Palmyra Pacific Seafoods, L.L.C. v. U.S.

• Decision Date: 09 April 2009
• Docket Number: No. 2008-5058.,2008-5058.
• Citation: 561 F.3d 1361
• Parties: PALMYRA PACIFIC SEAFOODS, L.L.C., Palmyra Pacific Enterprises, L.L.C., PPE Limited Partnership, and Frank Sorba, Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

561 F.3d 1361

PALMYRA PACIFIC SEAFOODS, L.L.C., Palmyra Pacific Enterprises, L.L.C., PPE Limited Partnership, and Frank Sorba, Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.

No. 2008-5058.

United States Court of Appeals, Federal Circuit.

April 9, 2009.

Michael A. Johnson, Arnold & Porter LLP, of Washington, DC, argued for plaintiffs-appellants. With him on the brief were Alexea R. Juliano, and James K. Rideout.

Maame A.F. Ewusi-Mensah, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With her on the brief were Jeanne E. Davidson, Director, and Mark A. Melnick, Assistant Director. Of counsel was Marla T. Conneely, Attorney. Of counsel on the brief was Mariel J. Combs, Attorney, Office of the Solicitor, United States Department of the Interior, of Portland, OR.

Before BRYSON, GAJARSA, and MOORE, Circuit Judges.

BRYSON, Circuit Judge.

Palmyra Atoll is a tiny island in an empty portion of the Pacific Ocean. It is approximately 4.6 square miles in area and is located about 1100 miles south of Hawaii and 1400 miles north of Samoa. There is almost nothing else in between. As the Supreme Court aptly put it, "It is hard to conceive of a more isolated piece of land than Palmyra." United States v. Fullard-Leo, 331 U.S. 256, 280, 67 S.Ct. 1287, 91 L.Ed. 1474 (1947).

During World War II, the United States established a naval base there, where it constructed an airstrip, a base camp, and a pier. After the war the United States sued to quiet title to Palmyra, but the Fullard-Leo family successfully opposed the effort and obtained fee simple title to the island. Fullard-Leo, 331 U.S. at 280, 67 S.Ct. 1287. This case involves a claim brought by parties who wished to use the island as a commercial fishing base and who contend that the government impermissibly interfered with their fishing business by designating the waters around Palmyra as a wildlife refuge.

I

Prior to the events at issue in this case, the plaintiffs obtained from the Fullard-Leo family the right to use certain facilities on Palmyra. The rights were conveyed through a series of contracts, beginning with a contract in which the Fullard-Leo family granted the Palmyra Development Company the right to convey an exclusive license to establish a commercial fishing operation on the atoll. The Palmyra Development Company then entered into a licensing agreement with Palmyra Pacific Enterprises, L.L.C. That agreement granted Palmyra Pacific Enterprises the exclusive right to establish a commercial fishing operation on Palmyra and to use the island's facilities for that purpose. Subsequently, Palmyra Pacific Enterprises assigned its rights to PPE Limited Partnership, which in turn assigned its rights to Palmyra Pacific Seafoods, L.L.C. ("PPS").

The pertinent provisions of the contract between Palmyra Development Company and Palmyra Pacific Enterprises conveyed to Palmyra Pacific Enterprises "the exclusive right and license to occupy, use and enjoy" the base camp on the atoll as well as "the exclusive right to use the Small Boat Harbor," and "the exclusive right to use one-half of the deep water dock." The contract also granted a "Commercial Fishing License" purporting to give Palmyra Pacific Enterprises an exclusive right to fish in the waters surrounding Palmyra as well as a non-exclusive "Aircraft Runway License" for use of the island's airstrip.

The plaintiffs assert that the right to establish a commercial fishing operation is valuable because Palmyra is surrounded by a 200-nautical-mile Exclusive Economic Zone ("EEZ") from which foreign fishing vessels are excluded. Palmyra is the only place within the EEZ where it is practical to locate a commercial fishing operation. According to the plaintiffs, the exclusive use of the island and its airstrip affords a material competitive advantage over any competing fishing enterprises that might operate in the region.

In 2000, The Nature Conservancy, a non-profit entity, purchased much of the emergent land on Palmyra from the Fullard-Leo family. Beginning some time prior to July 2000, the Fish and Wildlife Service of the Department of the Interior began working with The Nature Conservancy to establish a nature preserve and eco-tourism camp at Palmyra. The plaintiffs allege that the government and The Nature Conservancy were concerned about the effect that PPS's commercial fishing operation would have on the proposed eco-tourism camp and accordingly sought to interfere with PPS's operation. According to the plaintiffs, the ensuing government action flowed from the desire to support The Nature Conservancy's efforts.

On January 18, 2001, the Secretary of the Interior signed an order designating Palmyra's tidal lands, submerged lands, and surrounding waters out to 12 nautical miles from the water's edge as a National Wildlife Refuge. Subsequently, the Department of the Interior published a regulation providing for the management of the refuge. 66 Fed.Reg. 7660-01 (Jan. 24, 2001). The regulation states, in pertinent part:

We will close the refuge to commercial fishing but will permit a low level of compatible recreational fishing for bonefishing and deep water sportfishing under programs that we will carefully manage to ensure compatibility with refuge purposes.... Management actions will include protection of the refuge waters and wildlife from commercial fishing activities.

In March 2003, The Nature Conservancy conveyed 416 acres of the emergent land of Palmyra to the United States to be included in the refuge. It subsequently added 28 more acres to the conveyance.

In January 2007 the plaintiffs filed a complaint in the Court of Federal Claims alleging that the Interior Department regulation had "directly confiscated, taken, and rendered wholly and completely worthless" their property interests "embodied and reflected" in their licenses. The government moved to dismiss the complaint for failure to state a claim, and the court granted the motion.

The court noted that the Interior Department regulation was directed only to the "tidal lands, submerged lands, and waters" surrounding Palmyra, and that the Fullard-Leo family lacked authority to grant a license governing activities, including fishing, in those areas. Palmyra Pac. Seafoods, L.L.C. v. United States, 80 Fed. Cl. 228, 232 (2008). To the contrary, the court explained, the plaintiffs' interests permitted them only "to use the emergent land of Palmyra for the purpose of establishing a commercial fishing operation." Id. at 233. The court accepted the plaintiffs' assertion that the government's "closure of the waters surrounding Palmyra to commercial fishing frustrated the purpose of the licenses." Id. Because the plaintiffs had acquired no right to engage in commercial fishing in that area, however, the court held that the government's action "did not appropriate a contractual right to commercial fishing granted [by the licenses] as such a right could not have been granted." Id. Even assuming that the plaintiffs' licenses constituted property interests that would be cognizable in a takings action, the court concluded that the plaintiffs had "failed 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," and thus no taking of the plaintiffs' licenses had occurred. Id. at 236. Because the plaintiffs had not "asserted a cognizable property interest subject to the government action sufficient to support a takings claim under the Fifth Amendment," the court ruled that they had failed to state a claim upon which relief could be granted. Id. The plaintiffs appealed that ruling to this court.

II

The basic principles governing takings analysis are well settled and are not in dispute here. First, in order to have a cause of action for a Fifth Amendment taking, the plaintiff must point to a protectable property interest that is asserted to be the subject of the taking. See Phillips v. Wash. Legal Found., 524 U.S. 156, 164, 118 S.Ct. 1925, 141 L.Ed.2d 174 (1998) ("Because the Constitution protects rather than creates property interests, the existence of a property interest is determined by reference to `existing rules or understandings that stem from an independent source such as state law.'") (citation omitted). Second, contract rights can be the subject of a takings action. See, e.g., Lynch v. United States, 292 U.S. 571, 579, 54 S.Ct. 840, 78 L.Ed. 1434 (1934) ("The Fifth Amendment commands that property be not taken without making just compensation. Valid contracts are property, whether the obligor be a private individual, a municipality, a state or the United States."); see also United States v. Petty Motor Co., 327 U.S. 372, 381, 66 S.Ct. 596, 90 L.Ed. 729 (1946) (holding that plaintiff was entitled to compensation for government's taking of option to renew a lease).

The parties disagree about the application of those general principles to the facts of this case. The plaintiffs argue they are entitled to compensation because the government's regulation was targeted at their commercial fishing operation and "effectively transferred PPS's property — its rights under the contract — back to PPS's contractual counterparty, the politically favored and powerful Nature Conservancy." The government, on the other hand, contends that it did not "take" any contract right of the plaintiffs and that any injury that the plaintiffs suffered as a result of the Interior Department regulation was a consequence of lawful government action and did not reflect the taking of any property right obtained by the plaintiffs through contract.

As a general matter, the government does not "take" contract rights pertaining to a contract between two private parties simply by engaging in lawful action that affects the value of one of the parties'...