Regulatory Documents Can Be Contracts: The Wetlands Mitigation Bank Example
For the second time in a year, a wetlands mitigation bank “instrument” executed between a landowner and a federal agency has been held by a court to be a binding contract that could be enforced against the agency when it tried to alter the terms of the instrument to the detriment of the landowner/mitigation bank operator. These rulings demonstrate that regulatory “approval” documents issued by federal agencies can rise to the level of binding contracts where the elements of contract formation are present.
On November 21, 2014, in Pioneer Reserve, LLC v. United States, the U.S. Court of Federal Claims agreed with that Court’s December 2013 ruling in a similar case that a document setting forth the terms and conditions governing Pioneer’s operation of wetland mitigation bank constitutes a contract with the U.S. Army Corps of Engineers, the terms of which the Corps was bound to honor. The mitigation bank instrument executed by the parties provided for hundreds of mitigation credits, but the Corps later unilaterally reduced the number of credits to 16, which Pioneer claims cost it more than $12 million in lost revenues from sale of the mitigation credits. The Court’s ruling allows Pioneer to proceed with its breach of contract claim seeking to recover those damages.
Under regulations administered by the Corps, Pioneer needed a permit to operate the mitigation bank, and in connection with its permit application Pioneer and the Corps negotiated the terms of the mitigation bank instrument and ultimately signed the document. The Corps argued that the instrument reflected a mere “regulatory approval” of the mitigation bank, but the Court found that the elements of a binding contract with the government were present: 1) mutual intent to contract, 2) an exchange of consideration, 3) lack of ambiguity in offer and acceptance, and 4) authority of the Corps to bind the government in contract. The Court rejected the Corps’ argument that it had nothing to exchange in return for its approval of the mitigation bank, concluding instead there was a bargained for exchange between the parties: Pioneer promised to preserve certain wetlands for mitigation purposes, and in return the Corps agreed to award Pioneer credits which it could sell to third parties. In the December 2013 case, Davis Wetlands Bank, LLC, the Court reached a similar conclusion for essentially the same reasons.
In many cases regulatory approvals, permits and licenses granted by federal agencies can be revised or even withdrawn without legal consequence. But these two recent decisions show that in some cases, even though private parties negotiate with agencies in a regulatory context, the resulting agreements can be deemed binding contracts that can be enforced against the agencies.
This post was written with contributions from Jerry Stouck.