In Palmyra Pacific Seafoods, L.L.C. v. United States, No 07-35L (Jan. 22, 2008), the U.S. Court of Federal Claims (the article I court that hears inverse condemnation claims against the federal government) held that federal regulations which prohibited commercial fishing in waters around Palmyra Atoll and Kingman Reef did not take the plaintiffs’ licenses for commercial fish processing facilities on the atoll.
The plaintiffs were exclusively licensed by the owners of Palmyra Atoll (located approximately 1,000 miles south of Hawaii) to commercially fish the nearby waters, and to use the atoll’s airstrip, dock, harbor, and base came for their commercial fishing enterprise. In reliance on the licenses, the plaintiffs invested several millions of dollars in on-island infrastructure, and actually began commercial fishing operations. Slip op. at 2 & n.1.
In 2001, however, the Secretary of the Interior designated the waters surrounding Palmyra and Kingman Reef as National Wildlife Refuges. The plaintiffs asserted that its licenses were taken when the federal government, “working in tandem with an influential environmental lobby,” enacted regulations that barred commercial fishing, which had the effect of rendering the plaintiff’s licenses worthless:
Plaintiffs assert a property interest in “a series of contractual licenses grant[ing] Plaintiffs the right to use Palmyra for commercial fishing and related transport and support operations.” Pls.’ Br. filed Aug. 10, 2007, at 3 (internal quotation marks omitted). Plaintiffs contend that the licenses are private, exclusive, transferrable contract rights that qualify as property interests protected by the Fifth Amendment. In support of the proposition that contract rights are property interests protected by the Fifth Amendment, plaintiffs rely on Lynch v. United States, 292 U.S. 571, 579 (1934) (“Valid contracts are property, whether the obligor be a private individual, a municipality, a state, or the United States.”); United States Trust Co. of N.Y. v. New Jersey, 431 U.S. 1, 19 n.16 (1977) (“Contract rights are a form of property and as such may be taken for a public purpose provided that just compensation is paid.”); and Cienega Gardens v. United States, 331 F.3d 1319, 1329 (Fed. Cir. 2003) (“[T]here is also ample precedent for acknowledging a property interest in contract rights under the Fifth Amendment.”).
Slip op. at 5. The court rejected the claim that the licenses were property. The court held that the private owners of Palmyra Atoll could only license activities on the atoll, and not in the surrounding waters:
Accordingly, the [owners of the Atoll] lacked authority to grant any license in the tidal lands, submerged lands, or surrounding waters, and the government could not have taken any tidal lands, submerged lands, or surrounding waters.”). As plaintiffs admit, the governmental restrictions designating the refuge and closing it off to commercial fishing were imposed upon the “tidal lands, submerged lands, and waters” of Palmyra – the interests to which plaintiffs disavow any claim.
Slip op. at 7. Since the designation of the water as National Wildlife Refuges did not directly regulate or affect the on-atoll activities of the plaintiffs, the court held that the devastating economic impact they suffered were merely consequential damages, and the regulations were a frustration of business expectations, not a taking of property:
[P]laintiffs’ complaint conflates the licenses with their subject matter. The licenses permit plaintiffs to use the emergent land of Palmyra for the purpose of establishing a commercial fishing operation. The Government’s closure of the waters surrounding Palmyra to commercial fishing frustrated the purpose of the licenses, but did not appropriate a contractual right to commercial fishing granted thereby, as such a right could not have been granted. The Government is not liable to plaintiffs for a taking because the government actions at issue did not address plaintiffs or their licensors or regulate plaintiffs’ operations under their licenses. The designation of the Palmyra National Wildlife Refuge and subsequent closure of the refuge to commercial fishing neither appropriated plaintiffs’ contract rights for public use nor removed plaintiffs’ right to enforce their contractual licenses or to seek a contractual remedy with their licensors.
Slip op. at 9.