For the first time since Congress passed the Clean Water Act in 1972 a federal court has ruled that a wetland mitigation banking instrument (“MBI”) is a contract enforceable against the U.S. Army Corps of Engineers. The decision came from the United States Court of Federal Claims in Davis Wetlands Bank, LLC, v. The United States, No. 13-268C and is welcome news to all those who have felt the heavy hand of bureaucrats’ one sided view of MBIs.
In 1998, Davis Wetlands Bank, LLC (“Davis”) established a wetland mitigation bank by creating and preserving approximately 435 acres of wetlands in Chesapeake, Virginia. When Davis negotiated the terms of its MBI, it agreed to block drainage outfalls, execute a conservation easement, and plant thirty two thousand (32,000) tree seedlings in agricultural fields. At the outset the Corps agreed to issue Davis one wetland credit for each acre of agricultural fields that Davis restored to wetlands status, and one credit for each ½ half acre of forested wetlands established on the site. Davis also negotiated that the credit composition would be reevaluated and adjusted to reflect maturation of conditions on its property.
In 2012, Davis approached the Corps and reported that wetlands hydrology had been restored throughout the site and that the former agricultural fields, upon which Davis had planted the tree seedlings, had matured into forested wetlands. Davis requested that the Corps issue additional wetland credits to reflect the fact that the agricultural fields had grown into more ecologically valuable forested wetlands.
The Corps acknowledged that these agricultural fields had matured into young forested wetlands but refused to issue the additional requested credits. The Corps said that it was not
obligated to issue any additional credits, and asserted that in any event Davis’ MBI placed no obligation on the Corps to do anything. Davis filed a lawsuit claiming that the MBI was a contract and that the Corps had breached its contractual obligations by refusing to adjust the number of credits to reflect the change of conditions in Davis’ bank.
The United States Court of Federal Claims agreed with Davis. The Court first looked to established law and instructed that an express contact with the federal government must satisfy the following elements; mutuality of intent to enter into a contact, lack of ambiguity, consideration, and a government representative having authority to bind the United States. (citing Anderson v. United States, 344 F.3d 1343, 1357 (Fed. Cir. 2003)). The Corps’ attorneys filed a Motion to Dismiss, arguing that Davis’ MBI was not a binding contract; that it was nothing more than a “regulatory instrument” the purpose of which was to establish general provisions for the design and development of a compensatory wetland bank. The Court reviewed the language of Davis’ MBI and ultimately disagreed with the Corps, finding that Davis’ MBI contained all of the essential elements of an enforceable contact. The Court stated that “the Army Corps 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 as compensation mitigation for unavoidable impacts to wetlands that were permitted pursuant to” Section 404 , 33 U.S.C. § 1344, of the Clean Water Act.
In helping the Court reach this conclusion Davis pointed out that the Corps had previously taken the position that a MBI was a contact in the case of the United States of America v. Hawkins, 3:05CV-12-H. That was a civil lawsuit filed by the Corps in 2005 in the United States District Court for the Western District of Kentucky. The Hawkins lawsuit involved the Corps’ claim that parties to a MBI had breached the terms of the document and thereby committed a “breach of their contract” with the government. Davis also asserted that the Corps had the obligation, not merely an option, under applicable federal regulation, to adjust the number of credits awarded to a mitigation bank to reflect change in conditions following the establishment and operation of the bank. “The number of credits must reflect the difference between pre- and post-compensatory mitigation project site conditions”. 33 C.F.R. § 332.8(o)(3)
The United States Court of Federal Claims, sitting in Washington D.C., is the only court in the country where an aggrieved party can sue the federal government for a breach of contact. This Court has nationwide jurisdiction such that the Davis decision represents significant, binding precedent affecting the rights of all mitigation bank sponsors.
