Legal Implications for Future Mitigation Banking Instruments

Dr. Ben Guillon, Chief Investment Officer for WRA, Inc., was retained by the U.S. Department of Justice (U.S. DOJ) to serve as an expert witness in the case “Pioneer Reserve, LLC vs. the United States” before the United States Court of Federal Claims. This case is particularly important for the mitigation banking industry because the plaintiff relied on its interpretation of the mitigation banking instrument (MBI) as a contract and not as a pure regulatory instrument as argued by the U.S. Army Corps of Engineers (the Corps) to claim damages. In addition, the Court had to examine a complex valuation of mitigation credits in an undeveloped market and Dr. Guillon was asked by the U.S. DOJ to develop a methodology to assess potential damages.

Pioneer Reserve, LLC vs. the United States

The plaintiff, Pioneer Reserve, LLC (“Pioneer”) developed a wetland mitigation bank in the Matanuska-Susitna Borough in Alaska with the expectation that the credits would be sold to residential and infrastructure developers in the area. The plaintiff alleged a breach of contract when the Corps decided to unilaterally modify the MBI of the Pioneer Reserve Mitigation Bank and caused it to be unable to sell mitigation credits to a nearby railroad project developed by the Alaska Railroad Corporation (ARRC). Dr. Guillon’s testimony was related to determination of damages that may have been sustained by Pioneer. The Court initially determined that the MBI was an enforceable contract and not only a regulatory instrument. The MBI clearly stipulates that it can only be modified by agreement of both Pioneer and the  Corps. Therefore, the Court determined that the Corps has breached the MBI when it decided unilaterally to modify the number of credits in the MBI. However, as Dr. Guillon pointed out in his expert witness report, ARRC had access to other providers of mitigation credits. He analyzed the cost structure of Pioneer’s mitigation credits and determined that it was unclear if Pioneer would have been able to sell its credits to the railroad at the price they expected. The Court determined that in the absence of a clear link between the breach of contract and the alleged missed sale opportunity the plaintiff could not prove damages. As a result, the judge ruled in favor the United States.

Results and Implications

This decision is in line with a prior decision of the U.S. Court of Federal Claims [1] that also determined that a MBI is an enforceable contract. Recently, the Corps has been requiring that the sponsors of mitigation banks accept the insertion in the MBI of a provision stating that a MBI is not an enforceable contract. This new provision has not yet been tested in court, but there is no doubt that it will be in the future as the mitigation banking industry continues it exponential growth.

Expert Witness Services

WRA regularly provides expert witness services related to regulatory enforcement of the Clean Water Act and the Endangered Species Act, as well as state regulations. In addition, WRA is providing expert witness services for the valuation of environmental assets, including mitigation and conservation bank credits. See our services page for more information or to contact one of our experts.

[1] United States Court of Federal Claims in Davis Wetlands Bank, LLC, v. The United States, No. 13-268C