Court Dismisses Commercial Fishing License Claims

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SandBar 7:1, Regulatory Takings Issue, April, 2008 Court Dismisses Commercial Fishing License Claims Palmyra Pac. Seafoods, L.L.C. v. United States, 80 Fed. Cl. 228 (2008). *Surya Gunasekara M.R.L.S., 1L, University of Mississippi School of Law* When the United States closed Palmyra Atoll to commercial fishing, several fishing licensees brought suit alleging a Fifth Amendment taking claim. The Unites States Court of Federal Claims held that there was a frustration of purpose but no taking of tangible property interests under the Fifth Amendment and subsequently granted the United States’ Rule 12(b)(6) motion to dismiss for failure to state a claim. Background Palmyra Atoll (Palmyra) and Kingman Reef are United States territories located approximately 1,000 nautical miles south of Hawaii. They are “surrounded by a 200 nautical mile United States Exclusive Economic Zone (EEZ) that excludes foreign fishing vessels.”1 During World War II the United States Navy established a base on Palmyra, which consisted of an airstrip, dock, harbor, and base camp. The Navy held the Kingman Reef until August 25, 2000, when it was transferred to the Department of the Interior. However, after World War II, the Fullard-Leo family defeated the United States in the Supreme Court to establish quiet title of Palmyra.2 The Fullard-Leo family held title to the emergent land of Palmyra until late 2000, when the family sold the atoll to The Nature Conservancy. Prior to the sale, the Fullard-Leo family assigned rights to Palmyra Development Co., Inc. (PDC), which included the right to convey an exclusive license for a commercial fishing operation on Palmyra and use of the former base infrastructure. These license rights were then assigned by PDC to Palmyra Pacific Enter prises, L.L.C. (PPE). On November 17, 2000, PDC and the Fullard-Leo family gave written consent for PPE to assign their license rights to PPE Limited Partnership (PPELP) and granted PPELP permission to sublicense its rights to Palmyra Pacific Seafoods, L.L.C. (PPS). Fol lowing this agreement PPS made substantial investments on Palmyra in preparation for developing a commercial fishing operation. On January 18, 2001 the tidal lands, submerged lands, and waters out to 12 nautical miles surrounding Palmyra and Kingman Reef were designated as a National Wildlife Refuge by order of the Secretary of the Interior. Six days later the Department of Interior (Interior) closed Palmyra and Kingman Reef to commercial fishing. In 2003 and 2006, The Nature Conservancy conveyed portions of its holdings on Palmyra to Interior to be included in the refuge. The plaintiffs PPS, PPE, and PPELP, alleged that the refuge designations prohibiting public access and commercial fishing on Palmyra and Kingman Reef left their various licenses, sublicenses, facility improvements, and fishing operations worthless. As a result, the plaintiffs argued that the government’s action constituted a taking of valuable property interests for public use without just compensation in violation of the Fifth Amendment. Motion to Dismiss Claim The United States moved to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief may be granted. The United States argued that the plaintiffs’ licenses were not cognizable property interests under the Fifth Amendment, but mere licenses, and thus not subject to the takings clause. The takings clause of the Fifth Amendmentprotects property interests by stating that private property shall not be taken for public use without just compensation.3 In evaluating whether a takings claims has been stated the court applies a two part test. “First, the court must determine whether plaintiffs have established a property interest for the purposes of the Fifth Amend ment.”4 Second, after the property interests in question have been identified, the court must determine if the government action constitutes a compensatory taking. The plaintiffs contended that they had a property interest in the series of contractual licenses which granted the exclusive, transferable right to use Palmyra for commercial fishing operations and these interests were protected by the Fifth Amendment. The United States argued that the plaintiffs only held licenses, which are not cognizable Fifth Amendment property interests. The court determined that this case hinged on the issue of whether the plaintiff actually possessed a protected property interest. In its analysis, the court relied on Colvin Cattle Co. v. United States, where the plaintiff alleged that the government had taken property interests in ranch and water rights after canceling on a long term grazing contract on an adjacent pasture.5 In Colvin Cattle, the federal circuit court found that despite the possible loss in value of the ranch from losing the grazing lease, there had not been a taking because the loss did not occur from government restrictions on a protected property interest. The court found the facts in Colvin Cattle to be analogous with the case at bar. Here, the plaintiffs had no property interest in the tidal lands, submerged lands, or surrounding waters. In fact, the Fullard-Leo family only had title to the emergent lands of Palmyra and thus lacked the ability to grant a license to the plaintiffs for any of tidal lands, submerged lands, or surrounding waters. Furthermore, the plaintiffs freely admitted that the government restrictions regarding the refuge only applied to the tidal lands, submerged lands, and surrounding waters to which the plaintiffs had no claim. Thus, the plaintiffs had not lost value in their licenses by virtue of the government restriction on commercial fishing surrounding their property interest. Since there had been no restrictions regarding the emergent land, the government had not imposed any restrictions on the plaintiffs protected property rights. What had occurred was a frustration of purpose of the commercial fishing licenses, as opposed to a Fifth Amendment taking. The court examined the Supreme Court case Omnia Commercial Co. v. United States, which held that the plaintiffs had suffered a frustration of purpose, but not a taking.6 In Omnia, the plaintiff had a large, long-term contract with a steel company at a low fixed price. The government re quisitioned all the steel from that company throughout 1918 in order to supply the demands for World War I and ordered the company not to fulfill any of its contractual obligations.7 The Supreme Court ruled that the loss of the contract was merely consequential and the Fifth Amendment takings clause did not provide a remedy. The Court subsequently denied the plaintiff’s takings clause claim holding that frustration of purpose and appropriation for public use are completely different. Applying Omnia, the court found that the purpose of the plaintiffs’ commercial fishing licenses had been frustrated by the closure of the surrounding waters to commercial fishing. However, the governmental action did not appropriate the rights which those licenses granted. Therefore, the court found that the government could not be liable under the plaintiffs takings claim. The plaintiffs relied on Cienega Gardens v. United States in an attempt to refute the claim that the government’s actions represented a frustration of purpose rather than a constitutional taking. In Cienega Gardens the Federal Circuit Court abandoned the principles set forth in Omnia, because the government action specifically targeted the plaintiff’s contractual rights.8 In the present case, the plaintiffs introduced several documents which they claimed demonstrated that the government action in creating the refuge was intended to nullify their licenses. The court rejected this argument stating that while in Cienega Gardens the governmental actions directly affected the contracts, in Omnia and this case the actions only regulated the subject matter of the contracts, steel, and commercial fishing operations respectively. Conclusion The United States Court of Federal Claims granted the United States’ motion to dismiss for failure to state a claim holding that the designation and closure of the Palmyra refuge frustrated the purpose of the plaintiffs’ licenses but did not violate the takings clause of the Fifth Amendment because the plaintiff was unable to assert a protected cognizable property interest. Furthermore, the court concluded that even if the plaintiffs’ licenses constituted a protected property interest, the plaintiffs were unable to “allege that the government’s designation of the Palmyra National Wildlife Refuge and closure of the refuge to commercial fishing directly regulated operations under those licenses.”9 Endnotes 1. Palmyra Pac. Seafoods, L.L.C. v. U.S., 80 Fed. Cl. 228 (2008). 2. U.S. v. Fullard-Leo, 331 U.S. 256 (1947). 3. U.S. Const amend. V. 4. Palmyra, 80 Fed. Cl. at 230 (citing Colvin Cattle Co. v. U.S., 468 F.3d 803, 806 (Fed. Cir. 2006)). 5. Colvin Cattle Co., 468 F.3d at 808. 6. Omnia Commercial Co. v. U.S., 261 U.S. 502 (1923). 7. Id. 8. Cienega Gardens v. U.S., 503 F.3d 1266 (Fed. Cir. 2007). 9. Palmyra, 80 Fed. Cl. at 236.
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SandBar 7:1, Regulatory Takings Issue, April, 2008

Court Dismisses Commercial Fishing License Claims

Palmyra Pac. Seafoods, L.L.C. v. United States, 80 Fed. Cl. 228 (2008).

Surya Gunasekara M.R.L.S., 1L, University of Mississippi School of Law

When the United States closed Palmyra Atoll to commercial fishing, several fishing licensees brought suit alleging a Fifth Amendment taking claim. The Unites States Court of Federal Claims held that there was a frustration of purpose but no taking of tangible property interests under the Fifth Amendment and subsequently granted the United States’ Rule 12(b)(6) motion to dismiss for failure to state a claim.

Background
Palmyra Atoll (Palmyra) and Kingman Reef are United States territories located approximately 1,000 nautical miles south of Hawaii. They are “surrounded by a 200 nautical mile United States Exclusive Economic Zone (EEZ) that excludes foreign fishing vessels.”1 During World War II the United States Navy established a base on Palmyra, which consisted of an airstrip, dock, harbor, and base camp. The Navy held the Kingman Reef until August 25, 2000, when it was transferred to the Department of the Interior. However, after World War II, the Fullard-Leo family defeated the United States in the Supreme Court to establish quiet title of Palmyra.2
      The Fullard-Leo family held title to the emergent land of Palmyra until late 2000, when the family sold the atoll to The Nature Conservancy. Prior to the sale, the Fullard-Leo family assigned rights to Palmyra Development Co., Inc. (PDC), which included the right to convey an exclusive license for a commercial fishing operation on Palmyra and use of the former base infrastructure. These license rights were then assigned by PDC to Palmyra Pacific Enter prises, L.L.C. (PPE). On November 17, 2000, PDC and the Fullard-Leo family gave written consent for PPE to assign their license rights to PPE Limited Partnership (PPELP) and granted PPELP permission to sublicense its rights to Palmyra Pacific Seafoods, L.L.C. (PPS). Fol lowing this agreement PPS made substantial investments on Palmyra in preparation for developing a commercial fishing operation.
      On January 18, 2001 the tidal lands, submerged lands, and waters out to 12 nautical miles surrounding Palmyra and Kingman Reef were designated as a National Wildlife Refuge by order of the Secretary of the Interior. Six days later the Department of Interior (Interior) closed Palmyra and Kingman Reef to commercial fishing. In 2003 and 2006, The Nature Conservancy conveyed portions of its holdings on Palmyra to Interior to be included in the refuge.
   The plaintiffs PPS, PPE, and PPELP, alleged that the refuge designations prohibiting public access and commercial fishing on Palmyra and Kingman Reef left their various licenses, sublicenses, facility improvements, and fishing operations worthless. As a result, the plaintiffs argued that the government’s action constituted a taking of valuable property interests for public use without just compensation in violation of the Fifth Amendment.

Motion to Dismiss Claim
The United States moved to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief may be granted. The United States argued that the plaintiffs’ licenses were not cognizable property interests under the Fifth Amendment, but mere licenses, and thus not subject to the takings clause. The takings clause of the Fifth Amendmentprotects property interests by stating that private property shall not be taken for public use without just compensation.3 In evaluating whether a takings claims has been stated the court applies a two part test. “First, the court must determine whether plaintiffs have established a property interest for the purposes of the Fifth Amend ment.”4 Second, after the property interests in question have been identified, the court must determine if the government action constitutes a compensatory taking.
   The plaintiffs contended that they had a property interest in the series of contractual licenses which granted the exclusive, transferable right to use Palmyra for commercial fishing operations and these interests were protected by the Fifth Amendment. The United States argued that the plaintiffs only held licenses, which are not cognizable Fifth Amendment property interests. The court determined that this case hinged on the issue of whether the plaintiff actually possessed a protected property interest.
      In its analysis, the court relied on Colvin Cattle Co. v. United States, where the plaintiff alleged that the government had taken property interests in ranch and water rights after canceling on a long term grazing contract on an adjacent pasture.5 In Colvin Cattle, the federal circuit court found that despite the possible loss in value of the ranch from losing the grazing lease, there had not been a taking because the loss did not occur from government restrictions on a protected property interest.
      The court found the facts in Colvin Cattle to be analogous with the case at bar. Here, the plaintiffs had no property interest in the tidal lands, submerged lands, or surrounding waters. In fact, the Fullard-Leo family only had title to the emergent lands of Palmyra and thus lacked the ability to grant a license to the plaintiffs for any of tidal lands, submerged lands, or surrounding waters. Furthermore, the plaintiffs freely admitted that the government restrictions regarding the refuge only applied to the tidal lands, submerged lands, and surrounding waters to which the plaintiffs had no claim. Thus, the plaintiffs had not lost value in their licenses by virtue of the government restriction on commercial fishing surrounding their property interest. Since there had been no restrictions regarding the emergent land, the government had not imposed any restrictions on the plaintiffs protected property rights.
      What had occurred was a frustration of purpose of the commercial fishing licenses, as opposed to a Fifth Amendment taking. The court examined the Supreme Court case Omnia Commercial Co. v. United States, which held that the plaintiffs had suffered a frustration of purpose, but not a taking.6 In Omnia, the plaintiff had a large, long-term contract with a steel company at a low fixed price. The government re quisitioned all the steel from that company throughout 1918 in order to supply the demands for World War I and ordered the company not to fulfill any of its contractual obligations.7 The Supreme Court ruled that the loss of the contract was merely consequential and the Fifth Amendment takings clause did not provide a remedy. The Court subsequently denied the plaintiff’s takings clause claim holding that frustration of purpose and appropriation for public use are completely different. Applying Omnia, the court found that the purpose of the plaintiffs’ commercial fishing licenses had been frustrated by the closure of the surrounding waters to commercial fishing. However, the governmental action did not appropriate the rights which those licenses granted. Therefore, the court found that the government could not be liable under the plaintiffs takings claim.
      The plaintiffs relied on Cienega Gardens v. United States in an attempt to refute the claim that the government’s actions represented a frustration of purpose rather than a constitutional taking. In Cienega Gardens the Federal Circuit Court abandoned the principles set forth in Omnia, because the government action specifically targeted the plaintiff’s contractual rights.8 In the present case, the plaintiffs introduced several documents which they claimed demonstrated that the government action in creating the refuge was intended to nullify their licenses. The court rejected this argument stating that while in Cienega Gardens the governmental actions directly affected the contracts, in Omnia and this case the actions only regulated the subject matter of the contracts, steel, and commercial fishing operations respectively.

Conclusion
The United States Court of Federal Claims granted the United States’ motion to dismiss for failure to state a claim holding that the designation and closure of the Palmyra refuge frustrated the purpose of the plaintiffs’ licenses but did not violate the takings clause of the Fifth Amendment because the plaintiff was unable to assert a protected cognizable property interest. Furthermore, the court concluded that even if the plaintiffs’ licenses constituted a protected property interest, the plaintiffs were unable to “allege that the government’s designation of the Palmyra National Wildlife Refuge and closure of the refuge to commercial fishing directly regulated operations under those licenses.”9

Endnotes
1. Palmyra Pac. Seafoods, L.L.C. v. U.S., 80 Fed. Cl. 228 (2008).
2. U.S. v. Fullard-Leo, 331 U.S. 256 (1947).
3. U.S. Const amend. V.
4. Palmyra, 80 Fed. Cl. at 230 (citing Colvin Cattle Co. v. U.S., 468 F.3d 803, 806 (Fed. Cir. 2006)).
5. Colvin Cattle Co., 468 F.3d at 808.
6. Omnia Commercial Co. v. U.S., 261 U.S. 502 (1923).
7. Id.
8. Cienega Gardens v. U.S., 503 F.3d 1266 (Fed. Cir. 2007).
9. Palmyra, 80 Fed. Cl. at 236.