California’s commercial fishing differential fee statutes deemed unconstitutional

In Marilley v Bohnam (Case # C-11-02418 DMR) certain aspects of California’s commercial fishing licensing statutes were recently reviewed by the United States District Court for the Northern District of California.  The following Statutes establish differential fees for nonresidents to commercial fish in California:

§7852 – Commercial fishing licenses;

§7881 – Commercial fishing boat registration;

§8550.1 – Herring gill net permits;

§8280.6 – Dungeness crab vessel permits.

For the 2012 – 2013 commercial season (April 1, 2012 – March 31, 2012) the differential fees were as follows:

Commercial fishing license – $130.03 for residents, $385.75 for nonresidents;

Commercial fishing boat registration – $338.75 for residents, $1,002.75 for nonresidents;

Herring gill net permit – $359.00 for residents, $1,334.25 for nonresidents;

Dungeness crab vessel permit – $273.00 for residents, $538.00 for residents.

Plaintiffs here represent a class of nonresident fishermen who participate in California fisheries.  They challenged the aforementioned differential fee statutes as being unconstitutional under the Privileges and Immunities Clause of the United States Constitution.  Cross motions for summary judgment were filed and the Court granted the motion filed by Plaintiffs.

The Privileges and Immunities Clause reads as follows, “The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” US Const Art IV §2, cl 1.  The Clause seeks to ensure the unity of the several states by protecting the interests of nonresidents which are fundamental to the promotion of interstate harmony.  While the Clause forbids a State from intentionally giving its own citizens a competitive advantage in business or employment it does not prohibit differential fee structures, or other disparity of treatment in the many situations where there are perfectly validly independent reasons for it.

Analyzing residency classifications under the Privileges and Immunities Clause requires a two-step inquiry.

  1. First – is the restricted activity “sufficiently basic to the livelihood of a nation . . . as to fall within the purview of the Clause?”  If not, the inquiry ends and the government action is permissible.  The focus here is on the activity burdened, not the extent to which the activity is burdened.
  2. Second – can the activity’s restriction be shown to be closely related to the advancement of a substantial state interest?    For example, if non-residents constitute a peculiar source of the evil at which the statute is aimed – a substantial reason for state residency based discrimination exists.  This is not unlimited; however, if “less restrictive means” to achieve the government’s objective are identified, this may lead to finding that the restriction is not related to a substantial state interest.

Applying the above to the California statutory fee differential for nonresidents.

Does the activity in question fall within the purview of the Privileges and Immunities Clause?

Plaintiffs contend the activity affected by the fee differential, commercial fishing, involves the ability to earn a living – one of the most fundamental privileges that receives the Clause’s protections (citations).

The State raises three arguments supporting its belief that the challenged activity does not trigger constitutional protections:

    1. Plaintiff have not shown California fails to treat nonresidents on terms of substantial equality with residents.  This was quickly dismissed as a strained interpretation of the legal standard which lacks merit.
    2. Plaintiffs have not demonstrated that nonresident fishermen have been excluded from participating in commercial fishing in California.  Evidence obtained during discovery supports the conclusion that the challenged fee differential targeted nonresidents for higher fees in order to close budget gaps, rather than address any burdens specifically attributable to the nonresidents.  In 2009, AB 1442 was passed which contained a number of changes “to update, correct and improve the Fish and Game Code.”  One of the items included in that Bill was an extension of the sunsets on provisions of existing law related to the Dungeness Crab fishery.  During discussion on this Bill, lawmakers opined that the fishery’s restricted access structure “appeared to be more about market protection for fishermen than the conservation of crab.”  Protectionism of resident fishermen is just the sort of thing the Privileges and Immunities Clause is designed to guard against.   Under this interpretation, it would be permissible to require citizens of another state to do business in California on terms of substantial inequality, so long as California does not drive them out of the state.  Because this exclusion requirement runs counter to the fundamental principal of the Clause, the Court wasn’t persuaded.
    3. In cases were privileges involve state funded benefits, the court must frame the step one inquiry by examining the interests at stake – here, a nonresident commercial fisherman’s interest in an equal subsidy to utilize California’s State funded commercial fisheries.  This argument failed because it read too much into Supreme Court precedent and is not an accurate statement of the law.

The Court was not persuaded by the State’s arguments and found “Commercial fishing, the activity directly affected by California’s differential fees, involves the right to earn a living, ‘one of the most fundamental of those privileges protected by the Clause’.  Therefore, California’s differential commercial fishing fees may be called to account under the Privileges and Immunities Clause.’”  The Court then proceeded to the second step of the inquiry.

Is the differential fee structure closely related to the advancement of a substantial state interest?    

In the Ninth Circuit, the State can only satisfy this test by showing that the differential statute targets a specific burden caused by non-residents: a “substantial reason” for discrimination does not exist unless there is something to indicate that non-residents constitute a peculiar source of the evil at which the statute is aimed.  Prior courts have addressed similar differential fee structures:

In Toomer v Witsell 334 US 385 (1948), the US Supreme Court held, a state may “charge non-residents a differential which would merely compensate the State for any added enforcement burden they may impose or for any conservation expenditures from taxes which only residents pay.”

In Carlson v State 789 P.2d 1269 (1990), the Alaska Supreme Court held ““where residents pay proportionately more by way of foregone benefits than nonresidents for fisheries management, nonresidents may be charged higher fees to make up the difference,” noting that “[t]he point of Toomer . . . is that the state may equalize the economic burden of fisheries management.”

California offered three state interests which justify the imposition of higher fees for nonresidents:

    1. California’s interest in recovering a reasonable share of its investment in its fisheries;
    2. California’s interest in minimizing the subsidization of nonresidents; and
    3. California’s interest in maintaining its own natural resources

With regard to the Ninth Circuit’s “peculiar source of evil” formulation, the evil presented here, according to the State, is the potential for nonresidents to obtain a free ride.  Note – the State did identify an added burden on California’s commercial fisheries by nonresidents in the form of time spent by the DFW communicating with nonresidents regarding fisheries rules and procedures and obtaining information from other agencies regarding out-of-state boat registries.  Because the State wasn’t able to quantify the added burden directly attributable to nonresident commercial fishermen, it couldn’t show how, or to what degree, nonresidents obtained a free ride[1].

The Court paraphrased California’s step two inquiry as follows, “The fee differentials are closely related to the advancement of California’s interests because the state can require nonresidents to pay their “fair share” of the costs of enforcing, managing, and conserving its fisheries.”  California incurs a shortfall because the revenue collected through license fees does not cover investments by the State in its commercial fisheries.  California argues, it may seek reimbursement from nonresidents to cover a “fair share” of that shortfall.  Its fee differentials are constitutionally permissible as long as they meet two limitations: the nonresident fee differentials cannot 1) overcompensate the state for nonresidents’ share of the state’s investment, or 2) result in the exclusion of nonresidents from commercial fishing.  In a footnote, the Court notes, “It bears noting that Defendant created these two limits himself; no case law supports this articulation of his proposed constitutional boundaries.”

The Court did not buy this.  The question is whether nonresident commercial fishermen are able to do business in California “on terms of substantially equality” with California residents, the State’s approach ignores the required comparison.  The comparison is necessary because the Clause was designed to place the citizens of each State upon the same footing with citizens of other States, so far as the advantages resulting from citizenship in those States are concerned.  To the extent that Defendant must demonstrate that “non-citizens constitute a peculiar source of the evil at which the statute is aimed,’” Defendant has failed to do so.

Conclusion

The Privileges and Immunities Clause “forbids a State from intentionally giving its own citizens a competitive advantage in business or employment.”  A license fee that is two to three times less expensive than what nonresidents have to pay for the same license is undeniably a “competitive advantage.”  States are allowed to make judgments resulting in discrimination against nonresidents where the State establishes an “advancement of a substantial state interest” as a reason for the disparate treatment, and if the facts evenly or approximately evenly distributes the costs imposed on residents and nonresidents to support those programs benefitting both groups.  The State failed to meet its burden.  As a result, the differential fee statutes, in question here, are not constitutionally permissible.

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[1] There is no record evidence 1) that California conducted any analysis of nonresidents’ impact on its commercial fisheries; 2) that the differentials compensate California for any added burden on its commercial fisheries or expenses caused by non-residents; or 3) that California has identified any savings that it would realize if nonresidents were excluded from participating in commercial fishing in California.

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