For the second time in the last year, the United States Court of Federal Claims has held that a final mitigation bank instrument which provides the terms of operation of a wetland mitigation bank can be considered an enforceable contract which may subject the U.S. Army Corps of Engineers (the Corps) to damages for a breach of the instrument. In the November 21 decision in Pioneer Reserve, LLC v. USA, the court considered the claims of Pioneer Reserve, LLC (Pioneer) against the Corps in connection with the Corps’ unilateral reduction in mitigation credits at an Alaska mitigation bank from 151.81 credits to 16.92 credits. The anticipated price for each credit was $79,000 resulting in an alleged loss of $12 million.

The court carefully reviewed the regulatory structure of the mitigation banking program as set forth in 33 C.F.R. Part 332 and found that while the mitigation banking process is established as part of an regulatory program, this backdrop is not incompatible with the negotiation and mutual acceptance of a binding agreement. The mitigation banking instrument agreed to by the Corps and Pioneer established the parties’ respective roles, benefits and obligations concerning the mitigation bank and therefore, Pioneer’s complaint alleged sufficient facts to establish the existence of a contract. Accordingly, the court denied the Corps’ motion to dismiss the complaint.

The court specifically followed the holding in Davis Wetlands Bank, LLC v. USA (114 Fed. Cl. 113 (2013)) in which the Federal Court of Claims similarly dismissed the United States motion to dismiss s claim alleging a breach of a mitigation banking instrument by the Corps. The court held that the mitigation banking instrument contained definite terms and recited the obligation of the parties after several years of negotiations. Thus, the Corps had “agreed to enter into a contract with private parties to accomplish wetland restoration in exchange for issuing credits that could be sold to third parties ….”

It will be interesting to watch how these decisions affect the form of future mitigation bank instruments. In light of the substantial and long term financial commitments incurred by bankers to establish a natural resource mitigation bank, it is essential for the Corps and the rest of the Interagency Review Team to specify and to stand behind meaningful credit allowances. At the same time, the Corps will push for flexibility to evaluate the development of mitigation credits over time. Natural resource mitigation banks continue to be established across the country and this will remain a contentious issue.