Vessel Owner Awarded Over $37 Million for Temporary Taking

American Pelagic Fishing Company v. U.S., 55 Fed. Cl. 575 (2003).

Stephanie Showalter, J.D., M.S.E.L.

The United States Court of Federal Claims recently determined the amount of governmental compensation due to the owner of a fishing vessel as a result of a temporary regulatory taking. American Pelagic Fishing Company claimed a regulatory taking occurred when the federal government prevented its vessel, the Atlantic Star, from entering the Atlantic mackerel fishery.

Background
In early 1996, Lisa Torgersen began exploring fishing opportunities off the East Coast of the United States. During her research, Torgersen discovered documents published by the Mid-Atlantic Fishery Management Council urging large vessels to enter the East Coast herring and mackerel fishery and an International Trade Commission report that indicated mackerel fisheries in the United States were underutilized. Relying on this governmental information, Torgersen acquired a fishing vessel for $1.7 million. $34 million later, the newly renamed Atlantic Star was a state of the art freezer trawler, with the capacity to hold over 400 metric tons of fish. The vessel’s two engines generated over 13,000 horsepower. On board the Atlantic Star was the best freezing equipment available at the time and extensive processing equipment, including six refrigerated seawater tanks which could each hold 150 metric tons of fish. During the outfitting of the vessel, Torgersen applied for and received all the necessary fishing permits.1 In April 1997, ownership of the vessel passed to the American Pelagic Fishing Company (APFC) and the permits were re-issued by the National Marine Fisheries Service.

There was a great deal of commercial opposition mounted against the Atlantic Star project. In March 1997, the New England Fishery Management Council discussed the possibility of enacting restrictions based on vessel size and gear specifications. Also in 1997, bills were introduced in both the House of Representatives and the Senate proposing a moratorium on large fishing vessels in the Atlantic mackerel and herring fisheries. Although the bills were not enacted into law, Congress obtained a moratorium by attaching a rider to the 1997 Appropriations Act. The rider stated that:

none of the funds made available in this Act may be used to issue or renew a fishing permit or authorization for any fishing vessel of the United States greater than 165 feet in registered length or of more than 750 gross registered tons, and that has an engine or engines capable of producing a total of more than 3,000 horsepower.2

The rider also declared null and void for the 1998 fishing season any permit issued or renewed prior to the enactment date of the Act for any vessel to which the above prohibition applied. Identical language appeared in the 1998 Appropriations Act and, in 1999, the vessel-size limitation and permit revocations were made permanent through § 3025 of the Emergency Supplemental Appropriations Act. The Atlantic Star was the only vessel impacted by these revocations and prohibitions. Due to these provisions, the Atlantic Star could not participate in the Atlantic fisheries from December 1997 until June 1999, when APFC sold the Atlantic Star.

Temporary Taking
The federal government is prohibited from taking private property without providing the owner with just compensation.3 Even though the government did not take physical possession of the Atlantic Star, APFC is entitled to compensation if the government regulation deprived the company of all economically viable use of the Atlantic Star.4 However, because APFC was able to sell the vessel in 1999, the regulatory taking was of a temporary nature.

To determine whether a property owner has been denied all economically viable use of the property, courts will consider three factors: (1) the extent of government interference with investment-backed expectations, (2) the character of the governmental activity, and (3) the extent of the economic impact on the property owner.5 In a temporary regulatory takings case, courts will generally award compensation when the impact of the governmental regulation is so great that the property has basically been rendered idle.6
The court found that Torgersen and APFC had a reasonable expectation that the Atlantic Star could gain access to and prosper in the Atlantic mackerel fishery. The government reports and agency statements indicating that larger boats would be welcomed and productive in the East Coast mackerel fishery enticed APFC to pursue the purchase of the Atlantic Star. Further evidence of APFC’s reasonable expectation is the fact that the Atlantic Star received all the necessary permits. If not for the legislation in 1997, the Atlantic Star would have commenced fishing. Even though all fishing vessel owners take the risk that the regulatory scheme will change due to resource availability and other factors, the court held that APFC could not have foreseen the targeted revocation of its permits by Congress.7

The court also found that because the Atlantic Star was completely excluded from U.S. fisheries, the economic impact of the legislation was severe. Torgersen did attempt to find alternative commercial uses for the Atlantic Star, by participating in a research project and fishing off the coast of Mauritania - the only fishing area where the vessel could purchase fishing rights without losing its status as a U.S. vessel. Unfortunately, both ventures were unprofitable. The Atlantic Star was also unable to fish for herring in the western Atlantic because mackerel is an inevitable bycatch requiring a permit, which the vessel was prohibited from obtaining due to the new legislation. In addition, as a permit was required even for the possession of mackerel, the Atlantic Star could not be utilized as a mother ship for the transfer of other vessels’ catch. The denial of access to the Atlantic mackerel fishery clearly deprived APFC of any viable commercial use for the Atlantic Star.
When examining the character of the governmental actions, courts will take into account whether the action is retroactive and/or targeted at a particular individual.8 Both factors are present in this situation, which strongly supported APFC’s regulatory takings claim. The Appropriations Act retroactively voided the Atlantic Star’s permits and prohibited the issuance of permits in the future. In addition, the Atlantic Star was the only vessel impacted by the legislation. No other fishing vessels in the mackerel fleet were large enough to trigger the prohibitions. The Court of Federal Claims held that the federal government took APFC’s property, the right to fish in the mackerel fishery, from the enactment date of the 1997 Appropriations Act until the sale of the vessel in 1999.

Damages
A separate trial on damages was held in December, 2002. The court initially determined that, at least as of 1997, there were sufficient stocks of herring and mackerel in the western Atlantic to support Torgersen’s entry into the fishery, especially since the Atlantic Star was specifically designed to find and harvest such stocks. The court was also convinced that Torgersen and APFC could have developed a market for the harvested herring and mackerel in Japan and other overseas markets.

APFC sought compensation for the loss of the use of the Atlantic Star based upon the fair rental value of the vessel. Even though there was no existing rental market for such a vessel, a hypothetical rental value can be estimated from the reasonably established net revenue stream that would have been available to the vessel in the absence of the regulation. APFC’s expert established that the rental value of the Atlantic Star in December 1997, the month the taking commenced, was $44,742,926. The value of the vessel at the time of trial was estimated at $55,913,929. The government disputed these figures on several different grounds. The court, however, rejected most the government’s figures, highlighting the fact that the government experts were not disinterested witnesses, failed to possess a working knowledge of methods used by APFC’s experts, or provided inadequate support for their estimates.

In a final attempt to persuade the court that no taking occurred, the government argued that APFC was not harmed by the legislation because the company experienced a tax gain on the sale of the vessel, received insurance proceeds, and the company’s business decisions contributed to its losses. The court dismissed all these arguments, first, stating that a paper tax gain does not negate the fact that APFC suffered a temporary taking prior to the vessel’s sale. Second, although APFC did have a Lloyd’s of London insurance policy for the loss of fishing permits, the government cannot be the beneficiary of an insurance policy it did not pay for.9 The proceeds received by a property owner from a policy covering loss is not just compensation for a temporary governmental taking. Finally, the government argued that because APFC waited until 1999 to sell the Atlantic Star, the losses during the preceding two years were the result of the company’s business decisions. The court held the Atlantic Star’s permits were not permanently revoked until the 1999 Appropriations Act and it was not unreasonable for APFC to retain the boat until that time.

Conclusion
Based upon the fair rental value of the Atlantic Star during the twenty-month takings period, the Court of Federal Claims set the amount of compensation at $37,275,952.67 and ordered the government to pay APFC.

ENDNOTES
1. The Atlantic Star needed two permits: one to fish for or possess Atlantic mackerel (50 C.F.R. § 648.4(a)(5) (1997)); and a Northeast Multispecies (Nonregulated) permit because of the possibility of incidental bycatch (50 C.F.R. § 648.4(e)(1) (1997)). Torgersen also requested an authorization letter from the Regional Adminstrator to use a mesh size smaller than ordinarily required by 50 C.F.R. § 648.80(d).
2. Section 616 of the Departments of Commerce, Justice, and State, and the Judiciary, and Related Agencies Appropriations Act, 1998, 105 Pub. L. 119 (1997).
3. U.S. Const. amend. V.
4. See Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992).
5. Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 124 (1978).
6. American Pelagic Fishing Company, L.P. v. U.S., 49 Fed. Cl. 36, 47 (2001).
7. Id. at 49-50.
8. Eastern Enterprises v. Apfel, 524 U.S. 498, 532-37 (1998).
9. American Pelagic Fishing Company, L.P. v. U.S., 55 Fed. Cl. 575, 592 (2003).