COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION, еt al., Appellants v. FARM CREDIT ADMINISTRATION, et al. PRODUCTION CREDIT ASSOCIATION OF SOUTHEAST MISSOURI, Appellants v. FARM CREDIT ADMINISTRATION, et al. CHATTANOOGA PRODUCTION CREDIT ASSOCIATION, et al., Appellants v. FARM CREDIT ADMINISTRATION, et al.
Nos. 91-5077 to 91-5079
United States Court of Appeals, District of Columbia Circuit
Argued Jan. 31, 1992. Decided June 26, 1992
967 F.2d 648 | 296 U.S.App.D.C. 281
Before: EDWARDS, SILBERMAN, and HENDERSON, Circuit Judges.
Warren N. Davis, Mac Asbill, Jr., and Steuart H. Thomsen, Washington, D.C., were on the brief for appellee Farm Credit System Financial Assistance Corp. in 91-5077, 91-5078, and 91-5079.
Opinion for the Court filed by Circuit Judge SILBERMAN.
SILBERMAN, Circuit Judge:
The Farm Credit System (System) is а national network of federally chartered financial institutions whose purpose is to provide credit to the country‘s agricultural sector. Appellants are 20 financial institutions, known as production credit associations (PCAs), that are members of the System. PCAs are small, specialized banks, privately owned in cooperative form by their borrowers, that make short- and intermediate-term production loans directly to agricultural producers. See
The PCAs appeal from a district court judgment rejecting their challenge to the constitutionality of subsection 6.29 of section 201 of the Agricultural Credit Act of 1987, Pub.L. No. 100-233, 101 Stat. 1568 (1988) (codified at
Thе statutory provision at issue was enacted as part of a comprehensive bailout of the Farm Credit System. The System, which was originally established in 1916 and which took its modern shape during the New Deal, provides “a reliable and competitive source of capital” to agricultural enterprises and rural borrowers who have historically had difficulty securing access to private capital. H.R. REP. No. 100-295(I), 100th Cong., 1st Sess. 55, reprinted in 1987 U.S. CODE CONG. & ADMIN.NEWS 2723, 2726. Despite significant expansion in the nation‘s mainstream financial services sector since the System was established, Congress has continued to regard the credit provided by the System аs “essential to modern agriculture.” H.R.REP. No. 99-425, 99th Cong., 1st Sess. 7, reprinted in 1985 U.S.CODE CONG. & ADMIN.NEWS 2587, 2593.
During the period relevant to our case, the System was organized in three basic horizontal tiers. The Farm Credit Administration, which had overall regulatory and supervisory authority over the financial institutions, was at the top of the structure. See
A regulatory framework binds the various System institutions together, but the primary economic link between them—and the key to the System‘s effectiveness—is the System‘s funding mechanism. All System institutions, including the PCAs, are privately owned but obtain their funds principally from a single, central source:
This is an especially low-cost source of funds for System institutions, for, while Farm Credit securities are not backed by the full faith and credit of the United States, see
In the mid-1980s, the System experienced severe financial difficulty. A prolonged recession in the agricultural economy had resulted in declining land values and farm income, and debt burdens on individual agricultural borrowers had become onerous. Farmers were unable to pay off their loans, default rates increased, and the System suffered “massive losses.” H.R.REP. No. 100-295(I) at 56-57, 1987 U.S.C.C.A.N. at 2728-29. As the losses mounted, investor confidence in Farm Credit securities declined. The System‘s cost of funds accordingly increased, reducing profitability still further. System institutions, including the PCAs, asked Congress to bail out the System, and experts on farm credit told Congress that “outside financial assistance would be necessary at some point to keep the System viable.” Id. at 58, 1987 U.S.C.C.A.N. at 2729.
Although the Treasury bore responsibility for making portions of the interest payments on these obligations in the early years in which they were outstanding, the institutions of the Farm Credit System were required to reimburse the Treasury for any funds it expended. The Treasury‘s ultimate legal liability under the scheme, therefore, was that of a guarantor. See
Accordingly, the Act in its final form included the provision which gave rise to this litigation: a requirement that healthy institutions in the System make a one-time
Because most of the System‘s financial difficulties were concentrated in the land banks and most of its capital was located in the PCAs, the burden of this assessment fell disproportionately on the PCAs—at least the healthy ones. The total capital placed in the trust fund was approximately $177 million, of which approximately $48 million came from the 20 PCAs who brought this lawsuit.2 For appellants, that contribution was substantial. Although they maintained adequate capital and loan volume in the years following the assessment, they had to borrow funds to purchase the FAC stock, and the cost of servicing those loans caused a number of the formerly profitable PCAs to lose money.
Appellants filed suit in the district court for the District of Columbia, in which Congress had vested exclusive jurisdiction over challenges to the forced stock purchase. See
The district court, considering the due process claims, noted the extremely deferential standard that governs judicial review of economic legislation and upheld the statute as rationally related to a legitimate governmental purpose. See Colorado Springs Production Credit Ass‘n v. Farm Credit Admin., 758 F.Supp. 6, 9-12 (D.D.C.1991). The court then analyzed the takings claim under the three-part test for regulatory takings set forth in Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986). The first prong of Connolly considers the extent of a law‘s economic impact on the takings claimаnts. The district court concluded that “plaintiffs cannot show economic harm sufficient to support a determination that a taking has occurred.” Colorado Springs, 758 F.Supp. at 14. It relied on the continuing adequacy of the PCAs’ capital, the viability of their business prospects, and the “numerous benefits” the PCAs received from the 1987 Act. Id. Under the second of the Connolly factors, interference with reasonable investment-backed expectations, the district court acknowledged the private ownership of the PCAs but emphasized the “extensive supervision and control of the PCAs and the interdependent structure of [the] System” in holding that the PCAs shоuld have been on notice that they might be called upon to support the System. Id. at 15. Finally, the district court held with respect to the third Connolly factor that the governmental action was not in the nature of an appropriation of PCA assets for the government‘s own use; rather, the seized funds were used for the benefit of the private System institutions themselves. See id. at 16. The district court therefore determined that the challenged provision of the 1987 Act was not a taking.
The PCAs appealed the district court‘s rulings on the takings and due process
II.
Appellants argue that the district court erroneously analyzed this case under Connolly as a regulatory taking; the court should instead have treated it as a “per se taking,” which would be invalid without respect to the Connolly factors. And, even if the case were properly analyzed under Connolly, it is argued that the district court misapplied the factors and reached the wrong result, or, at a minimum, improрerly resolved the case at the summary judgment stage. Essentially, appellants would have us see the case as one in which the government took property from Peter (the appellants) to give to Paul (the sick financial institutions), or, alternatively, in which the government took property from appellants for its own independent use. We do not think either is a correct characterization of what occurred.
The government seized appellants’ funds, to be sure, but only as part of an overall legislative “transaction” in which appellants received enormous benefits. Prior to the рassage of the 1987 Act, the entire interdependent Farm Credit System was in danger of collapse. The PCAs’ own trial witness, Jim Billington, told Congress that without financial assistance, the Farm Credit System would perish due to “the cost or unavailability of funds.” Agricultural Credit Conditions, Problems, and Legislative Proposals Relating to the Farmers Home Admin., the Farm Credit Sys., and Comm‘l Farm Lenders: Hearings Before the Subcomm. on Conservation, Credit, and Rural Development of the House Comm. on Agric., 100th Cong., 1st Sess., pt. 2, at 1562 (1987) (hereinafter Hearings). According to another witness, without governmental intervention, some institutions would have defaulted on System bonds, sending the System‘s cost of funds soaring and triggering joint and several liability among the intermediate banks. And by the time the 1987 Act became law, many of the PCAs’ intermediate banks had accrued substantial accounts payable under private loss-sharing Capital Preservation Agreements with other System banks. See
The 1987 Act, along with an improving agricultural economy, rescued the System, and in doing so, also rescued the PCAs. The PCAs would not exist and probably could not survive apart from the System.3 Appellants do not argue that they could have survived a collapse of the System. They do not even suggest that, profitable as they were, they could have become stand-alone financial institutions competing for funds in the open money market. When Jim Billington warned Congress in 1987 about the System‘s imminent collapse, he explicitly noted that the PCAs’ demise would inevitably follow. See Hearings at 1562. The PCAs are hostages to the financial health of the System not just because of their critical dependence on the System‘s low-cost funding, but also by virtue of the requirement that they own stock in their intermediate farm credit banks. See
The bedrock principle of the Takings Clause, whatever doctrinal form cases interpreting it may take, has been consistently reiterated by the Supreme Court. It is that the Takings Clause is “designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be bornе by the public as a whole.” Armstrong v. United States, 364 U.S. 40, 49, 80 S.Ct. 1563, 1569, 4 L.Ed.2d 1554 (1960); accord Pennell v. City of San Jose, 485 U.S. 1, 9, 108 S.Ct. 849, 856, 99 L.Ed.2d 1 (1988); First English Lutheran Evangelical Church v. County of Los Angeles, 482 U.S. 304, 318-19, 107 S.Ct. 2378, 2387-88, 96 L.Ed.2d 250 (1987); Connolly, 475 U.S. at 227, 106 S.Ct. at 1027; Webb‘s Fabulous Pharmacies v. Beckwith, 449 U.S. 155, 163, 101 S.Ct. 446, 451, 66 L.Ed.2d 358 (1980); Penn Central Transp. Co. v. New York City, 438 U.S. 104, 123, 98 S.Ct. 2646, 2658, 57 L.Ed.2d 631 (1978).
One circumstance in which a burden cannot be said to belong totally to the public is when its correlative benefit does not flow to the public as a whole. Some laws provide a disproportionate benefit to certain persons, and efforts to require them to pay for those benefits do not offend the Constitution, even though the law itself might be in the general public interest. The notion of reciprocal benefit, or, in Justice Holmes’ words, “average reciprocity of advantage,” Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322 (1922), pervades the cases rejecting takings challenges.5 See, e.g., Ruckleshaus v. Monsanto Co., 467 U.S. 986, 1007, 104 S.Ct. 2862, 2875, 81 L.Ed.2d 815 (1984); Penn Central, 438 U.S. at 134-35, 98 S.Ct. at 2664-65; Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 394, 47 S.Ct. 114, 120, 71 L.Ed. 303 (1926). It also underlies at least two of the three Connolly factors.
A long line of Supreme Court decisions emphasizes that the government may compel a private party to surrender its funds without providing compensation if the government‘s use of those funds confers a significant, concrete, and disproportionate benefit on that party. In one of the earliest of these cases, the Court held that a state law requiring banks to pay deposit insurance premiums does not work a taking, because “the share of еach party in the benefit of a scheme of mutual protection is sufficient compensation for the correlative burden that it is compelled to assume.” Noble State Bank v. Haskell, 219 U.S. 104, 110-11, 31 S.Ct. 186, 188, 55 L.Ed. 112 (1911); see also Leonard & Leonard v. Earle, 279 U.S. 392, 396, 49 S.Ct. 372, 373, 73 L.Ed. 754 (1929) (rejecting oyster packers’ objection to state‘s seizure of 10% of oyster shells when the shells are used to reseed oyster beds and are therefore “used as greatly to advantage the business of packing“); Norwood v. Baker, 172 U.S. 269, 278-79, 19 S.Ct. 187, 190, 43 L.Ed. 443 (1898) (upholding special assessment of abutting property owners for road construction because of the “special or peculiar benefits accruing” to them). As long as the amount taken is “a fair approximation of the cost of the benefits supplied,‘” United States v. Sperry Corp., 493 U.S. 52, 60, 110 S.Ct. 387, 394, 107 L.Ed.2d 290 (1989) (quoting Massachusetts v. United States, 435 U.S. 444, 463 n. 19, 98 S.Ct. 1153, 1165 n. 19, 55 L.Ed.2d 403 (1978)).
Less tangible but similarly beneficial to the PCAs were the restructuring provisions of the Act. The forced stock purchase indirectly made available to the PCAs direct financial assistance from FAC in the event they required such assistance. See
These benefits were not vague, abstract, or indirect, running to the PCAs through their mere status as citizens. Rather, the benefits were substantial, concrete, and direct.8 The comparison between benefit and
The PCAs argue strenuously that the benefits they enjoyed were not special. They contend that they received no advantages from the Act not enjoyed equally by all other financial institutions in the Farm Credit System. Indeed, the sick institutions received more direct assistance than did the assessed PCAs, and the general benefits of lower interest costs accrue in proportion to an institution‘s loan volume rather than its unallocated retained earnings, the measure on which the assessment was based. In the eyes of the PCAs, the Act placed a disproportionate share of the cost of the bailout on their shoulders relative to other Farm Credit institutions, and this renders the statute fatally defective.
Appellants’ argument has an artificial quality, because it was obviously not feasible for the sick financial institutions to put up hard cash to contribute to the rescue of the System. Implicitly, therefore, appellants argue that the gоvernment, the American taxpayer, should have contributed more. In any event, the PCAs fundamentally misconceive the reciprocal benefit test. The question is not whether there were other subgroups who could or should have borne a greater share of the burden as a policy matter; the judiciary is not institutionally fitted to undertake such an inquiry. The Takings Clause does not require that the party whose financial assets are taken or transferred be the exclusive beneficiary of the government‘s use of those assets. See Penn Central, 438 U.S. at 133, 98 S.Ct. at 2663. If it did, all of the cases in which the Supreme Court has upheld special assessmеnts on property owners for street construction would be wrongly decided. See, e.g., French v. Barber Asphalt Paving Co., 181 U.S. 324, 21 S.Ct. 625, 45 L.Ed. 879 (1901); Norwood, 172 U.S. 269, 19 S.Ct. 187, 43 L.Ed. 443 (1898). Nor does the Takings Clause require that Congress accomplish its ends in the very best or fairest manner. See Sperry, 493 U.S. at 60-61, 110 S.Ct. at 393-94. If the government provides the burdened party with benefits that are a “fair approximation,” Massachusetts v. United States, 435 U.S. 444, 463 n. 19, 98 S.Ct. 1153, 1165 n. 19, 55 L.Ed.2d 403 (1978), of the value it has relinquished, that is enough.
The appellants seek to avoid confinement in this analytical framework—to escape our focus on the amount of benefit they received—by arguing that the forced stock purchase falls into the category of a “per se” taking. Compensatiоn is required for such a taking without a detailed inquiry into the government‘s purposes, the extent of the harm suffered by the property owner, or the social benefits that accompany the seizure. See, e.g., Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 434-35, 102 S.Ct. 3164, 3175, 73 L.Ed.2d 868 (1982); United States v. Causby, 328 U.S. 256, 261-62, 66 S.Ct. 1062, 1065-66, 90 L.Ed. 1206 (1946). Although per se takings typically involve a “permanent physical occupation” of real property, Loretto, 458 U.S. at 426, 102 S.Ct. at 3171, as appellants point out, the category has not been so limited: they argue it encompasses any seizure of property that 1) permanently and totally deprives the owner of its use, and 2) involves “required acquiescence,” FCC v. Florida Power Corp., 480 U.S. 245, 252, 107 S.Ct. 1107, 1112, 94 L.Ed.2d 282 (1987), which is to say that the owner is forced to surrender the property
Webb‘s Fabulous Pharmacies invalidated a Florida statute that took for Florida‘s courts the interest accruing on court-deposited interpleader funds. Appellants are correct that the Court did not undertake an analysis of the purposes and effects of the law in striking it down. See Webb‘s Fabulous Pharmacies, 449 U.S. at 163, 101 S.Ct. at 451. It is also true that the cаse involved a seizure of money, rather than real property. Appellants are wrong, however, in explaining why the Court invalidated the law as a per se taking and in defining the characteristics of such a taking. They ignore that the Court‘s decision in Webb‘s Fabulous Pharmacies was premised on the absence of the very condition that makes the seizure of the PCAs’ funds lawful in this case. The disposition there turned on the Court‘s conclusion that the exaction was “not reasonably related to the costs of using the courts.” Id. The parties to litigation in the Florida courts already paid a fee to cover the services rendered in cоnnection with the custody of the interpleader deposits, so Florida had no legitimate justification for taking the interest. That is, the seizure of the parties’ funds was not invalidated because it had certain abstract characteristics that placed it in a category of per se takings; rather, the law was struck down because it was so clearly devoid of justification under the substantive principles of takings law we have discussed. The core of the Takings Clause remains the same no matter what form the challenged governmental action takes: per se is merely a “shorthand means” of identifying a “distinct subsеt of governmental excesses that would invariably merit compensation were a fuller analysis undertaken.” Kmiec, The Original Understanding of the Taking Clause is Neither Weak Nor Obtuse, 88 COLUM.L.REV. 1630, 1665 (1988) (emphasis in original). That all permanent and total deprivations of money do not fall into that subset is clear; the Supreme Court has several times analyzed such deprivations as other than per se takings. See, e.g., Sperry, 493 U.S. at 62, 110 S.Ct. at 394; Hodel v. Irving, 481 U.S. 704, 714-17, 107 S.Ct. 2076, 2082-83, 95 L.Ed.2d 668 (1987); Connolly, 475 U.S. at 222-23, 225-27, 106 S.Ct. at 1024-25, 1026-27. Indeed, the Court‘s recent decision in Yee v. City of Escondido, 112 S.Ct. 1522, 118 L.Ed.2d 153 (U.S.1992), may well limit, if only implicitly, the category of per se takings to “unwanted physical occupation[s] of ... property.” Id. at 1531.
“Takings” of the type complained of in this case sеem to us to be essentially compelled contracts, and the courts need only police them for unconscionability. If the burdened party might well have contracted voluntarily for the arrangement ultimately imposed upon it by the government, there is no taking. We think that faced with the choice between governmental inaction coupled with continuing deterioration in the System as a whole, which, as we have seen, would likely have resulted in the System‘s and the PCAs’ demise, or the surrender of their excess capital and a comprehensive bailout, the PCAs would have rationally—if not certainly—surrendered their capital. This is so notwithstanding that a number of formerly profitable PCAs have been forced to endure several years of losses. Long-term survival through short-term losses is surely preferable to medium-term extinction. That the PCAs would rather have received federal assistance and kept their excess capital is immaterial; whatever amount they were compelled to pay for the help they received, a much larger portion of the assistance was
It is so ordered.