a takings

case ought to be on the actual impact that the regula-

tion might have on the landowner. Lingle empha-

sized that the Takings Clause already “presupposes

that the government has acted in pursuit of a valid

public purpose.” 544 U.S. at 543. Thus, the purpose

or motives behind a particular regulation or taking is

relevant only to the public use inquiry, but once that

threshold requirement is met, it makes no sense to

examine purpose again.”

In light of how Penn Central explained the “charac-

ter” inquiry and given Lingle’s rejection of an analy-

* As Lingle held, “the Takings Clause presupposes that the

government has acted in pursuit of a valid purpose. The Clause

expressly requires compensation where government takes

private property ‘for public use.” 544 U.S. at 543 (emphasis in

original). See also John D. Echeverria, Making Sense of Penn

Central, 39 ENVTL. L. RPTR. NEWS & ANALYSIS 10471, 10473

(2009) (“[[Jt makes no logical sense to excuse the government

from liability on the ground that the takings power is being used

to accomplish an important public purpose.”).

sis of the legitimacy or effectiveness of the govern-

ment’s actions in serving public ends, 544 U.S. at

542, a strong argument could be made that there is

simply no room for the “character” analysis as set

forth in Penn Central—physical invasions are already

takings, no matter how minor, and government

motives are subsumed by public use. See Dale A.

Whitman, Deconstructing Lingle: Implications for

Takings Doctrine, 40 J. MARSHALL L. REV. 573, 574

(2007). Yet the Court specifically “emphasize[d} that

[its] holding lin Lingle} . . . does not require [it] to

disturb any of [its] prior holdings.” 544 U.S. at 545.'°

Lingle’s emphasis on impact could perhaps signal a

new path for the “character” portion of the Penn

Central test. Lingle’s concern for the actual effect of

a regulation on the property owner is largely

accounted for by the economic impact analysis itself

from Penn Central. But Lingle also suggests that

“information about how any regulatory burden is

distributed among property owners” is also relevant

to the analysis. Jd. at 542. It may be that the proper

approach weighs the regulation’s impact on the prop-

erty owner compared to others that may be similarly

situated. See Wensmann Realty, 734 N.W.2d at 639-

41. Lingle simply is not clear on this point, which is

why this Court’s review of this issue is necessary.

The Court’s prior mixed messages on this subject

have predictably generated confusion in the lower

courts that only this Court can, and should, resolve

by granting the petition here.

' In Lingle, when describing Penn Central, the Court noted

that economic impact and interference with investment-backed

expectations are the “primary” factors. 544 U.S. at 538-39.

C. The Federal Circuit erred in consider-

ing the “public health” purpose of the

USDA regulations as part of the

character inquiry.

For its part, the Federa! Circuit panel below

initially stated that Lingle had altered the character

analysis under Penn Central, and the court even

suggested that post-Lingle “instead of looking at the

rationality of the regulation, [courts] must consider

‘the actual burden imposed on property rights, or how

that burden is allocated.” Pet. App. 37a (quoting

Lingle, 544 U.S. at 543). But following a cursory

dismissal of Rose Acre’s evidence on how the burdens

were actually distributed in this case, the court

reveals its true analysis: “But, before deciding this

factor, we need to consider the related issue of the

public health and safety aspect of the SE regula-

tions.” Pet. App. 39a.

At that point, the court proceeded to consider the

very purpose behind the governmental regulation in a

way that Lingle had renounced, and concluded that

the character prong “doles| not favor Rose Acre”

because of the public “health and safety aspect of the

. regulations.” Jd. at 39a. Because Lingle itself

“had nothing to do with the safety or health of the

public,” the panel thought that it had left “unchanged

a substantial body of case law concerning the charac-

ter prong.” Jd. See also id. at 44a (“[Wle do not

believe Lingle caused any diminution in the

importance of the Penn Central character prong, at

least with respect to public health and safety

regulations.”).'' In so doing, the panel ignored this

"The Federal Circuit’s suggestion that a public-health pur-

pose is a narrow exception to Lingle is belied by its recent

decision in Cienega Gardens—another post-Lingle case having

Court’s categorical language that the “substantially

advances” test there had “no proper place in our

takings jurisprudence,” period—regardless of whether

the regulations at issue involved health and safety.

Indeed, the Court in Lingle presumed that most

regulations that are going to be at issue in these

cases will involve “adjustment of rights for the public

good.” 544 U.S. at 538 (quoting Andrus v. Allard, 444

U.S. 51, 65 (1979)).

The upshot of the court’s discussion was that

the purpose behind the government’s regulation,

protecting public health, weighed against finding a

taking: “But the government did argue that the

character of the government's act, protecting the

public health by identifying diseased eggs and forcing

their owner to remove them from the table market,

weighs strongly against finding a taking here. We

agree.” Pet. App. 43a. Thus, the purpose behind the

USDA’s regulation was dispositive of the character

inquiry.

This is precisely the kind of judicial examination

into the motives and purposes behind the govern-

ment’s regulation that Lingle rejected. Indeed, had

the government’s purpose been as important as the

panel held, Rose Acre should have been permitted to

test the fit between the means that the government

chose and the purposes behind the regulation. But

that would have simply been a back-door way of

reinvigorating Agins.

What Rose Acre argued below, based on what this

Court said in Lingle, was that the character prong in

nothing to do with public health—in which the court likewise

said it is proper to consider the “strength of the governmental

interest” as part of the character inquiry. 503 F.3d at 1279.

Penn Central ought to focus on the specific impact

that the USDA’s regulations here have on Rose Acre

and how the burden of the regulations is allocated

among the relevant parties. Only by concentrating

on “the actual burden imposed on property rights, or

how that burden is allocated” can courts identify

“when justice might require that the burden be

spread among taxpayers through the payment of just

compensation.” Lingle, 544 U.S. at 543. To the

extent that the court of appeals even considered this

argument, it rejected uncontroverted facts establish-

ing the regulations’ devastating impact on Rose

Acre and their narrow application to egg producers

alone—two factors that Lingle says are the center-

piece of the regulatory takings inquiry.

Particularly in light of Lingle, the Federal Circuit

wrongly disregarded the trial court’s factual findings

that the regulatory burden for addressing the SE

problem was not distributed widely, but narrowly

and devastatingly, upon egg producers generally and

Rose Acre specifically. Pet. App. 154a.

The Court should grant the petition to clarify the

meaning of Penn Central’s “character” inquiry and

the role, if any, of a reguiation’s purpose in estab-

lishing a taking.

CONCLUSION

The Court should grant the petition for writ of

certiorari.

JOHN B. NALBANDIAN

TAFT STETTINIUS &

HOLLISTER LLP

425 Walnut Street

Suite 1800

Cincinnati, Ohio 45202

(513) 381-2838

September 17, 2009

Respectfully submitted,

ROBERT R. CLARK

Counsel of Record

GEOFFREY SLAUGHTER

MICHAEL D. CHAMBERS

TAFT STETTINIUS &

HOLLISTER LLP

One Indiana Square

Suite 3500

Indianapolis, Indiana 46204

(317) 713-3500

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS,

FEDERAL CIRCUIT

No. 2007-5169

ROSE ACRE FARMS, INC.,

Plaintiff-Appellee,

Vv.

UNITED STATES,

Defendant-Appellant.

March 12, 2009.

Rehearing En Banc Denied May 20, 2009.

Before MICHEL, Chief Judge, MOORE, Circuit

Judge, and HUFF, District Judge.”

MICHEL, Chief Judge.

In 1992, Rose Acre Farms, Inc. (“Rose Acre”) filed

the present action in the United States Court of Fed-

eral Claims, claiming that United States Department

of Agriculture (“USDA” or “the government”) regula-

tions that restricted egg sales from its farms and

caused the loss of egg-laying chickens that tested

positive for the presence of salmonella bacteria

effected a taking requiring compensation under the

Fifth Amendment. In 2003, the trial court held that

* Honorable Marilyn Huff, District Judge, United States

District Court for the Southern District of California, sitting by

designation.

Rose Acre was entitled to compensation for a taking

of the eggs affected by the regulations as well as for

hens seized for testing. In our previous appeal, we

held that the court misapplied the standards

governing regulatory takings claims under Penn Cen-

tral Transportation Co. v. New York City, 438 U.S.

104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). We va-

cated and remanded for appropriate reconsideration.

We must again decide whether the trial court

correctly held that the government’s regulations,

which restricted the sale of certain of Rose Acre’s

eggs during the approximately two-year period, con-

stituted a taking for which just compensation is due.

As explained below, we hold that, upon a proper

assessment of the Penn Central factors, the USDA

did not commit a compensable taking. We therefore

reverse the judgment of the Court of Federal Claims.

BACKGROUND

To the extent the facts of the case aid our present

analysis of the takings claim, we repeat those facts

from our previous opinion. Further background and

factual details are available in the trial court’s

opinion being reviewed here and the prior decisions

related to the present case. See Rose Acre Farms, Inc.

v. United States, No. 92-710C, 2007 WL 5177409

(Fed.Cl. July 11, 2007) (“Rose Acre V”); Rose Acre

Farms, Inc. v. United States, 373 F.3d 1177

(Fed.Cir.2004) (“Rose Acre IV”); Rose Acre Farms, Inc.

v. United States, 53 Fed.Cl. 504, 524 (2002), super-

seded by 55 Fed.Cl. 643 (2003) (“Rose Acre IIT’); Rose

Acre Farms, Inc. v. United States, No. 92-710C

(Fed.Cl. Aug. 7, 1995) (“Rose Acre II”) (unpublished

decision); Rose Acre Farms, Inc. v. Madigan, 956 F.2d

670 (7th Cir.1992) (“Rose Acre I”).

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 approx-

imately 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

earlier opinion. See Rose Acre III, 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.

To maximize its production and provide a consis-

tent supply of table eggs to the market, Rose Acre

must carefully manage its layer house population and

depopulation schedules. The trial court found that

“(slcheduling and timing . . . are key components of

[Rose Acre’s] business. An interruption in [Rose

Acre’s] scheduling system affects the entire organiza-

tion, thus causing [Rose Acre] to be unable to supply

eggs to its customers.” Id.

II. USDA’s Salmonella Regulations

A. The Interim Regulations

In the late 1980s, the Centers for Disease Control

(“CDC”) determined that the incidence and geo-

graphic spread of human illness resulting from expo-

sure to Salmonella enteritidis serotype enteritidis

(“SE”) bacteria were 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 neces-

sary to control the spread of SE in poultry flocks. On

February 16, 1990, USDA published interim regula-

' 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 III, 55 Fed.Cl. at 648 n. 5.

tions that restricted the interstate sale and transpor-

tation of eggs and poultry from flocks determined

under the regulations to be SE-contaminated. Poultry

Affected by Salmonella Enteritidis, 55 Fed.Reg. 5576

(Feb. 16, 1990) (codified at 9 C.F.R. §§ 82.30-82.36

(1991)). The interim regulations were effective imme-

diately upon publication, USDA having “determined

that there is good cause for publishing this rule with-

out prior opportunity for public comment,” namely,

the need for “[i)mmediate action . . . to prevent harm

to the egg-type chicken industry and the public.” Jd.

at 5580.

The interim regulations applied to “flocks,” defined

as “[ajll 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.” Jd. § 82.32. A study flock was subse-

quently 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 sam-

ples. Jd. § 82.32(b). At the time the interim regula-

tions 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 then only if the ship-

per obtained a permit and met other conditions. 9

C.F.R. § 82.33(a) (1991). Thus, the interim regula-

tions 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. Id. § 82.32(c). A test flock was designated an

“infected flock” if the organs of one or more hens

tested positive for SE. Id. Infected flocks were subject

to the same interstate transportation restrictions as

test flocks. Jd. § 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 depo-

pulated, subjected to specified wet cleaning and

disinfecting procedures, and repopulated with a new

flock. Id. § 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 Salmo-

nella enteritidis, 56 Fed.Reg. 3730 (Jan. 30, 1991)

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

regulations incorporated all of the above require-

? 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.”

ments but authorized the imposition of restrictions

on individual layer houses as opposed to whole flocks.

9 C.F.R. § 82.33(a) (1992). 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. Id. § 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 1994, resulting in over

1.3 billion eggs being diverted from the United States

table egg market to breaker plants.

Ill. 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 restric-

tions.

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 sixty 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 addi-

tional transportation restrictions were imposed as a

result of an “infected” designation; obtaining release

from restricted status, however, became more diffi-

cult. 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 III, 55 Fed.Cl. at 651. It also

noted that USDA inspection officials did no more

than visually examine the interior of depopulated

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

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 had to sell eggs as

breaker eggs instead of 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 regu)ations 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 promu!-

gated within the authority of the Secretary of

Agriculture. Rose Acre I, 956 F.2d at 675-77. It

further held that “[i]t is to the claims court that Rose

Acre must go” to pursue any claim for compensation.

Id. at 674.

Rose Acre filed the present action in the Court of

Federal Claims on October 13, 1992, alleging an

uncompensated taking of its eggs and hens and viola-

tions of 21 U.S.C. §§ 114a° and 134a‘ (2000). The trial

* 21 U.S.C. § 114a has since been repealed. Pub.L. No. 107-

171, tit. X, § 10418(aX8) (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

10a

court granted the government’s motion to dismiss

Rose Acre’s section 114a claim for failure to state a

claim, Rose Acre III, 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, Jd. at 662. The trial court awarded Rose

Acre compensation in the amount of $6,165,297.72 for

what it concluded was a regulatory taking of eggs

diverted to breaker plants and a categorical taking of

the hens confiscated for internal-organ testing. Jd. at

665. The court also awarded Rose Acre $2,414,744.81

in attorney fees and expenses. Jd. at 670.

The government appealed, challénging 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). In

our prior decision, we (1) vacated the trial court’s

finding with respect to the economic impact prong

and instructed the court to reassess this factor; (2)

affirmed the trial court’s conclusion with respect to

Rose Acre’s reasonable investment-backed expecta-

tions; (3) reversed the trial court’s conclusion that the

character of the regulatory action favored Rose Acre;

and (4) instructed the trial court to reweigh the Penn

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.

lla

Central factors to determine whether a compensable

taking had occurred. Rose Acre IV, 373 F.3d at 1196.

On remand, the trial court conducted a two-day

trial in late 2006, consisting mainly of expert

testimony relevant to the Penn Central factors. Rose

Acre V, 2007 WL 5177409, at *4. After considering

the evidence, the trial court ruled that the severity of

the economic impact favored Rose Acre because it

suffered a diminution in profit of 219%. Id. at *7.

Based on our earlier opinion, the trial court ruled

that the character of governmental action favored the

government despite Rose Acre’s contention that an

intervening Supreme Court decision necessitated the

reassessment of this factor. 7d. at *8. The court had

no reason to reanalyze Rose Acre’s_ reasonable

investment-backed expectations. Jd. In reweighing

all three Penn Central factors, the trial court again

held that Rose Acre suffered a taking and awarded

Rose Acre about $5.4 million as just compensation,

plus interest, attorney fees, expert fees, and

expenses, for a total of about $8.7 million. Jd. at *9,

*13. The government timely appealed, and we have

jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).

ANALYSIS

I. Standard of Review

“Whether a compensable taking has occurred is a

question of law based on factual underpinnings.”

Maritrans Inc. v. United States, 342 F.3d 1344, 1350-

51 (Fed.Cir.2003) (citing Wyatt v. United States, 271

F.3d 1090, 1096 (Fed.Cir.2001)). Our review of a final

decision of the Court of Federal Claims after a trial

entails a de novo review of legal conclusions and a

review of factual findings for clear error. Glendale

Fed. Bank, FSB v. United States, 239 F.3d 1374, 1379

12a

(Fed.Cir.2001). “A finding is ‘clearly erroneous’ when

although there is evidence to support it, the review-

ing court on the entire evidence is left with the defi-

nite and firm conviction that a mistake has been

committed.” United States v. U.S. Gypsum Co., 333

U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948); see

also Maritrans, 342 F.3d at 1351.

II. Fifth Amendment Taking

The Fifth Amendment provides that “private

property [shall not] be taken for public use, without

just compensation.” U.S. Const. amend. V, cl. 4. The

Takings Clause does not altogether proscribe the

taking of property by the government. First English

Evangelical Lutheran Church of Glendale v. County

of Los Angeles, 482 U.S. 304, 314, 107 S.Ct. 2378, 96

L.Ed.2d 250 (1987). Rather, if the government takes

property for a valid “public use,” the government

must pay the property owner “just compensation,”

thus barring the government “from forcing some

people alone to bear public burdens which, in all fair-

ness and justice, should be borne by the public as a

whole.” Penn Cent., 438 U.S. at 123, 98 S.Ct. 2646

(quoting Armstrong v. United States, 364 U.S. 40, 49,

80 S.Ct. 1563, 4 L.Ed.2d 1554 (1960)).

The common touchstone of regulatory takings

precedent is “to identify regulatory actions that are

functionally equivalent to the classic taking in which

government directly appropriates private property or

ousts the owner from his domain.” Lingle v. Chevron

U.S.A. Inc., 544 U.S. 528, 539, 125 S.Ct. 2074, 161

L.Ed.2d 876 (2005). The Supreme Court has noted

that, outside the context of “two relatively narrow

categories” of per se regulatory takings cases and

outside “the special context of land-use exactions,” a

court conducts a factual inquiry based on the well-

l3a

known Penn Central factors to evaluate whether the

government’s regulation rose to the level of a taking.

Id. at 538-39, 125 S.Ct. 2074; see also Maritrans, 342

F.3d at 1351. The fact-based inquiry of Penn Central

considers (1) the economic impact of the action on the

claimant, (2) the effects of the governmental action

on the reasonable investment-backed expectations of

the claimant, and (3) the character of the governmen-

tal action. Penn Cent., 438 U.S. at 124, 98 S.Ct. 2646.

Penn Central governs the facts of this case, and

therefore we turn first to the economic impact of the

SE regulations.

A. Economic Impact of the Regulations

The economic impact of the government’s regula-

tory action is mainly a factual question. Cf. City of

Monterey v. Del Monte Dunes at Monterey, Lid., 526

U.S. 687, 720, 119 S.Ct. 1624, 143 L.Ed.2d 882 (1999)

(“[Wle hold that the issue whether a landowner has

been deprived of all economically viable use of his

property is a predominantly factual question.”).

Therefore, with respect to this factor, we review the

findings of the Court of Federal Claims for clear

error. Glendale Fed. Bank, 239 F.3d at 1379.

In our prior opinion, we explained that the trial

court’s initial analysis was insufficient because it

only (1) made certain limited factual findings, (2)

noted the conclusory testimony of the government’s

witness, and (3) favorably compared Rose Acre’s

claim to the factual situation in Yancey v. United

States, 915 F.2d 1534 (Fed.Cir.1990), where we held

that a USDA-imposed quarantine had effected a

compensable taking of healthy breeder turkeys. Rose

Acre IV, 373 F.3d at 1185. At the same time, we

noted several undisputed facts relating to the

economic impact of the regulations on Rose Acre. Jd.

14a

at 1184-85. For example, we recognized that there

was agreement with respect to the average price Rose

Acre and other sellers received for table eggs during

the restricted period and the average price Rose Acre

received for breaker eggs during the _ restricted

period. Id.

Thus, there was, and still is, little dispute about

the underlying economic data to be used in assessing

the economic impact. The main disagreement

concerned the methodologies by which to analyze the

data. Prior to our remand, the trial court had not

sufficiently examined whether the economic impact

on Rose Acre should be calculated by a diminution in

value analysis or a diminution in return analysis.

Then, the government had argued that diminution in

return is per se less suitable, but we rejected that

contention. Jd. at 1188. Rather, we observed that

“[wle need not choose, however, between the two

analytical modes.” Jd. at 1189.

Certain other narrow issues needed further devel-

opment. One such issue when first appealed was the

identity of the correct parcel of property to be used as

the “denominator” in the economic impact calcula-

tion. At that time, Rose Acre argued that the court

should consider only “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.” Jd. (emphasis

omitted). The government, on the cther hand, argued

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.” Jd. (empha-

15a

sis omitted). For reasons we need not explicate here,

the competing denominators affected the calculation

in a way that favored each party. Thus, a proper

assessment of costs seemed necessary in order to

determine properly the economic impact prong.

Moreover, it was necessary to consider as the rele-

vant parcel the three farms as a whole rather than

each individual hen house.

In short, we instructed that, “using the three farms

(combined) as the relevant ‘denominator,’ the trial

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.” Rose Acre IV, 373 F.3d at 1190.

On remand, the trial court heard testimony from

the economics experts of both Rose Acre and the

government. Rose Acre’s expert, Dr. Richard Just,

was of the opinion that diminution in value was not

an appropriate metric to use in assessing the

economic impact and only diminution in return can

be used in this case. Rose Acre V, 2007 WL 5177409,

at *5. As characterized by the trial court, the

government’s expert, Dr. Bradley Reiff, purportedly

agreed that both methodologies could be used. 7d.

Since the trial court characterized both experts as

accepting a diminution in return approach, the trial

court adopted this methodology. Jd. at *6. The trial

court then proceeded to determine whether the

diminution in return should be calculated by using

average total cost, as urged by Rose Acre, or incre-

mental costs, as purportedly urged by the govern-

ment. Jd. at *6-*7. After considering the experts’

testimony, the trial court concluded that the use of

average total cost was more consistent with our prior

16a

decision and that the government’s “method of

determining the diminution in return [i.e., using

incremental costs) simply does not reflect reality.” Id.

at *7. The trial court then found that, using average

total cost, “the diminution in return for the period of

the regulations was 219.2%.” Id.

Except for the cost basis of the eggs, the parties do

not generally dispute the underlying financial data.

For instance, during the restricted period, 42.6% of

the 135 million dozen eggs produced on the three

farms were diverted to and sold in the breaker

market. This means, of course, that 57.4% of the eggs

were sold, as usual, in the table market. With respect

to the difference in market value of the diverted eggs,

the average decrease in value of each dozen of eggs

came to about 6.10 cents.

Yet, the same data appear to provide vastly differ-

ing depictions as to the severity of the economic

damage incurred by Rose Acre, depending on

whether one looks at lost profits or lost values. It is

this divergence between input and output that is at

issue here. Based on our review of the evidence in the

record, it is clear that assessing the severity of the

economic impact in this case by looking only at the

percentage decrease in profits does not provide a

sufficiently accurate view.

We believe the diminution in return metric suffers

from at least two potential deficiencies which were

not addressed by the trial court and which may

suggest that such an analysis is not appropriate in all

takings situations. First, the vast majority of takings

jurisprudence examines, under Penn _ Central’s

economic impact prong, not lost profits but the lost

value of the taken property. See, e.g., Thomas J.

Miceli & Kathleen Segerson, Compensation for Regu-

17a

latory Takings: An Economic Analysis with Applica-

tions 15 (1996) (“Most takings cases since Pennsylva-

nia Coal have generally applied some form of

Holmes’s diminution of value standard.”). When the

Supreme Court has assessed the economic impact of

a regulatory taking, it has talked almost exclusively

in terms of lost value rather than lost profits. See,

e.g., Andrus v. Allard, 444 U.S. 51, 65-66, 100 S.Ct.

318, 62 L.Ed.2d 210 (1979) (approximately 100%

diminution in value); Village of Euclid v. Ambler

Realty Co., 272 U.S. 365, 384, 47 S.Ct. 114, 71 L.Ed.

303 (1926) (75% diminution in value); Hadacheck v.

Sebastian, 239 U.S. 394, 405, 36 S.Ct. 143, 60 L.Ed.

348 (1915) (87.5% diminution in value). Our case law

is in accord. See, e.g., Maritrans, 342 F.3d at 1358

(considering 13.1% diminution in value of tanker

barges); Loveladies Harbor, Inc. v. United States,

28 F.3d 1171, 1178 (Fed.Cir.1994) (noting a 99%

diminution in value). Additionally, other federal

circuits and the state courts often take a similar

approach. See, e.g., Front Royal & Warren County

Indus. Park Corp. v. Town of Front Royal, 135 F.3d

275, 286 (4th Cir.1998); Ortega Cabrera v. Municipal-

ity of Bayamon, 562 F.2d 91, 100 (1st Cir.1977); Cent.

Motors Corp. v. City of Pepper Pike, 73 Ohio St.3d

581, 653 N.E.2d 639, 644-45 (1995). Thus, when a

court considers only a profits-based approach, this

precedent provides limited guidance and constrains a

factfinder’s ability to provide a complete and fair

assessment of the economic impact prong of Penn

Central.

The trial court’s analysis suffers as a result of

limited guidance on the profits-based measure, as the

court did not compare the 219% diminution in return

to anything, such as some benchmark standard.

Instead, the court simply viewed the number as

18a

indicative of a severe economic impact. This examina-

tion is flawed because it does not set any baseline or

standard to which to compare an inherently relative

number. And, as Dr. Reiff explained, comparing

diminution in return in one case to diminution in

value in another case “doesn’t mean much.” The

dearth of comparable diminution-in-return numbers

in the case law may have been the root of the trial

court’s cursory analysis, but comparable numbers

seem necessary to assess whether the lost profits

represent a severe impact.

A second drawback with examining only the

diminution in return parameter is the potential

difficulty in comparing any given diminution in

return calculation with another diminution in return

calculation. Simply put, diminution in return is an

inherently relative term, the magnitude of which is

dependent on the magnitude of the starting profit

margin. As the government’s expert, Dr. Reiff,

explained, tie product of the diminution in return

calculation depends on the magnitude of the initial

profit margin. Also, unlike diminution in value,

which ranges from 0% to 100%, diminution in return

can range from 0% to an infinitely large number,

depending on the initial profit margin. Dr. Reiff

further explained how the diminution in return

metric may be difficult to interpret when the initial

profit margin is less than zero, i.e., when the

company is operating at a loss. The trial court’s

opinion addressed none of these concerns.

Our concern about sole reliance on diminution in

return is illustrated by the following example, which

follows directly from and simplifies an example given

by Dr. Reiff. Consider a company that manufactures

a widget for a total cost of $3. Without any govern-

19a

mental regulation, the widget has a market value of

$5, yielding a profit of $2. Under two different regula-

tory schemes (Regulations A and B), the market

value of the widget decreases to differing extents. In

the first instance, under Regulation A, the widget

sells for $3; in the second, under B, the widget sells

for $1. The resulting calculations for diminution

in return (DIR) and diminution in value (DIV) are

shown.

Market

Regulation Cost Value Profit DIR DIV

None 3.00 5.00 2.00 n/a n/a

RegulationA 3.00 3.00 0 100% 40%

RegulationB 3.00 1.00 -2.00 200% 80%

Thus, under Regulation A, the property owner

suffers a 100% diminution in return and a 40% dimi-

nution in value. Under Regulation B, the property

owner incurs a 200% diminution in return and an

80% diminution in value. In absolute dollars, the

property owner has lost either $2 or $4 on the sale

of each widget, compared to pre-regulation market

value. Now, consider the same widget having a much

smaller initial profit margin and a smaller decrease

in value due to the regulation:

Market

Regulation Cost Value Profit DIR DIV

None 3.00 3.20 .20 n/a n/a

Regulation A 3.00 3.00 0 100% 6.25%

Regulation B 3.00 1.00 -20 200% 12.5%

In this second case, the economic data yield the

same diminution in return but a significantly smaller

diminution in value. The smaller diminution in value

makes apparent sense, as the property owner is only

losing twenty or forty cents on each widget. A last

20a

variation of the example illustrates the increased

disparity between profit and value calculations when

the initial profit margin is even smaller.

Market

Regulation Cost Value Profit DIR DIV

None 3.00 3.02 02 n/a n/a

Regulation A 3.00 3.00 0 100% 0.67%

RegulationB 3.00 1.00 -02 200% 1.32%

In each of the above three scenarios, the property

owner suffers an arguably severe diminution in

return, either earning zero profit or operating at a

loss, but incurs vastly different diminutions in value.

Under current precedent, we would be hard-pressed

to hold that a compensable taking occurred when the

diminution in value is less than a penny on the

dollar. But if we were to consider only the 100%

diminution in return for that same alleged taking, it

could seem plausible to conclude differently.

Other variations of the above example yield

similarly incongruent results. In the last scenario

above, for example, if a regulation decreases the

initial value of the widget from $3.02 to $1.81, the

widget loses 40% of its value, but that equates to a

diminution in profit of about 6,000%. Based on the

trial court’s analysis and the expert’s testimony, we

are uncertain how such a value could be used

effectively in a takings analysis.

Legitimate questions exist with the diminution in

return metric, yet the trial court’s opinion does not

address them. For instance, as Dr. Reiff explained,

when the initial profit margin is negative-meaning

that the company is operating at a loss during

the relevant regulatory period-calculation of the

diminution in profit becomes problematic. And basic

2la

mathematical principles impede an analysis when

the starting profit margin is zero, as the result of

dividing a real number by zero is undefined. Even

though the government’s expert raised these issues in

his expert report and testimony, the trial court’s

opinion does not address them.

Instead of acknowledging the testimony of the

government's expert with respect to the deficiencies

of the diminution in return analysis, the trial court

appeared to rely only on a selected piece of his

testimony, thus concluding that both experts

accepted the diminution in return as the only

suitable metric. Rose Acre V, 2007 WL 5177409, at

*6. The trial court stated that the government

“did not present any evidence on which method

best demonstrates the effect of the regulations on

plaintiff, but instead asserts that, by any metric, the

impact was not severe enough for plaintiff's loss to be

considered a taking.” Jd. at *5. According to the trial

court’s summary, Dr. Reiff “testified that ‘both

diminution in revenue and diminution in profit are

appropriate measures that the Court could employ in

this case.” Jd. at *5 n. 14.

Our review of the record, however, reveals a

significantly different understanding of Dr. Reiff's

testimony. When asked on direct examination

whether he had a basis to favor one methodology over

another, Dr. Reiff replied as follows:

These are two measures that the Court should

consider. The important point is that if one can’t

come up with a measure for incremental cost,

then the diminution in revenue measure would

be superior to the diminution in profit measure.

The diminution in profit measure using average

total cost is not useful, so if one didn’t have

22a

incremental cost measure, then I would prefer

the diminution in revenue measure. But given

that there’s—if we can estimate the incremental

cost, then you could look at either one of them.

Thus, Dr. Reiff agreed that both metrics could be

used but only if the profit calculation used incremen-

tal costs, as urged by the government. If average total

cost were used—as the trial court did indeed use—

then Dr. Reiffs opinion was different. In fact, Dr.

Reiff opined that the diminution in profit metric

using average total cost “is not useful.” The trial

court seems to have overlooked this testimony.

Dr. Reiff's expert report, which was admitted into

evidence, is consistent with this testimony. In his

report, Dr. Reiff opined that “(t]he appropriate

measure of the percent diminution in profit should be

based only on the incremental cost of the relevant

parcel.” He also stated in his report that “the diminu-

tion in revenue [i.e., diminution in value] is superior

to the diminution in profit measure for a number of

reasons.” The record therefore clearly demonstrates

that, although Dr. Reiff agreed that diminution in

return could be used, he limited his agreement to

using that metric only when incremental costs, and

not total costs, were the underlying cost basis.

We understand that, in our prior opinion, we

suggested that the diminution in return might be the

more appropriate metric. See Rose Acre IV, 373 F.3d

at 1188-89. That language was clearly dicta, albeit

unfortunate dicta. Our statement, however, stemmed

from a framing of the issues less clear than presently

before the court. Rose Acre’s initial contentions

regarding economic harm illustrate how the ambi-

guous definition of the parcel of allegedly taken

property led to some imprecise and unnecessary

23a

language in our first opinion. When first filed, Rose

Acre’s suit sought over $21 million in damages,

excluding interest. Rose Acre III, 55 Fed.Cl. at 653.

The damages stemmed from alleged wrongs far wider

than currently under consideration:

(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 obligations; (8)

storage costs for restricted eggs; (9) losses due to

disruption of overall business; and (10) interest.

Id. Accordingly, the trial court’s approach examined

much more than the 135 million dozen egg parcel

that is all that is now under examination. For

instance, the trial court asserted that “[t]he effective-

ness of safe-handling instructions” was a key point in

reviewing the takings claims. /d. at 654. The trial

court noted that egg producers such as Rose Acre

incurred losses because they “expend additional

capital during downtime for cleaning and disinfec-

tion.” Id. at 658.

We think the proper framing of the issue requires

us to refocus on the approximately 135 million dozen

eggs produced at the three farms, and not the three

farms as a business. Rose Acre itself argues that the

relevant parcel of property is the eggs. Rose Acre Br.

37 (“It is the eggs produced on the three farms during

the period of restriction, and not the farms

themselves, that represent the ‘parcel as a whole,’

as the Government itself previously maintained.”);

see also Oral Arg. 30:27-32:00, available at http://

24a

oralarguments.cafc.uscourts.gov/mp3/2007-5169 (Rose

Acre’s counsel agreeing that the relevant parcel is the

“135 million dozen eggs that were produced on those

three farms during the relevant period”), Fur-

thermore, our remand instructions referred to at

most a 6.3% loss. Rose Acre IV, 373 F.3d at 1190.

This maximum limit for diminution in return neces-

sarily defined the proper parcel as the eggs and not

the business.

Despite our attempted clarification of the issues,

much of the expert testimony developed during the

remand trial continued to focus on alleged losses not

associated with the correct parcel of property.° The

report of Rose Acre’s expert is dominated by discus-

sion of alleged economic costs suffered by Rose Acre

as a business rather than on the diminished value

of the eggs. Specifically, in his expert report, Dr.

Just considered “[rjeduced [egg] production during

unrestricted periods as aging flocks awaited USDA

decisions about whether depopulation would be

required and the extent of cleaning that would be

required” and “([dJjisinfection costs associated with

USDA requirements beyond normal cleaning expense.”

His testimony during trial also emphasized the

importance of looking at the business as a whole. Dr.

® The confusion with respect to the parcel is best illustrated

by the fact that (1) Rose Acre’s expert opined at trial that the

parcel is the business, not the eggs; (1) Rose Acre’s counse!

asserted at oral argument before us that the parcel is the eggs,

not the business; (3) the government’s expert opined at trial that

the parcel is the eggs, not the business; and (4) the govern-

ment’s counsel asserted at oral argument before us that the

parcel is the “egg production operation, not the eggs.” We accept

responsibility for some of this confusion, but that does not

relieve us of our duty to apply the law based on the correct

parcel of property.

25a

Just opined that diminution in return was the proper

methodology because “it was the destruction of profit

that impacted Rose Acre as a business.” Rose Acre V,

2007 WL 5177409, at *5. Dr. Just dismissed any

usefulness in considering the diminution in value

because “[w]hen you look at the impact on an ongoing

business concern [like Rose Acre], it just doesn’t

make sense to look at only the value of an asset.” Jd.

But much of the alleged economic harm to which Dr.

Just referred is properly characterized as consequen-

tial damages, which are generally not compensable in

a takings case. See Yuba Natural Res., Inc. v. United

States, 904 F.2d 1577, 1581 (Fed.Cir.1990). At one

point, Dr. Just asserted that, if the court considered

“all of the losses,” Rose Acre “lost 699 percent of

profits over 19 months.” He equated that number to

being “equivalent to losing 100 percent of profits over

11 years. And that is a very substantial effect, and I

don’t see how most any business can survive that

kind of impact.” Such testimony clearly referred to

economic losses beyond the relevant parcel and was

inconsistent with our prior opinion, in which we held

that the diminution in profit metric could be “at most,

a reduction from a 4.8% profit to a 6.3% loss.” Rose

Acre IV, 373 F.3d at 1190. The government’s expert,

Dr. Reiff, criticized this testimony, explaining that

Dr. Just’s larger damages calculations “really relate

to a loss in value to the farms, not a loss to the rele-

vant parcel itself.” We think these criticisms are

valid, and the trial court should have considered

them.

The importance of properly defining the parcel

likely explains why Dr. Just’s testimony generally

misses the mark with respect to his choice of metho-

dology. As noted above, the eggs produced in the

three farms represent the proper parcel. Yet Dr.

26a

Just’s analysis was stuck on the business as an

ongoing enterprise. On direct examination, Dr. Just

explained his position as follows:

Q: Okay. What is—in your opinion, what is the

asset whose value that has been diminished

under this analysis that we would be trying to

understand here?

A: I don’t see the case as defined in terms of the

value of an asset that was diminished. I think it

was the profit from an ongoing business that was

diminished.

Later, when called to rebut the testimony of the

government’s witness, Dr. Just continued with his

message that the business as a whole was the parcel.

Q: Let me move on. Dr. Just, if you were to apply

the diminution in value approach, that’s the

other approach that was referenced by the

Federal Circuit, how would you apply that

approach to Rose Acre’s three farms?

A: Well, I see diminution in value as an approach

that is appropriate for valuing an asset .... In

this case you have a flow of profit, which I think

calls for the diminution in profit approach. But if

you were to try to use a diminution in value

approach in this case, you might look at the

value of the three farms the day before the

restriction was placed and compare that to the

value of those three farms when the restrictions

were imposed.

In further explaining his answer, Dr. Just

criticized Dr. Reiffs reliance on the value metric:

“What Dr. Reiff has done is tried to use the value

approach by using the eggs as an asset. The eggs are

27a

not the asset in this case, and so that’s why the

return—or diminution in profit is the appropriate

approach to use here.” When we review this testi-

mony in light of our holding that the correct parcel is

the eggs, it obliterates Dr. Just’s opinion that the

diminution in return is the proper metric. Once the

parcel is defined as the eggs—and we see no reason

why the eggs are not an asset of the company—Dr.

Just’s statement that diminution in value is “an

approach that is appropriate for valuing an asset” is

further confirmation that we ought to rely on the

value metric rather than the return metric.®

Dr. Just also testified that he was amazed how a

company could keep going based on a diminution in

profit of 219%. But that number by itself is actually

misleading as to the economic effect on Rose Acre as

an ongoing business concern. The 219% number

reflects the lost profit of only three out of Rose Acre’s

total of nine farms. We disagreed with the trial

court’s Rose Acre III opinion because it did not

“explicitly rest its conclusion that the impact was

severe on any appraisal of the effect of the restric-

tions relative to Rose Acre’s relevant unaffected

property interests.” Rose Acre IV, 373 F.3d at 1188. It

seems that this analysis is again absent. Simply

concluding that a 219% decrease in profits is severe is

not particularly enlightening unless that number is

put in the context of the business operation as a

whole. The 219% decrease in profits tells us nothing

about Rose Acre’s profitability as a whole during the

restricted period. If we could conclude anything, it is

® Certain assets may be analyzed in terms of a stream of

future revenue deriving from the assets, in which case diminu-

tion in return might be a useful metric, but the eggs here are

not amenable to such an analysis.

28a

perhaps through Rose Acre’s own expert who

confirms that Rose Acre was able to absorb the cost of

complying with the regulations by relying on the

profits generated from the other six farms. If the

proper parcel were the business as an ongoing enter-

prise, then we would have to understand how the

219% diminution in return compared to the profits

Rose Acre earned from the six unaffected farms.

Rose Acre also places much reliance on the inter-

vening decision in Cienega Gardens v. United States,

503 F.3d 1266 (Fed.Cir.2007), cert. dismissed, _ U.S.

_, 129 S.Ct. 17, 171 L.Ed.2d 921 (2008), but its

reliance is misplaced due to the substantial factual

differences between Cienega Gardens and the present

dispute. Cienega Gardens involved a complex regula-

tory scheme intended to encourage investment in

low-cost rental housing. Jd. at 1270-74. The asserted

property right was not in a tangible asset or even a

piece of land but rather the contractual right to

prepay certain mortgages without subjecting the

property owner to new financial limitations on

permissible rental rates. Jd. at 1274. Overreliance on

factually dissimilar situations, such as the one in

Cienega Gardens, muddies a regulatory takings

analysis because, as the Supreme Court has repeat-

edly cautioned, such an analysis inherently “is

characterized by an ‘essentially ad hoc, factual

inquir[y]’ designed to allow ‘careful examination and

weighing of all the relevant circumstances.” Tahoe-

Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning

Agency, 535 U.S. 302, 322, 122 S.Ct. 1465, 152

L.Ed.2d 517 (2002) (quoting Penn Cent., 438 U.S. at

124, 98 S.Ct. 2646, and Palazzolo v. Rhode Island,

533 U.S. 606, 636, 121 S.Ct. 2448, 150 L.Ed.2d 592

(2001) (O’Connor, J., concurring)).

29a

The factual differences between Cienega Gardens

and the present case also lead us to the issue of the

SE regulations’ duration. We noted in our previous

opinion that “the court should also consider the signi-

ficance of the fact that the regulations restricted Rose

Acre’s operations temporarily—for a period of about

two years.” Rose Acre IV, 373 F.3d at 1195. The trial

court acknowledged that the regulatory time period

was “relatively brief,” but it nonetheless concluded

that the impact was severe. Rose Acre V, 2007 WL

5177409, at *7. Rose Acre’s expert, Dr. Just, explained

that, aithough the regulation was in effect for only

twenty-five months, the lost value was equivalent to

three-and-a-half years worth of profit. Jd. Hearing

Dr. Just’s testimony that a “219.2% loss of profits is

‘equivalent to losing 100 percent of profits over 3 1/2

years,” the trial court concluded that the economic

impact was severe and weighed heavily in favor of

Rose Acre, despite the short regulatory duration. Jd.

Defining the parcel of property as the eggs,

however, clarifies the weight properly afforded the

duration of the regulation. When the property

allegedly taken is a discrete asset, such as a food

commodity, the duration of the regulation becomes

less important in the overall analysis. The totality of

the economic loss, for purposes of a takings analysis,

is generally captured by the diminution in value

metric, when the “taken” property is food or another

commodity. The timing of the regulation is generally

more important in cases where, for various reasons,

it is more difficult to calculate the financial devalua-

tion. See, e.g., Tahoe-Sierra, 535 U.S. at 307-12, 122

S.Ct. 1465 (addressing a taking claim due to a delay

in permitting); First English Evangelical, 482 U.S.

at 307-10, 107 S.Ct. 2378 (temporary restriction on

right to rebuild on land in a flood zone); Appolo Fuels,

30a

Inc. v. United States, 381 F.3d 1338, 1351-52

(Fed.Cir.2004) (delay in issuing a permit for mining);

Am. Pelagic Fishing Co. v. United States, 379 F.3d

1363, 1367-69 (Fed.Cir.2004) (permitting case). For

these reasons, the duration of the temporary restric-

tions does not strongly favor Rose Acre’s claim.

Because the parcel of property is now clearly

defined as the diverted eggs themselves, we are

convinced that it was clear error to place sole reliance

on the diminution in return metric. The eggs are a

discrete asset, the market value of which is readily

ascertainable. Indeed, as mentioned above, the

parties do not materially dispute the average market

value of the eggs in the table market versus the

breaker during the regulated period. These data

provide a clear picture of the decrease in value of the

eggs.’

’ This is not to say that, in other circumstances, a factfinder

may never rely solely on diminution in return to assess the

economic impact of the regulation. In this case, however, we

need not decide whether the trial court should have looked only

at diminution in value without consideration of diminution in

return. Thus, we do not hold that it is never proper to consider

diminution in return as one proper metric in assessing a takings

claim even when the property subject to regulatory action is a

discrete asset, such as some commodity. Certain circumstances

not presented to us here may support a more balanced

examination of multiple economic indicators. Other mathemati-

cal formulations or certain normalization algorithms could

perhaps render moot our concerns stated above about the

diminution in profit metric. Conversely, upon a more searching

analysis of the analytical methods, a court might conclude that

diminution in return is never appropriate when analyzing

certain classes of non-categorical takings claims. None of this

need we decide today. Therefore, we leave those issues for

future cases.

3la

Instead, when we consider all three offered metrics

of economic impact, with the primary weight given to

the diminution in value, we conclude the trial court

clearly erred in determining that Rose Acre suffered

a severe economic impact due to the SE regulations.

Rose Acre points to no case in which a court has

found a diminution in value of 10% as being severe or

as favoring a taking. Additionally, the infirmities in

the diminution in return metric, as discussed above,

warrant against placing much, if any, weight on that

calculation on the facts of this case. We hold

therefore that, although the monetary loss to Rose

Acre was not insignificant, it did not even approach

the level of severe economic harm and thus does not

strongly favor Rose Acre.

Finally, the government requests that we consider

the off-setting economic benefits of the regulation,

which, according to the government, the trial court

ignored. In doing so, the government urges that

“common sense” dictates some consideration of the

beneficial effects which the SE regulations had on

Rose Acre’s business and the egg industry as a whole.

Under certain circumstances, regulatory action may

confer an economic benefit on a party subject to the

regulation. See Cienega Gardens, 503 F.3d at 1283

(“The Supreme Court in Penn Central clearly held

that offsetting benefits must be accounted for as part

of the takings analysis itself.” (citation omitted)).

Here, the government points to no economic data in

the record to support its assertion of offsetting

benefits.

B. Reasonable Investment-Backed Expectations

In Rose Acre IV, we affirmed the trial court’s ruling

with respect to Rose Acre’s reasonable investment-

32a

backed expectations. We summarized the trial court’s

analysis as follows:

The trial court noted that, although the poultry

industry in general is highly regulated, govern-

ment experts previously believed that salmonella

could contaminate the interior of a shell egg only

via a crack or break in the shell. [Rose Acre III,

55 Fed. Cl.] 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

foodborne diseases). Accordingly, prior to 1990,

eggs were subject only to inspection and restric-

tion for evidence of potential environmental

contamination.

Rose Acre IV, 373 F.3d at 1191.

Disagreeing with the government’s view, we con-

cluded that “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.” Jd. Thus, we held

that, “even accounting for the history of regulation in

the poultry and egg industries, we cannot agree that

the trial court erred in concluding that this factor

favors Rose Acre.” Jd. On remand, the trial court had

no reason to reevaluate this factor; it thus remains in

Rose Acre’s favor.

C. Character of the Government’s Action

In Rose Acre III, the trial court found that the

character of the government’s regulations favored

Rose Acre. The trial court “conclude[d] the SE regula-

tions were misguided because they relied on ineffec-

33a

tive testing methods.” Rose Acre III, 55 Fed.Cl. at

660. The court also concluded that Rose Acre “shared

a disproportionate amount of the burden of the SE

regulations.” Id.

In our prior decision, we reversed the trial court’s

conclusion with respect to the character of the

government’s action. Rose Acre IV, 373 F.3d at 1195.

We held this conclusion to be erroneous because, in

part, the trial court’s “misgivings about the regula-

tions are primarily based on its finding that a less-

burdensome, alternative regulatory scheme—egg

testing—was feasible.” Jd. at 1193. We explained,

however, that “the issue is not whether a less restric-

tive alternative to the government action existed or

was ‘possible.’ It is whether there is a nexus between

the regulation and its underlying public purpose.” /d.

at 1194 (emphasis in original) (citing Nollan v. Cal.

Coastal Comm’n, 483 U.S. 825, 837, 107 S.Ct.

3141, 97 L.Ed.2d 677 (1987)). We faulted Rose Acre

because it neither argued nor showed “that the

regulatory means were inconsistent with knowledge

the government possessed at the time they were

adopted or applied against Rose Acre.” Jd. at 1195.

Between the time we remanded the case and the

time the trial court rendered its decision, the

Supreme Court changed the takings landscape with

its decision in Lingle v. Chevron U.S.A. Inc., 544 U.S.

528, 125 S.Ct. 2074, 161 L.Ed.2d 876 (2005). In a

unanimous retreat, the Supreme Court discarded the

“substantially advances” test set forth in Agins uv.

City of Tiburon, 447 U.S. 255, 100 S.Ct. 2138, 65

L.Ed.2d 106 (1980). Lingle, 544 U.S. at 540, 125 S.Ct.

2074. In doing so, the Court marked a clear distinc-

tion between substantive due process analysis and

Fifth Amendment takings analysis. Jd. Although the

34a

Court had admittedly discussed and approved the

“substantially advances” language over the inter-

vening twenty-five years, the Court concluded that it

had never held a compensable taking based on the

Agins test. Id. at 546, 125 S.Ct. 2074. The Court thus

reaffirmed the outcome in cases such as Keystone

Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470,

107 S.Ct. 1232, 94 L.Ed.2d 472 (1987), in which the

“substantially advances” test was arguably applied.

The holdings of such cases, read in light of the

particular facts of each case, it ruled, remain viable

precedent. See Lingle, 544 U.S. at 546, 125 S.Ct. 2074.

The government argues that Lingle in no way

changes the analysis under Penn Central. We cannot

agree. The opinion’s language itself signals the

change in the law. E.g., Lingle, 544 U.S. at 544, 125

S.Ct. 2074 (“[T]he ‘substantially advances’ formula is

not only doctrinally untenable as a takings test—its

application as such would also present serious

practical difficulties.” (emphasis in original)). To the

extent that other circuits have had the chance to visit

the issue, those courts recognize that Lingle alters

the calculus. See Spoklie v. Montana, 411 F.3d 1051,

1058 (9th Cir.2005) (“[T}he Supreme Court has just

disavowed the use of the ‘substantially advances’ test

in takings claims . . . .”); see also Adams uv. Village

of Wesley Chapel, 259 Fed.Appx. 545, 549-50 (4th

Cir.2007) (unpublished). In addition to its effect on

the takings analysis itself, the Ninth Circuit has

noted that “Lingle pulls the rug out from under our

rationale for totally precluding substantive due

process claims based on arbitrary or unreasonable

conduct.” Crown Point Dev., Inc. v. City of Sun Valley,

506 F.3d 851, 855 (9th Cir.2007); see also A Helping

Hand, LLC v. Baltimore County, 515 F.3d 356, 369 n.

6 (4th Cir.2008) (observing that Lingle “explicitly

35a

distinguished between takings and substantive due

process claims” and thus substantive due process

claims based on property restrictions are not

supplanted by takings law).

State courts which have addressed Lingle have

come to a similar conclusion. See Vanek v. State Bd.

of Fisheries, 193 P.3d 283, 293 (Alaska 2008) (noting

Lingle’s demarcation between takings and due

process analyses); Kafka v. Dept. of Fish, Wildlife &

Parks, 2008 MT 460, 348 Mont. 80, 201 P.3d 8 9-10

(Mont.2008) (noting the Supreme Court’s “rejection of

the ‘substantially advances’ formula”); Scofield v.

Dep’t of Natural Res., 276 Neb. 215, 753 N.W.2d 345,

358-59 (Neb.2008) (appreciating Lingle’s clarification

of takings law); EZ Paso Prod. Co. v. Blanchard, 269

S.W.3d 362, 370 (Ark.2007) (setting aside any consid-

eration of the “substantially advances” test); Biddle v.

BAA Indianapolis, LLC, 860 N.E.2d 570, 577 n. 17

(Ind.2007) (“To the extent our prior decisions have

relied on the Agins formulation, they are overruled.”);

Mansoldo v. State, 187 N.J. 50, 898 A.2d 1018, 1024

(2006) (declaring that, in view of Lingle, “considera-

tions of ‘legitimate state interests)’ have no bearing

on whether the [state] regulation effected a taking”);

Gove v. Zoning Bd. of Appeals, 444 Mass. 754, 831

N.E.2d 865, 870 (2005); Wild Rice River Estates, Inc.

v. City of Fargo, 705 N.W.2d 850, 854 (N.D.2005)

(noting the disavowal of the Agins test by Lingle);

Coast Range Conifers, LLC v. State Bd. of Forestry,

339 Or. 136, 117 P.3d 990, 998-99 (2005); Byrd v. City

of Hartsville, 365 S.C. 650, 620 S.E.2d 76, 80 (2005)

(“To the extent that some of our previous cases have

applied Agins alone or both Agins and Penn Central,

we overrule them.”).

36a

Commentators have likewise expressed their

opinion that Lingle alters the takings landscape. See,

e.g., Robert G. Dreher, Lingle’s Legacy: Untangling

Substantive Due Process From Takings Doctrine, 30

Harv. Envtl. L.Rev. 371, 402 (2006) (“[Lingle] rejects

any normative component to takings law based on

considerations of the efficacy or wisdom of the

government’s actions.”); D. Benjamin Barros, At Last,

Some Clarity: The Potential Long-Term Impact of

Lingle v. Chevron and the Separation of Takings and

Substantive Due Process, 69 Alb. L.Rev. 343, 349

(2005) (“(IJt is undeniable that by eliminating the

substantially advance standard the Court took at

least a modest step in clarifying its regulatory

takings doctrine.”); John D. Echeverria, Making

Sense of Penn Central, 23 UCLA J. Envtl. L. & Pol’y

171, 200 (2005) (“Lingle, of course, jettisons the

substantially advances test as a free-standing test.”).

Thus, we can confidently say that, under Lingle,

the regulatory takings paradigm has changed. We

can no longer ask whether the means chosen by

government advance the ends or whether the

regulation chosen is effective in curing the alleged ill.

All those concerns, albeit relevant concerns in many

cases dealing with governmental regulations, are now

confined to a substantive due process inquiry. See

Equity Lifestyle Props., Inc. v. County of San Luis

Obispo, 548 F.3d 1184, 1194 n. 17 (9th Cir.2008)

(“Due process violations cannot be remedied under

the Takings Clause... .” (citing Lingle, 544 U.S. at

543, 125 S.Ct. 2074)). And, as we have noted

previously, the Seventh Circuit has long ago adjudi-

cated those due process claims of this case. See Rose

Acre I, 956 F.2d at 672-74.

37a

Because Lingle indeed altered the analytical

framework, the trial] court should have reassessed the

character prong of Penn Central. See Wopsock uv.

Natchees, 454 F.3d 1327, 1333 (Fed.Cir.2006) (“It is

well established . . . that law-of-the-case principles do

not bar a court from departing from earlier rulings

when there is ‘an intervening change of controlling

legal authority’... .” (quoting Toro Co. v. White

Consol. Indus., 383 F.3d 1326, 1336 (Fed.Cir.2004))).

In our prior opinion, we clearly applied the Agins test

when we were dealing with “the distinct issue of con-

sideration of ‘whether the regulation|s) appropriately

advance[d] a substantial government interest.” Rose

Acre IV, 373 F.3d at 1195 n. 15 (quoting Tahoe-

Sierra, 535 U.S. at 323, 122 S.Ct. 1465). That inquiry

is now obsolete. Although the trial court was, in part,

correct that “Lingle does not necessarily invalidate”

the character determination from Rose Acre IV, the

trial court also thought its character-prong analysis

from Rose Acre III “was likely the correct approach

under Lingle.” Rose Acre V, 2007 WL 5177409, at *8.

Given the significant change in the law effected by

Lingle and because we still disagree with aspects of

the approach set forth in Rose Acre III, we feel it

necessary to explain our reasoning in further detail.

Turning to what Lingle requires us to do rather

than what we cannot do, the Supreme Court

instructed that, instead of looking at the rationality

of the regulation, we must consider “the actual

burden imposed on property rights, or how that

burden is allocated.” 544 U.S. at 543, 125 S.Ct. 2074.

The Court likewise directed that “the magnitude or

character of the burden a particular regulation im-

poses upon private property rights” is an important

consideration, as the now-discarded “substantially

advances” test reveals nothing about that burden.

38a

Id. at 542, 125 S.Ct. 2074 (emphasis in original). The

Court also criticized a means-end analysis because it

does not “provide any information about how any

regulatory burden is distributed among property

owners.” Jd. (emphasis in original).

Applying these insights to our present case, the

undisputed facts indicate that the SE regulations did

not single out Rose Acre. Instead, the enacted rules

broadly applied to almost any egg produccr in the

United States. Specifically, the rules affected

“primary and multiplier breeding flocks used for the

purpose of producing progeny for commercial egg

production, and to egg production flocks used for the

purpose of producing table eggs for sale or other

distribution in interstate commerce.” 55 Fed.Reg. at

5578. The regulations admittedly did not apply to all

poultry flocks because USDA focused its efforts “on

controlling the spread of SE in the segments of the

poultry industry where the spread of SE is most

prevalent, i.e., egg-type flocks.” Jd. Additionally, the

rules affected only those farms, whether Rose Acre’s

or another company’s, which tested positive for SE.

Id. The SE regulations as enacted targeted no single

egg producer unless SE-infected eggs were traced

back to a particular farm and that farm tested

positive. Only then did an egg producer experience

the negative consequences of the SE regulations.

In Rose Acre’s view, however, the SE regulations

could, and perhaps should, have been drafted more

broadly. Specifically, because the regulations did not

cover food handlers and the egg-consuming public,

according to Rose Acre, the regulations’ burdens were

distributed “narrowly, and devastatingly, upon a few

egg producers like Rose Acre.” Additionally, the

company argues, Rose Acre, more so than any other

39a

egg producer, disproportionately suffered the conse-

quences of the regulation because Rose Acre’s eggs

could be traced back to its farms more easily than the

eggs of most other egg producers. These contentions

seem to approach or possibly step over the line drawn

in the sand by Lingle because, in some respect, they

challenge the effectiveness of the regulations, which

Lingle says we cannot do in a takings analysis.

Moreover, even if Rose Acre’s contentions are proper

considerations under Lingle, we do not think they are

sufficiently persuasive.

Based on this assessment then, even under Lingle’s

new approach, the character of the SE regulations in

this case do not favor Rose Acre. But, before deciding

this factor, we need to consider the related issue of

the public health and safety aspect of the SE regula-

tions. In our view, although Lingle alters one aspect

of analyzing regulatory takings, it leaves unchanged

a substantial body of case law concerning the charac-

ter prong. The asserted taking in Lingle had nothing

to do with the safety or health of the public. Rather,

Lingle addressed a law intended to modify the distri-

bution of wealth by “imposing certain restrictions on

the ownership and leasing of service stations by oil

companies.” 544 U.S. at 533, 125 S.Ct. 2074. The

state of Hawaii enacted the law “in response to

concerns about the effects of market concentration on

retail gasoline prices.” Jd. We think it is clear that

Lingle neither addressed nor disturbed Penn

Central’s consideration of the health and safety

aspect of the regulations. See Penn Cent., 438 U.S. at

125, 98 S.Ct. 2646. To put Penn Central, Lingle, and

the present case in the proper context, it will be help-

ful to summarize briefly the history and underlying

bases of food regulation by governments in a takings

analysis.

40a

For almost as long as food has been in commerce,

some “regulation” of food has existed. Cato, Pliny the

Elder, and Galen ali described recommendations or

warnings about the quality of prepared foods. See

George M. Burditt, The History of Food Law, 50 Food

& Drug L.J. 197, 197 (1995). See generally Peter

Barton Hutt & Peter Barton Hutt II, A History

of Government Regulation of Adulteration and

Misbranding of Food, 39 Food Drug Cosmetic L.J. 2

(1984). After the Dark Ages, England’s Parliament

in 1266 codified food laws which “prohibited the sale

of any ‘corrupted wine’ or any meat, fish, bread, or

water that was ‘not wholesome for Man’s body’ or

that was kept so long ‘that it loseth its natural

wholesomeness.” Peter Barton Hutt, Government

Regulation of the Integrity of the Food Supply, 4

Annual Rev. of Nutrition 1 (1984), reprinted in Peter

Barton Hutt, Richard A. Merrill, & Lewis A. Gross-

man, Food and Drug Law 1-2 (3d ed.2007).

In the United States, common law generally

governed early limitations on the right to sell certain

foods. Violations of those limitations incurred both

civil and criminal liability. “To be sure, it was a crime

at common law knowingly to sell bad food... .”

Lawrence M. Friedman, A History of American Law

461 (2d ed.1985). Early courts in the United States

imposing civil liability on a person for selling tainted

food did not necessarily base their rulings on legal

theories common today. In Van Bracklin v. Fonda, 12

Johns. Cas. 468, 468 (N.Y.Sup.Ct.1815), the court

affirmed a jury verdict for the plaintiff who, along

with others, had eaten beef that was “bad and

unwholesome.” The ruling in Van Bracklin sounded

in contract more than tort or nuisance law, but

nonetheless confirms that the right to sell food has

long been subject to certain strictures. As the law

4la

developed, courts accepted findings of liability based

on then-novel doctrines. “In the late 1800s, courts in

many states began imposing negligence and strict

warranty liability on commercial sellers of defective

goods.” Restatement (Third) of Torts: Products Liabil-

ity § 1 cmt. a (1998). In some cases, food manufactur-

ers were held liable for unwholesome food under a

theory of negligence. E.g., Jackson Coca-Cola Bot-

tling Co. v. Chapman, 106 Miss. 864, 64 So. 791, 791

(1914) (affirming a finding of liability when the plain-

tiff became ill after drinking from a cola bottle in

which a “wee, sleekit, cow’rin,’ tim’rous beastie’ [had]

drowned” (quoting Robert Burns, To A Mouse)). In

other instances, manufacturers of food were liable to

a consumer under a theory of implied warranty of

merchantability, for example, even though the manu-

facturer and consumer were not in privity of contract

because the consumer had purchased the food from

a retailer. E.g., Ward v. Morehead City Sea Food

Co., 171 N.C. 33, 87 S.E. 958, 958 (N.C.1916) (“The

authorities are numerous that there is an implied

warranty, that runs with the sale of food for human

consumption, that it is fit for food and is not danger-

ous and deleterious.”). Later courts perceived little

difference between the two theories. See Davis v. Van

Camp Packing Co., 189 Iowa 775, 176 N.W. 382, 392

(Iowa 1920) (allowing plaintiff to rely on either negli-

gence or implied warranty of wholesomeness against

manufacturer of beans). As commerce developed,

states turned to statutory law to define the rights of

property owners with respect to food products.

Although the courts effectively resolved individual

disputes between private parties involving unfit food,

systemic deficiencies in the nation’s food supply

persisted. In the latter half of the nineteenth century,

some states tackled the problem by increasingly

42a

enacting legislation which broadly regulated aspects

of the growing food trade. During the same period.

Congress considered numerous pieces of legislation

that would authorize federal regulation of the food

industry. Eventually, in 1906, Congress enacted the

Meat Inspection Act® and the Pure Food and Drugs

Act, the latter of which paved the way for the

creation of the FDA and the more comprehensive

Federal Food, Drug, and Cosmetic Act of 1938. Since

that time, the public has come to expect that federal

agencies will police the safety of the food products in

interstate commerce.

There is little doubt that it is appropriate to

consider the harm-preventing purpose of a regulation

in the context of the character prong of a Penn

Central analysis. See Appolo Fuels, 381 F.3d at 1351

(considering “government action designed to protect

health and safety” within the character prong of Penn

Central). Even long prior to Penn Central, the

Supreme Court considered health and safety in

® Earlier that same year, Upton Sinclair published his novel

The Jungle (1906), which tells the dark story of Jurgis Rudkis, a

young Lithuanian immigrant working in Chicago’s meatpacking

plants. Sinclair’s description of both the working conditions and

the meat processing itself inflamed the public’s concern about

the Chicago stockyards and food safety in general. At one point

in the novel, Sinclair explained how men working in the slaugh-

terhouses would sometimes fall into a vat of lard, and “they

would be overlooked for days, till ali but the bones of them had

gone out to the world as Durham’s Pure Leaf Lard!” Jd. at 117.

Whether that particular anecdote was true mattered not, as

Sinclair’s work spurred both President Theodore Roosevelt and

Congress to take action on pending legislation. See, e.g., Meat

Inspection Bill Passes The Senate, N.Y. Times, May 26, 1906, at

1 (reporting how the Senate’s passage of the bill was “the direct

consequence of the disclosures made in Upton Sinclair’s novel,

‘The Jungle”).

43a

takings cases. See, e.g., Miller v. Schoene, 276 U.S.

272, 280, 48 S.Ct. 246, 72 L.Ed. 568 (1928)

(upholding a law requiring the destruction of cedar

trees to prevent the spreading of cedar rust that

imperiled nearby apple orchards); Mugler v. Kansas,

123 U.S. 623, 668, 8 S.Ct. 273, 31 L.Ed. 205 (1887)

(rejecting a takings challenge to laws prohibiting the

production or sale of intoxicating beverages). In the

present case, we of course need not, and thus do not,

conclude that the federal government has an absolute

right to condemn or seize food, without any possible

liability, merely because, as here, the government

declares the food to be potentially dangerous or

unhealthy.

Turning to the government’s current position, at

times the government appears to argue for a per se

exception to a regulatory taking based on the regula-

tion’s public health purpose. In its opening brief, the

government writes that “Rose Acre has no private

property right dictating that the Government pay it

to stop using its property in a manner that threatens

public health.” Yet, it never goes so far as to assert a

blanket exception to the Penn Central analysis here.

And, during oral argument, government’s counsel

was less than resolute in arguing that the law

requires a per se exception to the Penn Central. But

the government did argue that the character of the

government’s act, protecting the public health by

identifying diseased eggs and forcing their owner to

remove them from the table market, weighs strongly

against finding a taking here. We agree.

Rose Acre, on the other hand, reads Lingle’s

characterization of Penn Central as a demotion of the

character prong to a secondary and optional factor.

Citing the Supreme Court’s description of Penn

44a

Central, Rose Acre contends that we can only

consider the public health aspect of the SE regula-

tions in a diminished and optional role. See Rose

Acre Br. 57 (arguing that “the Supreme Court deem-

phasized Penn Central’s character prong, holding it

‘may also be considered if relevant to the regulatory-

takings analysis”). Putting aside the question of

whether Lingle properly characterizes Penn Central,

and disregarding that the quoted sentence is in no

way a holding of Lingle, we do not believe Lingle

caused any diminution in the importance of the Penn

Ceniral character prong, at least with respect to

public health and safety regulations.

When we view what the law sets forth with respect

to the selling of food for human consumption, we

must recognize that—whether through criminal law,

nuisance law, or tort law—the law has long imposed

significant restrictions on the food-property owner. In

the present case, “the severity of the burden that

government impose[d] upon private property rights,”

Lingle, 544 U.S. at 539, 125 S.Ct. 2074, was not

impermissible because the SE regulations restricted

uses of personal property in which the restrictions

were directed at the protection of public health and

safety. That is the type of regulation in which the

private interest has traditionally been most confined

and governments are given the greatest leeway to act

without the need to compensate those affected by

their actions. See Jacob Ruppert, Inc. v. Caffey, 251

U.S. 264, 303, 40 S.Ct. 141, 64 L.Ed. 260 (1920)

(prohibition on sale of “near beer” in order to make

prohibition of alcoholic beverages more effective was

a regulation “for the preservation of the public

health” and not a taking); Purity Extract & Tonic Co.

uv. Lynch, 226 U.S. 192, 201, 33 S.Ct. 44, 57 L.Ed. 184

(1912) (noting the right of states to prohibit the sale

45a

of intoxicating liquors); N. Am. Cold Storage Co. wv.

City of Chicago, 211 U.S. 306, 315, 29 S.Ct. 101, 53

L.Ed. 195 (1908) (recognizing a state’s authority to

seize unwholesome food “based upon the right and

duty of the state to protect and guard, as far as

possible, the lives and health of its inhabitants”).

This assessment leads us to conclude that a regula-

tion ending the production and sale of such eggs in

the table market, although allowing their sale in the

breaker market, cannot be described as imposing an

undue burden on the egg producer. Furthermore, we

need not determine that the proscribed activity

constitutes a public nuisance in order to conclude

that the character prong favors the government.

See Bass Enters. Prod. Co. v. United States, 381

F.3d 1360, 1369 (Fed.Cir.2004) (rejecting appellants’

position that, “because oil and gas exploration is not

a public nuisance, the Court of Federal Claims

improperly considered the concerns for public welfare

in its Penn Central analysis”). Finally, for similar

reasons, we cannot conclude that the SE regulations

are “functionally equivalent to the classic taking in

which government directly appropriates private

property or ousts the owner from his domain.” Lingle,

544 U.S. at 539, 125 S.Ct. 2074.

In the end, the effect of Lingle in this case is for the

character of the government’s regulations to more

strongly favor the government than when we

examined the issue in Rose Acre IV.

D. Balancing of the Penn Central Factors

The purpose of the takings clause is to ensure

fairness, to both the property owner and the public.

See Armstrong v. United States, 364 U.S. 40, 49, 80

S.Ct. 1563, 4 L.Ed.2d 1554 (1960). When balancing

the factors adduced through the Penn Central analy-

46a

sis, our objective is to ascertain whether, in light of

those factors, it is unfair to force the property owner

to bear the cost of the regulatory action. In doing so,

we can look to the outcomes in other cases, recogniz-

ing however that reference to isolated facts in other

takings cases provides limited guidance. As

frequently reminded, a regulatory takings analysis is

generally an “ad hoc” analysis. Penn Cent., 438 U.S.

at 124, 98 S.Ct. 2646.

Litigants and commentators often put too much

emphasis on any one of the Penn Central factors,

based on the favorable outcome of prior cases.

Reminding a court, as Rose Acre does, that a taking

was found in Yancey when there was a diminution in

value of only 77% is practically useless without

further context. It is not that prior cases have no

precedential value. Rather, the holding of each case

must be carefully scrutinized and understood, within

the context of the particular facts, in order to apply

that holding faithfully in future cases. In other

words, there is no magic number or formula in

takings cases.

Furthermore, Yancey is quite distinguishable on its

facts from the present case. In Yancey, the USDA

imposed an emergency quarantine on poultry in an

effort to contain an outbreak of pathogenic Avian

Influenza, a highly contagious viral disease but

generally of little risk to humans. 915 F.2d at 1536.

The plaintiffs suffered a diminution of 77% in the

value of their turkey breeder flock. Jd. at 1539. Thus,

unlike the present case, Yancey resolved a takings

claim relating to governmental action causing a

substantial decrease in property value in the absence

of any significant threat of illness to the public. For

47a

at least this reason, Yancey yields little support for

Rose Acre’s position.

When we review all the factual findings above, we

conclude that they require a holding of no compensa-

ble taking. First, Rose Acre’s economic impact is not

severe. Second, although the reasonable investment-

backed expectations favor Rose Acre, they are not

strong enough to be dispositive. Third, the character

of the government’s regulations strongly favors a

non-taking.

For comparison purposes, we note that the present

case is quite similar as a whole to Maritrans. In

Maritrans, we held that no compensable taking

occurred when, in response to the 1989 Exxon Valdez

oil spill, Congress enacted legislation requiring

single-hulled oil tankers to be either retrofitted with

double hulls or phased out of service. 342 F.3d at

1348-49. The single-hulled oil tankers owned by the

plaintiff in Maritrans suffered a 13.1% diminution in

value. Jd. at 1358. That diminution in value is quite

similar to the approximately 10% loss in value of the

diverted eggs from Rose Acre’s three affected farms,

which were 43% of all the eggs produced there. We

also noted in Maritrans that

[t]he character of the governmental action factor

requires a court to consider the purpose and

importance of the public interest underlying a

regulatory imposition, by obligating the court to

“inquire into the degree of harm created by the

claimant’s prohibited activity, its social value

and location, and the ease with which any harm

stemming from it could be prevented.”

48a

Id. at 1356 (quoting Creppel v. United States, 41 F.3d

627, 631 (Fed.Cir.1994)).° We considered the law’s

public safety aspect, viz., “protecting the waterways

of the United States from oil spills for environmental

and navigational reasons.” /d. at 1357. We also

recognized that a finding in favor of the property

owner “would have the effect of creating a disincen-

tive for the government to enact publicly beneficial

laws by requiring compensation every time a statute

or regulation affects a property owner’s interests.” Jd.

In doing so, we concluded that the character of the

governmental action weighed against the property

owner. Id. at 1358. Thus, given the small diminution

in value and the importance of the public safety

aspect of the legislation, we affirmed the trial court’s

decision of no taking. That precedent, then, strongly

supports our holding here, for the cases are

analogous.

Although Rose Acre may feel otherwise, the law of

regulatory takings does not generally compensate

property owners when a regulation’s economic impact

is slight and temporary but the potential for physical

harm to the public is significant. Here, infected eggs

could have caused serious illness and possibly even

death.

CONCLUSION

For the foregoing reasons, we hold that Rose Acre

did not suffer a compensable taking when, due to the

SE regulations, approximately 43% of its table eggs

® While the language referring to “the ease with which any

harm” could be prevented arguably invokes the Agins test, the

other text refers to the question of whether the regulated activ-

ity constitutes a nuisance, as the quoted section from Creppel

was applying the nuisance analysis in Lucas. See Creppel, 41

F.3d at 631.

49a

were diverted to the breaker egg market, and where

the eggs had an approximately 10% lower market

value. Although Rose Acre’s reasonable investment-

backed expectations suggested a taking may have

occurred, the economic impact of the regulations was

not severe and the character of the government’s

actions strongly favored the United States. Returning

to the touchstone of regulatory takings law, we

conclude that, as analyzed under Penn Central, the

SE regulations were not functionally comparable to

government appropriation or invasion of private

property and that the regulations properly placed the

burden on Rose Acre to bear the costs associated with

ensuring that their eggs did not injure the public.

Accordingly, we hold that the United States is not

liable to Rose Acre for just compensation.

REVERSED

50a

APPENDIX B

UNITED STATES COURT OF APPEALS,

FEDERAL CIRCUIT

No. 03-5103

ROSE ACRE FARMS, INC.,

Plaintiff-Appellee,

Vv.

UNITED STATES,

Defendant-Appellant.

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

5la

(2003), as well as for hens seized for testing. Jd. at

662. The court misapplied, however, the standards

governing regulatory takings claims under Penn Cen-

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

98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). In particular, the

court incorrectly analyzed the severity of the eco-

nomic impact of the regulations and erroneously con-

cluded that the Penn Central factor pertaining to the

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 appro-

priate 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 busi-

ness 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 con-

tained 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 capaci-

ties ranging from 67,320 to 112,000 hens.

52a

The details of Rose Acre’s vertically integrated pro-

duction system are set forth in the trial court’s opi-

nion. 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 con-

tinues 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.

To maximize its production and provide a consis-

tent 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.

Il. USDA’s Salmonella Regulations

A. The Interim Regulations

In the late 1980s, the Centers for Disease Control

(“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,

' 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

53a

the Animal Plant Health and Inspection Service

(“APHIS”), a USDA division responsible for prevent-

ing 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 re-

stricted the interstate sale and transportation of eggs

and poultry from flocks determined under the regula-

tions to be SE-contaminated. Poultry Affected by

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 “[iJmmediate action . . . to prevent harm to

the egg-type chicken industry and the public.” Jd. at

5580.

The interim regulations applied to “flocks,” defined

as “[aJll 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.” Jd. § 82.32. A study flock was subse-

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 un-

dercooked 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.

54a

quently designated a “test flock” if either (1) “one or

more” environmental test samples, i.e., “manure sam-

ples and egg transport machinery samples .. . col-

lected 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 sam-

ples. Id. § 82.32(b). At the time the interim regula-

tions 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 “ho-

rizontal” (environment to hen) modes of SE trans-

mission).

“Test flock” status triggered restrictions on the in-

terstate movement of eggs. Specifically, eggs from a

test flock could be moved interstate only for uses re-

quiring pasteurization,” and then only if the shipper

obtained a permit and met other conditions. 9 C.F.R.

§ 82.33(a) (1991). Thus, the interim regulations pro-

hibited 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. Id. § 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. Id. § 82.33(a). An infected flock retained

? According to Rose Acre, such uses include incorporation into

products such as cake mixes. The facilities that process and pas-

teurize eggs for these uses are known as “breaker plants” and

the eggs they process are known as “breaker eggs.”

55a

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. Id.

§ 82.32(c).

B. The Final Regulations

After USDA reviewed comments received from in-

terested parties following the publication of the inte-

rim 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 f

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