Free Reply to Response to Motion - District Court of Federal Claims - federal

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 1 of 12

IN THE UNITED STATES COURT OF FEDERAL CLAIMS AG-INNOVATIONS, INC., LARRY FAILLACE, ) LINDA FAILLACE, and HOUGHTON ) FREEMAN, ) ) Plaintiffs, ) ) v. ) ) UNITED STATES, ) ) Defendant. )

No. 05-776C (Senior Judge Bruggink)

DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION TO SUSPEND PROCEEDINGS In their opposition to the Government's motion to suspend proceedings (Pl. Opp.), plaintiffs, Ag-Innovations, Inc., Larry Faillace, Linda Faillace, and Houghton Freeman, erroneously contend that this matter should not be stayed because the matter before the United States District Court for the District of Vermont, Civil Case No. 1: 02-CV-332, could not possibly have any impact upon the proceedings in this case. Plaintiffs' contention that this case should proceed despite the fact that Ag-Innovations and the Faillaces (the Ag-Innovation plaintiffs) have challenged the lawfulness of the Government's imposition of a quarantine on their property in district court is not supported by applicable precedent. Plaintiffs are mistaken in their contention that Del-Rio Drilling Programs, Inc. v. United States, 146 F.3d 1358 (Fed. Cir. 1998), controls this case. Del-Rio represents a narrow exception to the general rule that this Court does not possess jurisdiction to entertain challenges to agency actions in the context of takings cases. Contrary to plaintiffs' contention, this case is governed by the general principle that, when a plaintiff has filed suit challenging the validity of governmental regulatory activity concurrently with its filing of takings claims arising from the same facts, the Court of Federal Claims' taking action should be stayed pending the resolution of the issues before district court.

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 2 of 12

Creppel v. United States, 41 F.3d 627, 633 (Fed. Cir. 1994); Loveladies Harbor, Inc. v. United States, 27 F.3d 1545, 1554-55 (Fed. Cir. 1994); Aulston v. United States, 823 F.2d 510, 514-44 (Fed. Cir. 1987). The Supreme Court explains the rationale for this practice in Lingle v. Chevron, ___ U.S. ___, 125 S. Ct. 2074, 2084 (2005): [I]f a [G]overnment action is found to be impermissible ­ for instance because it fails to meet the "public use" requirement or is so arbitrary as to violate due process ­ that is the end of the inquiry. No amount of compensation can authorize such action. Consistent with this, should the district court rule that the United States Department of Agriculture's (USDA) quarantine of plaintiffs' premises was unlawful, plaintiffs' taking claim stemming from the quarantine should be dismissed. Accordingly, this case should be stayed pending the resolution of the Vermont district court matter. ARGUMENT I. To Establish A Taking, Plaintiffs Must Demonstrate That The Government Acted In Pursuit Of A Valid Public Purpose

Plaintiffs contend that the Court should not stay these proceedings because, no matter how the district court rules, it would not have any impact upon the issue of whether plaintiffs can state a takings claim with respect to the quarantine. Pl. Opp. 3-6. Plaintiffs are incorrect. As the Supreme Court ruled in Lingle, 125 S. Ct. at 2084, "the Takings Clause presupposes that the [G]overnment has acted in pursuit of a valid public purpose." It requires compensation "`in the event of otherwise proper interference amounting to a taking.'" Id., quoting First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304, 315 (1987) (emphasis in Lingle). No taking can occur, nor can compensation be mandated if the "public use" requirement has not been met. Lingle, 125 S. Ct. at 2084.

-2-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 3 of 12

The "public use" requirement is essentially co-extensive with the legitimate police power authority. Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 239 (1984); Berman v. Parker, 348 U.S. 26, 32 (1954). The role of the courts "in determining whether the power [of eminent domain] is being exercised for a public purpose is an extremely narrow one." Berman, 348 U.S. at 32. The courts should not substitute their judgment for the legislature "`unless the use be palpably without reasonable foundation.'" Hawaii Housing, 467 U.S. at 241 (citations omitted). Under Berman, "[s]ubject to specific constitutional limitations, when the legislature has spoken, the public interest has been declared." Berman, 348 U.S. at 32. It logically follows that an action that is contrary to a statute or is inconsistent with a rule or regulation cannot be for a public purpose and cannot be a taking for "public use." The public cannot be required to pay compensation for property it has no legal right to receive. II. Del-Rio Does Not Control The Disposition Of The Government's Motion To Suspend The Proceedings In This Case

Plaintiffs contend that the matters which are before the Vermont district court could not possibly impact this case because they implicate only the "legality" of the USDA's quarantine action and not whether USDA's actions were "unauthorized." Pl. Opp. 4-6. Plaintiffs are wrong. Lingle clearly states that, when the Government's actions have been found to be unlawful or legally invalid for a variety of reasons, no taking can occur, nor can compensation be required. Lingle, 125 S. Ct. at 2084. Plaintiffs read Del-Rio, supra, much too broadly. In DelRio , the Federal Circuit recognized that, under some circumstances, a question about the legal validity of the Government action will not bar a taking claim.

-3-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 4 of 12

A.

Del-Rio Establishes A Narrow Exception To The General Rule That This Court Should Not Entertain Challenges To The Validity Of The Government's Actions In Takings Cases

In Del-Rio, the plaintiffs, firms which had acquired subsurface mineral leases from the Department of the Interior, alleged that the Government effected a taking by refusing to grant them access to their mineral rights, absent permission from the Ute Indian Tribe, based upon the Government's previous transfer of title to the surface estate to the United States as trustee for the Tribe. Del-Rio, 146 F.3d at 1361. Government officials had taken the position that the Tribal Consent Act (TCA), which had been enacted prior to the issuance of the leases, required them to grant the Tribe a veto over the plaintiffs' exploitation of their leases. Id. In their taking claim, the plaintiffs challenged the Government's position and contended that they were entitled to access to their subsurface mineral leases without having to comply with the TCA. The Federal Circuit concluded that the validity of the Government's position was a necessary part of the claimant's case. Id. at 1366. In other words, if the Government was correct that the TCA required the plaintiffs to obtain the Indians' consent, then their leaseholds were encumbered by the TCA's restriction from the time at which the Government issued the leases, and the plaintiffs did not have a property interest from which they were deprived. Id. at 1364. Distinguishing Del-Rio from the line of cases stemming from Aulston, supra, the Federal Circuit in Del-Rio ruled that the plaintiffs were not required to pursue a separate legal action in some other court prior to seeking relief in the Court of Federal Claims. Del-Rio, 146 F.3d at 1364, 1366. Furthermore, it ruled that this Court has jurisdiction to entertain the issue of the scope of the plaintiffs' property interest that was the predicate to their takings claim. Id. at 1364. The court further ruled that the Government's error in its legal interpretation of the scope of the

-4-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 5 of 12

the plaintiffs' property rights did not bar their taking claim. In short, "the fact that the existence of a property interest may turn on the construction of a statute does not take this case outside the scope of the Tucker Act." Id. Therefore, it is clear that Del-Rio addressed the question of whether an inquiry into the legal validity of the Government action bars a taking claim in a very narrow context ­ when, for example, the legal issue is a question of whether the plaintiffs have a property interest which is sufficient to support a takings claim. Id. Del-Rio did not address the broader question of whether a legally invalid Government action, which is independent of the taking claim, can bar a takings claim. In Del-Rio, the court observed that the plaintiffs had not attempted to "overturn the [G]overnment action on the ground that it was contrary to some statute, regulation, or constitutional provision (other than the takings clause)." Id. at 1363. Nor was it essential to the claimant's case that the Government acted "unlawfully" when it canceled the plaintiffs' leases. Id. Thus, the holding in Del-Rio is confined to the situation in which an alleged legal error is a necessary part of the claims's taking claim, such as the determination of whether plaintiffs had a property right in the first place. Id. at 1364-66. This reading of Del-Rio is consistent with the Federal Circuit's later ruling in Rith Energy, Inc. v. United States, 247 F.3d 1355 (Fed. Cir. 2001). In Rith, the plaintiff acquired certain mineral leases and obtained a permit from the Office of Surface Mining Reclamation and Enforcement of the United States Department of the Interior (OSM). Id. at 1358, 1359. After Rith had mined its property for a period of time, OSM concluded that a portion of the property, upon which Rith was mining, contained high levels of potentially toxic materials that could contaminate the groundwater. Id. As a result, OSM suspended Rith's permit. Id. Rith did not

-5-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 6 of 12

appeal OSM's suspension of its permit and, for a short period of time, it was allowed to continue mining a portion of its property. Id. at 1359. In appealing the Court of Federal Claims' rejection of its taking claim, Rith, citing Del-Rio, attacked the lawfulness of OSM's rejection of its toxic materials handling plan. Id. at 1365. The Federal Circuit distinguished Rith's case from DelRio. Having forgone its challenge to the agency's action as being in violation of a statute or regulation, Rith was "not free to renew its challenge [of the agency's administrative actions] under the cover of a takings claim in the Court of Federal Claims." Id. at 1366. The Federal Circuit ruled that Rith was "required to litigate its takings claim on the assumption that the administrative action was both authorized and lawful." Id. (emphasis added). Despite the broad language in Del-Rio suggesting that unlawful action can be the basis of a taking claim, Del-Rio, 146 F.3d at 1363, the general rule is that, to proceed in the Court of Federal Claims on a takings claim, the actions must be presumed to be, not only authorized, but also lawful. See Lingle, 125 S. Ct. at 2084 (No taking can be found for an "impermissible [G]overnment action," for instance, one which "fails to meet the `public use' requirement or is so arbitrary as to violate due process."); Rith, 247 F.3d at 1366. B. This Case Does Not Fall Within the Del-Rio Exception

As we demonstrated in our initial brief, the Ag-Innovations plaintiffs challenge USDA's quarantine of their real property on four grounds: (1) USDA's alleged failure to comply with statutory requirements contained in 7 U.S.C. §§ 8306 and 8315; (2) USDA's alleged failure to follow certain administrative procedures, including the preparation of a decision memorandum which specifically justifies the imposition of a quarantine, prior to issuing the quarantine order; (3) USDA's alleged failure to follow any of its own procedures for addressing scrapie, an

-6-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 7 of 12

atypical transmissible spongiform encephalopathy of foreign origin (TSE), or Bovine Spongiform Encephalopathy (BSE); and (4) USDA's alleged failure to comply with the appropriate testing methodology for the detection of TSE. App.1 10, 12-18, 26-27, 30-38, 62-63. Should the district court rule that (1) the USDA's imposition of the quarantine violated USDA's statutory or procedural prerequisites, or (2) the USDA acted arbitrarily and capriciously in quarantining the plaintiffs' sheep, plaintiffs' taking claim for the quarantine action would be called into question. In the first instance, USDA would not have satisfied the public use requirement and, in the second instance, USDA would have violated its due process requirements. As Lingle states, 125 S. Ct. at 2084, either finding by the district court would require the dismissal of plaintiffs' taking claim with respect to the quarantine of plaintiffs' property. The plaintiffs are trying to have it both ways. They have challenged the legality of the USDA's imposition of a quarantine in district court; yet, in filing their taking claim in this Court, they have presumed that the USDA acted for a valid public purpose and did not act arbitrarily or capriciously. Because of this contradiction, this Court should await the outcome of the district court proceedings to determine how it should proceed on plaintiffs' Fifth Amendment takings claims. II. Supreme Court And Federal Circuit Precedents Warrant The Imposition Of A Stay In This Case Plaintiffs contend that none of the cases the Government cites2 provides support for a stay

1

Appendix to Defendant's Motion to Suspend Proceedings, dated November 22, 2005.

Pennsylvania Railroad Co. v. United States, 363 U.S. 202, 205-06 (1960); Creppel, 41 F.3d at 632-33; Loveladies, 27 F.3d at 1555-56; Aulston, 823 F.2d at 514. -7-

2

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 8 of 12

of proceedings in this instance. Pl. Opp. 7-8. Plaintiffs are wrong. All four of the cases discuss the question of what this Court should do if a plaintiff (1) has either pursued a related claim in another forum concurrently with its claim in this Court (or its predecessor court), or (2) has failed to raise a claim in this forum in a timely manner, while pursuing its claim in another forum. The problem in Pennsylvania R.R. and Loveladies arose "when a [F]ederal government agency exercised its regulatory power in a manner that raise[d] questions both of the validity of the exercise and, if valid, the economic consequences of the exercise." Loveladies, 27 F.3d at 1554. In Loveladies, the court specifically ruled that, in takings cases, "if the validity of the regulatory imposition is to be challenged [in a district court], it makes sense to pursue the validity question first so as to determine the necessity of prosecuting the [plaintiff's] takings claim." Id. at 1555. The Loveladies decision is directly on point. Plaintiffs contend that this case should be distinguished from Loveladies because 28 U.S.C. § 1500 has not been implicated in this case. Pl. Opp. 7. Plaintiffs' argument is not compelling. The Federal Circuit in Loveladies rejected the Government's argument that the Court of Federal Claims lacked jurisdiction to entertain the plaintiff's taking claim because "the claims in the two courts [were] for distinctly different and not the same or even overlapping relief." Id. at 1554, citing Keene Corp. v. United States, 508 U.S. 200, 215-17 (1993). Having learned from the Federal Circuit's decision in Loveladies, the Government has not raised the 28 U.S.C. § 1500 defense in this case. Moreover, the Federal Circuit decision does not rely upon the same reasoning to justify a stay as it uses to decide the 28 U.S.C. § 1500 issue. Compare Loveladies, 27 F.3d at 1548-54 with 27 F.3d at 1554-55. The reasoning the Federal Circuit used in Creppel, 41 F.3d at 632-33, further supports the

-8-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 9 of 12

Government's contention here that the Court of Federal Claims should suspend its proceedings in a takings case while a related claim, which challenges the validity of an agency action, is pending before the district court. As the court recognized in Creppel, the practice of staying a Court of Federal Claims takings case pending the disposition of the plaintiff's related claims in district court benefits the plaintiff, because it precludes the claimant from having to make the Hobson's choice of either to challenge the validity of the agency's action or to bring a takings claim. See Creppel, 41 F.3d at 633. Plaintiffs' contention that Pennsylvania R.R. and Aulston should be ignored because they pre-date Del-Rio is beside the point. See Pl. Opp. 7-8. As we demonstrated above, Del-Rio did not change the law. It merely carved out the narrow exception to the general rule that the Court of Federal Claims should not undertake an inquiry into the validity of the agency's actions. Rith, 247 F.3d at 1365-66. In takings cases, the Court presupposes that "the administrative action was both authorized and lawful." Id. at 1366. If a plaintiff seeks to challenge the lawfulness of an agency action, he may pursue injunctive relief in district court, whereas, if a plaintiff seeks to recover for an uncompensated taking (for claims in excess of $10,000), he should sue in the Court of Federal Claims. See id. at 1365. A plaintiff may seek relief in both fora at the same time, but Loveladies teaches us that the Court of Federal Claims should suspend its proceedings pending the district court's determination of whether the agency action was valid "so as to determine the necessity for prosecuting the takings claim." See Loveladies, 27 F.3d at 1555-56. Plaintiffs raise additional reasons for not suspending the proceedings in this case which are also not compelling. The fact that the plaintiffs in this case include Ag-Innovations, Inc., Larry and Linda Faillace, and Houghton Freeman and that Houghton Freeman is not a plaintiff in

-9-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 10 of 12

the Vermont district court case is irrelevant. See Pl. Opp. 3, 6-7. Should the Vermont district court strike down USDA's quarantine order with respect to the Faillace's property because it was invalid or unauthorized, that would also impact Mr. Freeman's takings claim. In addition, Regardless of the fact that the quarantine will expire in March 2006, see Pl. Opp. 3, 6-7, should the district court rule that USDA's quarantine was unlawful, plaintiffs may not be able to state a takings claim because of their inability to establish that the public use requirement has been met. Finally, until the issue of the lawfulness of USDA's quarantine action is resolved, the parties would be unable to determine what issues are in dispute and what should be the scope of discovery. This case should not proceed on any aspect of plaintiffs' takings case until the lawfulness of the quarantine has been finally resolved. To do otherwise would, at the very least, run the risk that the parties would have to duplicate their discovery efforts once the question of the lawfulness of USDA's quarantine action is resolved. Such duplication is unnecessary given that the Federal Circuit has recognized that what makes the most sense is to stay the proceedings in this case pending the outcome of plaintiffs' district action challenging the agency's imposition of a quarantine upon the plaintiffs' property. Loveladies, 27 F.3d at 1554-56. CONCLUSION For the foregoing reasons and the reasons stated in our motion to suspend, we respectfully request that the Court stay the proceedings in this case pending final resolution of the lawfulness of the Secretary's issuance of the quarantine order. Respectfully submitted,

PETER D. KEISLER Assistant Attorney General

-10-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 11 of 12

/s/ David M. Cohen by James M. Kinsella DAVID M. COHEN Director

OF COUNSEL: DARLENE BOLINGER United States Department of Agriculture Office of General Counsel 1400 Independence Ave., S.W. Washington, D.C. 20250

/s/ Sheryl L. Floyd SHERYL L. FLOYD Senior Trial Counsel Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 307-0282 Facsimile: (202) 514-8624 Attorneys for Defendant

DECEMBER 16, 2005

-11-

Case 1:05-cv-00776-MMS

Document 12

Filed 12/16/2005

Page 12 of 12

CERTIFICATE OF FILING I hereby certify that on December 16, 2005, a copy of the "DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION TO SUSPEND PROCEEDINGS" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

/s/ Sheryl L. Floyd