Federal Circuit Puts People Before Profits In Reversing Huge Verdict For Tainted Egg Producer

Today, in a victory for public health and safety, the U.S. Court of Appeals for the Federal Circuit reversed a lower court’s ruling that the U.S. must compensate egg producer Rose Acre Farms, Inc $5.4 million for profits lost after the government temporarily restricted sales of Rose Acres’ eggs due to salmonella contamination.

As we reported back in December, in 2006 the U.S. Court of Federal Claims determined that the Department of Agriculture’s regulations restricting interstate sale and transportation of contaminated eggs produced at three of Rose Acres’ farms constituted an unconstitutional taking under the Fifth Amendment. The Takings Clause of the Fifth Amendment provides that private property shall not “be taken for public use, without just compensation.” In considering whether there was a compensable taking following restriction of the sale of Rose Acre’s contaminated eggs, the lower court concluded that “[o]n balance, plaintiff’s severe economic loss and reasonable investment expectation outweigh government’s attempt to prevent the spread of salmonella,” awarding Rose Acre $5.4 million plus interest and legal fees.

CAC’s predecessor organization, Community Rights Counsel, filed an amicus brief in support of the government’s appeal of the ruling, in which we argued that “limitations on the sale of commercial goods to protect the public generally do not give rise to takings liability, notwithstanding their impact on value or profits.” Fortunately, the appeals court agreed in this case, and repudiated Rose Acre’s profit-based takings analysis, calling the court’s previous suggestion that loss of profits might be an appropriate measure “unfortunate dicta.”

Even if a loss of profits analysis were ever appropriate, the Federal Circuit agreed with our argument that Rose Acre’s “mere 10.6 percent loss cannot plausibly be viewed as a taking.” The Court held 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.”

CAC is delighted with the outcome of this case, which, in light of the recent discovery of salmonella in a major peanut processing plant, is a timely affirmation of the government’s ability to protect public health and safety against potentially harmful commercial goods. Moreover, the appeals court’s opinion corrects the lower court’s incorrect application of the Takings Clause of the Fifth Amendment, meaning today’s ruling is also a victory for those seeking a faithful adherence to the Constitution.