Federal Circuit Reverses $37 Million Award to Fishing Vessel
American Pelagic Fishing Co. v. U.S., 379 F.3d 1363 (Fed. Cir. 2004).

Lance M. Young1

In 2003, the Court of Federal Claims awarded the owner of a fishing vessel, the Atlantic Star, over $37 million because, it reasoned, two appropriation acts amounted to a temporary regulatory taking.2 The Federal Circuit Court of Appeals recently vacated that award.

Background
Throughout the 1990’s, the National Marine Fisheries Service (NMFS) reported that mackerel and herring fish stocks were very high and underfished. The U.S. Senate Finance Committee subsequently recommended the use of larger ships to fish large stocks of mackerel and herring to compete with European fish markets. Lisa Torgersen, the president of American Pelagic Fishing Company, built the Atlantic Star vessel in response to these events. The Atlantic Star is 369 feet long and has a total of 13,400 horsepower. It cost nearly $40 million to design and build with an advanced freezing system, sorting system, and holding capacity of 400 to 500 metric tons of fish.

In 1997, Pelagic prepared for operation by obtaining the required permits and gear authorizations from the Northeast Regional Office of the NMFS. Simultaneously, the Atlantic States Marine Fisheries Commission and the New England Fishery Management Council voiced opposition to the vessel’s operation. The opposition led to legislative proposals in the U.S. House and Senate that would ban fishing vessels of this magnitude. While the legislation failed, Congress successfully revoked the permits and authorization of the Atlantic Star by attaching a rider to the 1997 appropriations act. The rider prohibited funding of a fishing permit or authorization for any vessel greater than 165 feet in length, more than 750 gross tons, or with a total horsepower greater than 3,000. The 1998 appropriations act similarly prevented the vessel from obtaining permits and the NMFS has since made it impossible to obtain permits and authorization through its regulatory scheme. The Atlantic Star was the only vessel affected by the appropriations acts and regulation changes.

Pelagic then attempted to use the Atlantic Star outside of U.S. designated waters. In the Baltic Sea, it served as the “mother ship” for smaller fishing boats. This voyage was not profitable. It also fished off the coast of West Africa, the only other place it could obtain fishing rights, but water conditions and low fish stock resulted in lost profits.

In March of 1999, Pelagic sued the federal government claiming the two appropriation acts amounted to a regulatory taking. The Court of Federal Claims held that the acts did result in a temporary taking3 and, in a separate damages trial, awarded American Pelagic $37,275,952.67 based on the ship’s hypothetical rental value.4

Takings Claim
The Fifth Amendment of the United States Constitution requires just compensation when private property is taken for public use. The Fifth Amendment taking clause applies to physical invasion of property by the government or where “regulation denies all economically beneficial or productive use of land.”5 Furthermore, “a regulatory taking may occur when government action, although not encroaching upon or occupying private property, still affects and limits its use to such an extent that a taking occurs.”6

If all economically beneficial use has not been lost, courts use a balancing test, developed in Penn Central Transportation Co. v. City of New York, to determine whether a property interest has been so affected as to constitute a taking by government regulation. The court considers the economic harm suffered by the claimant, the extent to which the government regulation has interfered with distinct investment backed expectations, and the character of the government action.

A claimant such as Pelagic has to demonstrate that a valid property right exists before it becomes necessary for a court to determine whether a taking has occurred. Traditionally, a metaphorical “bundle or rights” has defined when a property right exists. The bundle of rights includes the ability to possess, consume, exclude, and transfer property. Pelagic claimed it had a property right in the federal fishery permits and authorizations given by NMFS. It alleged a taking as a result of the 1997 and 1998 appropriation acts, which prohibited the Atlantic Star from fishing after it had already secured the proper authorizations to fish. Permits and licenses, as the District Court acknowledged, are not property that can be protected by the Fifth Amendment. The right to transfer or sell is one of the “sticks” in the “bundle of rights” and because a permit holder cannot transfer or sell a fishing permit, there is no property right in the permit. Permits are often viewed as privileges rather than rights.

However, the District Court did determine that a property right existed in the vessel itself. The court found the “stick in the bundle” to be the right to use the vessel, “subject to regulation.”7 Because the NMFS regulations in 1997 and 1998 permitted the use of the vessel, the court determined that Pelagic had an inherent right to use its vessel in U.S. waters. The court then conducted a Penn Central balancing test and determined that the appropriation acts thwarted Pelagic’s investment backed expectations, left the Atlantic Star with no commercially viable use, and that the government regulation was retroactive and targeted only at American Pelagic.8

Appellate Court’s Analysis
On appeal, the Federal Circuit held that American Pelagic had no right to fish in U.S. waters. The court began its analysis by asking if holding a permit to fish for mackerel is a legally cognizable property interest. First, it distinguished between real property and personal property. The owner of personal property, in contrast to the owner of land, should expect that government regulation can devalue his or her property interest at any time. Furthermore, the court stated that there is a distinction between the government disturbing the use of personal property and having a right to use the property. A takings analysis should begin only if the right to use property has been violated.

The 1976 Fisheries Conservation and Management Act (now the Magnuson-Stevens Act) created the United States fishery conservation zone out to 200 miles, in which the U.S. has management authority over fish. According to the court, “sovereignty indisputably encompasses all rights to fish.”9 However, the Magnuson-Stevens Act does not give individual fishermen the right or title to fish resources.

Because the court found that American Pelagic had no property interest, Pelagic’s taking claim failed. The government did disturb Pelagic’s use of the Atlantic Star. The NMFS permits and authorizations did not, however, give Pelagic a right to fish in U.S. waters. In other words, when Pelagic purchased the Atlantic Star, its right to fish in U.S. waters was not one of the sticks in the bundle of rights that were inherent in the ownership of that vessel. For that reason, a taking claim could not prevail.

Conclusion
The District Court’s $37 million award was vacated. The result of this dispute has an important implication for fishermen. The right to fish within U.S. waters is held exclusively by the government; thus, permits and authorizations grant privileges to individual fishermen to utilize the government’s resources but do not transfer property rights for purposes of the Fifth Amendment.

Endnotes
1. Lance is a second-year law student at Roger Williams School of Law in Bristol, Rhode Island.
2. For analysis of the Federal Court of Claims decision, see Stephanie Showalter, Vessel Owner Awarded Over $37 Million for Temporary Taking, The SandBar 2:2, 1 (2003).
3. American Pelagic Fishing Co. v. U.S., 49 Fed. Cl. 36 (Fed. Cl. 2001).
4. American Pelagic Fishing Co. v. U.S., 55 Fed. Cl. 575 (Fed. Cl. 2003).
5. Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1004 (1992).
6. Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001).
7. American Pelagic Fishing Co., 49 Fed. Cl. at 48 (Fed. Cl. 2001).
8. Id. at 48-51.
9. American Pelagic Fishing Co. v. U.S., 379 F.3d 1363, 1378 (Fed. Cir. 2004).