United States Court of Appeals 

for the Federal Circuit 

__________________________ 

HEARTS BLUFF GAME RANCH, INC., 

Plaintiff-Appellant, 

v. 

UNITED STATES, 

Defendant-Appellee. 

__________________________ 

2010-5164 

__________________________ 

Appeal from the United States Court of Federal 

Claims in Case No. 09-498, Senior Judge Robert H. 

Hodges, Jr. 

____________________________ 

Decided: January 19, 2012 

____________________________ 

TERRY L. JACOBSON, Jacobson Law Firm, P.C., of Corsicana, Texas, argued for plaintiff-appellant. With him on 

the brief was STEVEN GREGORY WHITE, Naman, Howell, 

Smith & Lee, PLLC, of Waco, Texas. 

TAMARA N. ROUNTREE, Attorney, Environment & 

Natural Resources Division, United States Department of 

Justice, of Washington, DC, argued for defendantappellee. With her on the brief were IGNACIA S. MORENO, 

Assistant Attorney General, FRANK J. SINGER and 

KATHRYN E. KOVACS, Attorneys. 
HEARTS BLUFF GAME RANCH v. US 2

__________________________ 

Before NEWMAN, LOURIE, and LINN, Circuit Judges. 

LOURIE, Circuit Judge. 

Hearts Bluff Game Ranch, Inc. (“Hearts Bluff”) appeals from the decision of the United States Court of 

Federal Claims (the “Claims Court”) dismissing its claim 

for just compensation under the Fifth Amendment for an 

alleged taking based on the Army Corps of Engineers’ (the 

“Corps’”) denial of Hearts Bluff’s proposal to operate a 

mitigation bank on its property. Hearts Bluff Game 

Ranch, Inc. v. United States, No. 09-498L (Ct. Cl. June 11, 

2010) (the “Order”). Because Hearts Bluff did not have a 

cognizable property interest in obtaining a mitigation 

banking instrument, we affirm. 

BACKGROUND

Hearts Bluff purchased approximately 4,000 acres of 

land in Titus County, Texas, for use as a mitigation bank. 

Id. at 3. A mitigation bank is an offset of preserved and 

restored wetlands used to compensate for the environmental impact of more destructive land use. See Final 

Guidance for the Establishment, Use and Operation of 

Mitigation Banks, 60 Fed. Reg. 58605, 58607 (Nov. 28, 

1995). Mitigation banking allows landowners who would 

develop areas protected by pollution-control laws to do so 

notwithstanding those laws if they protect or improve 

similar areas in other parts of the country. Landowners 

can apply for mitigation banking instruments to participate in the program, and then can sell credits under the 

instrument to developers to offset environmentally destructive projects covered by section 404 permits under 

the Clean Water Act. See 33 U.S.C. § 1344. The Corps is 

in charge of the mitigation banking program and it has 

issued regulations to establish procedures for granting 
3 HEARTS BLUFF GAME RANCH v. US

instruments for mitigation banks. One of the requirements of that mitigation bank program is that property 

held in the mitigation bank must be capable of being held 

in perpetuity. 

Hearts Bluff contacted the Corps prior to purchasing 

its land, seeking assurances that the land would be suitable for mitigation banking. Order, at 3. At the time, the 

Marvin Nichols Reservoir had been proposed for the 

region where the 4,000 acres were located, but the Corps 

communicated that it then saw no impediments to creating the mitigation bank. Id. But in 2004, the Corps gave 

public notice of Hearts Bluff’s application, following which 

the Texas Water Development Board announced that the 

Reservoir would become less viable (if not infeasible) if 

the mitigation bank were approved. Id. After the 2004 

notice, the water plan for the Marvin Nichols Reservoir 

was elevated from a potential site to “unique value” 

status, and the Corps learned that the Reservoir was to be 

adopted in the 2007 State Water Plan with a recommendation that it be constructed. Id. at 3–4. The Corps then 

denied Hearts Bluff’s application in July 2006 because the 

mitigation bank overlapped with the proposed Reservoir 

and it concluded that Hearts Bluff’s land might not exist 

in perpetuity. Id. 

Hearts Bluff sought reconsideration of the July 2006 

ruling, which the Corps denied in July 2008. Id. Hearts 

Bluff then brought suit in state court, alleging, in part, a 

Fifth Amendment takings claim against the United States 

government. That suit was later removed to the U.S. 

District Court for the Western District of Texas. The 

takings claim was then subsequently transferred to the 

Claims Court for trial under the Tucker Act, 28 U.S.C. 

§ 1491(a)(1). Hearts Bluff asserted that the government, 

acting through the Corps, took its property when the 
HEARTS BLUFF GAME RANCH v. US 4

Corps denied it the necessary permit to create a mitigation bank. 

The Claims Court dismissed the complaint for failure 

to state a claim. The court held that Hearts Bluff did not 

have a property interest that could be subject to a Fifth 

Amendment taking because a mitigation banking instrument is not “an inherent stick in a landowner’s bundle.” 

Id. at 5. The court noted that no landowner has the 

capacity to develop a mitigation bank absent the enabling 

regulations and approval of the Corps of Engineers. Id. at 

6. The court also rejected the argument that Hearts Bluff 

had an “investment-backed reliance” property interest 

that was taken, because Hearts Bluff had merely been 

deprived of a hope that it could create a mitigation bank, 

which is a collateral interest, not a compensable property 

interest. Id. at 7–8. The court did not reach the merits of 

the takings claim. Hearts Bluff timely appealed. 

DISCUSSION

I. 

We review a decision by the Court of Federal Claims 

to dismiss a complaint for failure to state a claim upon 

which relief could be granted under RCFC 12(b)(6) de

novo. See Acceptance Ins. Cos. v. United States, 583 F.3d 

849, 853–54 (Fed. Cir. 2009). To avoid dismissal for 

failure to state a claim, a complaint must allege facts 

“plausibly suggesting (not merely consistent with) a 

showing of entitlement to relief.” Id. at 853 (citations and 

quotations omitted). A court, however, is “not bound to 

accept as true a legal conclusion couched as a factual 

allegation.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 

555 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286 

(1986)). 
5 HEARTS BLUFF GAME RANCH v. US

The Fifth Amendment of the Constitution prohibits 

the government from taking private property without just 

compensation. U.S. Const. Am. V. “Real property, tangible property, and intangible property all may be the 

subject of takings claims.” Conti v. United States, 291 

F.3d 1334, 1338–39 (Fed. Cir. 2002) (citing Lucas v. S.C. 

Coastal Council, 505 U.S. 1003, 1019 (1992); Ruckelshaus 

v. Monsanto Co., 467 U.S. 986, 1003–04 (1984); and 

Andrus v. Allard, 444 U.S. 51, 65 (1979)). A “taking” may 

occur either by physical invasion or by regulation. See, 

e.g., Lucas, 505 U.S. at 1014–19; Pa. Coal Co. v. Mahon, 

260 U.S. 393, 415 (1922); Am. Pelagic Fishing Co. v. 

United States, 379 F.3d 1363, 1371 (Fed. Cir. 2004); 

Maritrans Inc. v. United States, 342 F.3d 1344, 1351 (Fed. 

Cir. 2003); Conti, 291 F.3d at 1338. This case concerns an 

alleged regulatory taking. 

When evaluating whether governmental action constitutes a taking, a court employs a two-part test. Acceptance, 583 F.3d at 854; Am. Pelagic Fishing, 379 F.3d at 

1372. First, as a threshold matter, the court determines 

whether the claimant has identified a cognizable Fifth 

Amendment property interest that is asserted to be the 

subject of the taking. Id.; see also Maritrans Inc., 342 

F.3d at 1351. Second, if the court concludes that a cognizable property interest exists, it determines whether that 

property interest was “taken.” Id.; see also Palmyra Pac. 

Seafoods, L.L.C. v. United States, 561 F.3d 1361, 1364 

(Fed. Cir. 2009); Air Pegasus of D.C., Inc. v. United States, 

424 F.3d 1206, 1212–13 (Fed. Cir. 2005); Conti, 291 F.3d 

at 1339. “We do not reach this second step without first 

identifying a cognizable property interest.” Acceptance, 

583 F.3d at 854 (quoting Air Pegasus, 424 F.3d at 1213); 

see Am. Pelagic Fishing, 379 F.3d at 1372 (“If the claimant fails to demonstrate the existence of a legally cognizable property interest, the court’s task is at an end.”). 
HEARTS BLUFF GAME RANCH v. US 6

Hearts Bluff urges us to skip the first “cognizable 

property interest” part of the test and go directly to the 

merits under the Penn Central factors. See Penn Central 

Transp. Co. v. New York, 438 U.S. 104, 124 (1978). 

Hearts Bluff spends much of its brief arguing that we 

routinely reach the Penn Central factors in permit-based 

takings cases without discussing a cognizable property 

interest. In support of its position, Hearts Bluff relies 

primarily on cases relating to section 404 permits. E.g., 

Norman v. United States, 429 F.3d 1081, 1088 (Fed. Cir. 

2005); Loveladies Harbor, Inc. v. United States, 28 F.3d 

1171, 1175 (Fed. Cir. 1994); Forest Props., Inc. v. United 

States, 39 Fed. Cl. 56 (1997), aff’d 177 F.3d 1360 (Fed. 

Cir. 1999). The government responds that this court has 

consistently applied the two-part test in takings analyses 

and that the first inquiry, determining if there is a cognizable property interest, is a threshold matter that the 

court properly decides first. The government also notes 

that section 404 permits are distinct from mitigation 

banking. 

The government is of course correct that section 404 

permits are separate and distinct from the mitigation 

banking program. Section 404 permits allow landowners 

to conduct environmentally destructive activity on their 

land that they would normally be able to do but for the 

existence of government regulations. We have held that 

the denial of a section 404 permit could amount to a 

taking of a cognizable property right as it deprives the 

landowner of a right inherent in land ownership, as might 

certain zoning decisions. E.g., Palm Beach Isles Assocs. v. 

United States, 208 F.3d 1374, 1380–81 (Fed. Cir. 2000) 

(holding that a section 404 permit denial constituted a 

categorical taking); Loveladies Harbor, Inc., 28 F.3d 1171 

(holding that denial of permit under section 404 of was a 

taking); Fla. Rock Indus., Inc. v. United States, 18 F.3d 
7 HEARTS BLUFF GAME RANCH v. US

1560 (Fed. Cir. 1994) (remanding for determination of 

partial taking regarding a permit under section 404). 

Mitigation bank operators, on the other hand, do not 

necessarily possess section 404 permits; they sell credits 

from the mitigation banking program to section 404 

permit holders or applicants so that the section 404 

permit holders or applicants can satisfy the compensatory 

mitigation obligations of section 404. As discussed below, 

the mitigation banking program does not restrict land use 

at all prior to entering into a mitigation banking instrument. The mitigation banking program merely gives 

access to the credit swapping program. Indeed, section 

404 and mitigation banking are governed by different 

regulations. Therefore, we do not agree with Hearts 

Bluff’s argument that prior cases analyzing the Penn 

Central factors with respect to section 404 permits govern 

our threshold analysis with respect to mitigation banking 

instruments. We do not find the section 404 permit cases 

relevant. 

We have established precedent for applying a twopart test for governmental takings mentioned above. 

Acceptance, 583 F.3d at 854; Am. Pelagic Fishing, 379 

F.3d at 1372; see also Maritrans Inc., 342 F.3d at 1351; 

Palmyra Pac. Seafoods, 561 F.3d at 1364; Air Pegasus, 

424 F.3d at 1212–13; Conti, 291 F.3d at 1339. And it is 

well settled that we do not reach the second step, evaluation of the Penn Central factors, without first identifying a 

cognizable property interest. Acceptance, 583 F.3d at 854; 

see Am. Pelagic Fishing, 379 F.3d at 1372. We decline to 

depart from such well-settled precedent. The Claims 

Court was thus correct to determine first whether Hearts 

Bluff had a cognizable Fifth Amendment property interest 

before weighing the merits in a takings analysis. 
HEARTS BLUFF GAME RANCH v. US 8

II. 

The first step in our analysis then is to identify the 

subject of the alleged taking. In assessing whether or not 

a Fifth Amendment property interest exists, we look for 

“crucial indicia of a property right,” such as the ability to 

sell, assign, transfer, or exclude. Conti, 291 F.3d at 1342. 

Stated differently, we determine whether the asserted 

property right is “one of the sticks in the bundle of rights 

that inhered in ownership of the underlying res.” Am. 

Pelagic Fishing, 379 F.3d at 1382–83. Where a citizen 

voluntarily enters into an area which from the start is 

subject to pervasive Government control, a property 

interest is likely lacking. See Mitchell Arms, Inc. v. 

United States, 7 F.3d 212, 216 (Fed. Cir. 1993) (citing 

Bowen v. Public Agencies Opposed to Social Security 

Entrapment, 477 U.S. 41, 55 (1986)). That is not a per se

exclusion of all permit or regulatory based takings, as 

Hearts Bluff argues. Instead, it is the nature of the 

regulation and alleged property interest that determines 

whether denial of a permit or license (or, in this case, 

access to the mitigation bank program) is a cognizable 

property interest. 

Hearts Bluff asserts that as a landowner it is entitled 

to operate a mitigation bank on its land and that the 

Corps’ rejection of its mitigation bank proposal was a 

taking of its property right. The government counters 

that Hearts Bluff was never entitled to operate a mitigation bank solely by virtue of its ownership of the land and 

that it did not have a property right in access to the 

mitigation banking program because the program is 

entirely a creature of the government and subject to 

pervasive and discretionary government control. We 

agree with the government that Hearts Bluff does not 

possess a compensable property interest in obtaining a 

mitigation banking instrument. 
9 HEARTS BLUFF GAME RANCH v. US

“As an initial matter, a claimant seeking compensation from the government for an alleged taking of private 

property must, at a minimum, assert that its property 

interest was actually taken by the government action.” 

Air Pegasus, 424 F.3d at 1215 (emphasis in original). In 

American Pelagic Fishing, the plaintiff had asserted a 

property right in a fishing permit in part based upon its 

ownership of a vessel. 379 F.3d at 1373. We held in part 

that there was no right to fish in the Exclusive Economic 

Zone (“EEZ”) of the United States in the Atlantic Ocean 

by virtue of purchasing a vessel: “[b]ecause the right to 

use the vessel to fish in the EEZ was not inherent in its 

ownership of the [vessel], American Pelagic did not suffer 

the loss of a property interest . . . when its . . . permits 

were revoked.” Id. at 1381. Similarly, in Mitchell Arms, 

we held that the right to import and sell assault weapons 

in domestic commerce was not “not inherent in [the] 

ownership of the rifles.” Mitchell Arms, 7 F.3d at 217. 

Here, Hearts Bluff has not been disturbed in the use of its 

property. Hearts Bluff purchased land, not a mitigation 

bank instrument or mitigation bank credits. At no point 

did Hearts Bluff possess a right to sell or transfer mitigation bank credits or a mitigation bank instrument. It is 

possible at some point in the future that the Corps could 

grant a mitigation bank instrument applicable to the 

property. But without such an instrument, Hearts Bluff 

is still able to sell, assign, or transfer the land, or exclude 

others from its use, as it always was able to do. Hearts 

Bluff is even free to create and preserve environmentally 

friendly wetlands on the same property, as it desired to do 

under the mitigation banking program. In short, the 

Corps’ denial did not diminish in any way the rights 

Hearts Bluff possessed the day it purchased the land, 

after it applied for the permit, or after the Corps denied 

the permit. Owning land in and of itself does not give rise 

to a right to run a mitigation bank, and obtaining a 
HEARTS BLUFF GAME RANCH v. US 10

mitigation instrument is therefore not a cognizable property interest. 

Furthermore, we have rejected claims of a cognizable 

property interest in government programs where the 

government has discretionary authority to deny access to 

that program, where the alleged property is subject to 

pervasive government control, or where the property is 

entirely a product of government regulations. See, e.g., 

Mitchell Arms, 7 F.3d at 216 (“[E]nforceable rights sufficient to support a taking claim against the United States 

cannot arise in an area voluntarily entered into and one 

which, from the start, is subject to pervasive Government 

control.”). 

For example, in Acceptance, we held that the plaintiff’s interest in selling American Growers’ crop insurance 

policies was not a legally cognizable property interest 

because the plaintiff “could not freely transfer the policies 

at issue” without discretionary government approval, 

despite the fact that an insurance company may generally 

have the right to sell its policies. Acceptance, 583 F.3d at 

857–58. We found that the plaintiff relinquished its right 

to freely transfer American Growers’ insurance policies in 

exchange for the benefits of the government crop insurance program. Id. at 858. In American Pelagic Fishing, 

the plaintiff had asserted a property right in a fishing 

permit. 379 F.3d at 1373. We held that there was no 

property interest in the fishing permit because it lacked 

the crucial indicia of a property right (e.g., the ability to 

assign, sell, or transfer its permit) and because the government had the discretion to deny or sanction the permit. Id. at 1374. And in Conti we held that there was no 

cognizable property interest in a fishing permit because 

the plaintiff did not have “[t]he right[ ] to sell, assign, or 

otherwise transfer” the permit and “the government at all 
11 HEARTS BLUFF GAME RANCH v. US

times retained the right to revoke, suspend, or modify the 

permit.” Conti, 291 F.3d at 1341–42. 

Similarly here, it is undisputed that the Corps has 

discretionary authority to deny access to the mitigation 

bank program. The mitigation banking program is run 

exclusively by the Corps, subject to its pervasive control, 

and no landowner can develop a mitigation bank absent 

Corps approval. Mitigation banking in its entirety would 

not exist without the enabling government regulations. 

Under our precedent, therefore, the Corps’ discretionary 

denial of access into the Corps program cannot be a 

cognizable property interest. As Hearts Bluff does not 

have a property interest in access to the program, it 

likewise does not have a property interest in the program’s related benefits, such as the mitigation banking 

instrument and credits. 

Finally, Hearts Bluff argues that the representations 

by the Corps that the land was suitable for a mitigation 

bank gave rise to a reasonable investment-backed expectation property interest. Hearts Bluff argues that the 

Corps’ representations caused it to invest hundreds of 

thousands of dollars in developing a mitigation bank. The 

government responds that Hearts Bluff merely hoped that 

the Corps would exercise its discretion and authorize 

entry into a mitigation banking instrument, and that such 

hope or expectation is a collateral interest, not a cognizable property interest. Again, we agree with the government. 

First and foremost, the “reasonable investmentbacked expectation” is part of a Penn Central merits 

analysis. Schooner Harbor Ventures, Inc. v. United 

States, 569 F.3d 1359, 1362 (Fed. Cir. 2009) (“Penn Central considered and balanced three factors: (1) economic 

impact, (2) reasonable investment backed expectations, 
HEARTS BLUFF GAME RANCH v. US 12

and (3) the character of the government action.”). As we 

have already indicated, because Hearts Bluff did not have 

a cognizable property interest by virtue of its ownership of 

land or in the denial of its application, we do not reach the 

second step analyzing investment-backed expectations 

under Penn Central. 

Hearts Bluff emphasizes that it invested in the property based on the hope that it and the Corps would enter 

into a mitigation banking instrument and Hearts Bluff 

could then operate a mitigation bank and sell the related 

credits. But such hopes and expectations of future property use are not in and of themselves a cognizable property interest. Acceptance, 583 F.3d at 858–59 (“[A]ny 

expectation that the [government] would approve of 

future transactions does not rise to the level of a cognizable property interest . . . .”); Mitchell Arms, 7 F.3d at 217 

(“[T]he Fifth Amendment concerns itself solely with the 

‘property,’ i.e., with the owner’s relation as such to the 

physical thing and not with other collateral interests 

which may be incident to his ownership.”) (quoting United 

States v. General Motors Corp., 323 U.S. 373, 378 (1945)). 

In Mitchell Arms, the plaintiff had an expectation that it 

would sell weapons purchased overseas in the United 

States. We clarified in a later case that that expectation 

was a collateral interest and that denying a permit to sell 

those weapons was not a cognizable property interest. 

Cienega Gardens v. United States, 331 F.3d 1319, 1336 

(Fed. Cir. 2003); see Mitchell Arms, 7 F.3d at 217. The 

expectation of receiving a mitigation banking instrument 

is a similar collateral interest. In other words, relying on 

representations by the Corps in purchasing the land in 

the hope that the government will grant a discretionary 

mitigation banking permit does not create a compensable 

property interest. At its core, Hearts Bluff argues that it 

detrimentally relied on the promises and representations 
13 HEARTS BLUFF GAME RANCH v. US

of the Corps. Such detrimental reliance, however, does 

not create a property right under takings law. 

As for Hearts Bluff’s assertion that the denial of the 

mitigation banking instrument was arbitrary and capricious, that issue is not before us. Hearts Bluff brought 

suit under the Tucker Act, a concession that the government action was valid. Tabb Lakes, Ltd. v. United States, 

10 F.3d 796, 802 (Fed. Cir. 1993) (“[The] claimant must 

concede the validity of the government action which is the 

basis of the taking claim to bring suit under the Tucker 

Act.”). In order to challenge the legality of the denial of 

the mitigation banking instrument, Hearts Bluff would 

have had to sue in a district court under the Administrative Procedure Act. Crocker v. United States, 125 F.3d 

1475, 1476 (Fed. Cir. 1997) (The Court of Federal Claims 

“lacks the general federal question jurisdiction of the 

district courts, which would allow it to review [an] 

agency’s actions and to grant relief pursuant to the Administrative Procedure Act.”). It did not. 

CONCLUSION

Because the Court of Federal Claims did not err in 

holding that Hearts Bluff did not possess a legally cognizable Fifth Amendment property interest in a mitigation 

bank instrument, we affirm. 

AFFIRMED