Judge Stephen Reinhardt wrote for a three-judge panel that ordered that the shark fins be returned to their owners, reversing a decision by the Southern District of California.

The Coast Guard, upon further investigation, found documentary evidence that the KD II had arranged to meet fishing vessels at predetermined locations and buy various quantities of fins.

It held that the seizure was illegal: the KD II's activities did not meet the definition of a fishing vessel under the Magnuson–Stevens Fishery Conservation and Management Act.

China's late-20th-century economic reforms produced a middle class that increased demand for traditional luxury items like shark fins.

[1] Chinese traditional medicine ascribes various restorative and healing effects to the fins, and the soup is considered a delicacy, costing as much as US$100 per bowl.

In the U.S., President Bill Clinton signed the Shark Finning Prohibition Act (SFPA) into law in 2000 shortly before leaving office.

[5] On August 13, 2002, the U.S. Navy destroyer USS Fife was in international waters southeast of Acapulco, Mexico, when it observed the King Diamond II, an 84-foot (26 m) U.S.-flagged vessel owned by Tran and Yu, Inc, a shipping company in Hong Kong, its home port.

The Coast Guard was suspicious since the ship was low in the water, suggesting it was carrying heavy cargo, yet there were no cranes or other equipment that a legitimate fishing vessel would be expected to have.

Via radio, they asked the Joint Interagency Task Force West, a consortium of various federal law enforcement agencies, for permission to investigate further, since smugglers and drug traffickers were known to use that route.

They were in bundles on the deck, the shipping container and filling most of the 40-ton (36-tonne) hold, where the ammonia odor was so strong that the Coast Guardsman who found them had to breathe through his mouth since it burned his nose.

Since no corresponding carcasses could be found, the task force told the boarding party that this indicated a likely violation of the SFPA, and to consider the ship a crime scene as the fins were contraband.

The Coast Guard reported that the four-man crew was cooperative with the investigation, largely sitting back and watching television in the lounge.

The refrigeration unit on board had broken before the ship had left Honolulu, and the fins were out on deck in an attempt to dry them out and reduce the odor.

[2] In early 2003 the National Oceanic and Atmospheric Administration (NOAA) Fisheries Office of Law Enforcement finished its investigation and charged Tran and Yu; Tai Loong Hong Marine Products Ltd., of Hong Kong, for whom the fins had been bought; and Chien Tan Nguyen, captain of the KD II, with 26 counts of violating the SFPA.

The company and the agency then agreed that, in return for the former putting up a $775,000 bond, that it would take possession of the shark fins, although they remained in cold storage pending the outcome of the case.

But in this case the KD II and its crew had acted as a middleman, "effectively br[inging] the shark fin market to the foreign fishing vessels at sea.

This act, in and of itself, aided and assisted the foreign fishing vessels which no longer had to store, transport, and land their shark fins in order to sell them in the market."

He cited a document in the records, a communication between Tran and the Korean broker explicitly saying that a rendezvous "will save our time and cost" as proof.

Tai Loong had claimed that language applied only to vessels landing shark fins, and not just those possessing them as the KD II had at the time of its interdiction, but Moskowitz responded that the use of "any" indicated a broader reach.

Senator Ernest Hollings had, in opposing the bill, worried that it might bar American ships from the shark fin trade entirely.

"Thus, the legislative history confirms that the SFPA applies to the KD II and its possession of 64,695 pounds of shark fins", wrote Moskowitz.

[16] Judges Stephen Reinhardt, Raymond C. Fisher and Richard R. Clifton (nominated to the court by presidents Jimmy Carter, Bill Clinton, and George W. Bush respectively) were empaneled to hear the case.

"In this case," wrote Reinhardt, "we find nothing in the plain meaning of [the statute] that would provide notice to the owners of the KD II that its activities would render it a fishing vessel."

[I]t does not establish that the failure or inability to make such arrangements with respect to all the foreign vessels constituted aiding or assisting those to which the KD II actually went.

[17]While the court recognized Congress's intent to curtail and eventually eliminate shark finning by passing the SFPA, "the broad purpose of the Act provides no help to the government with regard to the issue on appeal," Reinhardt wrote.

As a result, we hold that the district court's application of the possession prohibition of the SFPA to the KD II as a fishing vessel ... violated due process.

In his later report on the bill, Rep. Nick Rahall, the committee chair, said that Congress had believed in 2000 the language of Magnuson–Stevens was sufficient to prevent transshipment.

Hearings were held a week later, at which Shelley Clarke, a researcher at Imperial College London who studies the shark-fin trade, observed that transshipment operations such as the KD II's were common and would likely continue as the competition in Hong Kong, the industry's traditional center, grew more intense.

While the transshipment ban was an effective response to the decision, she suggested that shipments of containerized fins be allowed if they had been separated from their carcasses after landing.

[26] The Senate report, by Jay Rockefeller of West Virginia, reiterated that "The bill would clarify in statute what was already popularly understood to be the scope of application of the SFPA" prior to the case, but did not otherwise make any commentary regarding it.