Pacific Choice Seafood Company et al v. Pritzker et al

MOTION for Summary Judgment and Memorandum of Points and Authorities

N.D. Cal.October 14, 2016

STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG 88764257.1 0052902-00014 EDWARD C. DUCKERS (SB #242113) ed.duckers@stoel.com STOEL RIVES LLP Three Embarcadero Center, Suite 1120 San Francisco, CA 94111 Telephone: (415) 617-8900 Facsimile: (415) 617-8907 RYAN P. STEEN (admitted pro hac vice) ryan.steen@stoel.com JEFFREY W. LEPPO (admitted pro hac vice) jeffrey.leppo@stoel.com JARED R. WIGGINTON (SB #298194) jared.wigginton@stoel.com STOEL RIVES LLP 600 University Street, Suite 3600 Seattle, WA 98101 Telephone: (206) 386-7610 Facsimile: (206) 386-7500 Attorneys for Plaintiffs Pacific Choice Seafood Company; Sea Princess, LLC; Pacific Fishing, LLC UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA PACIFIC CHOICE SEAFOOD COMPANY; SEA PRINCESS, LLC; PACIFIC FISHING, LLC, Plaintiffs, v. PENNY PRITZKER, U.S. SECRETARY OF COMMERCE; NATIONAL MARINE FISHERIES SERVICE, Defendants. Case No. 15-05572-HSG PLAINTIFFS’ NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENT Date: March 9, 2017 Time: 2:00 p.m. Courtroom: 10 Judge: Hon. Haywood S. Gilliam, Jr. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 1 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG i 88764257.1 0052902-00014 NOTICE OF MOTION AND MOTION PLEASE TAKE NOTICE that on March 9, at 2:00 p.m., in Courtroom 10 of the above- entitled United States District Court, Northern District, located at 450 Golden Gate Avenue, San Francisco, California 98110, Plaintiffs Pacific Choice Seafood Company, Sea Princess, LLC, and Pacific Fishing, LLC (“Plaintiffs”) will move for summary judgment under Federal Rule of Civil Procedure 56 on their First, Second, Third, and Sixth Claims for Relief. See Dkt. 14 (First Amended Complaint).1 Plaintiffs make this motion on the grounds that the actions of the Federal Defendants challenged in this lawsuit violate the Magnuson-Stevens Fishery Conservation and Management Act and the Administrative Procedure Act for the following reasons. First, the challenged actions are ultra vires because they unlawfully supplant common law principles without statutory authority. Second, the challenged actions are arbitrary and capricious, and were completed through a process that lacked a rational explanation and was not in accordance with applicable law. This motion is based on this Notice, the Memorandum of Points and Authorities below, the Second Declaration of Daniel Occhipinti, the Declaration of Ryan Steen, the pleadings filed in this action, the administrative record, additional argument and information to be presented at the hearing of this motion, and the proposed order accompanying this motion. 1 Plaintiffs are not pursuing their Fourth and Fifth Claims for Relief. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 2 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -ii- 88764257.1 0052902-00014 MEMORANDUM OF POINTS AND AUTHORITIES ................................................................ 1 I. INTRODUCTION .............................................................................................................. 1 II. LEGAL BACKGROUND .................................................................................................. 2 III. FACTUAL BACKGROUND ............................................................................................. 3 A. The Fishery ............................................................................................................. 3 B. IFQ Program Implementation ................................................................................. 4 C. Key IFQ Program Components ............................................................................... 6 D. Plaintiffs’ Interests .................................................................................................. 7 IV. STANDARD OF REVIEW ................................................................................................ 8 V. ISSUES TO BE DECIDED ................................................................................................ 9 VI. ARGUMENT ...................................................................................................................... 9 A. The Ownership and Control Rules Impermissibly Displace Common Law, Exceed NMFS’s Authority Under the Magnuson Act, and Violate the APA ....... 10 1. The Ownership and Control Rules Directly Contradict Common Law Principles of Corporate Ownership and Control ............................... 11 2. The Magnuson Act Does Not “Speak Directly” to Common Law Principles of Corporate Ownership and Control, and Therefore NMFS Could Not Abrogate Them ............................................................ 15 B. NMFS’s Decision to Set the Aggregate Limit at 2.7% Is Arbitrary and Capricious, and Violates the APA ........................................................................ 19 1. NMFS Failed to Provide a Clear Interpretation of Ambiguous Statutory Terms ......................................................................................... 20 2. NMFS Failed to Provide a Rational Explanation for the Aggregate Limit .......................................................................................................... 24 a. The Proposed Rule and Final Rule provide no explanation for the Aggregate Limit ................................................................. 25 b. The discussion of the Aggregate Limit in the FEIS is nonspecific and insufficient .......................................................... 25 c. NMFS arbitrarily ignored critically relevant information ............. 29 C. The 2015 Rule Violates the Magnuson Act and the APA .................................... 32 VII. REMEDY .......................................................................................................................... 35 VIII. CONCLUSION ................................................................................................................. 35 Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 3 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG iii 88764257.1 0052902-00014 TABLE OF AUTHORITIES Page(s) Cases Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990) ..................................................................................................................18 Alaska Wilderness League v. EPA, 727 F.3d 934 (9th Cir. 2013) .....................................................................................................20 Alsea Valley All. v. U.S. Dep’t of Commerce, 358 F.3d 1181 (9th Cir. 2004) ...................................................................................................35 Anglers Conservation Network v. Pritzker, 139 F. Supp. 3d 102, 111 (D.D.C. 2015) (Anglers II ) .................................................24, 28, 34 Anglers Conservation Network v. Pritzker, 70 F. Supp. 3d 427, 437 (D.D.C. 2014) (Anglers I), aff’d, 809 F.3d 664 (D.C. Cir. 2016) ..................................................................................................................................24 Ariz. Cattle Growers’ Ass’n v. Salazar, 606 F.3d 1160 (9th Cir. 2010) .....................................................................................................9 Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 104 (1991) ......................................................................................................10, 15, 18 Burnet v. Clark, 287 U.S. 410 (1932) ..................................................................................................................12 Cal. Energy Comm’n v. Dep’t of Energy, 585 F.3d 1143 (9th Cir. 2009) ...............................................................................................8, 32 Cal. Wilderness Coal. v. U.S. Dep’t of Energy, 631 F.3d 1072 (9th Cir. 2011) ...................................................................................................35 California v. Tax Comm’n of State, 346 P.2d 1006 (Wash. 1959) .....................................................................................................11 Chappell v. Robbins, 73 F.3d 918 (9th Cir. 1996) .......................................................................................................15 Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) ......................................................................................................20, 21, 22 Christensen v. Harris County, 529 U.S. 576 (2000) ..................................................................................................................21 Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 4 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG iv 88764257.1 0052902-00014 Chubb Custom Ins. Co. v. Space Sys./Loral, Inc., 710 F.3d 946 (9th Cir. 2013) .....................................................................................................15 City & County of San Francisco v. United States, 130 F.3d 873 (9th Cir. 1997) .......................................................................................................8 San Antonio ex rel. City Public Service Board v. United States, 631 F.2d 831 (D.C. Cir. 1980) ......................................................................................27, 28, 31 De La Vergne Refrigerating Mach. Co. v. German Sav. Inst., 175 U.S. 40 (1899) ....................................................................................................................12 Dole Food Co. v. Patrickson, 538 U.S. 468 (2003) ................................................................................................13, 14, 17, 18 FCC v. NextWave Personal Commc’ns Inc., 537 U.S. 293 (2003) ..................................................................................................................35 Fla. Gas Transmission Co. v. FERC, 876 F.2d 42 (5th Cir. 1989) .......................................................................................................34 Flaherty v. Bryson, 850 F. Supp. 2d 38 (D.D.C. 2012) ................................................................................24, 28, 34 Foss v. NMFS, 161 F.3d 584 (9th Cir. 1998) ...........................................................................................3, 11, 24 Gonzales v. Oregon, 546 U.S. 243 (2006) ..................................................................................................................21 Hawley v. City of Malden, 232 U.S. 1 (1914) ......................................................................................................................11 Henriquez-Rivas v. Holder, 707 F.3d 1081 (9th Cir. 2013) ...................................................................................................23 Hernandez-Gonzalez v. Holder, 778 F.3d 793 (9th Cir. 2015) .....................................................................................................23 Holmes v. FEC, 823 F.3d 69 (D.C. Cir. 2016) ....................................................................................................33 Humane Soc’y of U.S. v. Locke, 626 F.3d 1040 (9th Cir. 2010) ...................................................................................................25 Humphreys v. McKissock, 140 U.S. 304 (1891) ..................................................................................................................12 Judulang v. Holder, 132 S. Ct. 476 (2011) ................................................................................................................19 Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 5 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG v 88764257.1 0052902-00014 Kasza v. Browner, 133 F.3d 1159 (9th Cir. 1998) ...................................................................................................10 Kelly v. Galloway, 66 P.2d 272 (Or. 1937) ..............................................................................................................11 Lujan v. Defs. of Wildlife, 504 U.S. 555 (1992) ....................................................................................................................7 In re Mercantile Guar. Co., 263 Cal. App. 2d 346 (1968) .....................................................................................................11 Michigan v. EPA, 135 S. Ct. 2699 (2015) ..................................................................................................10, 19, 32 Mission Grp. Kan., Inc. v. Riley, 146 F.3d 775 (10th Cir. 1998) .............................................................................................19, 23 Mohamad v. Palestinian Auth. 132 S. Ct. 1702 (2012) ..............................................................................................................16 Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29 (1983) ............................................................................................................ passim Nat’l Wildlife Fed’n v. NMFS, 524 F.3d 917 (9th Cir. 2007) .......................................................................................................9 Nat. Res. Def. Council, Inc. v. Daley, 209 F.3d 747 (D.C. Cir. 2000) ..................................................................................................32 Nw. Coal. for Alts. to Pesticides v. EPA, 544 F.3d 1043 (9th Cir. 2008) .....................................................................................................9 Or. Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U.S. 1 (1889) ......................................................................................................................12 Organized Village of Kake v. USDA, 795 F.3d 956 (9th Cir. 2015) .....................................................................................................18 Otay Mesa Prop., L.P. v. U.S. Dep’t of Interior, 646 F.3d 914 (D.C. Cir. 2011) ..................................................................................................25 Pauley v. BethEnergy Mines, Inc., 501 U.S. 680 (1991) ..................................................................................................................21 Pearson v. Shalala, 164 F.3d 650 (D.C. Cir. 1999) ............................................................................................21, 23 Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199 (2015) ..............................................................................................................21 Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 6 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG vi 88764257.1 0052902-00014 In re Permian Basin Area Rate Cases, 390 U.S. 747, 792 (1968))), decision clarified for other reasons, 655 F.2d 1341 (D.C. Cir. 1981) ........................................................................................................................31 Plascencia-De Haro v. Lynch, No. 14-CV-03058-HSG, 2016 WL 4073295 (N.D. Cal. Aug. 1, 2016) ...................................19 Rumsfeld v. Forum for Acad. & Institutional Rights, Inc., 547 U.S. 47 (2006) ......................................................................................................................7 Sachs v. Republic of Austria, 737 F.3d 584 (9th Cir. 2013), rev’d on other grounds sub nom. OBB Personenverkehr AG v. Sachs, 136 S. Ct. 390 (2015) ..................................................10, 15, 16 Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (Thomas, J., dissenting) .....................................................................21, 23 Tourus Records, Inc. v. DEA, 259 F.3d 731 (D.C. Cir. 2001) ..................................................................................................29 Tripoli Rocketry Ass’n, Inc. v. Bureau of Alcohol, Tobacco, Firearms, & Explosives, 437 F.3d 75 (D.C. Cir. 2006) ....................................................................................9, 19, 24, 28 U.S. Air Tour Ass’n v. FAA, 298 F.3d 997 (D.C. Cir. 2002) ..................................................................................................32 United States v. Bestfoods, 524 U.S. 51 (1998) ........................................................................................................10, 16, 17 United States v. Mead Corp., 533 U.S. 218 (2001) ............................................................................................................20, 21 United States v. Texas, 507 U.S. 529 (1993) ......................................................................................................10, 15, 16 Statutes 5 U.S.C. § 702 ...................................................................................................................................8 5 U.S.C. § 706 ...................................................................................................................................8 5 U.S.C. § 706(2) ............................................................................................................................19 5 U.S.C. § 706(2)(A) ............................................................................................................... passim 5 U.S.C. § 706(2)(C) .......................................................................................................8, 10, 18, 35 16 U.S.C. § 1801(b)(3) ......................................................................................................................2 Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 7 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG vii 88764257.1 0052902-00014 16 U.S.C. § 1801(b)(4) ................................................................................................................2, 24 16 U.S.C. § 1802(23) ........................................................................................................................3 16 U.S.C. § 1802(26)(A)-(B) ............................................................................................................3 16 U.S.C. § 1802(36) ......................................................................................................................18 16 U.S.C. § 1811(a) ........................................................................................................................16 16 U.S.C. § 1851(a)(4) ....................................................................................................................17 16 U.S.C. § 1851(a)(7)-(8) ..............................................................................................................34 16 U.S.C. § 1852(a) ..........................................................................................................................2 16 U.S.C. § 1852(h) ..........................................................................................................................2 16 U.S.C. § 1852(h)(1) ................................................................................................................2, 24 16 U.S.C. § 1853 .........................................................................................................................2, 24 16 U.S.C. § 1853(a) ..........................................................................................................................2 16 U.S.C. § 1853(a)(1)(C).........................................................................................................17, 18 16 U.S.C. § 1853(c) ..........................................................................................................................2 16 U.S.C. § 1853a ...................................................................................................................2, 3, 17 16 U.S.C. § 1853a(b)(2)-(3) ..............................................................................................................3 16 U.S.C. § 1853a(c)(1)(D) ............................................................................................................18 16 U.S.C. § 1853a(c)(5)(A) ..............................................................................................................3 16 U.S.C. § 1853a(c)(5)(D) ..................................................................................................3, 17, 20 16 U.S.C. § 1853a(c)(5)(D)(i) ...........................................................................................................3 16 U.S.C. § 1853a(c)(5)(D)(i)-(ii)...................................................................................................20 16 U.S.C. § 1853a(c)(5)(D)(ii) ..........................................................................................................3 16 U.S.C. § 1853a(c)(7) ..............................................................................................................3, 18 16 U.S.C. § 1854(a)(3) ......................................................................................................................2 16 U.S.C. § 1854(a)-(b).....................................................................................................................2 16 U.S.C. § 1854(b)(1) ................................................................................................................2, 17 Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 8 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG viii 88764257.1 0052902-00014 16 U.S.C. § 1855(d) ........................................................................................................................16 16 U.S.C. § 1855(f) ...........................................................................................................................8 46 U.S.C. 12103(b) ...........................................................................................................................6 Regulations 50 C.F.R. pt. 660, subpt. D ...............................................................................................................4 50 C.F.R. § 600.325(c)(3)(iii) .........................................................................................................22 50 C.F.R. § 660.11 ........................................................................................................................4, 6 50 C.F.R. § 660.111 ..........................................................................................................................6 50 C.F.R. § 660.140(d) .....................................................................................................................5 50 C.F.R. § 660.140(d)(4) .................................................................................................................6 50 C.F.R. § 660.140(d)(4)(i)(A) ...............................................................................................11, 14 50 C.F.R. § 660.140(d)(4)(i)(C) ..................................................................................................6, 35 50 C.F.R. § 660.140(d)(4)(ii) ............................................................................................................6 50 C.F.R. § 660.140(d)(4)(ii)-(iii) ...................................................................................................35 50 C.F.R. § 660.140(d)(4)(ii)(B) ...............................................................................................11, 12 50 C.F.R. § 660.140(d)(4)(iii) .........................................................................................................14 50 C.F.R. § 660.140(d)(4)(iii)(H) .....................................................................................................6 50 C.F.R. § 660.140(d)(4)(v) ......................................................................................................7, 35 50 C.F.R. § 660.140(d)(8) .................................................................................................................7 42 Fed. Reg. 12,937, 12,937-98 (Mar. 7, 1977) ................................................................................3 Other Authorities 2 K. Davis & R. Pierce, Administrative Law § 11.5, at 204 (3d ed. 1994) .....................................23 1 William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations § 31, Westlaw (database updated Sept. 2016) ...................................................................................12 Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 9 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -1- 88764257.1 0052902-00014 MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Plaintiffs Pacific Fishing, LLC, Sea Princess, LLC, and Pacific Choice Seafood Company (“Plaintiffs”) challenge certain regulations issued by the National Marine Fisheries Service (“NMFS”) as part of an overarching management program that allocated fishing quota shares (“Quota Shares” or “QS”) among participants in the West Coast shorebased groundfish fishery (the “Fishery”). Specifically, Plaintiffs challenge (1) the extraordinarily broad rules governing who “owns or controls” Quota Shares (the “Ownership and Control Rules”), and (2) the arbitrarily low aggregate limit on the ownership and control of Quota Shares that was inexplicably established in contravention of NMFS’s own policy (the “Aggregate Limit”). These regulations, which were not implemented until November 2015, forced Plaintiffs to divest hundreds of thousands of dollars’ worth of Quota Shares that were earned over more than a decade of effort in the Fishery, and threaten to collapse the ongoing viability of the Fishery in Northern California.2 Despite their dire ramifications, NMFS promulgated these regulations through a slipshod process lacking the basic tenets of reasoned decisionmaking. NMFS’s actions here violate the Magnuson-Stevens Fishery Conservation and Management Act (“Magnuson Act”) and the Administrative Procedure Act (“APA”) in two fundamental ways. First, in promulgating the Ownership and Control Rules, NMFS granted itself unfettered discretion to impute to persons or entities with any “economic or financial interest” in a fishing enterprise, such as shareholders of a corporation or the captain and crew of a vessel, the ownership or control of Quota Shares in a manner that is incompatible with well-established common law. These rules contravene some of the most basic and fundamental common law corporate ownership and control principles and, in doing so, arbitrarily provide no limits on whether or how NMFS may determine that “control” exists. Congress has afforded NMFS no 2 “It is unanimous that at present the non-whiting IFQ program is far from meeting its economic objectives. . . . [E]conomic studies and comparisons to other rationalized programs which are economically successful show that aggregate caps may be a constraint to the economic success of our program.” Steen Decl., Ex. 1 at 2. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 10 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -2- 88764257.1 0052902-00014 authority or jurisdiction under the Magnuson Act to supplant the common law in this way, and NMFS’s actions are ultra vires and violate the APA. Second, NMFS violated the APA because the Aggregate Limit is arbitrary, unexplained, and unsupported. Among other failures in its promulgation of the Aggregate Limit (which was set at 2.7%), NMFS inexplicably disregarded (1) its own technical guidance and (2) its own relevant economic data indicating that up to an 18% limit could accomplish NMFS’s objectives. Moreover, NMFS gave no meaningful interpretation to applicable statutory terms and altogether failed to provide any coherent rationale or explanation for its decision. For these reasons, as addressed in detail below, Plaintiffs respectfully request that the Court grant summary judgment in their favor. II. LEGAL BACKGROUND Congress enacted the Magnuson Act to, among other things, “promote domestic commercial and recreational fishing under sound conservation and management principles.” 16 U.S.C. § 1801(b)(3). The Magnuson Act creates eight Regional Fishery Management Councils, each having fishery management responsibilities over an assigned geographic area. See id. § 1852(a), (h). In managing its respective geographic area, each council is to prepare, implement, monitor, and, as necessary, amend fishery management plans (“FMPs”) to govern fishing activities within that area. Id. §§ 1801(b)(4), 1852(h)(1), 1853. Each council prepares and proposes FMPs, FMP amendments, and implementing regulations to NMFS. See id. § 1853(a), (c). Before FMPs, FMP amendments, and implementing regulations become effective, NMFS must review and approve, partially approve, or reject them. Id. § 1854(a)-(b). NMFS is only authorized to approve FMPs, FMP amendments, and implementing regulations if NMFS determines that they are consistent with all applicable laws. See id. § 1854(a)(3), (b)(1). The council’s proposals are not governed by the APA. Rather, NMFS’s issuance of regulations is the agency action that must comply with the APA and all other applicable laws. See Section VI.B.2 infra. The Magnuson Act authorizes NMFS to promulgate limited access privilege programs (“LAPPs”). See generally 16 U.S.C. § 1853a. Generally, a LAPP is a management strategy in Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 11 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -3- 88764257.1 0052902-00014 which a fishery is “rationalized” by dividing fishing privileges for specific fish species, or groups of fish species, among the participants who have traditionally fished for those species. Each participant in a LAPP holds a limited access privilege, which is a federal permit “to harvest a quantity of fish . . . representing a portion of the total allowable catch of the fishery,” and “includes an individual fishing quota.” Id. § 1802(26)(A)-(B); see also id. § 1802(23). When promulgating a LAPP, NMFS must “establish procedures to ensure fair and equitable initial allocations” after considering “current and historical harvests”; “employment in the harvesting and processing sectors”; “investments in, and dependence upon, the fishery”; and “the current and historical participation of fishing communities.” Id. § 1853a(c)(5)(A). NMFS must also “ensure that limited access privilege holders do not acquire an excessive share of the total limited access privileges in the program.” Id. § 1853a(c)(5)(D). NMFS addresses this “excessive share” standard by establishing “a maximum share, expressed as a percentage of the total limited access privileges, that a limited access privilege holder is permitted to hold, acquire, or use.” See id. § 1853a(c)(5)(D)(i). NMFS may also “establish[] any other limitations or measures necessary to prevent an inequitable concentration of limited access privileges,” such as limits on individual fish species shares. See id. § 1853a(c)(5)(D)(ii). Limited access privileges (i.e., Quota Shares) “may be revoked, limited, or modified” by NMFS “at any time” without compensation. Id. § 1853a(b)(2)-(3). Nevertheless, Quota Shares are valuable property that may be bought, sold, and leased among private parties. See id. § 1853a(c)(7); Foss v. NMFS, 161 F.3d 584, 588 (9th Cir. 1998) (QS permit is “property”). In short, Quota Shares are the lifeblood for those who earn a living in the Fishery. III. FACTUAL BACKGROUND A. The Fishery The Pacific groundfish trawl fishery includes more than 80 species, and consists of the geographic area of the U.S. Exclusive Economic Zone (200 nautical miles from the coastline) that lies between the U.S.-Canada border and the U.S.-Mexico border. See 42 Fed. Reg. 12,937, Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 12 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -4- 88764257.1 0052902-00014 12,937-98 (Mar. 7, 1977); Steen Decl., Ex. 2 at 16; Ex. 3 at 1.3 The Pacific Fishery Management Council (the “Council”) oversees the groundfish fishery in accordance with the Pacific Coast Groundfish FMP. See Steen Decl., Ex. 2 at 13-15. Through FMP Amendments 20 and 21, and corresponding regulations, NMFS adopted and implemented a LAPP that includes an individual fishing quota program (the “IFQ Program”) for the Fishery (shorebased trawl, split into whiting and nonwhiting segments), and cooperative programs for the at-sea mothership and catcher/processor trawl fishery (whiting only). Plaintiffs challenge specific regulatory components of the IFQ Program applicable to the nonwhiting segment of the Fishery. B. IFQ Program Implementation On May 7, 2010, the Council presented FMP Amendments 20 and 21 and implementing regulations to NMFS for approval. Steen Decl., Ex. 4 at 1-3; see also Ex. 5 at 1-2. NMFS partially approved Amendments 20 and 21, and implemented them through two separate final rules (collectively, the “Final Rule”). Steen Decl., Ex. 6-7.4 These rulemakings promulgated the regulations that establish the IFQ Program, pursuant to the LAPP provisions of the Magnuson Act. See 50 C.F.R. pt. 660, subpt. D. Among other things, the IFQ Program establishes a regulatory system of allocating, limiting, and providing for transfers of QS in the Fishery. Ownership of QS is represented by a QS permit, which is issued to a particular person, corporation, partnership, or other entity. 50 C.F.R. § 660.11 (definition of “ownership interest”). QS permit owners are annually assigned a specific amount of “quota pounds” for each fish species included in the Fishery. The amount of annual quota pounds assigned to a permit holder 3 Because the administrative record contains four different numbering schemes and because NMFS did not stamp all of the pages in the administrative record with unique page numbers, Plaintiffs have attached all of the administrative record documents they cite in this brief as exhibits to the Declaration of Ryan Steen (“Steen Decl.”), and have given each cited page a page number. For the clarity of the Court and the parties, the record citations in this brief are provided as citations to the Steen Declaration exhibits. 4 The Final Rule resulted from two proposed rulemakings (collectively, the “Proposed Rule”). Steen Decl., Ex. 8-9. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 13 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -5- 88764257.1 0052902-00014 is based upon the QS percentages held by the permit holder and the annual catch allocations made for each species covered by the IFQ Program. See id. § 660.140(d). The IFQ Program became effective on January 1, 2011. However, as part of the Final Rule, NMFS established a moratorium prohibiting all transfers of QS until January 1, 2013. Steen Decl., Ex. 7 at 52. The Final Rule also required any Fishery participant that owned or controlled QS in an amount exceeding the Aggregate Limit (discussed further below) to divest of excess QS by January 1, 2015. See Steen Decl., Ex. 6 at 89. In August 2012, NMFS issued a temporary rule indefinitely extending the moratorium on QS transfers. See Steen Decl., Ex. 10 at 5. In January 2013, NMFS issued another rule further extending the moratorium on QS transfers to July 2013. See Steen Decl., Ex. 11 at 2. In March 2013, NMFS issued yet another rule extending the moratorium on QS transfers to January 1, 2014 for all species, except for widow rockfish. Steen Decl., Ex. 12 at 1. The March 2013 rule provided that the widow rockfish QS transfer moratorium was indefinite, pending a reallocation of widow rockfish QS. Id. at 17. The rule further provided that Fishery participants that own or control QS in amounts exceeding the Aggregate Limit would have to divest of excess QS by November 30, 2015, or have the excess QS revoked by NMFS. Id. at 17- 18. On July 28, 2015, Plaintiff Pacific Fishing, LLC (“Pacific Fishing”) received a letter from NMFS. Second Declaration of Daniel Occhipinti (“Second Occhipinti Decl.”), Ex. 1. That letter informed Pacific Fishing that NMFS had determined that Pacific Fishing owned and controlled QS in excess of the Aggregate Limit and would need to divest by November 30, 2015, or else the excess QS would be revoked. Id. On September 2, 2015, NMFS issued a “proposed action” to “further implement original QS divestiture provisions of the [IFQ Program]” by “clarify[ing] how divestiture and revocation of excess [QS]” would occur on November 30, 2015, and into the future. Steen Decl., Ex. 13. The proposed action was issued as a final rule on November 9, 2015 (the “2015 Rule”). Steen Decl., Ex. 14. On or about November 20, 2015, the excess QS imputed by NMFS to Pacific Fishing was divested. See Second Occhipinti Decl. at ¶ 6, Ex. 1. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 14 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -6- 88764257.1 0052902-00014 C. Key IFQ Program Components At issue in this case is the manner in which the IFQ Program limits the amount of QS that may be owned and controlled by a Fishery participant and the associated forced relinquishment of QS exceeding the Aggregate Limit. These aspects of the IFQ Program derive from the following interrelated regulatory components. The Aggregate Limit. Under the IFQ Program, “[a]ccumulation limits” are “the maximum extent of permissible ownership, control or use of a privilege within the trawl rationalization program.” 50 C.F.R. § 660.111. In the nonwhiting segment of the Fishery, there are three types of accumulation limits: vessel limits, individual fish species limits, and a limit for multiple fish species in aggregate.5 The nonwhiting aggregate ownership and control limit (the Aggregate Limit) caps the amount of total QS, across all applicable species fished in the nonwhiting segment of the Fishery, that a “person” may “own” or “control.”6 The Aggregate Limit is 2.7% of the total QS held by all permit holders in the nonwhiting segment of the Fishery. See 50 C.F.R. § 660.140(d)(4)(i)(C). Ownership and Control. The IFQ Program expansively defines both “ownership” and “control.” “Ownership” includes the QS actually owned by a person and the portion of QS “owned by an entity in which that person has an economic or financial interest, where the person’s share of interest in that entity will determine the portion” deemed to be “owned” by the person. Id. § 660.140(d)(4)(ii). “Control” includes “the ability through any means whatsoever to control or have a controlling influence over [an] entity to which QS . . . is registered.” Id. § 660.140(d)(4)(iii)(H). The specific regulations governing ownership and control, for purposes of administering the IFQ Program, are set forth at 50 C.F.R. § 660.140(d)(4) (the Ownership and Control Rules). 5 This lawsuit does not challenge any individual fish species limit or vessel limits. Much of NMFS’s discussion in the record refers generally (and confusingly) to all three types of limits as “accumulation limits.” 6 “Person” refers to “any individual, corporation, partnership, association or other entity (whether or not organized or existing under the laws of any state), and any Federal, state, or local government, or any entity of any such government that is eligible to own a documented vessel under the terms of 46 U.S.C. 12103(b).” 50 C.F.R. § 660.11. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 15 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -7- 88764257.1 0052902-00014 Divestiture. Under the IFQ Program, initial allocations of QS were assigned to participants in the Fishery based upon, among other things, the catch landing history associated with the limited-entry permits that governed fishing privileges before the implementation of the program. See generally id. § 660.140(d)(8). The IFQ Program required any participant whose ownership or control of QS (based on initial allocations) exceeded the Aggregate Limit to divest its excess QS by no later than November 30, 2015. Id. § 660.140(d)(4)(v). After applying the Ownership and Control Rules, these initial allocations resulted in only two Fishery participants deemed by NMFS to exceed the Aggregate Limit—Pacific Fishing and The Nature Conservancy. Steen. Decl., Ex. 15; Ex. 14 at 4. Revocation. Excess QS not divested by the November 30, 2015 divestiture deadline is automatically, permanently, and proportionately revoked by NMFS across all individual fish species, except for widow rockfish. Id. § 660.140(d)(4)(v). In sum, a Fishery participant’s decision to voluntarily divest QS, or face forced revocation of QS, depends entirely on whether the participant exceeds the Aggregate Limit, which, in turn, is determined by the application of the Ownership and Control Rules and the 2015 Rule. D. Plaintiffs’ Interests Plaintiff Sea Princess, LLC (“Sea Princess”) owns a fishing vessel that participates in the Fishery, and Pacific Fishing owns six separate companies (including Sea Princess) that each own a vessel that participates in the Fishery. Sea Princess and Pacific Fishing are both regulated under, and adversely affected by, the IFQ Program. Under the IFQ Program, Pacific Fishing is deemed to own and control the QS owned by Sea Princess and the other separate limited liability companies (“LLCs”) owned by Pacific Fishing, as well as by other entities. Sea Princess and Pacific Fishing have been forced to make business decisions that are contrary to their interests, and that materially harm their businesses, as a result of the substantial amount of QS that is imputed to Pacific Fishing under the IFQ Program.7 7 The Second Occhipinti Declaration demonstrates the requisite injury-in-fact, causation, and redressability elements for Sea Princess and Pacific Fishing’s standing to pursue this action. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992); Rumsfeld v. Forum for Acad. & Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 16 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -8- 88764257.1 0052902-00014 Plaintiff Pacific Choice Seafood Company (“Pacific Choice”) operates a seafood processing facility in Eureka, California. Eureka was once the epicenter of a thriving commercial groundfish fishery, with a multitude of fishing vessels delivering locally caught groundfish to several shoreside processors. This led to the development of bustling harbors, job growth in fishing and processing, and growth in related industries such as ship repair, navigation, maintenance, fueling, and transportation. Today, as a result of various historical economic and management factors, Pacific Choice’s facility is the only shoreside processing facility in Eureka that processes groundfish year-round. More than half of the groundfish delivered to Pacific Choice come from only four fishing vessels, all of which are owned by LLCs that are owned by Pacific Fishing and all of which divested QS. IV. STANDARD OF REVIEW Magnuson Act actions taken by NMFS are subject to judicial review under the APA. See 16 U.S.C. § 1855(f); 5 U.S.C. § 702. Judicial review under the APA is limited to the administrative record, and summary judgment is an appropriate mechanism for resolving such challenges. 5 U.S.C. § 706; City & County of San Francisco v. United States, 130 F.3d 873, 877 (9th Cir. 1997). The APA directs a reviewing court to “hold unlawful and set aside” agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2)(A), (C). An agency action is arbitrary and capricious if the agency “relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983); Cal. Energy Comm’n v. Dep’t of Energy, 585 F.3d 1143, 1150-51 (9th Cir. 2009). Institutional Rights, Inc., 547 U.S. 47, 52 n.2 (2006) (“[T]he presence of one party with standing is sufficient to satisfy Article III[].”). Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 17 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -9- 88764257.1 0052902-00014 In reviewing an agency action, the court “must engage in a careful, searching review to ensure that the agency has made a rational analysis and decision on the record before it.” Nat’l Wildlife Fed’n v. NMFS, 524 F.3d 917, 927 (9th Cir. 2007). Although a court will defer to an agency’s reasoned technical analysis, it will “not defer to the agency when the agency’s decision is without substantial basis in fact” Ariz. Cattle Growers’ Ass’n v. Salazar, 606 F.3d 1160, 1163 (9th Cir. 2010). The agency must articulate a “rational connection between the facts found and the determinations made.” Id. Moreover, “‘[t]he mere fact that an agency is operating in a field of its expertise does not excuse . . . agency[] reasoning [that] is irrational, unclear, or not supported by the data it purports to interpret.’” Nw. Coal. for Alts. to Pesticides v. EPA, 544 F.3d 1043, 1052 n.7 (9th Cir. 2008) (citation omitted). In other words, a court “do[es] not . . . simply accept whatever conclusion an agency proffers merely because the conclusion reflects the agency’s judgment.” Tripoli Rocketry Ass’n, Inc. v. Bureau of Alcohol, Tobacco, Firearms, & Explosives, 437 F.3d 75, 77 (D.C. Cir. 2006). V. ISSUES TO BE DECIDED 1. Whether the Ownership and Control Rules are unlawful because they supplant common law without authority under the Magnuson Act and arbitrarily grant NMFS unfettered discretion to determine ownership and control. 2. Whether NMFS’s decision to set the Aggregate Limit at 2.7% is unlawful because it is not supported by a rational explanation, is contrary to the record, and ignores the agency’s own guidance and data. 3. Whether the 2015 Rule is unlawful because it implements unlawful provisions of the Final Rule and establishes an arbitrary divestiture calculation. VI. ARGUMENT NMFS’s approach to limiting the ownership and control of Quota Shares was unlawful in two specific ways. NMFS set a hard limit on the aggregate amount of QS that can be owned and controlled through an unreasoned, arbitrary process in which it ignored its own guidance and economic information. To make matters worse, NMFS established rules for compliance with the Aggregate Limit that conflict with fundamental common law principles and rely entirely on Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 18 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -10- 88764257.1 0052902-00014 NMFS’s unbounded discretion to determine who owns and controls Quota Shares. As a result, permit holders are left with an extraordinarily low Aggregate Limit and no certainty about how to conduct business in a way that does not run afoul of the Ownership and Control Rules. Below, Plaintiffs first address the Ownership and Control Rules, which exceed NMFS’s authority and jurisdiction under the Magnuson Act and violate the APA. Plaintiffs then address the Aggregate Limit, which is arbitrary and capricious, and violates the APA and the Magnuson Act. A. The Ownership and Control Rules Impermissibly Displace Common Law, Exceed NMFS’s Authority Under the Magnuson Act, and Violate the APA The APA requires courts to “hold unlawful and set aside [final] agency action, findings, and conclusions” that are, inter alia, “otherwise not in accordance with law” or “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2)(A), (C); Michigan v. EPA, 135 S. Ct. 2699, 2706 (2015) (“‘[A]n agency’s decreed result [must] be within the scope of its lawful authority ….’” (citation omitted)). NMFS exceeded its authority and violated the APA by implementing the Ownership and Control Rules because these rules abrogate common law principles without statutory authority to do so. Congress “legislate[s] against a background of common-law adjudicatory principles.” Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 104, 108 (1991); United States v. Texas, 507 U.S. 529, 534 (1993) (“Congress does not write upon a clean slate.”). It is a “longstanding” principle that “‘[s]tatutes which invade the common law . . . are to be read with a presumption favoring the retention of long-established and familiar principles, except when a statutory purpose to the contrary is evident.’” Texas, 507 U.S. at 534 (emphasis added; brackets and ellipsis in original; citation omitted). “In order to abrogate a common-law principle, the statute must ‘speak directly’ to the question addressed by the common law.” Id. (emphasis added); see United States v. Bestfoods, 524 U.S. 51, 63 (1998); Sachs v. Republic of Austria, 737 F.3d 584, 595 (9th Cir. 2013), rev’d on other grounds sub nom. OBB Personenverkehr AG v. Sachs, 136 S. Ct. 390 (2015); Kasza v. Browner, 133 F.3d 1159, 1167 (9th Cir. 1998). In short, absent clear congressional authorization, an agency cannot implement regulations contrary to common law principles. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 19 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -11- 88764257.1 0052902-00014 1. The Ownership and Control Rules Directly Contradict Common Law Principles of Corporate Ownership and Control The Ownership and Control Rules state that “[n]o person may own or control, or have a controlling influence over, by any means whatsoever an amount of QS . . . that exceeds [the Aggregate Limit].” 50 C.F.R. § 660.140(d)(4)(i)(A). To apply this mandate, the rules provide expansive definitions for “ownership” and “control” that indisputably contradict common law principles governing the ownership and control of corporate assets. First, as to “ownership,” the common law provides that the assets of a corporation are owned by the corporation, not its shareholders. See Hawley v. City of Malden, 232 U.S. 1, 9 (1914) (“It is well settled that the property of the shareholders in their respective shares is distinct from the corporate property, franchises and capital stock . . . .”).8 However, the Ownership and Control Rules state the exact opposite. They provide that an asset of a corporation (i.e., QS) is owned by both the corporation and its shareholders (and by anyone else who has an “economic or financial interest” in the corporation). 50 C.F.R. § 660.140(d)(4)(ii)(B).9 Under the rules, the “ownership” of QS by a “person” includes the QS actually owned by the person and the portion of QS “owned by an entity in which that person has an economic or financial interest . . . .” Id.; see supra note 6 (definition of “person”). For example, under the Ownership and Control Rules, if a person has a 50% ownership interest in a corporation, then 50% of the QS owned by the corporation is deemed to be owned by 8 See In re Mercantile Guar. Co., 263 Cal. App. 2d 346, 352 (1968) (“The shareholders of a corporation do not have legal title to the assets or capital of the corporation, have no right to the possession thereof, may not transfer or assign the properties or assets of the corporation nor apply corporation funds to personal debts.”); Kelly v. Galloway, 66 P.2d 272, 274 (Or. 1937) (“The stockholder does not own the corporation’s surplus.”); California v. Tax Comm’n of State, 346 P.2d 1006, 1008 (Wash. 1959) (“A corporation is . . . separate and distinct from the persons who own its stock. . . . An individual shareholder has no property interest in its physical corporate assets.”). 9 Although a QS holder has no right to actual fish until they are caught, a QS permit itself is a protectable property interest. Foss, 161 F.3d at 588 (“There can be no doubt that the IFQ permit is property. It is subject to sale, transfer, lease, inheritance, and division as marital property in a dissolution.”). Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 20 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -12- 88764257.1 0052902-00014 the person. Id.; see Steen Decl., Ex. 16 at 328.10 If the person’s total QS in this example exceeds the Aggregate Limit, then the person must sell its interest in the corporation or its directly owned QS. In contrast, if common law principles applied, the person would own none of the QS owned by the corporation (i.e., there would be no doubly owned assets) and the person would not be required to sell QS or its interest in the corporation to satisfy the Aggregate Limit because the respective assets of shareholders and corporations would be separately owned. The Ownership and Control Rules therefore replace the common law principles governing ownership of corporate assets (which would apply but for the rules) with a significantly more expansive definition of “ownership.” Second, as to “control,” it is also well-settled that the assets of a corporation are controlled by the corporation’s officers and directors, not individual shareholders. “The property of a corporation is not subject to the control of individual members, whether acting separately or jointly.” Humphreys v. McKissock, 140 U.S. 304, 312 (1891). The individual members “can neither incumber nor transfer that property, nor authorize others to do so. The corporation—the artificial being created—holds the property, and alone can mortgage or transfer it; and the corporation acts only through its officers, subject to the conditions prescribed by law.” Id.; Burnet v. Clark, 287 U.S. 410, 415 (1932) (“A corporation and its stockholders are … separate entities.”).11 Only in “rare” and “exceptional circumstances,” such as fraud, may control of 10 In this example, the corporation is also deemed to own 100% of the QS it owns. Steen Decl., Ex. 16 at 328. The result here would be that 50% of the corporation’s QS is deemed to be doubly owned by both the person/shareholder and the corporation, which is plainly contrary to common law. 11 See 1 William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations § 31, Westlaw (database updated Sept. 2016) (“Shareholders, even a controlling shareholder, cannot transfer or assign the corporation’s properties and rights, nor apply corporate funds to personal debts or objects, nor release a purchaser’s liability to pay the price to the corporation, nor claim as exempt property of the shareholder’s bankruptcy estate, nor execute a bill of sale covering corporate assets.” (footnotes omitted)); De La Vergne Refrigerating Mach. Co. v. German Sav. Inst., 175 U.S. 40, 54 (1899) (Stockholders do “not have the power to transfer the assets of the corporation”); Or. Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U.S. 1, 30 (1889) (“One of the most important powers with which a corporation can be invested is the right to sell out its whole property, together with the franchises under which it is operated, or the authority to lease its property for a long term of years.”). Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 21 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -13- 88764257.1 0052902-00014 corporate assets be attributed to stockholders under the piercing doctrine. See Dole Food Co. v. Patrickson, 538 U.S. 468, 475 (2003). The Ownership and Control Rules ignore all of these common law principles, and instead define “control” much more expansively: Control [of QS] means, but is not limited to, the following: (A) The person has the right to direct, or does direct, in whole or in part, the business of the entity to which the QS or IBQ[12] are registered . . . ; (B) The person has the right to limit the actions of or replace, or does limit the actions of or replace, the chief executive officer, a majority of the board of directors, any general partner, or any person serving in a management capacity of the entity to which the QS or IBQ are registered . . .; (C) The person . . . has the right to direct, or does direct, and/or the right to prevent or delay, or does prevent or delay, the transfer of QS or IBQ, or the resulting QP or IBQ pounds; (D) The person, through loan covenants or any other means, has the right to restrict, or does restrict, and/or has a controlling influence over the day to day business activities or management policies of the entity to which the QS or IBQ are registered . . .; (E) The person, has the right to restrict, or does restrict, any activity related to QS or IBQ or QP or IBQ pounds, including, but not limited to, use of QS or IBQ, or the resulting QP or IBQ pounds, or disposition of fish harvested under the resulting QP or IBQ pounds . . . ; (F) The person has the right to control, or does control, the management of, or to be a controlling factor in, the entity to which the QS or IBQ, or the resulting QP or IBQ pounds, are registered . . .; (G) The person . . . has the right to cause or prevent, or does cause or prevent, the sale, lease or other disposition of QS or IBQ, or the resulting QP or IBQ pounds; and …. 12 “IBQ” refers to privileges held in the halibut fishery, and is not at issue in this lawsuit. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 22 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -14- 88764257.1 0052902-00014 (H) The person has the ability through any means whatsoever to control or have a controlling influence over the entity to which QS or IBQ is registered . . . . 50 C.F.R. § 660.140(d)(4)(iii) (emphases added). The “through any means whatsoever” catchall provision allows for a limitless range of scenarios that may give rise to “control” of QS—a decision left entirely to NMFS’s discretion. See Steen Decl., Ex. 16 at 383 (“control” enforced on “case by case basis”). For example, the QS of a crewmember or a captain of a vessel may be determined to be controlled by his or her corporate employer, “based upon the specific situational facts.” Id. at 333-34. The QS of a lessor of a vessel to a harvesting company may be determined to be controlled by the harvesting company. Id. A single processor in a port may be determined to control the QS of each vessel in the port. Id. Even entirely unrelated corporations may be determined to control each other’s QS—again, subject to NMFS’s unfettered discretion based on the particular facts. See id. at 329 (“[O]ne entity may have no direct ownership in another entity or its QS, but still be found to exert control over that other entity and/or the QS it holds.”); Steen Decl., Ex. 17 at 1 (“[I]f it looks like a duck, quacks like a duck, then it’s control.”). Thus, although the common law states that corporate assets are “controlled” by the corporation’s officers and directors, the Ownership and Control Rules provide that a corporate asset (i.e., QS) may be controlled by the corporation’s employees, its lessees, its shareholders, unrelated corporations, and any other person or entity that NMFS determines, in its sole discretion, to have some amount of control over the corporation’s assets “through any means whatsoever.” Moreover, for purposes of revoking QS exceeding the Aggregate Limit, controlled QS is the equivalent of owned QS. See 50 C.F.R. § 660.140(d)(4)(i)(A); contra Dole Food, 538 U.S. at 477 (“Control and ownership, however, are distinct concepts.”). No other specific guidance or certainty is provided by the rules, and the regulated community is left to guess at what circumstances may give rise to “control” sufficient to cause NMFS to revoke QS. See Steen Decl., Ex. 16 at 383 (“[T]he vagueness of the language may leave some uncertainty about what is and is not allowed. Ultimately, the standard of evaluation might be ‘Is or isn’t control being established that adversely impacts program objectives?’”); id. (“Control that is not based on Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 23 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -15- 88764257.1 0052902-00014 ownership will be enforced on a case-by-case basis.”); id. (“The control rule will hamper the ability of processors to vertically integrate.”); Steen Decl., Ex. 18 at 9 (broad definition of control is “[s]cary from [a] lawyer’s perspective because it is a grey area” requiring “[e]xtensive risk analysis”). In all of the instances described above, if NMFS’s discretionary attribution of “control” of QS causes a person to exceed the Aggregate Limit, then the “person” to whom the control is attributed must either divest itself of its directly owned QS or sever its otherwise lawful business relationships with the persons or entities whose QS it has been deemed to “control,” or, alternatively, those persons or entities must divest their QS in order to maintain their otherwise lawful relationships with the person to whom control is imputed. This outcome is the direct result of the Ownership and Control Rules supplanting well-established common law principles regarding the control of corporate assets with the most expansive definition of “control” imaginable combined with unfettered agency discretion. As addressed in the next section, NMFS did not have authority under the Magnuson Act to do so. 2. The Magnuson Act Does Not “Speak Directly” to Common Law Principles of Corporate Ownership and Control, and Therefore NMFS Could Not Abrogate Them “[W]here a common-law principle is well established, . . . the courts may take it as given that Congress has legislated with an expectation that the principle will apply except ‘when a statutory purpose to the contrary is evident.’” Astoria, 501 U.S. at 108 (citation omitted). Although Congress need not “affirmatively proscribe” a common law principle, there must be “clear congressional intent to the contrary, as evident from the statutory text” because statutes “are to be read with a presumption favoring the retention of long-established and familiar [common law] principles.” Texas, 507 U.S. at 534 (emphasis added; internal quotation marks and citations omitted); Chubb Custom Ins. Co. v. Space Sys./Loral, Inc., 710 F.3d 946, 960–61 (9th Cir. 2013). To overcome this presumption, NMFS must demonstrate that Congress intended to “displace common-law” principles by speaking “directly” to those principles. Texas, 507 U.S. at 534; Sachs, 737 F.3d at 595; see also, e.g., Chappell v. Robbins, 73 F.3d 918, 925 (9th Cir. 1996) (holding that, “[i]n passing RICO, Congress did not evince a ‘clear legislative intent’ to displace Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 24 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -16- 88764257.1 0052902-00014 common-law immunities”). Here, NMFS’s promulgation of regulations that supplant common law principles of corporate ownership and control is unlawful because the Magnuson Act does not speak to those principles at all or otherwise show any clear congressional intent to displace them. Texas, 507 U.S. at 534; Bestfoods, 524 U.S. at 63. Bestfoods is illustrative. In Bestfoods, the U.S. government sought to hold a parent corporation liable for its subsidiary’s acts of pollution under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). See generally 524 U.S. 51. In deciding whether liability could attach as a matter of law, the Court relied on two “bedrock” common law principles: (1) a parent corporation is not liable for its subsidiary’s acts, and (2) the corporate veil can be pierced only when a parent corporation abuses the corporate form (e.g., commits fraud). Id. at 61-63. Because Congress did not “speak directly” to these common law principles in CERCLA, the Court concluded that attributing liability under CERCLA could only occur in a manner consistent with these common law principles. See id. at 63, 62, 70 (CERCLA “giv[es] no indication that ‘the entire corpus of state corporate law is to be replaced’”; “congressional silence is audible,” and CERCLA’s “silence is dispositive” (citation omitted)). In other words, the Court held that a parent company cannot be derivatively liable for its subsidiary’s actions under a federal statute contrary to corporate common law principles if Congress has expressed no intent to abrogate those principles.13 Like CERCLA’s relationship to hazardous waste clean-up, the Magnuson Act comprehensively regulates commercial fishing in federal waters. Id. at 55; 16 U.S.C. §§ 1811(a), 1855(d). Also like CERCLA, although the Magnuson Act speaks directly to the subject it governs—the management of “fish” and “fishery resources”—it lacks any indication that Congress intended to abrogate common law principles governing corporations and corporate 13 See also Sachs, 737 F.3d at 595-96 (statutory definition of “agency or instrumentality of a foreign state” was an insufficient expression of congressional intent to “displace common-law agency principles under the statute”). But cf. Mohamad v. Palestinian Auth. 132 S. Ct. 1702, 1709 (2012) (presumption of organizational liability abrogated by plain text of Torture Victim Protection Act, which “evinces a clear intent not to subject nonsovereign organizations to liability”). Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 25 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -17- 88764257.1 0052902-00014 assets. The Magnuson Act confers on NMFS the authority to (1) allocate fishing privileges to “particular” qualifying individuals, corporations, or other entities; (2) revoke those privileges once granted; (3) limit the amount of QS that an owner is permitted to “hold, acquire, or use”; and (4) prevent the inequitable concentration of QS. See generally 16 U.S.C. § 1853a. There is no suggestion anywhere in the Magnuson Act that, in setting these standards, Congress intended to displace common law corporate principles. Nor do the Magnuson Act’s general standards applicable to allocation of fishing privileges indicate any intent to displace common law: “such allocation shall be (A) fair and equitable to all such fishermen; (B) reasonably calculated to promote conservation; and (C) carried out in such manner that no particular individual, corporation, or other entity acquires an excessive share of such privileges.” Id. § 1851(a)(4). Similarly, Congress’s direction to NMFS to establish a “maximum share” that a privilege holder is permitted to “hold, acquire, or use” and to use other measures necessary to prevent an “inequitable concentration” of privileges (e.g., the Aggregate Limit) also conveys no intent to displace applicable common law principles of corporate ownership and control. Id. § 1853a(c)(5)(D). Nothing prohibits NMFS from applying these statutory standards in a manner that is consistent with well-established principles of common law. Indeed, the Magnuson Act requires that NMFS do this. Id. § 1853(a)(1)(C) (regulations implementing FMPs must be consistent with “any other applicable law” (emphasis added)); see also id. § 1854(b)(1). Regardless, the Magnuson Act’s silence on a subject as fundamental as the ownership and control of corporate assets is both “audible” and “dispositive.” Bestfoods, 524 U.S. at 62, 70. Moreover, not only does the Magnuson Act evince no intent to change the common law, it plainly contemplates the application of traditional corporate principles. Where “[i]t is evident from the Act’s text that Congress was aware of settled principles of corporate law and legislated within that context,” absent express language to the contrary, there is no authority to abrogate those principles. See Dole Food, 538 U.S. at 474; id. at 476 (absence of express statutory language defining “ownership in other than the formal sense” shows that Congress “did not intend to disregard [corporate] ownership rules”). Under the Magnuson Act, only persons or Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 26 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -18- 88764257.1 0052902-00014 lawfully formed entities, such as corporations or partnerships, may qualify for limited access permits. 16 U.S.C. § 1853a(c)(1)(D) (LAPP shall “prohibit any person other than a United States citizen, a corporation, partnership, or other entity established under the laws of the United States or any State . . . from acquiring a privilege to harvest fish . . . .”); id. § 1802(36) (definition for “person” using similar traditional corporate law terms). Those entities may buy, sell, lease, or otherwise transfer limited access privileges. Id. § 1853a(c)(7). Under these and the other governing provisions of the Magnuson Act, NMFS can allocate privileges to persons and corporate entities, and establish ownership and control rules in harmony with applicable corporate common law principles. Instead of doing so, however, NMFS unlawfully chose to supplant those principles with broad regulatory definitions of “ownership” and “control” that exceed its authority under the Magnuson Act and conflict with “other applicable law.” See Dole Food, 538 U.S. at 476 (“Where Congress intends to refer to ownership in other than the formal sense, it knows how to do so.”). In sum, in the absence of “clear congressional intent” to displace common law principles of corporate ownership and control, NMFS cannot overcome the strong presumption that, in enacting the Magnuson Act, Congress legislated against the background of those well-established principles. See Astoria, 501 U.S. at 108. NMFS had no authority to issue regulations that supplant those common law principles. Additionally, NMFS’s promulgation of rules that are contrary to common law violates the Magnuson Act’s mandate that all implementing regulations must be consistent with “any other applicable law.” 16 U.S.C. § 1853(a)(1)(C) (emphasis added). Accordingly, the Ownership and Control Rules are “not in accordance with law” and “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right” and must be “set aside.” 5 U.S.C. § 706(2)(A), (C); Organized Village of Kake v. USDA, 795 F.3d 956, 970 (9th Cir. 2015) (“Ordinarily when a regulation is not promulgated in compliance with the APA, the regulation is invalid.” (internal quotation marks and citation omitted)); Adams Fruit Co. v. Barrett, 494 U.S. 638, 650 (1990) (“Although agency determinations within the scope of delegated authority are entitled to deference, it is fundamental ‘that an agency may not bootstrap itself into an area in which it has no jurisdiction.’” (citation omitted)). Finally, for the reasons Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 27 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -19- 88764257.1 0052902-00014 addressed above, and particularly because the Ownership and Control Rules grant NMFS unlimited discretion to find “control” in any unidentified conceivable circumstances, the Ownership and Control Rules are arbitrary and capricious and also violate the APA on that basis. 5 U.S.C. § 706(2); Mission Grp. Kan., Inc. v. Riley, 146 F.3d 775, 782 (10th Cir. 1998) (rejecting agency interpretation because it was “entirely unrestricted” and created “apparently unlimited regulatory discretion”). B. NMFS’s Decision to Set the Aggregate Limit at 2.7% Is Arbitrary and Capricious, and Violates the APA The APA requires a court to set aside agency actions that are arbitrary and capricious. See 5 U.S.C. § 706(2)(A). An agency’s failure to “engage in ‘reasoned decisionmaking’” constitutes arbitrary and capricious action, regardless of the degree of deference it might be entitled to. Michigan, 135 S. Ct. at 2706 (citation omitted). Reasoned decisionmaking requires, among other things, that an agency “examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’” State Farm, 463 U.S. at 43 (citation omitted); Tripoli, 437 F.3d at 77 (The “‘process by which [an agency] reaches [its] result must be logical and rational.’” (emphasis added; citation omitted)). Thus, a court’s “‘task involves examining the reasons for agency decisions—or, as the case may be, the absence of such reasons.’” Plascencia-De Haro v. Lynch, No. 14-CV-03058-HSG, 2016 WL 4073295, at *2 (N.D. Cal. Aug. 1, 2016) (quoting Judulang v. Holder, 132 S. Ct. 476, 484 (2011)). At issue is whether the decision to set the Aggregate Limit at 2.7% was the product of a logical and rational process, and supported by a reasonable explanation by NMFS. Two fundamental principles of administrative law govern this Court’s inquiry into the lawfulness of the Aggregate Limit. First, when an agency applies ambiguous statutory terms in a rulemaking, it must provide a clear interpretation of those ambiguous terms. Second, the agency must rationally apply its interpretation of the law to the information in the record, and provide a reasoned explanation for its decision, taking into account all of the available data and information. As Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 28 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -20- 88764257.1 0052902-00014 demonstrated below, NMFS failed on both counts and, consequently, NMFS’s decision to set the Aggregate Limit at 2.7% should be vacated and remanded. 1. NMFS Failed to Provide a Clear Interpretation of Ambiguous Statutory Terms When implementing a LAPP, NMFS must, among other things, “ensure that limited access privilege holders do not acquire an excessive share of the total limited access privileges in the program.” 16 U.S.C. § 1853a(c)(5)(D) (emphasis added). Relatedly, the Magnuson Act directs NMFS to “establish[] a maximum share, expressed as a percentage of the total limited access privileges, that a limited access privilege holder is permitted to hold, acquire, or use” and to “establish[] any other limitations or measures necessary to prevent an inequitable concentration of limited access privileges.” Id. § 1853a(c)(5)(D)(i)-(ii) (emphasis added). The key terms here—“excessive share” and “inequitable concentration”—are ambiguous because they are capable of more than one meaning. Alaska Wilderness League v. EPA, 727 F.3d 934, 938 (9th Cir. 2013). Accordingly, as a threshold matter, NMFS was required to supply an interpretation of these ambiguous statutory terms to apply to the information in the record. Courts review an agency’s interpretation of an ambiguous term by applying Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Under Chevron, the court determines (1) whether Congress has resolved the precise question at issue; and (2) if Congress has not resolved the question (i.e., the statute is ambiguous), what degree of deference the agency’s interpretation should receive (e.g., Chevron deference, Skidmore deference [explained below], or no deference) in assessing the reasonableness of that interpretation. See id. at 842-43; United States v. Mead Corp., 533 U.S. 218, 226-28 (2001). Agencies often interpret ambiguous statutory terms through the promulgation of regulations to specifically define those terms. In such cases, the agency’s regulatory interpretation is entitled to Chevron deference, meaning the court will affirm the interpretation if Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 29 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -21- 88764257.1 0052902-00014 it is a “reasonable” construction of the statute.14 See Mead, 533 U.S. at 229; Chevron, 467 U.S. at 843-44. Agencies may also interpret ambiguous statutory terms through informal and nonbinding means, such as policy statements or guidance. In these situations, “Skidmore deference” applies. The degree of this deference is not fixed but operates on a sliding scale based on the interpretation’s “power to persuade,” Christensen v. Harris County, 529 U.S. 576, 587 (2000), considering “the degree of the agency’s care, its consistency, formality, and relative expertness, and the persuasiveness of the agency’s position,” Mead, 533 U.S. at 228 (footnotes omitted). See also Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1203-04 (2015). When an agency engages in rulemaking but does not rely on a regulation or guidance to interpret ambiguous statutory terms, it still must supply an interpretation of the ambiguous terms it is applying. For example: [T]he APA requires the agency to explain [its decision]—to do so adequately necessarily implies giving some definitional content to the [statutory] phrase “significant scientific agreement.” We think this proposition is squarely rooted in the prohibition under the APA that an agency not engage in arbitrary and capricious action. See 5 U.S.C. § 706(2)(A) (1994). . . . That is not to say that the agency was necessarily required to define the term in its initial general regulation—or indeed that it is obliged to issue a comprehensive definition all at once. . . . The agency is entitled to proceed case by case or, more accurately, sub- regulation by subregulation, but it must be possible for the regulated class to perceive the principles which are guiding agency action. Accordingly, on remand, the FDA must explain what it means by significant scientific agreement or, at minimum, what it does not mean. Pearson v. Shalala, 164 F.3d 650, 660-61 (D.C. Cir. 1999) (emphases added); see Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 525 (1994) (Thomas, J., dissenting) (“[T]he very purpose behind the delegation of lawmaking power to administrative agencies ... is to ‘resol[ve] ... ambiguity in a statutory text.’” (second brackets and second ellipsis in original) (quoting Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 696 (1991))). 14 An agency’s interpretation of an ambiguous term in its own regulation, which is not at issue here, will be upheld unless it is clearly erroneous (known as “Auer deference”). See generally Gonzales v. Oregon, 546 U.S. 243, 256-57 (2006). Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 30 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -22- 88764257.1 0052902-00014 It is not clear from the record in this case whether or how NMFS interpreted the terms “excessive share” or “inequitable concentration.” Because no regulation interprets these ambiguous statutory terms, Chevron deference does not apply.15 Moreover, NMFS provides no interpretation of these terms in either the Proposed Rule or the Final Rule, or in any separate memorandum. Although the record does contain a guidance document that expressly addresses the “excessive share” and “inequitable concentration” standards—see Steen Decl., Ex. 19 (“The Design and Use of Limited Access Privilege Programs” (the “Guidance”))—nothing in the record shows that NMFS actually applied or relied upon the Guidance when it established the Aggregate Limit. Accordingly, Skidmore deference does not apply because NMFS provides nothing for the court to be persuaded by. NMFS’s only commentary in the record on the meaning of “excessive share” and “inequitable concentration” (other than in the Guidance) that Plaintiffs have discovered appears in Appendix A to the FEIS. Specifically, Appendix A states: Congress chose to use the terms ‘excessive share’ and ‘inequitable concentration’ without defining them and without reference to the Federal antitrust laws or to economic theory. When Congress uses terms without accompanying definitions, the intended meaning comes from the ordinary sense of the words as read within the context of the overall purpose of the statute. Looking to the ordinary meanings of ‘excessive’ and ‘inequitable’ within the context of the MSA national standards and LAPP provisions, it seems clear that Congress granted the Council considerable discretion to determine the levels of quota ownership and usage that would be unreasonable, unnecessary, or unfair considering the Council’s overall management objectives for the fishery. This interpretation is consistent with NMFS’ nonregulatory guidance on the technical design and use of catch share or LAPPs. Steen Decl., Ex. 16 at 339 (emphasis added). 15 The only regulation that speaks to either of these terms simply restates NMFS’s statutory obligation to prevent excessive shares. See 50 C.F.R. § 600.325(c)(3)(iii) (“An allocation scheme must be designed to deter any person or other entity from acquiring an excessive share of fishing privileges, and to avoid creating conditions fostering inordinate control, by buyers or sellers, that would not otherwise exist.”). NMFS does not address this regulation in the Proposed Rule, the Final Rule, or the Final Environmental Impact Statement (“FEIS”). Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 31 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -23- 88764257.1 0052902-00014 What constitutes ‘excessive shares’ may be socially determined or economically determined. On an economic basis, an excessive share would be one that would be expected to result in a sector with market power. . . . From a social policy perspective, concentration of ownership affects the social and community structure and the sense of equity that may, in part, be grounded in the history of fishery management. . . . In general, excessive shares will be controlled directly through QS control limits. Id. at 135. Thus, according to Appendix A, NMFS believes that excessive shares can be “socially determined or economically determined” and that shares would be excessive if they are “unreasonable, unnecessary, or unfair.” However, these general, indefinite statements provide no meaningful interpretation of the already ambiguous statutory terms. Henriquez-Rivas v. Holder, 707 F.3d 1081, 1100 (9th Cir. 2013) (“‘encourag[ing] amorphous definitions [of statutory terms] would likely yield inconsistent, arbitrary, and overbroad results’” (citation omitted)). NMFS’s statements do not meet any standard applicable to an agency’s interpretation of an ambiguous statute because they simply replace ambiguity with ambiguity. See Hernandez-Gonzalez v. Holder, 778 F.3d 793, 807 (9th Cir. 2015) (“we do not give deference to the BIA’s statutory interpretation because the BIA failed to explain why the offense with the gang enhancement constituted conduct that is inherently base, vile or depraved as opposed to simply criminal conduct that society rejects” (emphasis added)); Mission Grp. Kan., Inc., 146 F.3d at 782 (agencies may not “simply replace statutory ambiguity with regulatory ambiguity”; agency interpretation rejected because it was “entirely unrestricted” and created “apparently unlimited regulatory discretion”); Thomas Jefferson Univ., 512 U.S. at 525 (“‘An agency whose powers are not limited either by meaningful statutory standards or . . . legislative rules poses a serious potential threat to liberty and to democracy.’” (quoting 2 K. Davis & R. Pierce, Administrative Law § 11.5, at 204 (3d ed. 1994))). As a result, NMFS’s record does not make it “possible for the regulated class to perceive the principles” that guided NMFS when it established the Aggregate Limit. Pearson, 164 F.3d at 661. NMFS should have expressly grappled with the ambiguous statutory terms in the Proposed Rule or the Final Rule, or in a separate interpretive document. Instead, NMFS buried its Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 32 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -24- 88764257.1 0052902-00014 “interpretation” in an appendix at the end of a 700-page FEIS and merely concluded that “excessive” means “unreasonable,” “unnecessary,” or “unfair.” Accordingly, the Aggregate Limit is arbitrary and capricious, and should be vacated and remanded to NMFS. Tripoli, 437 F.3d at 84 (overturning agency decision where it “articulated no standard whatsoever” to guide its analysis). Alternatively, if NMFS contends that its interpretation of the ambiguous statutory terms is actually represented by the Guidance, the Aggregate Limit is still arbitrary and capricious because, as addressed below, NMFS did not apply the Guidance when it set the limit at 2.7%. 2. NMFS Failed to Provide a Rational Explanation for the Aggregate Limit Aside from NMFS’s obligation to provide a lawful interpretation of the ambiguous statutory terms it applied, NMFS was required to articulate a rational, reasoned explanation for its determination to set the Aggregate Limit at 2.7%. State Farm, 463 U.S. at 43. Specifically, NMFS was required to “examine the relevant data and articulate a satisfactory explanation for its action, including a ‘rational connection between the facts found and the choice made.’” Id. (citation omitted); Tripoli, 437 F.3d at 77 (The “‘process by which [an agency] reaches [its] result must be logical and rational.’” (emphasis added; citation omitted)). Under the Magnuson Act, the Council develops and proposes FMP amendments and draft implementing regulations for NMFS’s consideration. 16 U.S.C. §§ 1801(b)(4), 1852(h)(1), 1853. However, the Council is not an agency and “do[es] not have unlimited and unreviewable discretion to determine the make-up of [its] fisheries.” Flaherty v. Bryson, 850 F. Supp. 2d 38, 56 (D.D.C. 2012); Anglers Conservation Network v. Pritzker, 70 F. Supp. 3d 427, 437 (D.D.C. 2014) (Anglers I), aff’d, 809 F.3d 664 (D.C. Cir. 2016). The Council’s recommendation to NMFS “does not qualify as an ‘agency action’ under the APA.” Anglers I, 70 F. Supp. 3d at 437. Accordingly, “ultimate responsibility for the details of any amendment . . . rests with NMFS[] [r]egardless of what the Council recommends.” Anglers Conservation Network v. Pritzker, 139 F. Supp. 3d 102, 111 (D.D.C. 2015) (Anglers II ) (emphasis added; citation omitted). NMFS cannot merely “defer[] to the Council’s [determination] without any explanation for why that [determination] complies with the MSA.” Flaherty, 850 F. Supp. 2d at 55. Rather, NMFS, as the action agency, “‘must examine the relevant data and articulate a satisfactory Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 33 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -25- 88764257.1 0052902-00014 explanation for its action.” Humane Soc’y of U.S. v. Locke, 626 F.3d 1040, 1048 (9th Cir. 2010) (citation omitted); Steen Decl., Ex. 20 at 1 (NOAA General Counsel “stress[ing] that a proper written record, including a detailed explanation and justification . . . is required for agency decision making.” (emphasis added)). a. The Proposed Rule and Final Rule provide no explanation for the Aggregate Limit In all of the 218 pages of the Final Rule, there is no explanation for why NMFS decided to set the Aggregate Limit at 2.7%. There is also no such explanation in all of the 184 pages of the Proposed Rule. Instead, in its rulemaking documents, NMFS merely described the types of factors that the Council considered when recommending accumulation limits generally: In developing limits, the Council noted the tension between allowing sufficient accumulation to improve the efficiencies of harvesting activities and preventing levels of accumulation that could result in adverse economic and social effects. In determining the appropriate levels, the Council considered a wide range of factors such as social benefits, impact on labor, impacts on processors, impacts on harvesters, impacts on the public, the number and sizes of firms, within-sector competition, market power, efficiency, geographic distribution, communities, and fairness and equity. Steen Decl., Ex. 8 at 12. NMFS’s inexplicable failure to provide any meaningful explanation in any of its rulemaking documents to support one of the most important components of the IFQ Program renders the Aggregate Limit arbitrary and capricious. See Otay Mesa Prop., L.P. v. U.S. Dep’t of Interior, 646 F.3d 914, 917 (D.C. Cir. 2011) (rejecting the U.S. Fish and Wildlife Service’s proffered explanation because “the theory [could not] be found in the final rule”). b. The discussion of the Aggregate Limit in the FEIS is nonspecific and insufficient Outside of NMFS’s rulemaking documents, there is some discussion of the Aggregate Limit in Appendix A to the FEIS. However, that discussion is nonspecific and does not rationally explain the decision to set the Aggregate Limit at 2.7%. Most of the discussion in Appendix A addresses accumulation limits (i.e., individual species limits, the Aggregate Limit, and vessel Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 34 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -26- 88764257.1 0052902-00014 limits) generally and consists of nonsubstantive narratives of what the Council considered. For example, NMFS states in Appendix A that: [T]he task of arriving at these preferred limits a [sic] balancing the social objectives behind control and vessel limits against the economic objectives at the center of the rationalization program. In particular, the Council attempted to identify percentage limits that would be low enough to prevent excessive control . . . [and] high enough not to interfere with the objectives of providing for improved operational flexibility for the fleet and a viable, profitable, and efficient groundfish fishery. Steen Decl., Ex. 16 at 339.16 Although this paragraph describes the Council’s general considerations when setting all accumulation limits, it says nothing about the specific reasons why the Aggregate Limit was determined to be 2.7%—as opposed to, e.g., 3%, 5%, 10%, 18%, or any other percentage. Additionally, in Appendix A, NMFS lists criteria the Council and its committees “considered” when setting accumulation limits, such as initial allocations of QS at the permit and entity levels, recent and past levels of vessel performance, the minimum fleet size needed to harvest full trawl allocation for a given species limit, the minimum number of entities that could control all the harvest in the fishery, and the maximum amount of revenue a single entity or vessel might receive under a given set of vessel limits. See id. at 339-40. However, again, this recital of criteria that may have been considered by the Council provides no explanation for why and how these criteria were applied to determine that the Aggregate Limit should be set at 2.7%. In all of the 1,500 pages of the FEIS and its appendices, there are very few instances in which NMFS actually addresses the Aggregate Limit with any specificity. On page A-310 of Appendix A, NMFS states that setting the Aggregate Limit at 2.7% “would accommodate a fairly high level of consolidation (down to as few as about 38 entities controlling QS) and would allow entities to control QS representing up to well over a million dollars of annual ex-vessel revenue.” Id. at 348. Additionally, on page A-308 of Appendix A, NMFS states that the Council 16 The accumulation limit considerations stated in the FEIS differ from those stated in the Proposed Rule. Compare Steen Decl., Ex. 16 at 339 with Steen Decl., Ex. 8 at 12. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 35 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -27- 88764257.1 0052902-00014 “[e]mploy[ed] a relatively small aggregate groundfish control . . . limit[] to counter the effect of the relatively higher species limits”).17 Id. at 346. However, NMFS’s mere observation about the projected consequences of setting the Aggregate Limit at 2.7% (i.e., that the Fishery could consolidate to 38 entities, and average regional revenues would be over $1 million) says nothing about the reasons why NMFS decided to set the Aggregate Limit at 2.7%. Moreover, NMFS provides no explanation for why 2.7% was chosen as the “relatively small” Aggregate Limit, as opposed to other “relatively small” percentages. NMFS’s failure to provide a reasoned explanation for the Aggregate Limit is similar to the Interstate Commerce Commission’s (“ICC”) ratemaking decision in San Antonio ex rel. City Public Service Board v. United States, 631 F.2d 831 (D.C. Cir. 1980). In San Antonio, multiple parties challenged the ICC’s decision to adopt a shipping rate that included a 7% increment to account for differential pricing, which is a method for subsidizing other railroad services. Id. at 850-52. In holding the 7% increment arbitrary, the D.C. Circuit Court determined that the ICC’s general assertions were “so broad as to be meaningless” because they could “be put forth just as readily” to justify any percentage increment. Id. at 852. The court also observed that the ICC “listed four criteria that it stated would be used . . . [but] then completely ignored [them] in its indiscriminate selection” of the 7% increment. Id. Like the ICC in San Antonio, NMFS’s only apparent discussion of the Aggregate Limit (in FEIS Appendix A) provides generic and meaningless assertions that could be used to justify any one of a number of percentages. For example, every Aggregate Limit option greater than 2.7% could “accommodate a fairly high level of consolidation” and would “allow entities to control QS representing up to well over a million dollars.” Id. at 348; id. (Figure A-100). Moreover, these statements say nothing about why the Aggregate Limit should (or should not) be a number that allows entities to control one million dollars of QS in the first place, and how that 17 The Appendix contains a “rationale” and “analysis” for the “calculation” of the Aggregate Limit on pages A-335 and A-370, but these pages simply explain how an entity should calculate its holdings to determine whether or not it exceeds the Aggregate Limit. They are unrelated to, and do not explain, the reasons why NMFS set the Aggregate Limit at 2.7%. See Steen Decl., Ex. 16 at 323-24, 373, 408. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 36 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -28- 88764257.1 0052902-00014 rationale relates to NMFS’s obligation to prevent “excessive shares.” Also similar to San Antonio, NMFS identifies some criteria in Appendix A, but provides no explanation for why those criteria were chosen or specifically applied to conclude that the Aggregate Limit should be set at 2.7%. Id. at 339-40. Tripoli is also illustrative. 437 F.3d 75. In Tripoli, the Bureau of Alcohol, Tobacco, Firearms and Explosives (the “ATFE”) determined that ammonium perchlorate composite propellant was a deflagrate and therefore constituted an “explosive.” Id. at 77. The court held that the ATFE unlawfully used “unbounded relational definition[s]” in making this classification decision. Id. at 81. The court explained that the ATFE’s statement that “‘the deflagration reaction is much faster than the reaction achieved by . . . burning’[] does not suffice, because it says nothing about what kind of differential makes one burn velocity ‘much faster’ than another.” Id. at 81 (emphasis in original). Similarly, NMFS describes the Aggregate Limit as “low enough,” “high enough,” “relatively small,” “relatively higher,” and “fairly high.” Steen Decl., Ex. 16 at 339, 346, 348. However, none of these ambiguous terms explain why one percentage, as opposed to other alternative percentages, is (1) “low enough to prevent excessive control”; (2) “high enough [to ensure] a viable, profitable, and efficient groundfish fishery”; (3) “relatively small” enough “to counter the effect of relatively higher species limits”; or (4) sufficient to “accommodate a fairly high level of consolidation.” Id. These unbounded relational definitions “say[] nothing.” Tripoli, 437 F.3d at 81 (emphasis added). Finally, in the FEIS, NMFS refers to various reports prepared by subcommittees of the Council during the FMP amendment processes. See, e.g., Steen Decl., Ex. 21-22. The record does not make clear whether, how, or to what degree NMFS relied on those reports in establishing the Aggregate Limit. What is clear, however, is that the reports do not provide the explanation of NMFS as the action agency. See Anglers II, 139 F. Supp. 3d at 111 (“ultimate responsibility for the details of any amendment . . . rests with NMFS[] . . . [r]egardless of what the Council recommends” (citation omitted)); Flaherty, 850 F. Supp. 2d at 55 (NMFS’s deferral to Council without explanation violates the APA). Moreover, the subcommittee reports simply identify income ranges per vessel that might be reasonable, and assess how many vessels at certain QS Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 37 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -29- 88764257.1 0052902-00014 levels would accommodate those income levels. See Steen Decl., Ex. 21 at 23-24; 22 at 1. There is no rational explanation for why setting an Aggregate Limit based on the resulting income per vessel satisfies the “excessive share” standard. Tourus Records, Inc. v. DEA, 259 F.3d 731, 737 (D.C. Cir. 2001) (“A ‘fundamental’ requirement of administrative law is that an agency ‘set forth its reasons’ for decision; an agency’s failure to do so constitutes arbitrary and capricious agency action.” (citation omitted)); see also State Farm, 463 U.S. at 43 (court “‘may not supply a reasoned basis for the agency’s action that the agency itself has not given’” (citation omitted)); AR070633 (NOAA General Counsel refusing to comment on the legality of accumulation limits absent a record or rationale to support them). c. NMFS arbitrarily ignored critically relevant information In addition to failing to provide a rational explanation for why the Aggregate Limit was set at 2.7%, NMFS arbitrarily ignored critical information in the record bearing directly on the “excessive share” standard. Specifically, the Guidance presents an analytical method for establishing the aggregate “excessive share” for a LAPP. See generally Steen Decl., Ex. 19. However, the record does not show that NMFS relied upon or meaningfully considered the Guidance to either interpret the “excessive share” or “inequitable concentration” terms or support the decision to set the Aggregate Limit at 2.7%.18 Indeed, Plaintiffs are unable to find any analysis anywhere in the record that applies the detailed instructions set forth in the Guidance. Although NMFS is not legally bound to follow the Guidance, its failure to use the Guidance is particularly arbitrary in light of NMFS’s unsupported complaint that “there [were] no analytical methods for pinpointing precise thresholds above which limits become excessive or inequitable.” Steen Decl., Ex. 16 at 339; State Farm, 463 U.S. at 43 (arbitrary to ignore relevant factors). The Guidance instructs that “the excessive share limit should at least be restrictive enough to prevent monopolistic price control, but can be more restrictive depending on a careful consideration of the ability to meet management objectives and potential negative effects on 18 In FEIS Appendix A, NMFS briefly mentions the Guidance in one sentence stating that NMFS’s “unreasonable, unnecessary, or unfair” interpretation of statutory terms was “consistent” with the Guidance. See Steen Decl., Ex. 16 at 339. However, there is no explanation for why this is so. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 38 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -30- 88764257.1 0052902-00014 industry operation and plan administration costs.” Steen Decl., Ex. 19 at 13. To select an aggregate limit, the Guidance directs the Council to establish (1) the antitrust, or market power (“MP”) excessive share limit, and (2) the management objective (“MO”) excessive share limit. See id. at 13-14. “An excessive share will exist if either limit is exceeded.” Id. at 13. Although formulas exist for establishing the MP limit, such as the Herfindahl Index discussed below, there are no specific formulas for setting the MO excessive share limit. Id. Accordingly, the Guidance states that the MO determination should be made “only when the perceived benefits are greater than potential costs, and only then where there are no less costly or less intrusive ways to achieve the same objective.” Id. The Guidance further directs that MO limit analysis “should explicitly state the management objectives that will drive the determination of excessive share limits, and provide justification for choosing [them].” Id. at 17. Additionally, the objectives relied upon must be “measurable so that [they] can provide a meaningful basis for determining an excessive share limit.” Id. The MO limit analysis should also “discuss the reasoning used to select the particular objectives including a description of the perceived benefits of achieving these objectives.” Id. Finally, the analysis should “specify the share limit that will ensure that the objective . . . is met and … show the justification for why that particular share limit is necessary.” Id. During a November 2008 meeting, Council committee members presented a report with a section titled “Using the Herfindahl Index to Assess Appropriate Control Limits.” Steen Decl., Ex. 23 at 15. Applying the “widely used” Herfindahl Index, a tool relied upon by the U.S. government and European Union, this report examined market concentration in the nonwhiting shoreside trawl fishery. Id. at 15-16. The Herfindahl Index report is directly relevant to the Guidance because it provides an assessment to determine the MP limit. Id. at 20 (“The Herfindahl index provides a framework for considering limits on the control of quota from the perspective of market power.”). The Herfindahl Index defines a market as either “unconcentrated,” “moderately concentrated,” or “concentrated.” See id. When applied to the Fishery, the analysis in the Herfindahl Index report concluded that a “10 percent [Aggregate Limit] will assure an unconcentrated outcome,” and that a concentrated market becomes possible Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 39 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -31- 88764257.1 0052902-00014 (i.e., creates the potential for market power problems) only if the Aggregate Limit is set above 18%. Id. at 15, 20 (emphases added). The analysis also concluded that the Fishery could still remain unconcentrated even if the Aggregate Limit was set at a level greater than 18%. See id. at 21. Although the Guidance provides a specific process for developing an aggregate limit, and although the Herfindahl Index report provides a specific analysis for an MP limit as required by the Guidance, the record does not show that NMFS or the Council meaningfully considered or applied either of these documents when deciding to set the Aggregate Limit at 2.7%. Had NMFS followed the Guidance and used the Herfindahl Index report, it would have first established an MP limit of 18% (or above). See Steen Decl., Ex. 19 at 13; Ex. 23 at 20. Next, had NMFS chosen to also perform an MO analysis, it would have been required under the Guidance to specify the “measurable” management objectives that justified reducing the MP limit from, for example, 18% to something less than 18% (e.g., 2.7%) based on its MO analysis. Id. at 17. In this circumstance, the Guidance directs NMFS to give “careful consideration” to ensure the benefits of the reduction from 18% to 2.7% outweighed the costs and to confirm that no less costly or less intrusive means could have achieved the same objective. Id. at 13, 20. In this example, the Guidance also directs NMFS to explain why reduction from 18% to some number higher than 2.7% would have precluded the achievement of the stated management objectives. Id. at 17. Of course, this analysis is not included in the record, and we do not know whether NMFS performed the analysis, otherwise applied the Guidance, or meaningfully considered the information in the Herfindahl Index report.19 Nowhere does NMFS address “the relevant data” found in the Herfindahl Index report or “articulate a satisfactory explanation” for why it did not apply the Guidance. See State Farm, 463 U.S. at 43. 19 Compare San Antonio, 631 F.2d at 852 (difficult policy judgment decisions “do[] not excuse the [agency] from articulating ‘fully and carefully the methods by which, and the purposes for which, it has chosen to act.’” (quoting In re Permian Basin Area Rate Cases, 390 U.S. 747, 792 (1968))), decision clarified for other reasons, 655 F.2d 1341 (D.C. Cir. 1981), with Steen Decl., Ex. 16 at 339 (NMFS stating that the “excessive share” standard “left much to policy discretion”). Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 40 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -32- 88764257.1 0052902-00014 In sum, this Court will search the record in vain for a coherent explanation for why the Aggregate Limit of 2.7% would prevent “excessive shares” or an “inequitable concentration” of QS as directed by the Magnuson Act. Based on the record, it is impossible to discern how NMFS interpreted these ambiguous statutory terms and how that interpretation was specifically applied to determine that the Aggregate Limit should be 2.7%. See Michigan, 135 S. Ct. at 2706 (“‘Not only must an agency’s decreed result be within the scope of its lawful authority, but the process by which it reaches that result must be logical and rational.’” (citation omitted)); State Farm, 463 U.S. at 43 (an “‘agency’s [decisional] path [must be] reasonably . . . discern[able]’” (citation omitted)); Nat. Res. Def. Council, Inc. v. Daley, 209 F.3d 747, 755 (D.C. Cir. 2000) (courts “do not hear cases merely to rubber stamp agency actions,” but instead demand “reasoned analysis” and a “‘cogent[] expla[nation]’”); U.S. Air Tour Ass’n v. FAA, 298 F.3d 997, 1019 (D.C. Cir. 2002) (“[I]n the absence of any reasonable justification” the court “must conclude that this aspect of the [rule] is arbitrary and capricious ….”). For the reasons stated above, NMFS’s Aggregate Limit decision is arbitrary and capricious because the agency “failed to articulate a rational connection between the facts found and the conclusions made.” Cal. Energy Comm’n v. Dep’t of Energy, 585 F.3d 1143, 1150 (9th Cir. 2009). C. The 2015 Rule Violates the Magnuson Act and the APA The 2015 Rule was expressly intended to “further implement original QS divestiture provisions of the [IFQ Program].” Steen Decl., Ex. 13 at 2. Specifically, the 2015 Rule promulgated the following mechanisms, which are required to implement the Final Rule: 1. When a person or entity has not divested to individual species control limits across multiple QS permits, NMFS will “revoke QS at the species level in proportion to the amount the QS percentage from each permit contributes to the total QS percentage owned.” Id. at 3. 2. When a QS permit owner has not divested to the Aggregate Limit, NMFS will “revoke QS at the species level in proportion to the amount of the aggregate overage divided by the aggregate total owned.” Id. at 4. 3. A QS permit owner may abandon QS in order to comply with the divestiture requirement. Id. at 8-9. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 41 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -33- 88764257.1 0052902-00014 4. The revocation provisions of the IFQ Program are extended beyond November 30, 2015. Id.20 Each of these mechanisms is an outgrowth of, gives effect to, and extends into the future unlawful elements of the Final Rule, particularly those applicable to implementation of the Aggregate Limit and the Ownership and Control Rules. For example, the 2015 Rule creates a regulatory mechanism (e.g., a revocation procedure) to enforce the Aggregate Limit, which can only be used after NMFS applies the Ownership and Control Rules. Without this mechanism, the Aggregate Limit would be unenforceable, which, in turn, would render the Ownership and Control Rules meaningless. In other words, without the Final Rule, the 2015 Rule would have no purpose, and without the 2015 Rule, the Final Rule could not be fully implemented. The 2015 Rule therefore violates the Magnuson Act and the APA because it implements unlawful provisions of the Final Rule. See Holmes v. FEC, 823 F.3d 69, 76 (D.C. Cir. 2016) (although “a regulation may be [unlawful] even if the statute it implements is not,” this is not so when a regulation implements an unlawful statute); see also Sections VI.A and VI.B supra (showing that the Ownership and Control Rules and the Aggregate Limit are unlawful). The 2015 Rule is also unlawful because NMFS arbitrarily forced persons to divest without knowing what their QS holdings actually were in light of the impending widow rockfish reallocation. NMFS was fully aware that refusing to delay divestiture until widow rockfish had been reallocated would unduly burden those subject to divestiture requirements. Steen Decl., Ex. 24 at 1 (“[I]t is difficult for QS permit owners to calculate compliance with the aggregate non- whiting control limit because widow rockfish is a part of that calculation, and widow QS is subject to change through the reallocation consideration.”); Steen Decl., Ex. 14 at 6. NMFS’s arbitrary refusal forced persons, including Pacific Fishing and Sea Princess, to prematurely divest 20 This extension was intended to address situations in which (i) a Fishery participant changes its ownership structure in a manner that increases its QS holdings (by application of the Ownership and Control Rules) above the Aggregate Limit, or (ii) a Fishery participant exceeds the Aggregate Limit because a transfer of excess QS is inadvertently allowed by NMFS’s IFQ system. Steen Decl., Ex. 13 at 9. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 42 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -34- 88764257.1 0052902-00014 of QS that was imputed to them under the Final Rule before November 30, 2015, without the benefit or knowledge of how widow rockfish would be reallocated, and based upon calculations that did not consider the widow rockfish reallocation. As a result, Plaintiffs and others face the probable threat of a needless (and expensive) second divestiture upon the reallocation of widow rockfish. This arbitrary decisionmaking violates the APA, as well as the Magnuson Act. See 16 U.S.C. § 1851(a)(7)-(8) (NMFS has duty to avoid unnecessary duplication, minimize costs, and refrain from disrupting fishing communities); Fla. Gas Transmission Co. v. FERC, 876 F.2d 42, 45 (5th Cir. 1989) (“The imposition of these unnecessary . . . costs make[s] [the agency]’s action arbitrary and capricious.”). Relatedly, NMFS unlawfully refused to remove widow rockfish from the aggregate holdings calculation in light of the moratorium on widow rockfish trading. Steen Decl., Ex. 13 at 5-6. Although widow rockfish was counted and affected whether a person exceeded the Aggregate Limit, neither revocation nor any other mechanism available could be used to alter widow rockfish holdings in order to comply with the Aggregate Limit. See id. (explaining that NMFS would not revoke widow rockfish QS proportionately but instead would revoke more QS across all other species holdings in order to bring the person’s total QS down to the 2.7%). NMFS recognized this serious shortcoming, and instead of addressing it, expressly ceded its decisionmaking authority to the Council. Steen Decl., Ex. 25 at 1 (“This could make the formula really complicated if people are to be forced into compliance but their widow rockfish left untouched.”); Steen Decl., Ex. 13 at 5-6 (“NMFS brought this issue to the Council … [which] moved to continue to include widow rockfish in the aggregate calculation,” and “[c]onsequently[] NMFS proposes to continue to” do this). But see Anglers II, 139 F. Supp. 3d at 111 (“[U]ltimate responsibility for the details of any amendment . . . rests with NMFS[] [r]egardless of what the Council recommends ….” (citation omitted)); Flaherty, 850 F. Supp. 2d at 55 (NMFS cannot merely “defer[] to the Council’s [determination] without any explanation for why that [determination] complies with the MSA”). For these additional reasons, the 2015 Rule is unlawful. Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 43 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -35- 88764257.1 0052902-00014 VII. REMEDY The APA directs that a court “shall . . . set aside” any agency action found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2)(A), (C) (emphasis added). Consequently, both the Supreme Court and the Ninth Circuit have held that vacatur is the presumptive remedy for an APA violation.21 As set forth above, the Final Rule and the 2015 Rule violate the Magnuson Act and the APA. Accordingly, the standard remedy in these circumstances is for the Court to vacate and remand the Ownership and Control Rules (50 C.F.R. § 660.140(d)(4)(ii)-(iii)), the Aggregate Limit (id. § 660.140(d)(4)(i)(C)), and the 2015 Rule (id. § 660.140(d)(4)(v)) to NMFS. The deficiencies of the challenged actions are substantial violations of APA standards through which NMFS has exceeded the authority granted by Congress and imposed arbitrary limits that have had, and are continuing to have, harmful real-world consequences. Nevertheless, Plaintiffs recognize that the remedy in this case may need to be narrowly tailored to avoid unintended consequences to the lawful portions of the IFQ Program. Accordingly, Plaintiffs respectfully request that the Court invite the parties to submit supplemental briefing specifically addressing the appropriate remedy should it determine that NMFS has violated the APA and the Magnuson Act. VIII. CONCLUSION For the reasons set forth above, Plaintiffs respectfully request that this Court grant summary judgment in their favor on Plaintiffs’ First, Second, Third, and Sixth Claims for Relief, and invite the parties to submit supplemental briefing regarding the appropriate remedy. 21 See FCC v. NextWave Personal Commc’ns Inc., 537 U.S. 293, 300 (2003) (“In all cases agency action must be set aside if the action was arbitrary, capricious, . . . or otherwise not in accordance with law or if the action failed to meet statutory, procedural, or constitutional requirements[.]” (internal quotation marks and citation omitted)); Cal. Wilderness Coal. v. U.S. Dep’t of Energy, 631 F.3d 1072, 1095 (9th Cir. 2011) (“[W]here a regulation is promulgated in violation of the APA and the violation is not harmless, the remedy is to invalidate the regulation.”); Alsea Valley All. v. U.S. Dep’t of Commerce, 358 F.3d 1181, 1185 (9th Cir. 2004) (observing that “vacatur of an unlawful agency rule normally accompanies a remand”). Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 44 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -36- 88764257.1 0052902-00014 DATED: October 14, 2016. STOEL RIVES LLP By: /s/ Ryan P. Steen Edward C. Duckers Ryan P. Steen (admitted pro hac vice) Jeffrey W. Leppo (admitted pro hac vice) Jared R. Wigginton Attorneys for Plaintiffs Pacific Choice Seafood Company; Sea Princess, LLC; Pacific Fishing, LLC Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 45 of 46 STOEL RIVES LLP ATTO RN EY S AT LA W SA N FRA N CI S CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, Case No. 15-05572-HSG -37- 88764257.1 0052902-00014 CERTIFICATE OF SERVICE I hereby certify that, on October 14, 2016, I filed a true and correct copy of the foregoing document with the Clerk of the Court for the United States District Court, Northern District of California by using the CM/ECF system. Participants in this Case No. 1:15-cv-05572-HSG who are registered CM/ECF users will be served by the CM/ECF system. /s/ Ryan P. Steen Case 3:15-cv-05572-HSG Document 70 Filed 10/14/16 Page 46 of 46