California’s commercial fishing differential fee statutes – OK for now

On February 19, 2014 we wrote about the 9th Circuit’s decision in Marilley v Bohnam which found California’s commercial fishing differential fee statutes unconstitutional.  See https://westcoastfisheriesconsultants.wordpress.com/2014/02/19/californias-commercial-fishing-differential-fee-statutes-deemed-unconstitutional/.  On December 21st, the 9th Circuit published an en banc opinion overturning that decision[1].  “California’s fee differentials for commercial fishing vessel registrations, fishing licenses, Dungeness crab permits, and herring gill net permits survive the Privileges and Immunities Clause challenge because the differentials are justified by a substantial reason that is closely related to the differential fees. The fees survive the Equal Protection Clause challenge because California has a rational basis for charging the differential fees. California is therefore entitled to summary judgment on both of Plaintiffs’ claims. We remand with directions to the district court to enter summary judgment for California.”  The decision was a divided one, with the dissent choosing to focus on California income tax paid by the fishermen.

In the 2014 decision, the Court focused on the competitive advantage enjoyed by resident commercial fishermen over nonresident fishermen who wished to commercial fish in the State.  This court, instead, focused the substantial reasons portion of the analysis and found, “California’s interest in receiving compensation for its commercial fishery management provided a “rational basis” for its fee differentials.”  Plaintiffs also raised an Equal Protection Claim, which the lower Court never reached as it found the Privileges and Immunities analysis dispositive.

Privileges and Immunities Discussion

Analysis under the Privileges and Immunities Clause[2] is a two-step inquiry.

  1. Plaintiff (here the nonresident commercial fishermen) bears the burden of showing that the challenged law “fall[s] within the purview of the Privileges and Immunities Clause.” If Plaintiff fails to meet this burden, the Claim falls.
  2. If the plaintiff meets his burden, the burden shifts to the state to show that the challenged law is “closely related to the advancement of a substantial state interest.”

Does California’s differential fee structure for nonresident commercial fishermen fall within the purview of the Privileges and Immunities Clause?

In short, yes.

Clearly, the California law treats nonresidents differently from residents; therefore the question is whether or not commercial fishing is a “fundamental” privilege or immunity protected by the Constitution.  Commercial fishing is a “protected privilege” because it implies “the right to earn a living”.    Because Plaintiff’s have met their burden, it now shifts to the State.

Is California’s differential fee structure closely related to the advancement of a substantial state interest”?

In short, yes.  The substantial state interest in having nonresident commercial fishers fairly contribute for state-provided expenditures/benefits from a fund to which nonresidents do not contribute.

To answer this question, the Court devoted a portion of its Opinion outlining some factual elements which informed its decision.  In summary:

  • The higher fees for nonresidents has not reduced the percentage of nonresidents obtaining permits and/or licenses.
  • For the 2010-11 license year[3]:
    • “California spent approximately $20,000,000 on enforcement, management, and conservation activities benefitting commercial fishers.” This estimate was deemed conservative, at best.
    • Nonresidents accounted for approximately[4]: (a) 10% of vessel registrations; (b) 12% of commercial fishing license sales; (c) 13% of Dungeness crab permits; and (d) 18% of herring gill net permits.
    • California received approximately $2.5 M from the sale of commercial fishing licenses, commercial vessel registrations, Dungeness crab and herring gill net permits. $435,000 came from nonresidents in the form of the higher differential fees.  In total, the State received $5.8 M in commercial fishing revenues.
    • The shortfall (loss) incurred by the State in enforcement, management and conservation activities related to commercial fishing – was roughly $14 M. This shortfall (subsidy) was covered by the State’s general tax revenues.  The question is whether, or to what degree, nonresident commercial fishers may be required to pay differential fees to account for their proportionate share of that subsidy, or benefit.

In answering that question, the Court reviewed two Supreme Court precedents[5] which, while striking down similar fee differentials applied to nonresident commercial fishers, endorsed the concept of differential fees if they were compensation or reimbursement for state-provided expenditures/benefits from a fund to which nonresidents do not contribute.  When the benefit at issue is access to a natural resource, the state may not exclude nonresidents, but it may seek reimbursement for money spent to manage and preserve the resource.  In such cases, the Privileges and Immunities Clause allows a state “to 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.”  Toomer 334 US @ 399.

Further expanding on the above:

  • Mathematical precision not required in calculating benefit(s) provided to nonresidents;
  • States have deference in determining those benefit(s) and the appropriate amount of compensation; and
  • The State must treat residents and nonresidents with “substantial equality” when seeking compensation from nonresidents.

The Court then spent considerable time calculating “at a general level the benefit provided by California and the appropriate compensation from nonresident fishers.”  The Court also then calculated the subsidies for the two named fisheries – Dungeness crab and herring.  Regardless of which calculation was chosen, “the fee differentials charged by California, are less than the amount by which California subsidizes the management of the nonresidents’ portions of its commercial fishery.”

The dissent, focusing on income taxes paid to California by nonresident commercial fishers, would have upheld the lower Court’s ruling that the fee differential statutes were unconstitutional.  The majority chose to focus on the de minimus amounts of income tax paid to California by the named Plaintiffs[6].  “If Plaintiffs paid more than de minimus income tax to California, such that they should be assimilated, either entirely or in part, to California resident taxpayers for purposes of the Privileges and Immunities Clause, we would have to modify our analysis.”

Equal Protection Discussion

Because the fee differentials do not “classify persons based on protected characteristics, such as race, alienage, national origin, or sex” or “affect the exercise of fundamental rights,” rational basis review applies.  Under this standard of review, challenged government action will satisfy the equal protection requirement if “there is any conceivable state of facts that could provide a rational basis for the classification.”

Here, “California has a ‘substantial reason’ for charging nonresident differentials. It has an obvious interest in recovering from nonresident commercial fishers their share of the benefit provided to them by its management of its commercial fishery. Congress has recognized this interest as legitimate[7]. But even absent such congressional endorsement, California’s interest in receiving compensation for the benefit its management confers provides a “rational basis” for its fee differentials.”

Dissent

As previously mentioned, the dissent would find the fee differential statues unconstitutional under the Privileges and Immunities Clause.  Key to their analysis is that nonresidents do pay into the general fund via income tax, excise tax, sales and use tax.  The dissent also challenges the Court’s assignment of the evidentiary burden.  “[I]t is California that must demonstrate that the differentials recoup a subsidy funded only by its residents. Hence, any purported lack of evidence on the tax liability of nonresident fishermen counts against the State, not the other way around.

Thoughts

This was not a unanimous decision which lends some credibility to the likelihood of Plaintiffs seeking review before the US Supreme Court.  Unless and until the Supreme Court overturns this decision, States are free to develop and implement differential fee structures on nonresident commercial fishers provided they comply with the teachings of this case.

If you are interested, you can watch a recording of the en banc hearing here – https://www.youtube.com/watch?v=Kb3LL2m8dmU

[1] See – https://cdn.ca9.uscourts.gov/datastore/opinions/2016/12/21/13-17358.pdf

[2] 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

[3] The DFW’s “year” for commercial fishing purposes runs April 1 through March 31.

[4] The underlying lawsuit challenged the following sections of the Fish and Game Code: §7852 – Commercial fishing licenses; §7881 – Commercial fishing boat registration; §8550.1 – Herring gill net permits;  and §8280.6 – Dungeness crab vessel permits.

[5] Toomer v. Witsell, 334 U.S. 385 (1948) and Mullaney v. Anderson, 342 U.S. 415 (1952),

[6] The three named plaintiffs paid either no or minimal California income tax.

[7] See Pub. L. No. 109-13, § 6036(b)(1), 119 Stat. 231 – “IN GENERAL.—It is the policy of Congress that it is in the public interest for each State to continue to regulate the taking for any purpose of fish and wildlife within its boundaries, including by means of laws or regulations that differentiate between residents and nonresidents of such State with respect to the availability of licenses or permits for taking of particular species of fish or wildlife, the kind and numbers of fish and wildlife that may be taken, or the fees charged in connection with issuance of licenses or permits for hunting or fishing.

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