Owners and developers of property with significant wetlands or other natural resources take notice – the United States Court of Federal Claims recently held in Pioneer Reserve, LLC v. United States that an environmental mitigation bank agreement between a property owner and the United States Army Corps of Engineers constitutes a binding contract that the property owner can enforce against the Corps, not merely a "regulatory approval" that the Corps may unilaterally alter or revoke without consequence.
Under Section 404 of the federal Clean Water Act, when a developer seeks to dredge or dump fill into the "waters of the United States," including wetlands, it must apply to the Corps for a permit. In reviewing the permit application, the Corps must evaluate and approve or reject the measures proposed by the developer to mitigate the unavoidable impacts of the work on the waters or wetlands. Approved mitigation measures may be implemented on or off the property intended for development, and the developer is not required to be the entity that implements the measures. "Rather," as the Court explains, the Section 404 "regulations contemplate an option whereby the developer may secure mitigation 'credits' from a third party mitigation bank, which assumes responsibility for the preservation of a piece of land containing natural resources, such as wetlands, in exchange for compensation from the developer." Under the regulations, the operation and use of a mitigation bank are governed by a "mitigation bank instrument."
In Pioneer Reserve, LLC, Pioneer and the Corps negotiated a mitigation bank "instrument" under which Pioneer received 151.81 mitigation credits in exchange for its agreement to preserve a 165.8-acre parcel in Alaska in perpetuity. Pioneer's intention was to sell all of these mitigation credits to the Alaska Railroad Corporation ("ARC"), which was planning to construct an extension of the railroad that would impact wetlands and other water resources in the same watershed. When the Corps subsequently unilaterally reduced the number of mitigation credits Pioneer received to 16.92, the ARC was forced to buy the bulk of its compensatory mitigation credits elsewhere. Pioneer sued, alleging that the Corps' breach of contract caused it to lose $12 million in revenues. The Corps filed a motion to dismiss Pioneer's complaint on the grounds that Pioneer did not have a contract with the federal government and the Court, therefore, did not have subject matter jurisdiction. The Corps contended that the "signed final mitigation banking instrument was merely a regulatory action, not a contract."
In its November 21, 2014 decision, the United States Court of Federal Claims agreed with Pioneer that the "instrument" establishing the terms and conditions for Pioneer's operation of the wetland mitigation bank, which both parties signed, constituted a binding contract because all of the requisite elements for a contract were present:
- The parties showed a mutual intent to contract.
- The parties exchanged consideration – Pioneer's promise to preserve certain wetlands in exchange for the Corps's agreement to grant Pioneer mitigation credits that it could sell to third parties.
- There was a lack of ambiguity in the offer and acceptance.
- The Corps had the authority to bind the federal government in contract.
Specifically, the Court held that Pioneer's "complaint alleges sufficient facts to establish the existence of a contract." As a result, Pioneer may now proceed with its breach of contract claim seeking to recover its alleged lost revenues.
Elizabeth F. Mason is a partner at Bernkopf Goodman specializing in environmental and land use law. Her areas of expertise include federal, state and local environmental permitting and enforcement defense, hazardous waste site cleanup, and strategic management of environmental legal risks in real estate and financing transactions.
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